The Central Bank of Nigeria (CBN) has introduced a new rule limiting the suspension of payment and delivery obligations involving troubled banks and other financial institutions to a maximum of two business days. The directive, effective immediately, aims to reduce uncertainty in Nigeria's financial system and improve confidence among banks, investors, and counterparties dealing with institutions facing financial distress.
Clarification on BOFIA Provisions
In a circular dated July 1 and addressed to all banks and financial institutions, the CBN explained that the guidance provides clarity on the implementation of Sections 34(2)(b) and 40(2) of the Banks and Other Financial Institutions Act (BOFIA), 2020. Under Section 34(2)(b), the CBN Governor has the authority to suspend payment or delivery obligations under contracts involving a failing bank. Section 40(2) also empowers the Governor to temporarily prevent counterparties from terminating certain financial contracts when a bank is undergoing resolution. However, the regulator noted that the law did not previously specify how long such suspensions could last, creating uncertainty for businesses and financial institutions managing contractual and commercial risks.
Maximum Suspension Fixed at Two Business Days
To address this concern, the apex bank stated that any suspension of payment obligations or restrictions on the termination of eligible financial contracts must not exceed two business days from the date the written order or notice is issued by the CBN Governor. According to the circular, the new limit applies whenever the CBN exercises its powers in relation to a failing bank or another financial institution that is either under resolution or proposed for placement under a resolution measure. The regulator said the move aligns Nigeria's bank resolution framework with international best practices by ensuring that temporary intervention measures do not unnecessarily disrupt contractual relationships or financial market activities.
Rule Takes Immediate Effect
The CBN added that the guidance applies to all "affected contracts" covered under Sections 34(2)(b) and 40(2) of BOFIA, involving banks and other financial institutions subject to regulatory intervention. Issued under the powers granted by BOFIA and the Central Bank of Nigeria Act, the circular became effective immediately, providing greater certainty for counterparties while preserving the regulator's ability to intervene swiftly when financial institutions experience distress. This clarification comes shortly after the apex bank revoked the licences of 46 microfinance banks, underscoring its continued efforts to strengthen financial sector stability.
Background on License Revocations
The CBN has clarified the reasons behind its decision to revoke the operating licenses of 46 microfinance banks. In a statement signed by its Acting Director of Corporate Communications, Hakama Sidi-Ali, and released on Wednesday, July 1, the apex bank highlighted various regulatory breaches, including under-capitalisation and prolonged inactivity, as grounds for the revocation. The CBN stated that the licenses of these microfinance banks were revoked on July 1, 2026, following approval by its Governor, Olayemi Cardoso, in accordance with the provisions of the Banks and Other Financial Institutions Act (BOFIA), 2020.
