The dominance of foreign banks in the business of capital importation and cross border transaction in the economy may have rekindled calls for strategic partnership with foreign lenders, INDEPENDENT interactions and investigations have shown.
Capital Importation deals with inflows of cash (foreign currency Inflow) for investment as Equity or Loan, and also for importation of machinery and equipment for investment as Equity or Loan.
This is followed by a certificate of capital importation (“CCI”) issued by the banks aimed at providing customers with statutory evidence of capital inflow/investment into the country. It legitimises and facilitates the repatriation of dividends, interest/coupon and capital to the investor. It also facilitates repayment on foreign loans along with interests accrued.
Specifically, last week’s report by the National Bureau Of Statistics, (NBS) showed that three banks, Stanbic IBTC, Citi Bank Nigeria and Standard Chartered Bank) accounted for 70.7 percent or $1.27 billion of total estimated $1.792 billion, capital importation for the second quarter of this year.
The report concluded that the remaining 22 banks accounted for the balance.
Analysts said at the weekend that the development is a wakeup call for the local banks to be internationally competitive and also work on their branding and operations for global patronage.
Razia Khan, Managing Director, Chief Economist, Africa Global Research, Standard Chartered Bank, London said, “It’s not surprising as the three are international banks with a wider foreign portfolio investor client base.
Bolade Agbola, Lagos based analyst said, “The three foreign banks are banks of first choice for foreign firms doing business in Nigeria because of their ownership structure .It is not surprising that most of the Foreign Direct Investment and Portfolio Investment (70%) were remitted through them. The implication for Nigerian Banks is very clear. They have to improve on their brand and possibly enter into strategic alliance with foreign banks like what IBTC did with Stanbic Bank in order to enhance their chances of participating in the foreign exchange remittance business.”
‘Dipo Fatokun, Director, Banking and Payments System Department, Central Bank of Nigeria said recently that the regulatory landscape remains complex for banks as they, not only need to comply with existing regulations, but also adhere to new regulatory initiatives, some of which affect established operating or business models.
Fatokun, who spoke at the Finance Correspondent Association of Nigeria (FICAN) last month in Lagos said that “Regulations may differ greatly; some being very detailed and prescriptive while others may be transformational and subject to multiple interpretations.”
According to him, “Increased complexity in the regulatory landscape sometimes, creates a need for banks to leverage new technology for compliance purposes.”
Required rate of policy review is increasing due to technology changes and innovations. This creates disruption in the smooth flow of implementation, where a policy becomes ineffective as a result of better technology.
At international level, Anurag Bajaj, Global Head of Banks, Transaction Banking, Standard Chartered said global banks have been reducing correspondent banking clients, either because they are commercially unviable or they fail today’s higher financial crime prevention standards.
Bajaj, in an article – Promoting financial inclusion in correspondent banking, published in The Economist noted that local smaller banks which depend on international correspondents lenders for facilitating cross border flows, which underpin trade and commerce are currently facing resistance from the correspondent banking network due to much stricter laws and regulation to curb financial crimes, including money laundering and terrorism, financing, among others.
The implication, according to him is, not that it not just excludes those smaller banks from the financial system, it also encourages a lack of transparency as financial flows will start finding alternate channels that potentially go completely under the radar.
“It is far more beneficial for as many transactions as possible to remain mainstream, subject to tighter compliance controls,” he said, adding, however, that there is not much any bank can do for correspondent banking clients that fall short of risk tolerance and are unwilling to improve their processes and systems.
According to him, financial exclusion, usually regarded as a problem, is confined to the most disadvantaged sections of society – poor people and struggling small businesses – who find it
expensive or difficult to access banking and associated financial services, has recently become a concern for smaller banks and money transmission businesses, some of whom are finding themselves frozen out of the correspondent banking network because global correspondent banks no longer want to do business with them.
He, therefore, posited that the development is frightening and serious, as correspondent banking remains the lifeline of commerce, facilitating and financing trade and cross border financial flows.
“There are two main reasons for this. First, many global banks are pulling out of smaller markets because they are no longer economically viable. Second, global banks today have to comply with much stricter laws and regulations to curb money laundering, terrorist financing, and other financial crimes.
“Many small banks and money transmission businesses are unable to meet or prove that they operate to acceptable standards, so the global banks deem them too risky and cease their relationships with them – a phenomenon is widely known as de-risking,” he stated.
The NBS report said that Nigeria’s capital importation rises 95% to $1.79bn in Q2, representing a 95 percent growth from $884.1 million recorded in Q1 2017. This, according to some analysts is an indication that portfolio investors are making bold return to bourse. Analysts at the weekend attributed the stable CBN foreign exchange management as responsible.
However, year-on-year growth moderated to 43.6 percent from the $1.042 billion recorded in quarter two of 2016.
Specifically, the NBS noted that the main driver of the growth in capital importation in the review period was portfolio investments, which increased by 145.7 percent, followed by other investments growing by 95.02 percent, and then foreign direct investment (FDI) increasing by 29.8 percent over the previous quarter.
A month on month analysis of capital importation in the second quarter shows that the month of May recorded the highest of amount of capital importation ($616.5 million), followed by June with $612.6million and May with $563.3 million.
“Portfolio Investment was the largest component of imported capital in the second quarter of 2017, accounting for $770.5 million, or 43.0 percent of the total. It was closely followed by other investments, which accounted for $747.5 million, or 41.7 percent, and then FDI, which accounted for $274.4 or 15.3 percent during the quarter,” the NBS noted.
However, a year on year comparison of the three investment types indicate that portfolio Investments increased by 128.4 percent, from the $337.3 million recorded in second quarter of 2016.
Other Investments also increased by 43.6 percent, from the $520.6 million reported in the same quarter of 2016, while FDI grew by 48.9 percent, from $184.3 million.
On sectoral allocation of the imported capital, the NBS said the value of share capital imported in the period under review was $932.58 million, which represents an increase of 548.5 percent relative to the previous quarter, and an increase of 168.0 percent relative to the second quarter of 2016.
“This was by far the sector to attract the largest amount of capital in the second quarter of the year. This was a significant increase relative to recent quarters, the highest amount since the third quarter of 2015, when it declined significantly from $1.74 billion to $831.88 million in the fourth quarter of 2015,” the NBS stated.
Share capital investment, which is closely related to equity investment (FDI and Portfolio), was largely responsible for huge increase in capital importation during the quarter.
The sector to attract the second largest value of capital imported during the reference quarter was the oil and gas sector, accounting for 10.6 percent, or ($190.39 million) of total imported capital, representing an increase of 88.4 percent over the previous quarter, but a 5.0 percent decline when compared to the same period of last year.
The servicing and production/manufacturing sectors also attracted significant levels of capital importation in the second quarter, accounting for shares of 8.1 percent ($145.56 million) and 7.9 percent ($141.42 million) respectively.
The state to import the most capital into Nigeria in the second quarter of 2017 was Lagos, as in all previous quarters. Lagos is the commercial and financial capital of Nigeria and home to Nigeria’s Stock Exchange where shares are traded. As such, it accounts for most of the capital imported into the country.
Specifically, Lagos accounted for 97.07 percent ($1.739 billion) of capital importation, which represents a slight increase in its share relative to the previous quarter, when it was 95.32 percent.
Akwa Ibom as in the previous quarter recorded the second highest level of capital importation, accounting for 1.92 percent ($34.08 million) of the total share and an increase of 85.6 percent over the amount it recorded in the previous quarter.
Abuja recorded the third highest amount, with a share of 0.93 percent ($16.64 million) of the total, followed by Oyo state with a share of 0.1 percent ($1.83 million).
The country from which Nigeria imported the most capital was the United Kingdom, which accounted for $696.7 million, or 38.87 percent of the total. This value represents a 130.3 percent increase relative to the previous quarter, and 107.9 percent increase over the same period of last year.
The country to account for the second largest value of capital importation was the United States. The US accounted for $287.82 million in the second quarter of 2017 or 16.06 percent. The US has also been one of the most important investors in Nigeria, usually either the largest or second largest investor country.
The next two largest investors in the second quarter of 2017 were Belgium (accounting for 15.7%) and Singapore (8.67%).
Source : Independent