THE directive by the Central Bank of Nigeria (CBN) barring commercial banks in the country from moving funds locally to recapitalise their foreign subsidiaries is understandably protective of the indigenous financial climate. But it also poses the challenge of safeguarding the banks' foreign interest. For one, some of the banks risk losing their licenses in those countries if they fail to meet given deadlines for recapitalising them. And in this regard, the CBN's directive will appear to be too onerous, offering one solution to a variety of problems. It may be necessary, therefore, for the apex bank to revisit its order and make relevant amends.One of the major fallouts of the Nigerian bank consolidation in 2005 was the impetus to adopt the universal banking model and the ensuing rapid branch expansion, both locally and internationally. At the end of the recapitalisation exercise, banks had ostensibly, surplus capital for deployment into several investment portfolios, which further heightened fierce competition in every business segment. Offshore expansion was considered a viable and glamorous channel, particularly to the City of London, the ECOWAS Region and East African capitals.The monetary authorities gushed at the flag-waving move by the banks. It was highly commended as it reaffirmed justification of the consolidation programme and portrayed the banks as having come of age, and capitally adequate. Political leaders were convinced of the polish to the country's image. But by the current directive restraining the banks from moving funds from Nigerian operations to recapitalise their foreign subsidiaries, it appears that the chicken is coming home to roost so soon. Given a multitude of factors, it has been a herculean task turning the start-up offices to profitable subsidiaries, though there are indications many have approached break-even point. The economic environment indigenous to the countries, coupled with osmotic effect of foreign aid dependence common to these countries, has impacted on the banks. Most of the Nigerian banks too were caught in the devastation of the home head offices, and until lately, massive provisioning for non-performing loans ' which has become the norm ' left no room to distribute profits to shareholders or reinvestment in subsidiaries.Many jurisdictions in a bid to insulate their banking sectors and economies from the effects of a weak global economy embarked on banking reforms with recapitalisation as a major pillar. Zambia, for instance recently increased its capital requirement from $2 million to $100 million for foreign banks ($20 million for local banks). This trend and discrimination is similar in Ghana, Gambia, Kenya, Zimbabwe and some other African countries.By refusing cross border recapitalisation from Nigerian shareholders' funds, the CBN is justifiably exercising prudence and seeking to protect the domestic capital adequacy volumes. In principle, the regulator defines the criteria of risks acceptable to the sector and goes out to enforce compliance. But in the instant case, concern remains that it will be a major challenge for the Nigerian majority owned banks if they are not allowed to recapitalise their subsidiaries from home to comply with new capital requirements in the various countries. The risk of losing their licenses are starkly evident with a few months to deadline and the repercussions are dire for Nigerian banks and economy, as well as the local economies of their host countries.For instance, with the presence of Nigerian banks in as many as 18 African countries, there is considerable Nigerian capital and interest at risk in the African market. Where the banks remain unable to recapitalise from shareholder reserves, a systemic eclipse of the venture capital owned by Nigerian shareholders will result in significant loss at home and massive erosion of goodwill. In that event, the CBN would be complicit to the resulting disinvestment and failure, its duty of capital protection notwithstanding.There is need for a middle course as there are indeed additional grounds that meet the prudential stance of the CBN and the sustainability of the new markets for the banks. The current directive appears to be omnibus, one-size-fits-all template. It should be explored and revised towards a series of quantifiable benchmarks ' liquidity quotients, stock of treasury bills and maturities, undistributed profits ' to mention a few. The attainment of each criterion should then become a prerequisite for a certain and incremental sum of Nigerian capital exportation by the individual banks.The CBN should verify these indices and unencumbered funds accordingly, and determine the allowable limit. In the context of the huge liquidity displayed at the bond market and cleaned up balance sheets, these offshore subsidiaries may be prudently funded in a formula not detrimental to the institutions and the Nigerian economy.There is also a role for the Federal Government in all this. While the nationalism of the banks' host countries, in a bid to guard against exogenous developments, is out of Nigeria's control, it is apt for our government to caution on the brewing and diffident xenophobia targeted at Nigerians in those countries. The attitude does not encourage Nigerian-inspired institutions or business persons who are in these African states. Bank reform should not be an excuse to disrupt the healthy entrepreneurship and good brotherhood championed by Nigerians.
Click here to read full news..
