Banks with a capital base above N100 billion are exploring opportunities within and outside Africa by opening offshore units to not only add value to their customers but shareholders. FirstBank of Nigeria, GTBank, Access Bank and Diamond Bank, among others, have opened foreign subsidiaries, which come with varied benefits, writes COLLINS NWEZE.
Banks with eye in the future are taking advantages of benefits that come with offshore banking to expand their operations to other countries. From opportunity to run multicurrency accounts to the convenience that comes with it, most bank customers want banks that provide same efficient and seamless services across all their locations, globally.
FirstBank of Nigeria Ltd (FirstBank), a subsidiary of FBN Holdings Plc., has confirmed the acquisition of International Commercial Bank (ICB) West African operations with the acquisition of ICB Senegal. This development completes the acquisition of the West African asset and operations of International Commercial Bank Financial Group Holdings AG (ICBFGH).
With this acquisition, the lender is now providing full banking services in four additional countries – Ghana, Gambia, Guinea and Sierra Leone. The bank has equally promised to continue to upscale its reach in existing and new markets, through organic expansion and targeted acquisitions, helping it to maintain its leading market position.
FirstBank had last November, acquired a 100 per cent equity interest in ICB Ghana, ICB Sierra Leone, ICB Guinea and ICB Gambia from ICBFGH.
As a result of the acquisition, Chief Executive Officer of FirstBank, Bisi Onasanya, said the lender will consolidate its position as one of the largest corporate and retail banking financial institutions in sub-Saharan Africa (excluding South Africa).
He said the transaction delivers against the lender’s stated ambition to win significant market share, expand its pan-African footprint and diversify earnings while delivering value to shareholders.
He said the transaction has considerable strategic benefits directly aligned with the lender’s growth plans and provides a very strong platform for regional growth as the Bank expands its operations to take advantage of opportunities across the wider continent.
Expansion offers a range of benefits, including new growth options, a diversified and broader geographic earnings profile, reduced country specific risk and enhanced customer benefits. By establishing a footprint in carefully selected African countries, the Bank expects to improve its ability to effectively serve an increasingly international profile of corporate and institutional customers.
“The acquisition of ICBGFH assets in Senegal is in line with FirstBank’s stated international expansion plans and offers considerable strategic benefits with ICB offering FirstBank entry into multiple markets under one franchise. In addition, it further emphasises FirstBank’s focus on building a stronger regional and multi-local institution across Africa; providing new growth options, diversified geographic earnings profile and wider customer benefits,” Onasanya said.
He said entry into Senegal presents an automatic banking license into other countries in the West African Economic and Monetary Union (WAEMU) region and the country’s low banking penetration, strong prospects for economic growth and political stability makes it an attractive market.
He explained that due to its congeniality for investors, businesses and tourists, Senegal offers one of the safest and more conducive environments for business as represented by the flow of foreign investments channelled through the economy in the last ten years in telecoms, banking, insurance, tourism, transportation, agriculture among other things.
Retooling business strategy
United Bank for Nigeria (UBA) Plc has equally announced a major shift in its business model and strategy meant to improve its earnings in Nigeria and African subsidiaries. The Group Managing Director/CEO, UBA Plc, Phillips Oduoza said the Group has split its operations into two broad directorates, UBA Africa and UBA Nigeria, both under UBA Plc.
The Nigeria division will intensify the bank’s focus on the Nigerian market, with the aim of expanding its market share, while deepening the lender’s wallet share of existing businesses.
Oduoza said both the Nigeria and Africa directorates are expected to generate 50 per cent each of the bank’s total revenue target. He said African subsidiaries contributed 20 per cent of the banks profit before tax in 2013 against 11 per cent in 2012. He said that the target of 50 per cent earnings for both directorates will be achieved in the next three years.
He said the plan is in line with the lender’s ‘Project Alpha’ initiative, a three-year road map of key transformation initiatives, designed to reinforce the Group’s strategic positioning and leverage its huge Africa presence to fully exploit the opportunities in Africa ’s economic renaissance.
According to him, the UBA Africa Division will be made up of the 18 African country subsidiaries of the UBA Group outside Nigeria. He said the UBA Africa will have a CEO supported by two Deputies along the bank’s two core product lines: Wholesale Banking (comprising, Corporate Bank, Institutional Bank and Public Sector) and Retail Banking (comprising, Personal Banking and Small and Medium Enterprises Banking).
Oduoza said “the newly created UBA Africa Division will grow and deepen the bank’s presence in member countries, optimise the synergies within the network, deepen service delivery excellence, and promote cultural integration and a high level of motivation among its staff in the different countries.
He said that for time, the bank has been investing and now is time to drive the business. He said the bank completed the first phase of its expansion plans in 2011 and is now trying to develop the business. He said the bank is currently focusing on aggressive acquisition of customers adding that the full benefits of the bank’s investment in Africa will start coming back.
He said the African and Nigerian directorates will be supported by a common technology and will benefit from shared services. He said completion between the two directorates will be positive and will improve its earnings. “We have taken a decision on how to drive Nigeria and African divisions and earn the full benefits of our investments,” he said.
He said the bank is not restructuring, but is redeploying its resources in a very optimal manner to achieve its business objectives and improve earnings.
Stakeholders speak
Managing Director, Financial Nigeria International, Jide Akintunde said offshore banking comes with certain benefits such as its opening up of the banking industry to national and pan-regional players.
He predicts that despite the pressure from the CBN on the banks, competition in the operating environment enhances local banks’ commitment to providing relevant banking products and strong local service.
He said offshore banks are known to offer global payments, trade and cash management services to the increasing number of international and regional clients which include governments, financial institutions, and high net-worth investors with business interests across the world.
Economic Analyst, Sunday Bayo, said some offshore banks may operate with a lower cost base and can provide higher interest rates than the legal rate in the home country due to lower overheads and a lack of government intervention.
He said offshore finance is one of the few industries, along with tourism, in which geographically remote island nations can competitively engage. It can help developing countries source investment and create growth in their economies, and can help redistribute world finance from the developed to the developing world.
Capital requirement
Ghana and Zambia central banks 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 ($31.7 million), from the $5.28 million it used to be.
Similarly, the Zambian government recently hiked its minimum capital requirements for foreign commercial banks to K520 billion ($98.52 million), from $2.27 million, while that of local commercial banks was raised to $19.69 million within same period.
The Central Bank of Nigeria (CBN) Director, Banking Supervisions, Mrs. Agnes Martins said the increases reflect efforts to strengthen the banking sectors in those countries even as global banks have also been seeking ways to boost capital adequacy ratios in their home countries to meet increased capital requirements under Basel III, and one option they have explored has been the disposal of international subsidiaries.
She said that these capital demands are not in tandem with the level of growth in business activities in these lenders adding that it would not allow banks to continue funding their subsidiaries from parent companies but would encourage them to consider mergers and acquisitions with other local or foreign banks in host country.
