The Central Bank of Nigeria (CBN) has authorized foreign banks to work with their parent companies for the purpose of syndicating foreign currency-denominated loans (dollar loans) with the aim at improving dollar liquidity through foreign banks’ representatives in Nigeria.
The Director of the Financial Policy and Regulation Department, Muhammad Musa, signed the Guidelines for the Regulation of Representative Offices of Foreign Banks in Nigeria, which stated that the policy is in line with the CBN’s duty to support financial system stability.
The guidelines are backed by Sections 6(1) and 8 (1) of the Banks and Other Financial Institutions Act 2020 (BOFIA) respectively which state that “no foreign bank shall operate in Nigeria without prior approval of the CBN”.
According to the CBN, the regulations apply to any financial institution with a license issued under a foreign law whose registered headquarters are located outside of Nigeria and whose primary business is the receipt of deposits, the awarding of loans, and/or the provision of current and savings accounts.
It also includes any foreign-based functioning bank or financial holding company with foreign ownership, ownership of a controlling interest in one or more banks or institutions, and provision of current and savings accounts as its principal business.
The CBN has also given the banks permission to promote the products and services of their overseas parent or a subsidiary of that parent that is registered and headquartered outside of Nigeria.
They can also carry out research activities in Nigeria on behalf of the foreign parent, serve as a liaison between the foreign parent and local banks, private institutions within Nigeria, and other customers of the foreign parent based in Nigeria.
The banks can as well connect banks and other financial institutions to their parent firm and assist exporters in Nigeria with information related to the laws and markets of target countries in which the foreign parent or any of the Group’s affiliates has a subsidiary.
Some of the responsibilities include collating and distributing economic and financial information or country reports to its foreign parents for use by their customers and assisting their customers who desire to invest in Nigeria or do business with Nigerian companies subject to the extant Data Protection Regulations.
They are also authorized to connect exporters with potential customers in jurisdictions where the parent company operates; and assist Nigerian exporters with finding new markets through its international offices.
For CBN, “Representative offices are permitted to record revenue, in as much as such revenue does not relate to non-permissible activities as set out in section 3.2 below and emanates from intra-group services rendered to the parent company with such revenue taxed by transfer-pricing regulations. Revenue in this provision is limited to line items such as staff costs and business premises leasing fees,”.
However, the banks are not allowed to provide services designated in Nigeria as banking business and provide any commercial or trading activity that may lead to the issuance of invoices for services rendered.
In establishing a representative office in Nigeria, the CBN said a Memorandum of Understanding (MOU) between the CBN, and the applicant’s home regulatory supervisor is essential. “Where such an MOU is non-existent, the CBN will work with the home regulatory agency to establish/execute an MOU as soon as possible,”.
The apex bank added “Not later than three months after obtaining the Approval-In-Principle, the promoters of a proposed office shall apply for the grant of a final license to the CBN,”