Central Bank Bars Banks from Recapitalising African Subsidiaries
May 28, 2012
The Central Bank of Nigeria has warned commercial banks with presence in some African countries, not to utilise funds from their parent institutions in Nigeria to recapitalise their African subsidiaries, THISDAY has learnt. THISDAY exclusively gathered that the decision, which was announced by CBN at the last meeting of the Bankers’ Committee and has been backed by a circular sent to the banks, is aimed at protecting Nigerian banks from drawing on their reserves, which can impact their capital adequacy ratio, to meet the capitalisation requirements of their subsidiaries in the African region.
The banking sector regulator further directed banks with African subsidiaries to recapitalise such institutions with funds raised from the countries where they are Nigerian banks that will be impacted the most by the directive are United Bank for Africa Plc with 18 subsidiaries on the continent; Access Bank Plc – 8 subsidiaries; Guaranty Trust Bank Plc – 5; Skye Bank Plc – 4; Keystone Bank Limited – 4; Diamond Bank Plc; and Zenith Bank Plc – 3.
Some African countries recently directed commercial banks operating in their markets to shore-up their capital base.
Specifically, Zambia and Ghana had raised their minimum capital requirement for banks, saying that the measure would help mobilise additional resources for their economies and enable banks participate effectively in their national economic growth as well as provide more funds for flow of credit.
In the case of Ghana, whose financial market had been undergoing some restructuring since the discovery of oil in the country, the Bank of Ghana has directed all banks to recapitalise to the tune of GH¢60 million (about N5 billion) by the end of 2012, from the GH¢10 million (about N844 million) it used to be.
Similarly, the Zambian government recently hiked its minimum capital requirements for foreign commercial banks to K520 billion (about N15 billion), from K12 billion (about N365 million), while that of local commercial banks was raised to K104 billion (about N3 billion).
THISDAY learnt that the move by these countries is a ploy to strengthen their domestic banks and discourage most of the foreign banks operating in their economies.
According to THISDAY’s findings, the CBN has advised banks to carry out a cost-benefit analysis on their African subsidiaries, with a view to determining the need for the continuous existence of their subsidiaries in those African countries and those of them that are not profitable would be shut down.
Deputy Governor, Operations, CBN, Mr. Tunde Lemo, confirmed this development at the weekend, stating, “The CBN decision was informed by the fact that given the level of business done in those climes, there is no justification for the level of capital requirement imposed by the central banks of those countries and so banks will decide on their own if they can continue with those subsidiaries.”
Deputy Governor, Financial System Stability, CBN, Dr. Chiedu K. Moghalu, also said recently, that central bank had taken steps to enhance supervision of off-shore subsidiaries of Nigerian banks, following complaints by regulators in those countries. He said that the move was part of efforts to further improve risk management in the industry. Moghalu had said, “We have increasingly received concern about the off-shore operations of some banks. We have received in one or two instances complaints about a number of things and we have taken action to address those issues.
“We want to make sure those Nigerian banks operating in foreign countries, especially West Africa, comply with all the regulatory requirements of their host countries.
“Secondly, we want to make sure that internally, here in Nigeria, they are adequately capitalised and structured to be able to sustain international operations.
“There is ongoing cross-border supervisory cooperation and coordination with other jurisdictions where Nigerian banks have presence.”