• Sunday, May 26, 2024
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CBN relaxes policy on banks’ funding of off-shore subsidiaries


There are indications that the Central Bank of Nigeria (CBN) may have rescinded its decision barring banks with presence in African countries from recapitalising their subsidiaries on the continent.

Some analysts said yesterday that the development would engender diversification, stressing that the Nigerian market is over-regulated, while some African markets like South Africa are developed, with the required population.

Also relaxed to give the banks a breather and consolidate on the gains of the sector reforms so far, is the 100 percent hike in the risk weight assigned to direct lending to the public sector ,such as states, local governments, Ministries, Departments and Agencies (MDAs) due to their failure to exercise due diligence during such transactions.

BusinessDay gathered that the CBN intends to leverage on the full adoption of the International Financial reporting Standard (IFRS) by all the banks, to relax some of these policies, since the new standard compels financial institutions to embark on full disclosure and transparency in operations.

Besides, the CBN wants to give opportunity to local parent banks flexibility to compete internationally and also encourage those aspiring for off-shore expansion. It is also expected that banks will be left with funds

at their disposal for lending to the real sector.

This development may have spurred First Bank of Nigeria to acquire Ghana’s International Commercial Bank (ICB) in its renewed effort at expanding in sub-Saharan Africa (SSA). It has also informed the intensification of efforts by GTBank to acquire financial institutions in Kenya, Tanzania and Uganda, to boost its expansion drive into East Africa. The case is the same for Diamond Bank, which is said to be exploring options of continental expansion.

However, banks were said to have kicked against the hike in provision for public sector lending, saying the policy implementation would adversely affect their revenue, following declining yields from fixed instruments, which hitherto constituted a major source of their income.

They further argue that the 100 percent provisioning on facilities advanced to these agencies which are usually not repaid on time, would impact negatively on their books. Those who spoke to BusinessDay agreed that though they are never repaid on time, it was good business, considering the accompanying low risks and higher interest charged.

The CBN is expected to issue circulars in respect of these developments to banks any moment from now, BusinessDay gathered last night.

Ugochukwu Okoroafor, CBN spokesperson would neither deny nor confirm the developments, as he kept promising that he would respond later, on series of calls from BusinessDay.