Nigerian banks, including Ecobank (ETI), FirstBank and United Bank for Africa (UBA), which are rapidly expanding across Africa, are bumping up against the challenges of coordination of cross-border regulations, often leading to an extra burden for their group business.
Analysts say that operating across Africa comes with a hidden cost as the countries are often different, with some vast and industrialised, while others are overwhelmingly poor and rural.
There are also linguistic divisions to deal with, as well as headaches from operating across dozens of markets each adhering to a different set of regulatory criteria.
“There is no cohesive pan-Africa policy among the various central banks, and given that ETI operates in several countries, each with its own set of rules and regulations, it creates some level of inter-operability risks as a wholesale entity,” said analysts at ProshareNG, a Lagos-based investment and research firm, in a report released February 15.
“It is also true that since the capital adequacy requirements differ from country to country, one of its subsidiaries may need to recapitalise if new legislations come in, thus resulting in some subsidiary companies being cash rich while others require fresh capital.”
The lack of regulatory coordination is unlike what obtains in the European Union (EU), where one central bank exists for the union, with all banks conforming to these regulations, making it easier for the banks and the government(s) as well.
ETI, founded in 1985, is the largest banking group in Africa, where it has operations in 35 countries and $21.5 billion in assets at the end of September 2013.
The bank is listed on three stock exchanges in West Africa. However, an action by the Securities and Exchange Commission (SEC) on trading of Ecobank shares in Nigeria would not necessarily be replicated by the authorities in Abidjan and Accra in their jurisdictions, analysts note.
The political/cultural divide between Francophone and Anglophone Africa and the issue of nations in the sub-region wanting to preserve their sovereignty may also be combining to undermine effective regulation of banks operating across the continent.
Nigeria’s regulator, the SEC, probed Ecobank after Laurence do Rego, the former executive director of risk and finance, alleged senior management fraud. Do Rego told the SEC last August that former chairman, Kolapo Lawson, and chief executive officer, Thierry Tanoh, planned to sell assets below market value. Both Tanoh and Lawson deny any wrongdoing.
A SEC review of Ecobank last month found “inadequate transparency in the recruitment procedures and mechanisms for board members and executive staff”, the regulator said January 10. It asked Ecobank to appoint a “substantive” chairman and develop a one-year plan to address the governance issues.
Analysts say that the greatest obstacle to establishing a cross-border banking regulatory agency for the region may be the issue of autonomy, as most countries will likely oppose it based on fears that the larger countries such as Nigeria and South Africa will use the agencies to infringe on their sovereignty.
The EU, however, is a collection of 28 member-states that have relinquished part of their sovereignty to the union’s institutions, with many decisions made at the European level, making it easy to establish a common regulatory regime.
The ability to operate each country sub-unit optimally is also a challenge for banks operating across different jurisdictions.
“ETI needs to deliver economies of scale to drive higher profit growth and generate value for shareholders,” Renaissance Capital analysts Nothando Ndebele and Adesoji Solanke wrote in a note released January 27.
“Of key importance is getting Nigeria right, which represents 44 percent of group asset base but only 27 percent of PBT as at 9M 2013,” they added.
By: PATRICK ATUANYA
