Wednesday, July 01, 2009

Nigeria allows foreign bank ownership, aims to acquire more than capital


Financial Times: Nigeria to lift ban on foreign bank takeovers,
Nigeria’s top banker to boost transparency
Reuters: Nigeria may lift ban on foreign bank ownership

Nigeria, a country of 140 million people, is Africa’s most populous nation and the continent’s second largest economy. There are 24 banks in Nigeria today, operating approximately 23 million accounts. The country’s large population and growing economy make it a massive potential market for retail banking. Large companies also view Nigeria as a desirable, strategically-located base for launching regional operations elsewhere on the continent.

For more than 30 years however, foreign acquisition of more than 5 percent of any Nigerian bank has been subject to approval by the governor of the country’s Central Bank. Foreign banks have also been prohibited from owning more than 10 percent of any Nigerian bank. These limitations date back to the 1970s, a period of strict nationalism under military rule, and have outlived their purpose, according to recently appointed Central Bank Governor Lamido Sanusi.

Recent financial turmoil has caused contraction in foreign credit lines, a stock market collapse and an overall tightening of liquidity in the Nigerian banking system. Sanusi sees increased international participation as an important step toward improving the health of the country’s banks, calling the old rules “unnecessarily restrictive.”

By opening doors to foreign banks, Governor Sanusi hopes to do more than simply shore up Nigeria’s capital base. He aims to improve the banking system’s disclosure requirements and tighten bank supervision, and he’s counting on foreign expertise to advance those goals. In the short to medium-term, Nigerian banks will undoubtedly benefit from capital influx, but exposure to the skills and management strategies of large foreign banks could reap even greater rewards in the future. During this period of recovery and potential growth, Sanusi brings an open perspective to his post as governor of Nigeria’s Central Bank. “What you want to do,” he says, “is open up all the possibilities.”

1. How will continued unrest in Nigeria’s oil delta impact the involvement of foreign banks in Nigeria?
2. Should the Central Bank maintain some lesser degree of control over the bank acquisitions as they occur? Are there risks that offset the sizeable benefits of foreign involvement?

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