MICROCAPITAL STORY: Central Bank of Nigeria (CBN) Closes Failed Community Banks

The Central Bank of Nigeria (CBN) directed Community Banks (CBs) that have not met the recapitalization goal of NGN 20 million (USD 169,635) to submit their closing documents by the end of 2007. As part of Nigeria’s national Microfinance Policy launched by CBN in December 2005, the recapitalization directive was a requirement for CBs to operate as microfinance banks.

The documents requested by a circular addressed to the failed CBs included: the closing resolution of the board of directors, ratified at a general meeting of shareholders; statement of assets and liabilities; and financial information and settlements of all depositors, creditors, and debtors. CBN warned that failure to submit the documents would render the CBs liable to prosecution.

CBN confirmed after a final round of checks that 145 CBs have already ceased public operation due to their consistent failure to render statutory returns since the establishment of the policy. Olufemi Fabanwo, Deputy Director of CNB’s Other Financial Institutions Department (OFID), assured that CBN is collaborating with Nigeria Deposit Insurance Corporation (NDIC) on a smooth exit strategy for the failed CBs.

According to Samuel Oni, CBN’s Director of OFID, the minimum capital base requirement is part of government efforts to promote the soundness of the Nigerian financial system. As of the end of November, 407 of 700 total CBs have met the conditions of the recapitalization directive and commenced operations under new microfinance bank (MFB) licenses. On December 5, MicroCapital reported that CBN predicts that about 450 banks will operate as MFBs in 2008. According to another MicroCapital report on December 17, only eight Nigerian microfinance providers report to MIX, the microfinance information clearinghouse. They have a combined gross loan portfolio of USD 12 million with 250,000 active borrowers.

CBN was established in 1958 and is responsible for the overall control and administration of Nigerian monetary and financial sector policies, including the granting and revocation of bank licenses. As of October 2007, it reported total assets of NGN 7.24 billion (USD 61.4 million).

By Mary Fu

Additional Resources:

Business Day: “CBN demands winding up documents from failed CBs”

Vanguard: “Failed banks get ultimatum on depositors’ list”

Channels TV News: “407 Microfinance Registered Ahead of CBN’s Deadline”

Financial Standard News: “CBN to recover deposits in distressed community banks”

MicroCapital article, 12/5/2007: “Nigeria: Central Bank Predicts 450 of 700 Microfinance Institutions Will Survive into the New Year”

MicroCapital article, 12/17/2007: “Nigerian Deposit Insurance Corporation (NDIC) Insures Microfinance Institutions”

Central Bank of Nigeria (CBN): About CBN

CBN: Data and Statistics

Bloomberg: Currency Converter