banks operating in Ghana and Zambia are contemplating closing down these subsidiaries as the deadline for their recapitalisation ended on Monday.
Findings showed that the banks have not complied with the recapitalisation order by local banks.
Ghana and Zambia central banks had raised banks’minimum capital requirement, on the ground that the measure would help mobilise additional resources for their economies.
The Bank of Ghana raised banks capital from $5.28 million to GH¢60 million ($31.7 million). It set the end of last year as deadline.
Zambian hiked its minimum capital requirements for foreign banks to K520 billion ($98.52 million), from $2.27 million; that of local commercial banks was raised to $19.69 million.
Central Bank of Nigeria (CBN) Director, Banking Supervisions, Mrs. Agnes Martins, said the increases reflect efforts to strengthen the banking sectors in those countries, adding that 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.
He said these capital demands are not in tandem with the level of growth in business activities in these lenders.
She added 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.
“The CBN shall not permit any further capital outlay from parent banks to augment the capital needs of foreign subsidiaries but would rather encourage banks to consider mergers and acquisition arrangements with other local and or foreign banks in the host country. Under no circumstances are parent banks allowed to guarantee the deposit of their foreign subsidiaries,” Martins said in a statement.
Head, Market Risk, Greenwich Trust Limited, Babatunde Obaniyi, said the CBN is being proactive to ensure that the funds that would have been used to develop Nigeria’s economy are not channelled to other economies.
He said for a bank to operate offshore, it has to raise its capital base to the required N100 billion ($635.72 million) in the country. This means that a bank such as United Bank for Africa (UBA), which has 18 offshore branches may see its funds depleted trying to recapitalise its branches abroad, where such cases arise.
He explained that although there are some African countries, especially The Gambia where investors cannot bring in hot money to fund banks, polices in many African countries point to the fact that more countries want foreign banks to recapitalise their subsidiaries with funds from home countries.
Besides, he said some of the banks have learnt to share risks with local banks to reduce the economic burden that come with foray into new markets.
“The level of aggression most Nigerian banks exhibit in venturing into new markets, if not checked, will raise their operational risk level. Besides, I do not see the restriction of these banks into foreign countries as having the capacity to deplete their group performance because some of these markets are smaller than Nigeria’s,” he said.
He said most of these banks are expected to develop their own products and services to meet the needs of the people.
Speaking on the development, Deputy Governor, Operations, CBN, Tunde Lemo, explained that there is no justification for the level of capital requirement imposed by the central banks of those countries hence banks will decide on their own if they can continue with those subsidiaries.
The policy became exigent after report showed that Nigerian banks have recently witnessed reduced credit lines from their international partners because of the growing need for liquidity of major European banks following mounting sovereign default risks.
However, Lemo said these developments would not have a debilitating impact of the health of the sector. But he did not rule out the impact on the liquidity of finance from lenders.
Martins explained that the policy is expected to affect UBA and Access Bank because they have the highest number of offshore operations in the sector.
Others are Guaranty Trust Bank Plc, has five subsidiaries; Skye Bank Plc – four; Keystone Bank Limited- four ; Diamond Bank Plc, and Zenith Bank Plc – three each.
Managing Director, UBA, Phillips Oduoza, said he expects the subsidiaries to contribute 25 per cent of its profit this year to the bank.
He said his bank operating in Zambia would seek a local banking license, which requires a lower capital base of $20 million, to meet the requirements.
He said the rule may instead make local lenders acquisition targets as the companies have to keep cash in Nigeria.
Access Bank Plc will cut to 49 per cent its stake in its Zambian unit after the southern African country raised capital requirements, Chief Executive Officer Aigboje Aig- Imoukhuede said.
He admitted that the requirement to increase funding for foreign units has exerted pressure on the capital base of most parent banks.
