Capital Markets Newsletter Dec08

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CENTRAL BANK OF NIGERIA SETS NEW HURDLES FOR FOREIGN BANKS DESIROUS OF ACQUIRING NIGERIAN BANKS

The new regulations are limited to the top ten banks in Nigeria. The top ten banks in Nigeria control nearly seventy percent (70%) of the banking sector.

December 2008

It seems that these new regulations are designed to ensure that the growing foreign interests in the Nigerian banking sector do not translate into a foreign takeover of the top ten existing local banks.

Vol. 21: Issue 12

In a recent regulation issued by the Central Bank of Nigeria (CBN), fresh hurdles have been set for foreign banks desirous of merging with or acquiring any of the existing local banks in the country. Under the new regulation approved by the CBN, if a group of foreign institutions decides to invest in any of the local banks, the aggregate investment must not be more than 10 per cent of the latter’s total capital. Further, in a situation where a single foreign investor invests in a local bank, such investment may not exceed the holding of the largest Nigerian shareholder. In addition, any foreign-owned bank in Nigeria desirous of acquiring or merging with a local bank must have operated in Nigeria for a minimum of five years. To qualify for merger or acquisition of any of Nigeria’s local banks, the foreign bank must have achieved a spread of two-thirds of the states of the federation. This provision mandates that the foreign-owned bank must have branches in at least 24 out of the 36 states of the federation of Nigeria.

However, the restriction does not debar foreign banks from setting up businesses in Nigeria on their own if they satisfy the N25 billion capital base requirement and other statutory prescriptions. For foreign banks interested in doing business in Nigeria, the restriction is limited only to the top ten banks in the country. Other existing local banks are excluded from this new policy. Foreign banks may therefore merge with or acquire local banks outside the top-ten list. The new regulations permit foreign banks to acquire or merge with existing banks which already have structures and branches in place. It would appear that the regulations are primarily aimed at avoiding a situation in which foreign banks dominate Nigeria’s financial system and prescribe rules on Nigeria’s economic development.

©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.

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The CBN has gone to great lengths to justify these new restrictions. The bank has stressed that it is not preventing foreign banks from investing in the economy. Rather, it seeks to avoid the acquisition of the top ten banks by foreign banks. However, with the recent meltdown in global financial markets, questions could be asked whether the CBN regulations are in tandem with current global realities.

For further information, please contact: Ms. Nkeiru Onyeaso Tel: +234 808 718 0833 Email: [email protected] Fax: +234 1 2694781 Ms. Clara Ndive Email: [email protected] Tel: +234 803 323 1868 Fax: +234 1 2694781

Dr. Pius Okoronkwo Tel: +647 831 7487 Email: [email protected] Fax: +234 1 2694781

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©Blackfriars LLP 2008. All rights reserved. This document is for general guidance only. Definitive advice should be sought from counsel if required. Blackfriars LLP is a Nigerian law firm with a representative office in Toronto, Canada.