• Wednesday, June 19, 2024
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Hedging against impact of BREXIT on banking sector


As part of efforts towards hedging against the negative impact of UK’s decision to exit the European Union (EU) referred to as BREXIT, experts in the financial services sector last week gathered in Lagos where they looked at possible effect on the banking industry and recommendations.

The BREXIT debate is ongoing and premised on certain fundamentals according to Segun Ajibola, president/chairman of council, Chartered Institute of Bankers of Nigeria (CIBN).

Such fundamentals include the historical relevance of UK in the Comity of nations, industrial revolution that started in Britain in 1776. Most legal, economic, socio-cultural and commercial structures globally could trace their origin to UK. The Great Depression of 1930s was traceable to economic dislocation in Britain, UK occupies a central position in global trade, politics and economic alignment and as a former colonial master, most Commonwealth countries still look up to UK for leadership and direction.

The UK is the major international financial centre in terms of cross-border bank lending, UK holds 17 percent of the international market share, and in terms of edge fund asset, UK holds 18 percent of the market share, compared to 1% of France. In terms of wholesale financial services, UK holds about 12 percent majority of the whole business. It dominates the world’s foreign currency market deal.

“So when you talk about UK, you talk about the financial hub. The crisis presents a good opportunity and as well as difficulties. UK is not a member of Eurozone and is not covered by the European Central Bank,” Femi Awoyemi, CEO, Proshare Nigeria Limited said.

“What happened in Britain is going to affect Nigeria. CIBN should gather together a think-tank and let experts in Nigeria brainstorm, giving policy direction to government. The situation should not be left for politicians alone to manage because the future is still uncertain,” Awoyemi added.

BREXIT has social, political and economic consideration globally. It has implications on Embassies and diplomatic relations – visa issuance, territorial matters, and so on.

Other implications are on European Union, trade agreements, other global economic union, currencies and exchange rate regimes, among others.

For Nigerian banks, Ajibola said it throws open a number of pressing issues, including, lending and borrowing relationships entered into under the aegis of Europe, correspondent banking relationships entered into on the strength of Europe, the impact on assets and liabilities in GBP and Euro currency given possible depreciation and appreciation in those currencies, treatment to be given to the differentials in currency values in the books of banks under the IFRS, impact on banks open position as designated in those currencies and impact on bank customers whose deposits and assets are in affected currencies.

Biodun Adedipe, chief consultant, B. Adedipe Associates Limited sees risks Brexit portends for Nigeria in the area of foreign earnings– a major driver of government revenue.

“Central bank should be doing a proper diagnosis of Brexit and what we should be doing in a new environment we find ourselves,” he said.

However, the CBN said it is trying to dimension what the risk areas are. Certainly, we will very much like to key into any new developments either seminars or symposia that may be organised on this area in the country. But in the main time, even as the EU itself is trying to dimension what the risks are, we are doing the same thing because it’s a very volatile situation,” Sarah Alade, deputy governor, Economic Policy, CBN, and Board Chairperson, CIBNCFS, said.

According to her, the Brexit is not going to be as chaotic as 2008 global crisis, but it presents opportunities and there are going to be losers.

Represented by Moses Tule, director, monetary policy, CBN, she said Nigeria should rework its system because of the perceived consequences of Brexit and we should be cautious.