Investment bank is a type of bank that acts as an intermediary that undertakes large and complex financial transactions on behalf other companies or government. Such financial transactions include underwriting/ issuing house for securities issuing companies and investors, facilitating merger of 2 competitors, as financial advisory and brokerage. Investment bank also handles pension funds.
Read also: Importance of Investment Banks in Economic Development of Nigeria
There are three categories or types of banks in Nigeria under BOFIA
- commercial banks,
- merchant banks and
- specialised banks, this includes non-interest banks, mortgage banks, microfinance banks development banks,
No
bank is authorized to carry out banking business in Nigeria except one licensed
under any of these categories listed above. A bank may be licensed to operate
as regional or national bank in compliance with rules, regulations and guidelines
on licensing, authorization, operation and conduct of business which CBN issues
from time to time.
Investment
bank falls under the merchant banks category, and can be authorized to carry
out investment banking business on regional or national bases. Read permittedand prohibited actives of merchant and investment banks in Nigeria.
How to Establish Investment Bank in Nigeria
To establish an investment bank in Nigeria, you must comply with all the laws guiding investment banking business. These laws include:
- Companies and Allied Matters Act (CAMA) 2020,
- Banking and other Financial Institutions Act (BOFIA) 2010
- Central Bank of Nigeria Act 2007
- Central Bank of Nigeria Regulations on Scope of Banking Activities & Ancillary Matters , No. 3, 2010
- Nigerian Stock Exchange Commission Act
- Nigeria Stock Exchange Regulations Act
There are therefore five processes of establishing investment bank in Nigeria
- Feasibility study
- Writing of business plan
- Business incorporation
- Banking license
- Stock Market operator license
Feasibility Study
Before setting
up investment bank in Nigeria, you need to carry out feasibility study. The feasibility
will tell you if investment banking business opportunity is viable at the given
time and place or not. A business that was feasible yesterday in a given place
may not be feasible today due to economic and environmental changes.
Feasibility study is a precursor to business plan, and you would need to submit
a feasibility report of the proposed bank to CBN for issuance of operating
license.
Business
Incorporation
The
first to do while establishing an investment bank Nigeria is to register your company to qualify to do business within
Nigerian territory. A company intending to do investment and merchant banking
business in Nigeria will have to register with the Corporate Affair Commission
(CAC) as either a limited liability company or a public liability company, and
maintain a minimum of N15,000,000,000.00 (Fifteen Billion Naira) initial
paid-up share capital.
Business
registration in Nigeria can be done within 48 hours either online or at CAC's
offices in all 36 states of the federation provided all the requirements are
met.
Writing of Business Plan
Having carried
out feasibility studies, it’s the time to write your business plan for the
proposed bank. Business plan is a document that outlines how you intend to run
your business, requirements and projections. It allows you to create business
operations on paper and manipulate and evaluate scenarios without the risk of
investing resources. If you want to source finance from venture capitalists,
you will need to present a business plan to convince them that your business
idea is worthwhile.
Application
for Banking License
Bank
licenses are issued by CBN under the Banks and other Financial Institution Act
2010. This is to ensure that persons (natural or legal) cannot be authorized to
perform banking or financial services business in Nigeria without approval by
the government. Central Bank of Nigeria as government institution established by
the Central Bank Act of 2007 is saddled with the responsibility of licensing,
supervising and regulating of banks and other financial institutions in the
country. See Advantages and Disadvantages of CBN Controlling Commercial Banksand other Financial Institutions.
Merchant banking license: This license allows
financial institutions to provide professional services like wholesale banking
or investment banking services as set out in guidelines made under the CBN
Scope, Conditions and Minimum Standards for Merchant Banks Regulations No. 02,
2010.
Stages and Requirements for Banking Licenses
There are basically 3 stages of granting license to new bank in Nigeria by the CBN
- Grant of Approval in Principle (Initial approval)
- Grant of final approval
- Pre-commencement of operations requirements
Grant of Initial Approval
To get approval in principle, you
have to submit formal application for grant of license.
Required information and documents
- A copy of feasibility study of the proposed bank
- Certificate of incorporation
- A copy of the Memorandum and Article of Association of the proposed bank
- List of names and particulars of shareholders, first directors, and principal officers of the proposed investment bank
- Payment of prescribed application fee
- Deposit of the minimum of initial paid-up capital of N15,000,000,000.000 by the shareholders of the proposed bank
- And any other information, documents and reports CBN may require, from time to time.
The application is usually addressed to the Governor, Central Bank of Nigeria.
Upon fulfillment of these
conditions, the CBN Governor may issue a license with or without further
conditions, or decline to issue the license.
Stock
Market Operator License
The merchant banks also require approval by Security and Exchange Commission to operate in the capital market. The Securities and Exchange Commission also has oversight and regulatory purview over investment banks in Nigeria, to the extent that it relates to their capital market activities.