This Day (Lagos)

Nigeria: United Bank for Africa, Access, Others Gauge Central Bank's Options On Offshore Subsidiaries

Barely two weeks to the expiration of the deadline given to banks for the recapitalisation of their offshore subsidiaries in a way that will not cause financial strain on their Nigerian operations, some of the affected banks are said to be considering outright disposal of some of such subsidiaries or listing them in markets where there are no capital restrictions.

THISDAY checks at the weekend revealed that other options being considered by the affected banks include raising capital domestically in those jurisdictions; merger and acquisitions; converting to a local bank licence by selling a stake to local investors, and asking for an extension of the deadline.

Nigerian banks that will be impacted mostly by the Central Bank of Nigeria's directive are United Bank for Africa Plc with 18 subsidiaries on the continent; Access Bank Plc - 9 subsidiaries; Guaranty Trust Bank Plc - 5; Skye Bank Plc - 4; Keystone Bank Limited - 4; Diamond Bank Plc, and Zenith Bank Plc - 3.

A report by the international financial advisory firm, Renaissance Capital, last week confirmed that managements of some of the banks have since gone back to the drawing board with a view to exploring all possible options so that in the end, they won't incur the wrath of the regulatory authorities in Nigeria and at the same time, they would not be shortchanged in the disposal of any difficult subsidiaries as a last resort.

For instance, Rencap, which claimed to have had interactions with managements of UBA and Access Bank, two of the banks with higher number of offshore branches, said other options hinted at by the managements of both banks included listing some of their foreign subsidiaries in markets where there are no capital restrictions and recapitalising subsidiaries via this route.

Rencap quoted the management of both banks as saying that they face the most near-term pressure in their Zambian operations, where the minimum capital requirement for foreign banks has been raised from $2mn to $100mn (and to $20mn for local banks), with a December 31,2012 deadline for full compliance.

Access Bank is said to be working on the disposal of one or more offshore subsidiaries already.

Over the past few years, some African countries including Sierra Leone, Uganda, Kenya, Tanzania, Ghana and, more recently, Zambia, have raised the minimum capital requirements for banks operating within their jurisdictions.

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.

Rencap said the CBN is concerned that, given the lull in capital markets globally, including in Nigeria, these increased capital requirements have exerted pressure on the capital bases of Nigerian banks, ultimately weighing on their profitability and competitiveness.

In the CBN's opinion, the greater capital demands appear to bear little relation to growth opportunities in these countries - in other words, this may not be an optimal use of capital.

Speaking on the development, Deputy Governor, Operations, CBN, Mr. Tunde Lemo, explained: "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."

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