HSBC Holding’s closure of its representative office in Nigeria may have been a long time coming but a fall-out with the government last September hastened the decision, sources familiar with the matter tell BusinessDay.
The central bank of Nigeria in a report Friday said HSBC and UBS Group have closed their local representative offices in the country’s commercial capital of Lagos without stating any reason. US lender, UBS, has in the past said a dispute between the central bank and South African telecom company MTN Group Ltd. over repatriation of $8.1 billion may erode confidence in the country.
Neither HSBC nor UBS immediately responded to a Business Day email late on Sundayseeking comment, but sources say HSBC’s exit from the country was part of a global strategy by new Chief Executive Officer, John Flint, to exit smaller consumer operations. UBS’s exit is unclear.
HSBC, like UBS, only had a representative office in Nigeria, but didn’t operate a full banking unit in the country, unlike rivals such as Citigroup and Standard Chartered Plc.
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“Constant harassment by the government and security operatives forced HSBC out quicker than was originally planned,” the sources who were not authorised to speak publicly said. In April 2018, the Financial Times and Bloomberg News reported that Europe’s biggest bank by market capitalisation, HSBC, was reviewing as many as a quarter of the 67 countries the bank operates in, with plans to exit small consumer operations.
HSBC has been shrinking since the financial crisis of 2008 as new regulations and low interest rates threaten earnings. In that time, the lender, which used to call itself the “world’s local bank”, has closed almost 100 businesses and reduced the number of countries it operated in to 67 from 88.
The London-listed lender rose 1.14 percent Friday, valuing the company at 128 billion British pounds (USD$166 billion). With $2.5 trillion (N907 trillion) of assets, the bank’s balance sheet is six times the size of Nigeria’s economy.
“The noise following their exit is not because they would be missed in Nigeria, rather as one of the top 10 banks in the world, they command market power such that news about them may move markets,” Bongo Adi, a development economist, said.
“So we are concerned about the negative contagion that may follow this news. Never forget that market runs on irrational exuberance that this sort of news carry and this is a time when our FDI isn’t doing well and the news of this exit doesn’t help,” Adi said.
While the CBN said Foreign Direct Investment (FDI) to Nigeria declined by 29 percent to N379.84 billion naira ($1 billion) in the first half of the year, from N532.63 billion naira in the same period a year earlier, state-funded data agency, the National Bureau of Statistics (NBS) had earlier reported a 4.5 percent increase to $507.96 million in the first half of 2018 from $485.75 million the same period a year ago.
FDI inflow to Nigeria is way below requirements for a country tipped to be the third most populous nation by 2050 with a population exceeding that of the United States. Nigeria’s FDI per capita was barely $5.6 in 2017, compared to $107 in Ghana, $78 in Egypt and $58 in South Africa, according to data from UNCTAD.
Atiku Abubakar, the Presidential aspirant of Nigerian opposition party, PDP, said “(It is) always a sad day for our country when such entities pack up. FDI is a key component to economic growth.”
“My administration will attract more FDI by making the CBN stronger and independent and banish multiple exchange rates and promote a market-led economy,” the 71 year old former vice president, who will do battle with incumbent President Muhammadu Buhari of the APC at the 2019 polls, said on twitter.
Abubakar has remained silent after his party publicised his plans to crash retail petrol prices lower, even though the current N145 per litre comes at a huge subsidy cost to government, calling to question his pro-market ideology.
On the implication of the exit of HSBC and UBS from Nigeria, some analysts say it adds to the bad reputation of the country to foreign investors following a regulatory clash with its biggest non-oil Foreign investor, MTN, late August. A situation that the finance minister, Zainab Ahmed, even described as “damaging” at a private sector conference last month.
“When you are struggling to raise foreign capital these are not the type of events you want to be linked to,” a money manager who sits in South Africa told Business Day.
The central bank had accused the local units of Standard chartered, Citi bank and Standard bank, as well as local lender- Diamond bank of illegally aiding MTN to repatriate $8.1 billion using false Certificates of Capital Importation (CCIs). MTN and the banks denied any wrongdoings but the banks were fined N5.9 billion among them while MTN got a court injunction to stop the apex bank from forcing it to repatriate the $8.1 billion back to the country.
The matter is still in court but Nigerian authorities have since softened their stance on the accusations admitting the manner in which it was handled was a mistake.
Other analysts however say the perceived impact of the exit of both banks (HSBC and UBS) has been largely exaggerated.
“They had desk offices in the country at best and there is no official data on foreign capital imported through them because they never operated full-fledged banking operations,” an investment researcher at a local Pension Fund told Business Day.
Stanbic IBTC, the local unit of Standard bank of South Africa, imported the largest capital into Nigeria in the first half of 2018 ($6.1 billion or 51.7 percent of the $11.8 billion total imported into Nigeria in that period) followed by the local unit of London-based Standard Chartered bank ($1.7 billion or 14.4 percent of the total) and local unit of US lender, Citi bank, ($1.2 billion or 10 percent of the total). HSBC and UBS did not import any capital.
“Their (HSBC and UBS) exit should not be wrongly exaggerated as if it was Standard chartered or Citi bank taking a walk. They only operated representative offices and had no full fledged banking operations like Standard bank or Citi,” one investment banker said.
“There are claims that they are leaving because their CEO is shutting branches globally and that they have been frustrated out by the current administration over money laundering claims,” the person, who did not want to be quoted due to the sensitivity of the matter said.
Nigeria accused HSBC Holdings Plc of money laundering last September, after an analyst working for the lender said that a second term for President Muhammadu Buhari may stall economic recovery in Africa’s biggest oil producer.
Nigerian investigations revealed that HSBC had laundered more than $100 million for Sani Abacha — a military dictator who died in 1998 — in Jersey, Paris, London and Geneva, presidential spokesman, Garba Shehu said.
HSBC never responded to the claims.
The allegations against the London-based lender came almost two months after it published a research note saying that a win for Buhari in February’s elections “raises the risk of limited economic progress and further fiscal deterioration, prolonging the stagnation of his first term.”
The note was written by David Faulkner, a Johannesburg-based economist, on July 18, but was only widely publicized months later.
LOLADE AKINMURELE
