CBN sets two-day limit for bank resolution contract suspensions

The Central Bank of Nigeria (CBN) has introduced a maximum two-business-day limit on the suspension of certain payment obligations and contract termination rights involving failing banks and other financial institutions in a move aimed at reducing uncertainty in financial contracts and strengthening commercial risk management. The CBN said the interpretative guidance takes immediate effect.

The new guidance, contained in a circular issued to all banks and other financial institutions on July 1, provides interpretative guidance on the practical operation of Sections 34(2)(b) and 40(2) of the Banks and Other Financial Institutions Act (BOFIA), 2020.

According to the apex bank, the circular, signed by Okey Umeano, acting director, Financial Markets Department, became necessary because the absence of a defined maximum duration for exercising its powers under the relevant sections of BOFIA had created uncertainty for counterparties dealing with Nigerian banks and other financial institutions.

“The Central Bank of Nigeria (CBN) 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 (BOFIA) has created some uncertainty for counterparties dealing with Nigerian banks and other financial institutions in respect of financial contracts,” the CBN said.

It added that “this uncertainty has the potential to impede the effective management of commercial risk.”

To address the concern, the CBN said it was providing interpretative and operational guidance on how it would apply the relevant provisions of BOFIA when exercising the powers conferred on the governor.

According to the circular, the guidance is intended to assist banks, financial institutions and counterparties to an affected contract in understanding the operational approach the apex bank will adopt when exercising its powers under Sections 34(2)(b) and 40(2) of BOFIA.

Related News

For the purpose of the circular, an “Affected Contract” refers to any contract to which a bank or other financial institution is a party and which falls within the provisions of the two sections of BOFIA.

The CBN explained that where it exercises its powers under Section 34(2)(b) in relation to a failing bank or other financial institution, any suspension of payment or delivery obligations under an affected contract will now be subject to a clearly defined time limit.

Similarly, where the provisions of Section 40(2) are invoked in relation to a bank or other financial institution that is the subject, or proposed subject, of a resolution measure, the suspension of the exercise of any termination right under an affected contract will also be time-bound.

The apex bank stated that both forms of suspension “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.”

By prescribing a maximum duration, the CBN has clarified the practical application of the relevant BOFIA provisions for financial institutions and their counterparties, providing greater certainty on how long contractual obligations or termination rights may be suspended during the resolution of a failing bank.

The circular was issued pursuant to the powers granted to the CBN Governor under Section 56 of BOFIA and Section 33(1)(b) of the Central Bank of Nigeria Act, 2007.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.