Nigeria: CBN Introduces Approval Requirement for 5% Bank Share Purchases

In a move to prevent situations similar to the Oba Otudeko and FBN Holdings incident, the Central Bank of Nigeria (CBN) has implemented a new requirement for shareholders seeking to acquire a 5% stake in banks, mandating them to obtain CBN approval.

This regulatory adjustment comes in response to instances where certain influential shareholders within the financial sector exploited open market transactions to solidify their control over local banks. Notably, some of these influential shareholders have significant outstanding loans from the banks, often obtained through related parties, and at times benefiting from credit at rates below the market average.

Based on research the considerable number of influential shareholders in Nigerian banks have loans extended through various related entities. Earnings reports from some operators further indicate that these loans are occasionally written off due to non-performance.

Under the new guidelines, investors planning to acquire a minimum of 5.0% stake in any banking institution are required to obtain prior approval or a no-objection certificate from the CBN. This regulatory measure aims to enhance transparency and accountability in share acquisitions, curbing potential abuses and unexpected power struggles for control within banks.

CardinalStone Partners commented on the development, stating that the policy is likely to bring more stability to banks’ boards and strategic decision-making processes. The investment banking firm included this regulatory change in its outlook for 2024, emphasizing its potential to prevent uncertainties associated with unforeseen battles for control over financial institutions.