CBN Caps Contract Suspensions at Two Business Days in Failing Bank Resolutions
The Central Bank of Nigeria has clarified how long it can suspend certain contractual obligations when handling troubled banks, setting a maximum window of two business days under key provisions of the Banks and Other Financial Institutions Act, 2020.
The guidance, which took immediate effect, was issued Wednesday in a circular signed by Okey Umeano, Acting Director of the Financial Markets Department. It addresses uncertainty created by the lack of a defined duration for the CBN’s powers under Sections 34(2)(b) and 40(2) of BOFIA 2020.
“The Central Bank of Nigeria has observed that the absence of a defined maximum duration period pursuant to the exercise of its powers under Sections 34(2)(b) and 40(2) of the Banks and Other Financial Institutions Act, 2020 has created some uncertainty for counterparties dealing with Nigerian banks and other financial institutions in respect of financial contracts,” the circular said.
The CBN added that the ambiguity had the potential to hinder effective management of commercial risk.
The new guidance covers banks, other financial institutions, and counterparties to what the CBN calls “Affected Contracts” — agreements to which a bank or financial institution is a party and that fall within the scope of Sections 34(2)(b) or 40(2) of BOFIA.
Under the update, any suspension of payment or delivery obligations under an affected contract involving a failing bank pursuant to Section 34(2)(b), as well as any suspension of termination rights under Section 40(2), “shall not exceed a period of two business days commencing from the date on which the written order or notice of suspension is issued by the CBN Governor.
”Section 34(2)(b) allows the CBN to facilitate the acquisition of a failing bank by one or more healthy banks to safeguard financial stability. Section 40(2) permits the Governor, after revoking a banking licence and where it serves the public interest, to order resolution actions that include temporarily suspending certain contractual termination rights.
By imposing a two-business-day limit, the CBN is signaling that any such suspension will be brief, giving market participants and counterparties clearer timelines when resolution measures are triggered.The circular was issued under the Governor’s powers in Section 56 of BOFIA and Section 33(1)(b) of the Central Bank of Nigeria Act, 2007, and became effective July 1.
The guidance comes as the CBN recently revoked the licences of 46 inactive, insolvent, or non-operational microfinance banks. While not tied to any specific institution, the circular offers broader clarity on how contractual obligations will be handled whenever the apex bank invokes its statutory resolution powers over troubled banks.
