Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Western EuropeApril 6 2008

London calling

One strategy that Nigerian banks are following to boost return on capital is setting up shop in London. Nick Kochan explores the challenges they face.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon

Morohunke Bammeke was in celebratory mood. The managing director of Guaranty Trust Bank (GTB) UK had just received authorisation from the Financial Services Authority (FSA) to set up GTB bank in London. This was the culmination of a two-year process of form filling and meetings with the London regulators. The bank could at last start to attract deposits and develop relationships with UK-based banks, knowing that its operation was for real and not merely preparatory.

Prospects in London are great, says Ms Bammeke, but it will be tough going. “Competition is keen, and the cost of doing business is high. We are here for the long haul. During the first year, we want to establish relationships, we want to bed down our systems and we don’t want to expand too quickly. We don’t want our quality of systems to decline.” GTB starts with a £20m capital base.

Ms Bammeke aims to have two forms of business in the UK market. First, she wants to take a share of trade finance, which is booming at the moment as Nigeria uses its healthy balance of payments to develop its infrastructure. Second, she perceives considerable two-way flows of retail cash between Nigeria and London. Nigeria has a two million strong diaspora in the UK, and many are wealthy and do business with their home country.

Favoured city

London is the flavour of the day for many Nigerian banks that are seeking international exposure. GTB joins a strong group of Nigerians with UK subsidiaries. They are First Bank of Nigeria (FBN), Union Bank and Zenith Bank. UBA Capital has a London presence through its ownership of a minority stake in investment bank Afrinvest.

This group of banks is set to expand fast. Intercontinental Bank is believed to be in the process of authorisation, Oceanic is examining the prospects and other banks are scouting the market.

“Nigerian banks hanker after a London base,” says Christian Udechukwu, managing director of Business in Africa Events. “As Nigerian companies seek to extend themselves internationally and obtain London listings, Nigerian banks will follow. At least half of all Nigerian banks will set up in London over time.”

Nigerian banks’ aspirations to set up in London are only limited by FSA constraints, says Andrew Martin, the CEO of Zenith Bank (UK). “The London market can easily take more players. I don’t know whether the FSA has a cap on the number of Nigerian players. There must be some level of tolerance. They have to draw the line somewhere. Setting up a London operation is an ambition of many managing directors of Nigerian banks. It adds prestige to their local business as well as their international activities.”

Variety to offer

Banks seeking FSA authorisation can argue that they bring many different forms of banking to London. So FBN Bank, a 100% owned subsidiary of First Bank of Nigeria, offers not merely a sophisticated service for confirming letters of credit, but also an internet-based savings account called FirstSave. The account is limited to UK citizens but it offers among the country’s highest interest rates.

The back office for FirstSave is handled by the Newcastle Building Society. FBN Bank had to introduce rigorous procedures to satisfy the conditions of the UK banking code. FBN Bank managing director Peter Hinson says: “We are doing this to fund our balance sheet, pure and simple.”

FBN Bank has a $2bn balance sheet, believed to be the largest of all Nigerian banks in London. It says it gives its parent a 25% return on capital. It has £100m ($201m) of share capital.

The bank, which gained its London licence in 2002, has exploited the UK base further than any other bank. Last year, it set up a Paris branch office to serve as a marketing operation for selling into francophone Africa. It now claims to be able to service all anglophone and francophone countries in west Africa.

Mr Hinson says that First Bank of Nigeria used its London subsidiary to make the push into France because it expected an FSA-regulated entity would have an easier time in obtaining authorisation from the French authorities than its parent. Its application for a branch licence “went through completely smoothly”, he says.

FBN Bank’s international push has not stopped at Paris. Ironically, the London bank is in the process of opening up a representative office in Lagos. “We are not knocking our parent,” says Mr Hinson. “But the service standards in Africa and the UK are very different. We deal with high-net-worth clients and high-value corporate business and we need people on the ground in Nigeria who can ensure that our service is of the highest quality.”

The Lagos office will have about eight executives and be headed by a former Barclays banker. Nigerians are prominent in the UK’s buy-to-let sector and Mr Hinson expects wealthy Nigerians to approach the Lagos office to arrange finance for purchasing UK real estate.

Investment angle

Professional Nigerian investors will be assisted by the arrival in London of United Bank of Africa (UBA) through the purchase by UBA Capital Europe of a substantial minority stake in Afrinvest. The London-based investment house has built up a strong reputation among international operators who are eager to learn more and participate in African securities trading, mergers and acquisitions, asset management and structured trade finance. An Afrinvest spokesman says that the volume of demands on the bank’s resources and manpower had reached such a point that it was prepared to take on board an investor with a deep pocket.

“In the past 18 months, the interest in the frontier markets, of which African markets are prominent, has skyrocketed among both portfolio and direct investors. We were receiving record amounts of calls from portfolio investors, hedge funds, global emerging markets and Africa-specific funds. To be a dominant factor, we needed more resources in terms of staff and facilities,” says the spokesman.

London is a key hub for capital seeking its way to African investment, he says. “They get an office in London and access to international portfolio investors. UBA is the number one dealer in government securities and a lot have been placed with international institutional investors. They want to control the distribution team rather than go through other brokers. Afrinvest gives them a footprint in London and access to institutions. We are a distribution focal point for the securities. We know institutional investors who want to invest in Africa. They take comfort from interfacing with a regulated entity.”

Observers believe that UBA is likely to purchase a controlling stake in Afrinvest in due course.

Was this article helpful?

Thank you for your feedback!