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CBN moves to strengthen development of finance institutions

By on August 7, 2014

As part of efforts to strengthen development finance institutions (DFIs) in the economy, the Central Bank of Nigeria (CBN) has rolled out a new set of draft guidelines for the sector.

DFIs are specialised financial institutions established with specific mandate to develop and promote key sectors of the economy considered to be of strategic importance to the overall socio-economic development objectives of the country.

While the central bank pegged the minimum capital base of Wholesale Development Finance Institutions (WDFI) at N100 billion, that of Retail Development Finance Institutions (RDFI) was fixed at N5 billion.

The central bank stated this in a 32-page “Exposure Draft Regulatory and Supervisory Guidelines for DFIs,” posted on its website yesterday.

According to the central bank, the procedure and requirements for granting licence to promoter(s) of a DFI shall be the same as specified for banks under the Bank and Other Financial Institutions Act (BOFIA) and any other regulations issued by the CBN.

“The number of directors on the board of a DFI shall be a minimum of seven and a maximum of 15. The non-executive directors should be at least twice the number of the executive directors at any point in time.
“The CBN shall approve the appointment of each director who shall meet the qualifications for directors of licensed banks as may be specified from time to time,” it added.

Furthermore, it stated that executive directors of a DFI shall hold office for a fixed term of not more than five years, adding that such term may be renewed only once, while non-executive directors shall serve for a fixed term of not more than four years and such term may be renewed only twice.

“For the avoidance of doubt, the maximum tenure of an executive director shall not exceed a total of 10 years while a non-executive director shall not serve for periods exceeding 12 years in total.
“Any executive director who has served two 5-year terms may equally serve as Managing Director, if so appointed, for the maximum of two 5-year terms (a combined maximum of 20years).
“Transmutation from executive to non-executive director shall not be allowed until after a period of three years following cessation of the executive appointment,” it added.

The document stated that sources of funds for a DFI shall consist of paid-up share capital and reserves (equity), preference shares, long term loans from International Financial Institutions (IFIs) subject to prior CBN approval of the draft Memorandum of Understanding (MOU), debentures, bonds, loans from national and supra-national governments and other bodies, funds from development partners or gifts, grants and donations.

In addition, a DFI is expected to maintain at all times, a minimum ratio of tier I capital to total assets (tier-I leverage ratio) of not less than five per cent.

The tier-I is expected to include only permanent shareholders’ equity (issued and fully paid ordinary shares/common stock and perpetual non-cumulative preference shares) and disclosed reserves (created or increased by appropriations of retained earnings and eligible other surpluses).

In the case of consolidated accounts, this also includes minority interests in the equity of subsidiaries which are not wholly owned.

“This basic definition of capital excludes revaluation reserves and cumulative preference shares.
“A DFI shall maintain at all times a Capital Adequacy Ratio (CAR) of not less than 10 percent. All asset risk weights used for this computation shall be as prescribed by the CBN for licenced banks,” it added.

 

 

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