Banks play such a vital role in the economy of every nation by rendering critical services such as accepting deposits, and withdrawals, giving loans, "creating money" within its approved "minimum capital ratio," and also transmitting monetary policies, currency exchange, forex trading, wealth management among other roles to make the economy run efficiently while preserving the power of the currency.

Every nation, including Nigeria, has an apex bank, commonly referred to as a Central Bank, that is in charge of supervising and regulating banks (which are typically run as private and public businesses), ensuring that they are not only motivated by profit but also by the country's economic outlook.
This is due, among other things, to the fact that the impact of a bank's failure is greater than that of a typical corporation.

Since 1999, the Central Bank of Nigeria (CBN) has undertaken several comprehensive banking sector reforms to strengthen the once fragile and fragmented industry and enable it to carry out its vital intermediation functions successfully.

Since the country's return to democracy, it has drastically changed, although many people don't seem to notice. If so, have you ever bothered to inquire about the type of operating license your bank relies on for its regular operations? Most of us simply carry out our banking operations in the banks without giving it a second thought.

After overcoming the typical incorporation obstacles, banks must look for and get the necessary banking licenses, among other things, to conduct business. Although commercial banks are arguably the most well-known banks in Nigeria, the Central Bank of Nigeria also grants other kinds of banking licenses, which are mentioned below.

Types Of Banking Licenses In Nigeria
The CBN can grant licenses to three different classifications or groups of banks. Commercial banks, merchant banks, and specialized banks fall under this category.

Commercial Banking License
According to the Commercial Banks Law No. 1 2010 laws, this type of banking license is awarded for banking operations with regional, national, or international permission.

A national-level banking license requires a minimum paid-up share capital of N25 billion or any other amount the Central Bank of Nigeria may prescribe. In contrast, a regional banking license requires N10 billion, and an international commercial banking license requires N50 billion.

The banking operators must adhere to all prudential standards and regulations established by the Central Bank of Nigeria on the necessary capital adequacy, liquidity, and cash reserve level to receive the commercial banking license.

A commercial bank can carry out the following commercial transactions with a license:

• Obtain deposits from natural (individuals) and legal (companies) persons, and manage current savings accounts.

• Offering mortgage products and retail banking services.

• Give access to credit and financial resources.

• Deal in foreign exchange and offer foreign exchange services, all of which are governed by applicable law and CBN regulations and require that the bank has a foreign exchange-approved dealership license.

• Acting as a settlement bank with CBN permission.

• Give clients access to treasury management services, such as money market, fixed income, and foreign exchange investments; this is also subject to Central Bank approval.

• Give Custodial service.

• Offering financial consulting services related to commercial banking activities without the need for SEC (Securities and exchange commission) statutory filings
  Subject to CBN permission and as permitted by CBN instructions and circulars, invest in non-convertible debt instruments and engage in derivative transactions.

• Offer non-investment banking services with the CBN's consent.

• Engage in fixed-income trading when properly licensed to function as a Primary Dealer.

• Market Maker to transact in securities, including Federal Government bonds, treasury bills, treasury certificates, and any other certificates the CBN may specify.

• Providing non-interest banking with CBN consent

• Any other activities that the CBN may occasionally outline in writing.

Examples of Commercial Banks in Nigeria include;

• Citibank Nigeria Limited.

• Ecobank Nigeria.

• Heritage Bank Plc.

• Keystone Bank Limited.

• Polaris Bank Limited. The successor to Skye Bank Plc.

• Stanbic IBTC Bank Plc.

• Standard Chartered.

• Sterling Bank Plc.

Specialized Banking License
This kind of banking license applies to "business of other financial institutions," which includes finance firms, discount shops, credit bureaus, money changers, or money brokers, mortgage refinances firms, international money transfer services, mortgage guarantee firms, credit guarantee firms, financial holding firms or payment service providers, and any other banks designated by the CBN.

This includes primary mortgage companies, discount houses, microfinance companies, and non-interest banks. According to the 2010 Minimum Standards for Specialized Institutions Regulations No.03, this license has been granted.

Examples of Specialized Banks in Nigeria include;

• Agricultural and Cooperative Bank (NACB)

• African Development Bank (ADB)

• Nigerian Bank for Commerce and Industry (NBCI)

• International Monetary Fund (IMF)

3. Merchant Banking License
The Merchant Banks Regulations of 2010 play a significant role in regulating this sort of banking license. Upon completion of the terms and conditions approving a merchant bank's operation, the CBN Governor issues it.

A licensed merchant bank is permitted to engage in the following banking operations by Part 2 of the merchant banks regulations:

• Accept deposits and keep current savings accounts from both natural and legal persons for a minimum of N100,000,000 per tranche or any other minimal amount that the CBN may specify.

• Offer non-retail consumers financing and credit options.

• Deal in foreign exchange and offer foreign exchange services in compliance with CBN regulations and the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act

• Acting as an issuing house to oversee, plan, and coordinate the issue of securities while adhering to BOFIA's rules

• Provide underwriting services for equity issue of securities, in accordance with the BOFA's terms and upon prior written notice to the CBN

• Offer debt factory services, including the issuance, discounting, and rediscount of movable securities.

• Provide asset management services, such as fund and portfolio management, function as a securities dealer for its account and the accounts of its clients, or carry out other investment-related tasks on its client's behalf.

• Trade in fixed-income securities when properly permitted to do so, acting as a principal dealer or market maker for securities such as Federal Government bonds, treasury bills, treasury certificates, and other debt certificates as the CBN from time to time may specify

• Provide a keeper's services

• Make available discounted and re-discounted negotiating instruments.

• Offer services for debt factoring

The CBN may occasionally prescribe such additional activities in writing.
While those mentioned above are legal activities, there are some expressly forbidden activities11 that merchant banks are prohibited from partaking in.

A commercial banking license must have at least N15 billion in paid-up share capital or any other minimum amount the CBN may impose. The merchant bank plays a crucial role in raising money for businesses and investing heavily in wealth and asset management.

Examples of Merchant Banks in Nigeria include;

• Coronation Merchant Bank

• FBN Quest Merchant Bank

• DSH Merchant Bank

• NOVA Merchant Bank

• Rand Merchant Bank

In Conclusion
According to the Banks and Other Financial Institution Act (BOFIA) 2020, no one is permitted to legally conduct banking operations in Nigeria without first receiving and maintaining a current banking license.
To be able to choose which bank to work with for particular transactions and to identify and "whistle blow" any bank that violates the rules of its banking license, it is crucial to understand the distinctions, range, and restrictions of each of the available banking licenses.

Do Micro Finance bank licences not fall under this topic? Please discuss.

Microfinance banks operate using the specialized banking license in Nigeria. In that section, they are referred to or fall under the microfinance companies as well.

Danny wrote: ↑April 14th, 2023, 7:37 pm Microfinance banks operate using the specialized banking license in Nigeria. In that section, they are referred to or fall under the microfinance companies as well.

Ok can you please add the different types of mfb licenses?

Unit MFB, etc.

Alright. Will do that

Nice one

Thanks for sharing.

Thanks for the update