By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE)-Nigeria’s Central Bank has directed Banks to recapitalise their Foreign Subsidiaries or close down; as pressure from host Regulators mounts.

This was contained in a Circular with reference number BSD/DIR/GEN/RFS/05/024 and dated May 18 2012 signed by Agnes Martins, Director of Banking Supervision at the CBN.

“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” the CBN said.

According to Nigeria’s Central Bank, these Capital demands are not in tandem with the level/growth in business activities.

The CBN further affirmed that it would not permit any Capital outlay/outflow from Parent Banks to augment the Capital needs of Foreign Subsidiaries; but would rather encourage Banks to consider the options of Merger/Acquisition arrangements with other Local and/or Foreign Banks in their host Country.

Another option the CBN said was to raise Fresh Capital from host countries Capital Market either through Private Pavements or Public Offers

“Parent Banks whose Foreign Subsidiaries were unable to raise additional Capital in the host Country Market would be required to submit exit strategies from those jurisdictions” the Circular said.

“Nigerian banks with foreign subsidiaries are required to submit, within 60 days of the date on this letter, recapitalisation plans in anticipation of regulatory capital increases under BASEL II and III and any other unforeseen increase by host countries.

The bank noted that under no circumstances were parent banks allowed to guarantee the deposit of their foreign subsidiaries” Nigeria’s Central Bank said.

Click here to download Circular on recapitalisation of Foreign Subsidairies