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CBN to compel Banks to close their Foreign subsidiaries

By on July 26, 2012

The Central Bank of Nigeria (CBN) is increasing restrictions to Nigerian banks who operate foreign subsidiaries that are in danger of not meeting the host country’s capital base requirements.

The Central Bank will restrict the parent banks from providing the offshore subsidiaries with the funds required to increase their capital base. The offshore subsidiaries that can raise the money unilaterally will be allowed to continue doing business in their host countries, whilst the ones that cannot will be forced to close.

The new rules were conveyed in a circular on Wednesday, signed by the Director, Banking Supervision, CBN, Mrs. Agnes Martins.

As African countries are increasing their capital requirements, Nigerian subsidiaries operating there are forced to comply, sometimes having to raise up to $98 million in order to stay in business.

The circular reads, “The CBN has noted with concern the incessant demands on Nigerian banks by the various host regulators for the recapitalisation of foreign subsidiaries. These demands have exerted enormous pressure on the capital base of most parent banks due to the lull in the capital market making it difficult to raise capital, diminishing profit margins and increasing competition.”

It adds, “Nigerian banks with foreign subsidiaries are required to submit, within 60 days of the date on this letter, recapitalisation plans in anticipation of regulatory capital increases under BASEL II and III and any other unforeseen increase by host countries.”

The policy is expected to affect UBA, and Access mostly since they have 18 and 9 foreign subsidiaries in Africa respectively.

2 Comments

  1. crispin

    July 26, 2012 at 9:34 am

    I do not agree with this new policy. We expect foreign banks in our country to shore up the capital base of their subsidiaries when the need arises but we do not want the same to apply to our banks.
    As long as the minimum capital requirements are met in Nigeria and depositors monies are not spent on foreign subsidiaries, the investors in a bank should be able to decide if they want to shore up the capital base of their foreign subsidiaries.
    This policy is counter productive and will not enable Nigerian banks to grow to the position of being able to compete internationally.

  2. Nedu

    July 27, 2012 at 6:31 pm

    @crispin, i disagree with your theory. Most economies are feeling the impact of the global crisis and the only way they can combat this is with cash. But they do not have that cash so they want to use regulation as an excuse to steal cash from other countries. Do the math.