CBN may ask banks to close foreign subsidiaries
CBN (Central Bank of Nigeria), Latest Politics Wednesday, July 25th, 2012Indications have emerged that some Deposit Money Banks in the country may close their foreign subsidiaries due to inability to meet capital requirements of host regulators.
It was gathered that some banks had engaged in capital outflow to meet the recapitalisation of their foreign subsidiaries.
The CBN, however, in a circular on Wednesday, signed by the Director, Banking Supervision, CBN, Mrs. Agnes Martins, pointed that it would not permit any further capital outlay from parent banks to support the needs of their foreign subsidiaries, but would rather encourage banks to consider other options in raising capital for their foreign subsidiaries.
It, however, said that parent banks whose foreign subsidiaries were unable to raise additional capital in the host country market would be required to submit exit strategies from those jurisdictions.
Some of the African countries that have increased the capital requirements for banks include Sierra Leone, Uganda, Kenya, Tanzania, Ghana, and more recently, Zambia, where the minimum capital requirement for foreign banks has been raised from $2m to $100m and to $20m for local banks, with a December 31, 2012 deadline for full compliance.
The circular noted that the capital demands were not in tandem with the growth in business activities.
It said, “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.”
The circular added that the options the banks could consider included, mergers and acquisition arrangements with other local or foreign banks in the host country; as well as sourcing of fresh capital from the host country capital market either through private placements or public offers.
It added, “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 bank noted that under no circumstances were parent banks allowed to guarantee the deposit of their foreign subsidiaries.
Renaissance Capital has said that the policy will most affect United Bank for Africa Plc and Access Bank Plc, given that they have the highest number of offshore operations within the sector. UBA has operations in 18 offshore countries, while Access Bank is operating in nine.
via Punchwp_posts
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