CBN policy pushing banks to adopt cross-border expansion

MORE Nigerian banks will adopt cross-border expansion in the face of tight regulation, over-concentrated risk, and the desire to stay afloat, financial experts told The ICIR.

The Central Bank of Nigeria (CBN) had in the last one year aggressively tightened its monetary policy rate (MPR) by 650 basis points (bps) to quell inflationary pressure.

The rate hike rose from 11.5 per cent in April 2022 to 18 per cent in March this year, impacting banks’ profitability as percentage change in interest expense rose higher than interest income.


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Interest expense is simply the amount a bank paid on depositors’ funds, while interest income is the amount it received on loan to customers.

Zenith Bank Plc, for instance, saw its interest expense shot up by 62 per cent to N173.54 billion in 2022 from N106.79 billion in 2021, while FCMB Group Plc reported a 37.15 per cent increase to N97.55 billion in 2022 from N71.13 billion in 2021.

Many of CBN’s policies are unfriendly to good banking practice, the chief executive officer (CEO) of Highcap Securities Limited, David Adonri, told The ICIR.

Adonri said that, for instance, sectoral credit interventions by the CBN constitutes competition with banks.

“Many other obnoxious policies of the past caught many banks napping. It’s against these that Nigerian banks are diversifying across borders to reduce their regulatory and over-concentration risks,” he added.

At a virtual meeting on ‘Nigeria’s Economic Landscape’ held on Wednesday, April 5, the CEO of Cowry Asset Management, Johnson Chukwu, lamented that the continuous hike in MPR would force more lenders to other countries that have favourable interest rates.

According to him, the cumulative 650bps would encourage more banks to expand into other African markets by increasing lending yields and reducing banks’ net interest margins.

“What is happening now is all about the survival of the fittest,” Boniface Okezie, the national chairman of the Progressive Shareholders Association of Nigeria (PSAN), told The ICIR.

Okezie said, “The banks have to go outside to see how they can survive and make it to stay afloat because CBN policy is no longer favourable to them.

“If the banks do not go out there to operate, they can’t be able to stay in business. Banking is all about being in business – financial industry is what they are called, not buying and selling.”

However, the chief executive officer/principal partner with Afrique Capital and Equity Funds Limited, Kazeem Bello, painted a bitter-sweet picture of the situation.

Bello said banks in Nigeria were known to take advantage of the shallow banking environments in many other countries to expand their operations.

As it stands, Nigeria’s banks have spread in over 15 countries across the continent, and to Europe and the Americas.

Bello, a global development economist, argued that the CBN did not really institute cognate policy direction and criteria for those cross-border expansions until, perhaps, 12 years ago.

“It may not be entirely correct to assert that the tough business environments in Nigeria are driving Nigerian banks to set up offshore operations in sub-Saharan Africa. Rather, the enabling opportunities available in those countries may have been the top reason why Nigerian banks venture to invest overseas,” he said.

According to him, by global standard, the banking penetration index for the African continent is the lowest as approximately less than 22 per cent of the continent’s population have access to core banking services.

“This underscores the huge investment opportunities available, especially in some countries where the index is surprisingly below 10 per cent of their population.

“Those figures explain why Nigerian banks flocked the entire sub-region of West Africa with banking operations and some other parts of the continent as well,” he noted.

He pointed out that most banks invest in overseas to drive deposits and increase revenue.



    “Banks are taking the decision to invest across the Nigerian borders rather than being driven away by the CBN policies as investors generally look for opportunities to grow revenue as a priority,” he said.

    Bello, however, raised the concern that the monetary authorities needed to examine and address the “grossly” under-banked situation in the country to grow banking penetration.

    “Some of these banks venturing overseas may not have had the adequate capitalisation base to be allowed to open business abroad,” Bello added.

    Recent update showed that more banks have now transitioned to the holding company (HoldCo) structure to allow for more leverage to diversify their earnings in the face of the present tight monetary policy regime.

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