Nigeria: Policy on Foreign Ownership of Banks Out December

The Central Bank of Nigeria (CBN) yesterday disclosed that it would by December 31, 2007 release a new framework on foreign ownership of Nigerian commercial banks.

It noted that foreign ownership of local banks had set back Nigeria's economic development.


The governor, Central Bank of Nigeria, Prof. Chukwuma Soludo made the statement in Enugu at the 11th edition of a seminar organised for finance correspondents and business editors.

THISDAY had exclusively reported a few weeks ago that the Bank would soon launch a new framework on foreign ownership of Nigerian banks.

Soludo who spoke in New York at the "Nigeria Meets the World Summit" organised by THISDAY had hinted that owing to growing foreign interest in the Nigerian banking sector, the apex bank would soon roll out a framework that would restrict foreign ownership of banks in the country.

He said the framework would deter foreign institutions from taking over the top ten banks in Nigeria, as they collectively account for 71 per cent of the country's banking system.

Speaking at the seminar in Enugu yesterday, Soludo said the CBN was currently putting finishing touches to a study on foreign ownership of banks the world over and Nigeria in particular, which would culminate in the formulation of a formal policy.

Soludo explained that the decision of the CBN was premised on what it had observed in terms of the relationship between ownership and control of the nation's financial system and economic development.

"We want to clarify this issue and that is what we have said repeatedly about limiting foreign ownership in banks. We are currently working on the policy and before the end of the year, we shall come up with a clear framework.

"It does not have much to do with corporate governance but has to do with the empirical evidence about the relationship between ownership and control of the financial system and economic development of a nation especially at the level of our own economic development," he stressed.

He however, explained that the Central Bank is not preventing foreign banks from investing in the economy, stressing that what the regulatory authority would not allow is the acquisition of just any local bank.

"Foreign banks are allowed to come into Nigeria and set up shop. If they meet the N25 billion requirement, we will give them a fresh licence but if they want to take over some of the existing ones, we will be reluctant to approve that.

"We are open to foreigners coming in and applying for a licence. We know if the history of the ones in existence is anything to go by, they are unlikely to be as aggressive as First Bank or United Bank for Africa or any of the Nigerian banks, in going out to every nook and cranny of the country and being very responsive to the local needs of the Nigerian economy," he stated.

Painting scenarios of foreign ownership of banks in Singapore and Mexico, he pointed out: "Singapore introduced a formal policy allowing foreign banks to come there and operate, and there are over a hundred of them. But they went to the extreme of restricting the number of branches that they could have. You are allowed to do anything and everything except attempting to acquire any of the three conglomerates, which constitute the local banks.

"The three local conglomerates constitute 90 percent of banking infrastructure there. There is sound logic to this. Lots of countries in the world restrict even entry of foreign financial institutions. This is the heart beat of the economy, if you close it, the economy stops breathing."

He made references to the Mexican experience where they gave foreign institutions free rein to the extent that today, foreigners own about 90 per cent of the entire banking sector.

The Mexican government, Soludo disclosed, is today compelled to establish government-owned banks to carter for the development of the economy," he said.

He cited the case of Citibank, which has been in the country for about 25 years with only five or six branches. He also noted that most of the decisions on its day to day operations are taken from outside the country.

"Now if you study the operations of foreign owned banks in Nigeria, Citibank has been here for about 25 years. Yet, it has only about five or six branches across different locations, and decision making is obviously taken from somewhere else, including decisions on loans," he explained.

Consequently, he assured the CBN "would soon come out with a formal paper because we are studying this globally and also in Nigeria."

CBN he concluded, has observed the fundamental significant differences in terms of the behaviour emanating essentially from ownership whether it is foreign-owned or Nigerian-owned and "we will be able to elaborate on this when we bring out the policy and background study.

"We are lucky that in Nigeria, up till this moment we have a banking system dominated by Nigerians, and it is of strategic importance for us to manage it effectively," Soludo said.