The Central Bank of Nigeria has issued fresh guidance clarifying how Sections 34(2)(b) and 40(2) of the Banks and Other Financial Institutions Act, 2020 should be applied, setting a maximum suspension period of two business days for certain contractual obligations during the resolution of distressed banks.

The clarification was contained in a circular issued on Wednesday and signed by the Acting Director of the Financial Markets Department, Okey Umeano, who said the guidance takes immediate effect.

The CBN said the move was necessary because the law did not specify a maximum duration for exercising its powers under the two BOFIA provisions, creating uncertainty for banks, financial institutions and their counterparties involved in financial contracts.

The circular stated, “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 CBN said the uncertainty had the potential to hinder the effective management of commercial risk across the financial system.

To address the issue, the apex bank said the circular provides interpretative and operational guidance on how it will exercise the powers granted to the CBN Governor under the relevant provisions of BOFIA.

The guidance applies to banks, other financial institutions, and counterparties to what the CBN describes as “Affected Contracts”—agreements involving a bank or other financial institution that fall within the scope of Sections 34(2)(b) or 40(2) of the Banks and Other Financial Institutions Act, 2020.

Under the new guidance, the CBN said 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 contracts covered by Section 40(2), will not exceed two business days from the date the CBN Governor issues the written suspension order or notice.

The clarification provides greater certainty on two key provisions of the Banks and Other Financial Institutions Act, 2020 that form the foundation of the CBN’s framework for resolving distressed banks.

Section 34(2)(b) empowers the CBN to facilitate the acquisition of a failing bank by one or more financial institutions to safeguard financial stability. Section 40(2), meanwhile, allows the CBN Governor to initiate resolution measures after revoking a bank’s licence, including the temporary suspension of certain contractual termination rights where it is deemed to be in the public interest.

By capping such suspensions at two business days, the apex bank said it is providing greater clarity and certainty for banks, financial institutions, and counterparties to affected financial contracts, while reaffirming that the exercise of these powers will be temporary.

The circular comes shortly after the CBN revoked the licences of 46 inactive, insolvent or non-operational microfinance banks under its powers in the Banks and Other Financial Institutions Act, 2020. Although the new guidance is not tied to any specific institution, it clarifies how contractual obligations will be handled whenever the apex bank invokes its statutory resolution powers over distressed banks.

The CBN said the guidance was issued under the authority granted to the Governor by Section 56 of BOFIA and Section 33(1)(b) of the Central Bank of Nigeria Act, 2007, and took immediate effect from July 1.