June 29, 2012 / Meristem

CBN has stopped Nigerian banks from recapitalising their foreign subsidiaries due to the pressure it places on the capital base of parent banks.

The parent’s inability to raise capital due to the current capital market lull makes it even worse. Now the riot act has been read, the parent [Nigerian] bank should either raise capital to recapitalise the foreign subsidiary in the host country or exit such foreign subsidiary in the event of failure to raise capital.

Six Nigerian banks currently have foreign subsidiaries. The banks are UBA, GUARANTY, ZENITHBANK, ACCESS, FIRSTBANK, and DIAMONDBANK.
 

If these banks exit their offshore subsidiaries, to what extent will it affect the parent’s operations and profitability?
 

While the Nigerian operation contributes more than 80% to operating income, total asset, deposit and loan of all the banks, the contribution offshore subsidiaries are increasing.
 

Take UBA, for instance given its presence in 18 African countries; the contribution of its African subsidiaries to operating income increased from 14% in 2010FY to 23% in 2011FY.
 

A look through the table underscores the increasing importance of foreign subsidiaries to UBA’s operations over the years.
 

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