Now Abuja targets banking institutions
Publish date: 07 October 2019
Issue Number: 844
Diary: IBA Legalbrief Africa
Just days after a UK court granted Nigeria permission to appeal against a ruling that would have allowed a foreign company to seize assets worth 20% of the country’s foreign reserves, its central bank announced that it plans to charge 12 banks a total of more than $1.3bn for failing to meet its minimum loan-to-deposit ratio requirement by a September deadline. Legalbrief reports that the move reflects a pattern where Abuja is hitting companies and lending institutions with massive fines. And investors are watching nervously over their shoulders. The central bank has been seeking to boost credit to businesses and consumers after a recent recession, but lending has yet to pick up. With growth slow, banks prefer to park cash in risk-free government securities rather than lend to companies and consumers. In July, the central bank asked lenders to maintain a ratio of lending out at least 60% of deposits by September as part of measures aimed at getting credit flowing. A report on the IoL site notes that the local units of Citibank and Standard Chartered Bank are among those affected. Others include top tier Nigerian lenders Zenith Bank, Guaranty Trust Bank, First Bank and United Bank for Africa. A report on the Fin24 site notes that the banks have until 31 December to comply with the directive or risk an additional cash-reserve requirement equal to 50% of the lending shortfall implied by the ratio. ‘The impact on asset quality will be very apparent when the economy experiences a change in the business cycle,’ said Omotola Abimbola, a macro analyst at Chapel Hill Denham Securities in Lagos. He said banks needed to expand credit in a ‘sustainable manner, not in a rush, which will be the concern of some of the banks’.
Meanwhile there have been fresh developments in two other mega lawsuits between Nigeria and foreign companies. As previously reported in Legalbrief Africa, a UK judge in August gave the green light for a small private firm to seize more than $9bn in assets from the Nigerian Government over a failed natural gas deal. The 2010 deal between the Process and Industrial Developments Limited (P&ID) company and the Nigerian Government provided for P&ID to ‘build a state-of-the-art gas processing plant to refine natural gas that Nigeria would receive free of charge to power its national electric grid’. It sued Abuja for breaching the agreement by failing to install pipelines. Nigeria attempted to nullify the award, insisting that it was not a case to be heard outside its shores but the British judiciary rejected the argument. Information Minister Lai Mohammed last week reiterated that the contract entered into with the Ministry of Petroleum Resources ‘was nothing but a fraudulent contraption with no chance, or expectation, of success’. The Vanguard reports that he said the company has no physical address ‘and set out to dupe Nigeria from day one, with the connivance of unpatriotic, corrupt and greedy Nigerians’. ‘A contract of this magnitude cannot be valid until it has been vetted by the Office of the Attorney-General of and taken to the Federal Executive Council for approval. None of these was done,’ he added.
In other developments, MTN which has its own pile of Nigerian woes, has launched a ‘we’re good together’ initiative. ITWeb reports that the operator said it aimed to demonstrate how, in partnering with its host countries, it could change lives by improving digital access and driving financial inclusion. ‘As a pan African company with roots that are deeply anchored in the continent, MTN is telling its story that doing good business extends far beyond corporate social investment initiatives,’ it said. Last month, the company had to close shop in countries like Nigeria following attacks on its businesses in that country in retaliation to xenophobic attacks in SA. Group CEO Rob Shuter said ‘to harness the potential of Africa and ensure our youth are productively employed, we need affordable, safe and relevant digital services which are matched with the required digital skills’. As previously reported in Legalbrief, MTN received a $3.2bn fine by Nigeria’s Communications Commission after a compliance audit revealed 5.2m unregistered customers.
Nigeria's rocky relationship with SA came into sharp focus during President Muhammadu Buhari's official visit which ended on Friday. He denounced recent xenophobic violence in SA as an ‘embarrassment’ for the continent. The three-day trip was overshadowed by a spate of recent attacks after mobs descended on foreign-owned stores in and around Johannesburg in early September, destroying properties, looting and killing at least 12 people. ‘The recent acts of xenophobic attacks on our compatriots and other Africans in SA are shocking to me, Nigerians and indeed Africa. It was an embarrassment to the continent,’ he said. A report on the News24 site notes that Buhari and his SA counterpart Cyril Ramaphosa agreed to set up better intelligence and share information to pre-empt anti-foreigner sentiment from transforming into violence and bloodshed.
Buhari’s visit has left expats angry over his decision not to demand financial reparations for victims of the recent carnage. At a 'family' meeting held in Pretoria on Friday, it was expected that he would address how the Nigerians would be compensated for their losses during the attacks. City Press reports that the chief whip of the All Progressive Congress SA (APC SA), Babatunde Agbeniga, represented a group which believed that this was the only way the matter could be solved. Buhari is a member of the party. 'The violence and all that has been taking place over the past few weeks... nobody should be happy about that,' he said. A statement released by the Nigerian Presidency’s press office revealed that Buhari decided to focus on other issues relating to the attacks, rather than on the demand for compensation.