A seemingly innocuous document—an exposure draft—recently issued by the Central Bank of Nigeria (CBN) on the new structure and operations of holding companies of banks, is already literally sending shivers down the spines of many top bankers, particularly those of the Tier-1 banks—with the acronym: FUGAZ. The “Exposure Draft of the Revised Guidelines for Licensing and Regulation of Financial Holding Companies in Nigeria” was released by the CBN on June 10, 2026; and will remain in consultation till July 9, 2026.
The exposure draft, coming barely three months after the recent recapitalization exercise in the banking industry in Nigeria is not only timely but also a very politic and necessary initiative by the apex bank. Having just concluded their recapitalization at end-March 2026, the banks are “awash” with humongous fresh capital that could be ‘misapplied’, wittingly or otherwise.
Certainly, the “Guidelines for the Licensing and Regulation of Financial Holding Companies (FHCs) in Nigeria” issued by the CBN over a decade ago (in August 2014), has become obsolete and anachronistic in today’s banking. As pointed out by the CBN in the current exposure draft, a lot of gaps in uneven compliance, overhead inflation, and governance practices that were never intended, have been observed over time. Specifically, the primary objective of the 2014 Guidelines was “to mitigate risks arising from the conduct of non-core banking activities within banking groups.”
For clarity sake, a Financial Holding Company (FHC) or ‘HoldCo,’ is a non-operating parent company that owns equity stakes in two or more financial services subsidiaries, at least one of which must be a bank. The HoldCo does not trade, lend money or serve customers directly; its only job is to hold shares and provide broad policy direction to the group. Over the years, however, virtually all of the FHCs have stretched their tentacles to ‘owning’ businesses outside of the financial services industry: restaurants, luxury apartments, dispatch firms, logistics companies, etc.
As observed by the CBN in the exposure draft, many of the HoldCos have been quietly running their subsidiaries, directing credit decisions, sharing staff, and pooling resources in ways that blur the line between the owner and operator. Unfortunately, these practices came as some aftermaths of the 2004/5 banking consolidation under Prof. Charles Chukwuma Soludo as CBN Governor, when there were practically no guidelines on how best to deploy the new ‘huge’ capital base of the banks.
Consequent upon these, the next phase of banking consolidation, under Sanusi Lamido Sanusi as the helmsman at the CBN, placed so much emphasis on risk management—since the 25 banks that emerged from the 2004/5 consolidation went ‘haywire’ with a multiplicity of abuses that soon left some of them as ‘empty shells.’ Some incestuous practices, including alleged purchase of their own shares at the stock market to induce steady price appreciation, and lending to their ‘paper’ subsidiaries huge sums with or without proper credit processing, became the order of the day.
This licentious banking prompted the setting up of the Asset Management Corporation of Nigeria (AMCON)—to absorb and manage the enormous bad loans/non-performing loans (NPLs) in the banking system. Set up under the AMCON Act 2010, the Corporation was to buy bad loans from banks, recover them, and stabilize the banking system. This was also soon followed up with the abolition of universal banking.
The abolition, effective June 30, 2011, compelled banks to “divest from non-core businesses: insurance, capital market operations, pensions, asset management, etc.” Consequently, most of the Tier-1 banks adopted the HoldCo format to run a bouquet of businesses. The current exposure draft from the apex bank therefore amounts to an enforcement of the ‘disaggregation’ of the HoldCo behemoths.
Principally, the current exposure draft intends to enforce stricter ownership and control rules, by insisting that the HoldCos must maintain at least 51 per cent equity stake in each subsidiary or bank. Each parent HoldCo is banned from participating in credit administration and loan approval processes of any subsidiary. This is to remove insider influence in lending; and ensure the operational independence of the subsidiaries.
There is also the provision for ring-fencing of operations to ensure clear legal, operational and governance boundaries between the bank, fintech, insurance, pension and all other subsidiaries in a HoldCo. This, essentially, is to ensure risks do not spill over from one entity to another.
The current exposure draft also has provision for tougher capital requirements; by stipulating extra capital buffers. Thus, a HoldCo must hold regulatory capital that exceeds the sum of all subsidiaries’ minimum capital by at least 20 per cent. And only paid-in capital counts in this regard. Also, excess capital in one subsidiary cannot cover shortfalls in another.
Also, in the new order, if a bank lends to its parent HoldCo, the CBN will treat it as ‘return of capital’ and deduct it from the bank’s capital adequacy ratio (CAR). On corporate governance, the exposure draft provides for a maximum of 20 per cent cross-board membership between HoldCo and subsidiaries. This means that the days of bank executive directors being non-executive directors in virtually all their HoldCo subsidiaries are over.
The new exposure draft insists that all shared services in a HoldCo, and intra-group deals must be ‘at arm’s length’; with approval by the two separate boards. And there will be value-for-money audit within the HoldCo every two years. Also, banks cannot share customer data or use depositor funds for affiliate operations without consent.
The direct import of all these is that, going forward, many of the existing HoldCos may need to reduce foreign subsidiary stakes or inject more capital to meet the 51 per cent plus 20 per cent (fresh) buffer rules. HoldCo members would be operating more or less in siloes, with less intra-group funding.
Over all, the content of the new exposure draft certainly bodes well for the banking sector—with the potential for enhancing ethics and professionalism. The draft gives all stakeholders a veritable opportunity to join the CBN in moving the banking industry through a transformative process. Kudos to the monetary authorities!
- The author, Okeke, a practicing Economist, Business Strategist, Sustainability expert and ex-Chief Economist of Zenith Bank Plc, lives in Lekki, Lagos. He can be reached via: [email protected] (08033075697) SMS only