HOW TO START A BANK IN NIGERIA

Statistics show that as of 2019, we have over 200 million Nigerians, of which 43% are bankable. This number was estimated to increase and must have done so by now. These statistics show a wide gap and a need for a bridge to enable every Nigerian to be bankable. With this statistical fact, owning a bank in a country like Nigeria with this vast population becomes an extremely profitable venture.

This piece covers all the information you need regarding how to start a bank in Nigeria. It’s structured to serve as a guide to anyone looking at starting a bank in Nigeria.

Starting a bank in Nigeria might sound confusing and complicated. This is because it’s not like other types of businesses, which you could start within a month of planning and preparations.

However, starting a bank in Nigeria is not impossible.

All you need to do is follow the conditions set by The Central Bank of Nigeria (CBN), meet the necessary guidelines and adhere to the steps mentioned in this article on how to open a bank in Nigeria.

HOW TO START A BANK IN NIGERIA

There are two ways you can own a bank in Nigeria. You can either buy a controlling stake in an already existing bank or start a bank from scratch with your plans.

We would, however, be discussing how to start your bank from scratch.

Let’s get right straight into it.

Steps required to start a bank in Nigeria

The required steps are as follows;

1. GET BANKING EXPERIENCE

It is not wise to leave your everyday job to start a fulltime bank, without first acquiring the financial sector experience.

You need to have some sort of experience in the banking sector and also understand its technicalities. You certainly cannot acquire this by just reading books and random research articles. You can however get this required experience through practice or by actually working in the banking sector.

2. CHOOSE THE CATEGORY OF BANK YOU WANT TO START

There are various types of banks which operate in Nigeria. This also affects the types of banking license in Nigeria.

These types of banks include;

1. a) Specialized Banks – Development banks, Microfinance banks, Mortgage banks
2. b) Merchant Banks
3. c) Commercial Banks

All these banks have several and different requirements for owning their licenses. Hence, determining the type of bank you want to start up is crucial. You can also check out the type of bank’s Nigeria banking license to ensure you can go through with it.

3. CONDUCT FEASIBILITY STUDY BASED ON YOUR CATEGORY

Bearing in mind that the stakes and capital involved in opening a bank in Nigeria are on the high side, it is wise to do all the necessary things to reduce oversights and mistakes to the barest minimum.

Conducting feasibility studies and due diligence is imperative to avoid pitfalls and the occupational hazards that exist in starting a bank. Properly conducting these studies may require you to be in the middle of another sinking ship to figure out the problem and have the first-hand experience in deducing solutions for these unfortunate events. There is an unpopular saying that failed entrepreneurs teach the best lessons.

If this study is done correctly and in-depth, you can avoid the flaws of other banks, giving you a great head start and a competitive advantage.

Your feasibility study must be centered on the customers and the market, this helps you determine the customers’ needs and leverage on them to make sure your products and services meet them.

4. RAISE YOUR CAPITAL, GET PARTNERS AND SET UP A BOARD OF DIRECTORS

After doing your feasibility study, next is to raise your capital base. The idea behind the capital base is to convince the authorities and the customers that you are capable of handling their money and can save them from future bankruptcy as a bank owner.

You need to know that the capital base for starting any banking structure is not easy to come by. It varies between categories and runs into millions of dollars (25 billion naira recapitalization bank capital base). You might want to check the minimum capital requirement for commercial banks in Nigeria, if you’re looking to start a commercial bank.

After knowing the capital base that you need to start, you must get partners to invest in the bank by selling equities to them. In the search for partners, you must ensure you get partners that do not have questionable character and wealth to tarnish the bank’s image.

Additionally, you need to set up a board of directors, as they will help you in the running of the business as it starts and make sure the bank is run according to banking practices and operations. Your Board of directors should typically hold five to thirteen people and would oversee the initial planning strategies of the bank. These persons will also ensure that employees at all levels comply with company policies and government. It is advisable to make sure that the board members are not directly involved with the bank but have banking knowledge or experience.

5. GET THE APPLICATION AND STUDY THE PROCEDURES FOR OBTAINING BANKING LICENSE

There are many technical requirements involved in starting a bank in Nigeria. You must understand and meet these requirements before you can be granted the Nigerian banking license to operate.

You will have to approach the Central Bank of Nigeria (CBN) to obtain all the requirements and a registration form before you can determine if you are qualified to start a bank and, if not, take steps to meet up with stated conditions.

6. OBTAIN REQUIRED BANKING LICENSE

The regulatory body in charge of all bank operations in Nigeria is the Central Bank of Nigeria (CBN). You will have to approach them to get your license form for approval of operation. You have to note that it would take a while before they approve your application. This is because they will have to investigate you critically to be sure of your intentions of starting up a bank.

Why? Because you will be dealing with people’s hard-earned money.

There are three different requirements for obtaining a banking license in Nigeria, and they are;

1. Grant of Approval in Principle
2. Grant of Final License
3. Pre-commencement of Operation requirement

Grant of Approval in Principle (AIP)

To acquire the Grant of approval in principle (AIP), you need to make a formal application for the grant of a license to open a banking business in Nigeria. The application should be addressed to the Director of Banking Supervision Department, Central Bank of Nigeria, PMB 0187, Garki, Abuja, and submitted them with the following documents:

1. Non-refundable application fee of N500, 000.00.
2. Deposit of minimum capital requirement for commercial banks in Nigeria (25 billion Naira) with the Central Bank of Nigeria on the application, with evidence of deposit by each shareholder. Bank Examiners would subsequently verify the source of capital contribution by each shareholder/ subscriber.
3. A feasibility report/business plan which should contain information on the following:

• Minimum paid-up capital requirement of (25 billion Naira for new banking license)
• Ownership structure in a columnar format showing;
  • The name of proposed investor(s), profession/business and percentage shareholding
  • Detailed bio-data/resume of shareholders should be attached.
  • Also, Fitness and properness of the promoters which would be ascertained through security screening and status inquiry from SEC, NDIC, NAICOM, Credit Bureau (CRMS) and reference to CBN’s black book maintained by the Bankers Committee.
  • Explanation of the sources of capital contribution by each investor.
  • Where a loan finances equity, such loans must be long term (at least of 5-year tenure) and must not be taken from the banking system.
  • Undertaking by promoters that the bank will be adequately capitalized for the volume and character of its business at all times.
  • Foreign investors should not be companies incorporated in off-shore centers or tax havens.

For corporate investors, promoters should forward:

• Certificate of Incorporation
• Board Resolution supporting company’s (ies) decision to invest in the equity shares of the proposed bank
• Names and addresses (business/residential) of owners/directors and their related companies, if any,
• Latest 3 years audited accounts & reports of the company and Tax Clearance Certificate
• Certified exact copy of Memorandum and Articles of Association
• Certified precise copies of the companies forms CO2 and CO7
• Objectives of the bank.
• Services to be rendered
• Branch expansion program
• An Organizational structure showing functional units, reporting relationships, and grade (status) of heads of departments/units.
• Staff Training Program
• Program requirements/facilities
• Five (5) year financial projection. The assumptions underlying the predictions must be stated.

1. Board & Management Board

• Board composition should not be unwieldy (10-20 directors). The roles and responsibilities of the Board & its subcommittees must be spelled out in the business plan. Criteria for selecting board members should be stated in Business Plan and must be proportional to shareholding. List of proposed directors and their detailed resume should be submitted also.
• Management Team List of identified top/senior management staff (AGM and above) and detailed curriculum vitae stating their qualification and experience, track records, etc. should be submitted.
• An organizational structure showing functional units, responsibilities, reporting relationships, and grade (status) of heads of department/unit.
• Internal Controls; Delegation of functions, Need for involvement of four eyes (that is, at least two officers to be involved in all significant decisions) in running the bank, Dual Control, No sole signatory powers, Succession plan for crucial officers, Corporate planning.

1. Memorandum and Articles of Association: Relevant issues to be addressed in the draft MEMART include, but are NOT limited to
   • Name of the proposed bank,
   • Object clauses,
   • Subscribers to the MEMART,
   • Procedure for amendment,
   • Procedure for share transfer/disposal,
   • Appointment of directors
2. Other documents:
   • Shareholders Agreement providing for Disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses, statement of intent to invest in the bank,
   • Technical Services Agreement (where applicable),
   • Any other documents/information that may be demanded from time to time.

Grant of Final License

Requirements for grant of final license

Not later than six (6) months after the grant of AIP, the promoters of a proposed bank must apply for the grant of a final banking license to the DBS with following documents:

1. A non-refundable licensing fee of N5,000,000 in bank draft payable to CBN.
2. Three copies each of: Certified true copy (CTC) of Certificate of Incorporation of the bank, CTC of MEMART, CTC of Forms CO2 (Allotment of shares), and CO7 (particulars of directors).
3. Evidence of the location of Head Office/Branch Building (rented or owned) for the take-off of the banking business.
4. Changes (if any) in the Board, Management, and Shareholding should be clearly stated for necessary appraisal.
5. Evidence of strong room, loading bay, and Banking Hall Facilities.
6. Bullion lorries with essential security gadgets.
7. Evidence of installation IT facilities/computerization.
8. Copies of letters of offer and acceptance of employment in respect of the Management Team

Pre-Commencement of Operation Requirements

Lastly, you would have to send a Letter informing CBN of your readiness to commence operation with six of the following:

1. Evidence of admission into the clearing house.
2. Copy of shareholders register
3. Copy of share certificate issued to each investor.
4. A draft copy of the opening statement of affairs signed by directors and auditors. Evidence of insurance coverage for cash such as Cash-In Transit (CIT), Cash on Counter, Strong room/ Vault, etc., insurance policies.
5. Manual of Operation.
6. Evidence of readiness of cheques and other security documents.
7. Minutes of the Pre-Commencement Board Meeting.
8. Proof of adequate security arrangements
9. physical and logical such as: Uniformed or plain cloth police officers, Uniformed security guards, CCTV especially in the banking hall, strong room and loading bay areas, Raid alarm (especially foot-operated type) inside the teller cubicles, and fire alarms at strategic points within the premises, Regiscope camera, Cash movement & escort vans fitted with communication equipment

7. REGISTER YOUR BANK NAME WITH ADEQUATE BODIES (CAC)

Having acquired your license, you are expected to register your bank name with CAC (Corporate Affairs Commission). This registration enables you own rights to your design, logo, and name in addition to having uniqueness while doing business as it aids in distinguishing you from other business owners or other banks.

In choosing a name for your bank, you must choose a name that communicates your bank’s values and virtues to the public. Hence, it is advisable to pick a name that encourages strength and safety.

8. GETTING LOCATIONS AND BRANCHES

When everything about your licensing and registration is settled, the next move is to get a location for your bank. Preferable, you start with the major cities in the country after which, you can go into other minor cities as your bank is not supposed to have just a location; it should have different branches in different states as possible.

Bear in mind that putting these structures in place is not easy. You may decide to buy lands and build from scratch or leasing buildings and make alterations to suit your business pattern.

Furnishing and other gadgets would have to be purchased too and appropriately installed. Ensure that these locations are not far from the central area of business. Competition is good for business growth; do not be afraid of it.

9. MARKETING AND ADVERTISEMENT

In the presence of competition, you will need a big advertisement to make yourself known to the public and get them to bank with you.

Be innovative about your products and make sure everything you do differently and better is made public by all advertisement and marketing means available to you.

Use all of the media platforms available to reach the masses from social media to websites, print media, and sponsoring programs here and there. This publicity would put your bank in the limelight and on the good graces of the people. Thus, you’re likely to get new customers that were not bankable or attract existing bankable customers from other banks.

10. SET UP A LEGAL DEPARTMENT FOR YOUR BANK

With all the attention and growth that would come with the business over time, it would be advisable to set up a legal team. This team will help you understand and observe the various banking laws and aid the bank in matters that have to do with the law.

There are several crucial legislations associated with the banking sector which include the following;

1. The Banks and Other Financial Institutions Act (“BOFIA“) states that all banks must possess a valid license issued under the BOFIA to operate banks in Nigeria.
2. Companies and Allied Matters Act (“CAMA“) – Banks operating in Nigeria are corporate bodies which must be incorporated as a company in compliance with the requirements of CAMA.
3. Central Bank of Nigeria Act 2007- this Act established the Central Bank of Nigeria as the body in charge of issuing banking license in Nigeria.
4. The Central Bank of Nigeria (“CBN“) Regulations on Scope of Banking Activities & Ancillary Matters, No 3, 2010. This law repealed the previous Universal Banking License regime and modified the scope and framework for the banking business in Nigeria.

Conclusion on How to Start a Bank in Nigeria

Contrary to what many people feel, most Nigerians who do not operate an account are not poor. In some cases, these people are not enlightened or have a few things against the present banking system. Hence, if these lapses are fixed and proper enlightenment is done, these people who are referred to as not bankable will quickly be converted to a vast pool of customer base. Thus, owning a bank in a country like Nigeria, with its vast population becomes an extremely profitable venture.

We hope that with this guide on how to start a bank in Nigeria, you’ll be equipped with the necessary information you need to start a bank in Nigeria.