How to start investment banking in Nigeria
A provider of financial services that serves as a middleman in significant and intricate financial transactions is known as an investment bank. When a young firm is ready to launch its initial public offering (IPO) or when a company combines with a rival, an investment bank is typically engaged. Additionally, it serves as a financial advisor or broker for major institutional clients such as pension funds.
What Is Investment Banking?
Investment banking is a branch of banking that coordinates massive, intricate financial transactions like mergers or the underwriting of initial public offerings (IPOs). In addition to underwriting the issuing of new securities for a corporation, municipality, or other entity, these banks may raise money for businesses in several other ways. They could oversee an organization’s initial public offering (IPO) (IPO). They will offer guidance on reorganizations, mergers, and acquisitions. Investment bankers are professionals who are acutely aware of the state of the market for investments. They assist their clients in navigating the difficult high finance industry.
How an Investment Bank Works
An investment bank’s advising division receives compensation for its services. Commissions are earned based on how well the trading division does on the market. As previously mentioned, many also have retail banking sections that generate revenue by lending money to individuals and companies.
Investment bank employees may pursue professions as financial consultants, traders, or salespeople. Although an investment banking career can be rewarding, it frequently involves long hours and a lot of stress.
The Intermediary Role
Investment banks are best known for serving as a corporation’s point of contact with the financial markets. In other words, they aid businesses in issuing stock in an IPO or another public offering. They also set up debt funding for businesses by locating significant investors for corporate bonds.
Pre-underwriting advice is the first step in the investment bank’s advising role, which lasts through the distribution of securities. Before the securities are offered for sale, the investment bank is in charge of reviewing a company’s financial statements for the correctness and disseminating a prospectus to investors that thoroughly outlines the offering.
Examples of investment banks’ clientele include corporations, pension funds, other financial institutions, governments, and hedge funds.
Types of investment banks in Nigeria
Under BOFIA, there are three sorts of categories of banks in Nigeria.
- Commercial banks
- Merchant banks and
- Specialized banks, such as non-interest, mortgage, and microfinance, development banks.
Only banks that have been granted a license under one of the aforementioned categories are permitted to conduct banking operations in Nigeria. Following the rules, regulations, and directives on licensing, authorization, operation, and conduct of business that CBN periodically releases, a bank may be granted a license to operate as a regional or national bank. Investment banks are classified as merchants and permitted to conduct local or international investment banking operations.
How to start an investment bank in Nigeria
To start an investment bank in Nigeria, you must abide by all investment banking rules. The Companies and Allied Matters Act (CAMA) 2020 is one of these laws.
- Nigerian Stock Exchange Commission Act
- Nigeria Stock Exchange Regulations Act
- 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
As a result, there are five procedures to set up an investment bank in Nigeria.
- Start a feasibility study and then
- Write your business plan
- Create a CAC account for your business.
- Acquire a banking license
- Obtain a license to operate on the stock market.
- Start a feasibility study
Before opening an investment bank in Nigeria, a feasibility study is required. If an investment banking business opportunity is viable at the specified time and location, it will be clear from the feasibility analysis. Due to changes in the economy and environment, a firm that was viable yesterday in a specific location might no longer be viable today. A feasibility report of the prospective bank must be submitted to CBN for them to grant you an operating license. A feasibility study is a prerequisite to a business strategy.
- Write your business plan
After doing feasibility studies, you should draft your business strategy for the potential bank. A business plan is a written document that describes your goals, needs, and projections for your company. By creating commercial activities on paper, you can manipulate and assess possibilities without taking a financial risk. You will need to provide a business plan to convince venture capitalists that your business idea is beneficial if you want to obtain funding from them.
- Register your business with CAC
The first step in starting an investment bank in Nigeria is registering your business so you can conduct business there. A company must register with the Corporate Affairs Commission (CAC) as 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 if it wants to conduct investment and merchant banking business in Nigeria. If all requirements are met, business registration in Nigeria can be completed within 48 hours, either online or at CAC offices located throughout the 36 states of the nation.
- Obtain your banking license
According to the 2010 Banks and Other Financial Institutions Act, the CBN grants bank licenses. In Nigeria, no person (natural or legal) may be authorized to conduct banking or financial services business without the government’s consent. The Central Bank of Nigeria, a government agency created by the Central Bank Act of 2007, is tasked with granting licenses and overseeing and regulating the nation’s banks and other financial organizations.
The CBN Scope, Conditions and Minimum Standards for Merchant Banks Regulations No. 02, 2010, which established criteria for professional services that financial institutions may offer, such as wholesale banking or investment banking services, apply to this license.
Stages and Requirements for Banking Licenses
The CBN basically grants licenses to new banks in Nigeria in three stages:
- Initial approval;
- Final approval; and
- Conditions before operations may begin.
You must submit a formal application for a license grant to receive permission in principle. The necessary data and documentation are as follows:
- A copy of the planned bank’s feasibility study
- A copy of the prospective bank’s Memorandum and Articles of Association;
- A certificate of incorporation
- A list of the shareholders, first directors, and senior executives of the proposed investment bank, along with their names and contact information
- The deposit of the required initial paid-up capital of N15,000,000,000.00 by the shareholders of the proposed bank; and the payment of the prescribed application fee.
- As well as any additional data, records, and reports that CBN may from time to time.
The application is often addressed to the Governor, CBN Governor, and upon meeting these requirements, the CBN Governor may either grant the license or deny to grant it.
- Obtain a license to operate on the stock market.
Merchant banks also need the Security and Exchange Commission’s approval to operate in the capital market. Insofar as it relates to their capital market activities, Nigerian investment banks are subject to regulatory monitoring by the Securities and Exchange Commission.
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