Regulatory Alerts2012-07-25 | BSD/DIR/GEN/RFS/05/024Letter to Banks on Recapitalisation of Foreign Subsidiaries
The Central Bank of Nigeria (CBN) has expressed concern over the demands from various host regulators for Nigerian banks to recapitalize their foreign subsidiaries. These demands have caused financial pressure on parent banks due to limited capital market activity, reduced profit margins, and increasing competition. As a result, CBN will not allow any further outflow of capital to support these subsidiaries. Instead, the bank encourages Nigerian banks to consider options like mergers/acquisitions, sourcing fresh capital from host countries, or exiting jurisdictions by June 30, 2012. Additionally, banks with foreign subsidiaries need to submit recapitalization plans within 60 days of this letter's date, in anticipation of regulatory increases under BASEL II and III, as well as any other unexpected changes enforced by host countries. The CBN also prohibits parent banks from guaranteeing the deposits of their foreign subsidiaries.
+234-9-4636401 +234-9-4636418 May 18, 2012 BSD/DIR/GEN/RFS/05/024 LETTER TO BANKS ON RECAPITALIZATION OF FOREIGN SUBSIDIARIES The CBN has noted with concern the incessant demands on Nigerian banks by various host regulators for the recapitalization of their foreign subsidiaries. These demands have exerted enormous pressure on the capital base of most parent banks due to the lull in the capital market making it difficult to raise capital, diminishing profit margins and increasing competition.
Furthermore these capital demands are not in tandem with the level/growth in business activities.
Henceforth, the CBN shall not permit any further capital outlay/outflow from parent banks to augment the capital needs of foreign subsidiaries, but would rather encourage banks to consider the following options in raising capital for foreign subsidiaries.
- Mergers/acquisition arrangements with other local and/or foreign banks in the host country; 2. Sourcing of fresh capital from the host country capital market either through private placements or public offers; and 3. Parent banks whose foreign subsidiaries are unable to raise additional capital in the host country market will be required to submit exit strategies from those jurisdictions not later than June 30, 2012.
Additionally, Nigerian banks with foreign subsidiaries are required to submit, within 60 days of the date on this letter, recapitalization plans in anticipation of regulatory capital increases under BASEL II and III and any other unforeseen increase by host countries.
Finally, under no circumstances are parent banks allowed to guarantee the deposit of their foreign subsidiaries AGNES O. MARTINS (MRS.) DIRECTOR OF BANKING SUPEVISION