In response to the significant developments in the financial sector, President Muhammed Buhari on the 12th of November 2020 signed the Banks and Other Financial Institutions Act 2020 ("2020 BOFIA") into Law. This Act repeals the Bank and other Financial Institutions Act 1991, and now regulates the businesses of banks and other financial institutions in Nigeria.

Below are some key revisions introduced in the 2020 BOFIA.


Application for licence

Section 3(1)-(5)

Similar to the 1991 BOFIA, the 2020 BOFIA requires any person that wishes to carry on banking and related businesses in Nigeria to obtain a licence from the CBN. The CBN continues to have the right to refuse to grant such licence without reason.

A new restriction is, however, introduced by Section 3(5) of 2020 BOFIA. It specifically states that foreign banks or other entities- (i) without a physical presence in their country of incorporation; or (ii) that are not licensed in their country; or (iii) are not affiliated to any supervised financial group – shall not be permitted to operate in Nigeria or establish a relationship with Nigerian banks.

This would help to restrict the arbitrary and unregulated provision of digital financial services by foreign entities through online platforms.

CBN consent required for transfer of shareholding

Section 7(1)(ii)

In the 2020 BOFIA, the consent of the CBN is to be obtained for any agreement involving the transfer of significant shareholding in a bank or other financial institution. This was not clearly indicated in the old BOFIA but in practice, it is typically a licencing requirement.

Operations of Foreign Banks in Nigeria & offshore banking

Section 8(2)-(4)

Section 8(2) of 2020 BOFIA suggests that Foreign or Nigerian banks wishing to operate in the free trade or special economic zone are to obtain a licence from CBN in addition to the approval of the Nigeria Processing Zones Authority. Note that banks and financial institutions operating in these zones are to enjoy up to 100% off taxes amongst other incentives.

All banks or persons who provide offshore banking services are to obtain the prior approval of CBN. The 2020 BOFIA now clearly defines offshore banking as the provision from Nigeria of cross border intermediation of funds and provision of financial services to a non-resident of Nigeria (other than Nigerian citizens).

Prohibition of Unlicenced Financial Institutions

Section 57(2)

The 2020 BOFIA clearly defines "other financial institutions" to include entities that carry on financial businesses electronically, virtually, or digitally. Such entities are to incorporate a company in Nigeria and obtain a licence from the CBN before carrying out financial businesses in Nigeria. Thus, the operations of digital financial service providers/FinTechs in Nigeria are now governed by the 2020 BOFIA and regulated by the CBN.

Establishment of Resolution Fund

Section 74- 78

The 2020 BOFIA establishes a "Banking Sector Resolution Fund". This fund, among other things, is to be used for providing credit facilities to banks and other financial institutions as well as pay the cost of transfer of all or part of the business of a bank or financial institution arising from a resolution measure. Banks and other financial institutions will now be subject to an annual levy of an amount equal to ten points of its total assets. The levy is to be paid in arrears and not later than 30th day of April in each year.

Introduction of the Special tribunal for the Enforcement and Recovery of Eligible loans (Credit Tribunal)

Section 102

The new Act establishes a Credit Tribunal for the enforcement and recovery of eligible loans. This is aimed at improving the loan recovery system in Nigeria.

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.