Lucky Fiakpa
6 July 2009
Banks shareholders are agitating for detailed disclosure, in precise term, of how much contribution their off-shore subsidiaries are making to the overall performance of the group given the huge shareholders' funds deployed in setting them up.
It is yet some murmurings. But it could soon become a shouting match between banks shareholders and their various boards of directors except further disclosure is made by banks in the reporting of the affairs of their off-shore subsidiaries.
The shareholders are of the opinion that since huge shareholders' funds is involved in the establishment of such off-shore subsidiaries; they deserve to know, in precise terms, how those subsidiaries are faring. They also want to know how much contribution they are making to the overall performance of the group before consolidating their various performances into that of the group.
By adopting this transparent approach of reporting their finances, the shareholders say, they could also have the opportunity of saying a word or two as to how best to run such subsidiaries during the annual general meeting of the given bank.
But except for Guaranty Trust Bank, GTBank, no other bank with foreign subsidiary is known to be doing segmented reporting of the performances of their off-shore subsidiaries. The current practice is for the management to report the performances of the subsidiaries to the board of directors and go straightaway to consolidate that into the overall performance of the group. With this approach, no shareholder is privileged to know further the performances of the subsidiaries.
Need for more Disclosure
Mr. Boniface Okezie, President of the Progressive Shareholders Association of Nigeria, says going off-shore is no jamboree. A lot of shareholders' funds are involved and shareholders deserve to know how their money is being deployed. "If a bank has a subsidiary in Ghana, for instance, the bank should endeavour to give a brief report about the performance of that particular subsidiary before consolidating that in the overall performance of the group.
"We deserve to know how they are performing. They should tell us and not keep us in the dark," he said during a telephone interview with Financial Vanguard.
For now, the only bank that meets the requirement of Okezie is GTBank. Every year, the bank endeavours to report on all its subsidiaries. This year, it reported that its three West African subsidiaries - GTBank, Ghana; GTBank Sierra Leone; and GTBank Gambia did very well.
Ghana subsidiary, according to the report, grew from three branches to 10 and Sierra Leone added two additional branches to its existing six, to make a current total of eight branches. Gambia branch remained in the league of top banks and was adjudged the Bank of the Year by the Gambia Chamber of Commerce.
The bank which commenced operations in the tiny West African country in March 2002, according to the report, has continually built a strong earning record.
In the 2008 financial year, the board of directors of the bank announced that the bank's balance sheet size grew by 23 per cent from N6.3 billion in 2007 to N7.8 billion. Gross earnings witnessed a 40 per cent increase to stand at N1.38 billion while profit before tax grew to N397.5 million in 2008, a 33 per cent increase from N297 million in the corresponding period of the previous year.
By this performance, the bank is currently rated the third largest in The Gambia. It is also credited with the highest expansion rate in the Gambia with eight branches and complements its enviable status with corporate and individual customers spread across the manufacturing, tourism, aviation, energy and retail sectors of the economy, as well as several big ticket transactions.
Most noteworthy is its role in the Africell Facility; a $2.5 million Note issuance facility with a tenor of 30 months to finance network upgrade and expansion for the largest GSM company in The Gambia.
GTBank also reported on the activities of its subsidiary in the United Kingdom. Guaranty Trust Bank UK Limited, which commenced operations in April 2008, the report stated, also displayed excellent performance. "Our United Kingdom, UK, subsidiary, which commenced operations last year, has continued to gain an impressive market share and customer base," Mr. Tayo Aderinokun, the bank's managing director and chief executive said during the group's annual general meeting.
The group even went further to give details of some the subsidiary's exploits. The UK subsidiary, the report stated, was established to offer Global payments, Trade and Cash Management services to the group's increasing number of international and regional clients which include governments, financial institutions and high net-worth investors with business interests across West Africa and the United Kingdom.
In addition, it stated, in the 2008 financial year, the UK subsidiary made significant progress in aligning with the group's overall focus by seeking strong growth opportunities in its overseas markets and utilising an alternative channel expansion strategy to ensure effective penetration of the UK market, especially in the areas of personal, corporate and correspondent banking.
A major highlight in this regard was the introduction of a Personal Internet Banking Service by the bank in the last quarter of the year to enable customers carry out their transactions conveniently irrespective of their location.
A Word of Caution
But Gbadebo Olatokunbo of the Nigerian Shareholders Solidarity Association thinks there are some risks attached to this type of transparent reporting on the activities of the off-shore subsidiaries. While he commends it as the right thing to do as it provides shareholders the opportunity of knowing how their investment is doing, he also thinks it could create some problems for the subsidiary in its host country.
He gave Ghana as an example. According to him, the reports on the behaviour of the Ghana financial authorities towards Nigerian banks operating in that country have been anything but fair. Given that type of hostile atmosphere, the board of directors would wary to give out so much about their operations. "If you have been privileged to run a company before, you would know what I am saying. We need to approach this issue with some caution," he says in an interview with the Financial Vanguard.
He said, it is good if other banks are doing it and it is good for more banks to follow as well. "But what does the Nigerian Accounting Standard Board, NASB, say on the issue? If it does not compel banks to disclose so much about their off-shore subsidiaries, they we should not criticize them for criticism sake. So many things are involved in running companies," Olatokunbo said.
The import of his submission is that banks need to keep certain secrets away from their shareholders in order to protect their investments abroad. That might be true to some extent but the truth remains that whether secrets are kept away from the shareholders or not, the banks' subsidiaries' operations must be reported to the host country in one form or the other. The subsidiary could do well to under report its performance to avoid certain charges in the host countries. But what some of the Nigerian shareholders are saying is that the reported lies in the host countries should be reflected in the group's consolidated financials for them to know if they are doing well or not.
Law on Banks Reporting
Anything short of this will satisfy Okezie from the look of things. He suggests that a law be promulgated to compel banks to do segment reporting on their off-shore subsidiaries before consolidating their performances into that of the group.
Mr. Timothy Adesiyan, President of the Nigerian Shareholders Solidarity Association somewhat subscribe to the viewpoint of Okezie. He would want the NASB to look into the possibility of making the banks report more details about their foreign operations. He does not like the idea of just consolidating the performances of the off-shore subsidiaries into that of the group without the shareholders without the shareholders having an insight.
"The reports they (banks) give to shareholders about their foreign operations are not adequate enough. Shareholders' funds are involved and we deserve to know more about their individual contributions to the overall group performance," he said in an interview with Financial Vanguard.
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