Nigeria: The CBN Take-Over Of Some Banks In Nigeria: Serious Legal Questions Remain Unanswered

Last Updated: 29 September 2009
Article by Virtus Igbokwe

September 2009 Vol. 22: Issue #9

In the past two weeks, Nigeria has witnessed certain radical measures imposed on some banks by the new Governor of the Central Bank of Nigeria (CBN), Sanusi Lamido Sanusi on August 14, 2009.

For purposes of clarity, the orders issued by the CBN Governor may be categorized into three, namely:

  1. The removal of various officers constituting the executive management of the affected banks and their replacement by certain persons appointed by the CBN Governor;
  2. The unilateral advancement of various sums of money into the respective operating funds of the banks with the proviso that the said advance, shall at the option of the CBN be convertible into fully paid up securities of the affected banks; and
  3. Other further orders ostensibly designed to put the bank on stronger footing both in terms of corporate governance and with respect to increased liquidity.

In sum, the orders made by the CBN Governor constitute a take-over of the affected banks for a period that would last at least 5-7 years but could also fundamentally restructure the future ownership and control of the affected banks. By all accounts, these measures are radical and constitute an unprecedented takeover or seizure of private investments by a governmental agency in Nigeria.

The alleged basis for these radical measures undertaken by the CBN Governor is that the affected banks, in the opinion of the CBN Governor, appears to meet the criteria of a "failing bank" as contemplated by Section 35 of the Banks and other Financial Institutions Act, Cap B3 Laws of the Federation of Nigeria, hereinafter, BOFIA.

This newsletter addresses three key questions, namely:

  1. Whether under the enabling legislation, the CBN Governor has the power or vires to remove any officer or officers of the affected banks and appoint new officers on the grounds that the banks are "failing" under the definition contained in section 35 of the BOFIA? And if so, whether under the present circumstances, the CBN Governor exercised such powers judiciously;
  2. Whether having regard to the laws of Nigeria the CBN Governor and/or the Central Bank of Nigeria may lawfully position itself to hold and/or control shares in Nigerian banks;
  3. Whether it is lawful for the CBN Governor and/or investigative agencies in Nigeria to monitor and or question the aforesaid sacked officials of the affected banks.

The full extent of the powers of the CBN Governor and the CBN itself to regulate banks registered in Nigeria is contained in two pieces of legislation, namely, the Central Bank of Nigeria (Establishment Act) Act, Cap C4 Laws of the Federation of Nigeria 2006, hereinafter, CBN Act and BOFIA, respectively.

A combined reading of both legislations supports the view that under Nigerian banking law, there are only two avenues by which the CBN may intervene in a bank which appears to have liquidity problems. The first avenue is captured by the provisions of section 35 (1) (a)-(c) of BOFIA by which a bank informs the CBN of its liquidity problems. Where a bank has by itself informed the CBN of such state of affairs, the CBN Governor may, among other things, order the removal of a director or directors of the 'failing' bank. It would appear that the present circumstances do not fall into this category.

However, the second avenue by which the CBN Governor may intervene in a bank is captured by the combined provisions of sections 33 and 35 (1) (d) of the BOFIA. These provisions empower the CBN Governor to unilaterally order an investigation into the accounts or finances of a bank, if in his opinion; it is the "public interest" to do so. The term "public interest" is an expansive phrase with little or no limits. After such an investigation, the CBN Governor may, pursuant to the enabling provisions of section 35 (2) 9c)-(e) remove any officer(s) of the failing bank and appoint new officers if in his opinion, it is necessary to do so.

However, the central question is whether the "investigations" leading to the radical measures imposed by the CBN Governor was conducted in a manner which guaranteed the constitutional right to fair hearing. In other words, IF the investigation by the CBN was conducted in a manner in which the banks and their affected officers were not given adequate and reasonable opportunity to explain or rebut the allegations of impropriety/incompetence by CBN, it would be unlawful and unconstitutional for the CBN Governor to remove the affected officers on the basis of a flawed investigative report. Sections 33 and 35 of BOFIA do not override or trump the constitutional guarantees to fair hearing and presumption of innocence.

In the light of the provisions of BOFIA, the CBN Governor is circumscribed by the provisions of the Nigerian Constitution on fair hearing. UNLESS, the procedure and manner of the investigation conducted by the CBN is demonstrably fair and judicious, the alleged power of the CBN Governor to remove any officer or officers of a bank is questionable under Nigerian law.

The second issue is the unilateral advancement of certain sums of money to the affected banks. In addition, the CBN has strongly indicated an intention to pursue an option by which the advance may be secured by way of securities issued by the banks. This is very alarming.

Although section 2 of the CBN Act empowers the CBN to "ensure monetary and price stability" and also "promote a sound financial system in Nigeria", it is hard to find a statutory or juridical support for the attempted restructuring or revaluation of the shareholding structure of a bank by the CBN. By providing an advance and signalling the intent to convert the advance into securities of the affected banks, it seems that the CBN Governor and the CBN have overstepped their bounds.

Nigerian banking law forbids the CBN from owning securities in a bank or by whatever means diluting or reconfiguring the shareholding of a private bank in the guise of fiscal governance. Section 34 (b) of the CBN Act expressly provides that:

The Bank (CBN) shall not (a) .....purchase the shares of any corporation or company including the shares of any banking institution.

Further, section 34 (c) prohibits the CBN from "granting loans upon the security of any shares". Indeed, section 34 (d) reinforces this statutory prohibition when it forbids the CBN from granting "secured advances or advances secured otherwise..."

Clearly, the clear intention of the National Assembly is to limit the CBN to regulation of the financial sector and to be an independent authority on national monetary and fiscal policy issues. It is not the intention of the National Assembly that the CBN or the CBN Governor would be advancing money to banks on the basis of securities issues by the receiving bank(s).

It would seem that the potential conditionality on securities attached to the monies advanced to the banks contradict s the prohibitions contained in section 34 of the CBN. A judicial challenge of the order relating to the future conversion of the CBN advance to bank securities, to the extent that it purports to alter the securities and/ or shareholding of the banks ought to succeed.

On the issue of police investigations of the books of the affected banks, the provisions of the Economic and Financial Crimes Commission Act empower the police and other investigative agencies to monitor and invite for questioning any person suspected of committing or of having relevant information concerning an offence of an economic or financial nature. However, it is doubtful whether indebtedness to a bank constitutes a crime or warrants the use of the police as a debt collection agency.

The current saga clearly shows that the CBN Governor has acted unwisely and probably illegally in some of the measures he has imposed and/or authorized.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions