The Central Bank of Nigeria (CBN) has issued new guidance limiting the
suspension of payment obligations involving troubled banks and other financial
institutions to a maximum period of two business days.
This means the regulator can suspend payment obligations in which a troubled
bank is party to for only two days.
In a circular dated July 1 and addressed to all banks and other financial
institutions, the apex bank said the clarification is intended to remove
uncertainty surrounding the implementation of Sections 34(2)(b) and 40(2) of
the Banks and Other Financial Institutions Act (BOFIA), 2020.
Section 34(2) (b) of the BOFIA, 2020 allows the CBN governor to suspend any
payment or delivery obligations under any contract to which a failing bank is a
party, while Section 40(2) empowers him to suspend the right of counterparties
to terminate certain financial contracts involving a bank that is under resolution.
In the latest circular, the regulator said the absence of a defined maximum
duration for exercising the powers granted under the provisions had created
uncertainty for counterparties dealing with Nigerian banks, with the potential to
hinder effective commercial risk management.
According to the circular, where the CBN suspends payment or delivery
obligations under an affected contract involving a failing bank, or temporarily
prevents the termination of financial contracts during the resolution of a
troubled financial institution, such suspension must not exceed two business
days.
“The suspension of any payment or delivery obligation under an Affected
Contract, pursuant to Section 34(2)(b) of the BOFIA, in relation to a failing
bank or other financial institution; and the exercise of any termination right
under an Affected Contract to which Section 40(1) of the BOFIA applies,
pursuant to Section 40(2) of the BOFIA in relation to a Classified as
Confidential bank or other financial institution that is a subject or proposed
subject of a resolution measure, shall not exceed a period of two business days
commencing from the date on which the written order or notice of suspension is
issued by the CBN Governor,” the circular reads.
The apex bank said the guidance applies to all “affected contracts” — defined
as contracts involving a bank or other financial institution that fall within the
scope of Sections 34(2)(b) or 40(2) of BOFIA.
The CBN said the circular, issued pursuant to its powers under BOFIA and the
Act, takes immediate effect.