CBN Sets Two-Day Limit on Contract Suspensions for Troubled Banks

• The CBN has capped the suspension of certain contractual obligations involving failing banks at two business days.

The Central Bank of Nigeria (CBN) has introduced new guidance limiting the suspension of certain contractual obligations involving failing banks to a maximum of two business days, in a move aimed at boosting confidence and reducing uncertainty in the financial system.

The clarification, which takes immediate effect, was contained in a circular signed by the Acting Director of the Financial Markets Department, Okey Umeano. According to the apex bank, the guidance provides clarity on how it will apply Sections 34(2)(b) and 40(2) of the Banks and Other Financial Institutions Act (BOFIA), 2020.

The CBN explained that the absence of a defined timeframe for suspending contractual obligations had created uncertainty for banks, financial institutions and their counterparties, making it more difficult to manage commercial risks during bank resolution processes.

Under the new directive, any suspension of payment or delivery obligations involving a failing bank, as well as the temporary suspension of termination rights under affected financial contracts, cannot exceed two business days from the date the CBN Governor issues a written order or notice.

The guidance applies to banks, other financial institutions and counterparties involved in contracts covered under the relevant provisions of BOFIA.

The apex bank said the clarification is intended to strengthen its bank resolution framework by ensuring that any intervention in troubled financial institutions remains temporary, transparent and predictable for all parties involved.

The move comes shortly after the CBN revoked the operating licences of 46 microfinance banks for failing to meet regulatory requirements. Although the latest directive is not tied to any specific institution, it provides greater certainty on how contractual obligations will be handled whenever the CBN exercises its statutory powers over distressed banks.

According to the CBN, the guidance was issued under the powers granted to the Governor by the Banks and Other Financial Institutions Act (BOFIA) 2020 and the Central Bank of Nigeria Act, 2007, and took effect immediately on July 1.