Nigeria: CBN Bars Payment Service Holding Companies from Accessing Bank Loans

The Central Bank if Nigeria (CBN) has barred the proposed Payments Service Holding Companies (PSHC) from borrowing from the Nigerian banking system for the purpose of capitalising itself or any of its subsidiaries.

The CBN also prevented them from engaging in any transaction or maintain any business relationship with any of its subsidiaries, except such transaction or business relationship is at arm’s length.

The apex bank disclosed this in a circular to all deposits money banks, payment service providers and other financial institutions on issuance of the guidelines for licensing and regulation of PSHC in Nigeria.

The circular, which was obtained on Tuesday from the bank’s website was signed by the CBN Director, Payment System Management Department, Mr. Musa Jimoh.

The framework is sequel to a recent approval of new licence categorisations for participants in the Nigerian payments system.

The new payments system regulation earlier released by the bank had required companies desirous of operating more than one licence category, to set up a PSHC with the activities of subsidiaries clearly delineated.

The bank, however, mandated a PSHC to have a minimum paid-up capital which shall exceed the sum of the minimum regulatory capital/ total equity of all its subsidiaries, as may be prescribed from time to time by the CBN.

It stated that where the PSHC owns less than 100 per cent of the subsidiaries, its minimum paidup capital shall exceed the summation of its proportionate holding in the subsidiaries.

The framework stressed that excess capital in one subsidiary shall not be used to make up a shortfall in another subsidiary, adding that it is the capital of the PSHC that is rather applied to the subsidiaries.

The guidelines also stipulated that a PSHC ’s total exposure on contingent liabilities on behalf of its subsidiaries shall not exceed 20 per cent of the payments service holding company’s shareholders ’ funds unimpaired by losses.

The framework further prevented a PSHC from paying dividend on its shares except its operational, preliminary and organisational expenses, losses incurred and other capitalised expenses, not represented by tangible assets (excluding goodwill), have been completely written-off.

It pointed out that the arrangement would prevent commingling of activities, facilitate management of risks and enable the bank exercise adequate regulatory oversight on all the companies operating in the group.

The affected regulated payments activities include mobile money operations, switching and processing and payment solution services and any other activity as may be approved by the CBN.

The bank however, warned that an Approval in Principle for the is not an authority for the PSHC promoters to commence operations or perform any of the activities highlighted in the document adding that the CBN shall issue a PSHC license where it is satisfied with the promoters’ status of compliance with the conditions stated.

The document read among other things that, “Where a PSHC loses control of any of the two payments services subsidiaries – switching and processing company or mobile money operator in the group, for a period exceeding six consecutive months, the PSHC shall cease to be a PSHC and will be required to return its licence to the Central Bank of Nigeria for cancellation.

“Where a PSHC with only two subsidiaries , loses its controlling interest in either of the subsidiaries, for a period exceeding six consecutive months, the PSHC shall cease to be a PSHC and will be required to return its licence to the Central Bank of Nigeria for cancellation.”

James Emejo in Abuja

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