Citigroup warns Nigeria, other African economies on consistency in implementing banking regulations

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By Bella Genga and Emele Onu

Policy changes and reversals carry huge opportunity cost
Nigeria, Kenya, South Africa implemented new policies or laws

Citigroup Inc. is calling for greater consistency in implementing regulations for the banking industry in Africa and warned frequent changes will harm the sector.

The bank’s business was one of 12 lenders Nigeria’s central bank penalized last month for failing to meet credit-provision targets. Citigroup was handed a 100.7 billion naira ($279 million) penalty out of a combined sanction of 500 billion that was transferred from the lenders’ cash reserves to the regulator pending compliance. Less than a week later, the central bank raised the sector’s minimum loan-to-deposit ratio requirement to 65% from 60% and said the directive would be reviewed quarterly.

“We shouldn’t be changing things every six months and we shouldn’t be changing things midway” through, Ebru Pakcan, Citigroup’s head of treasury and trade solutions for Europe, Middle East and Africa, said in an interview in the Kenyan capital, Nairobi on Oct. 9. “If it is something that is suddenly reversed six months later then there’s a huge opportunity cost for everyone who spent time and energy to fit into that,” she said.

Banks are also facing challenges elsewhere. In Kenya, lenders are wrestling with the uncertainty about how much they can charge for loans. Lawmakers in East Africa’s biggest economy have rejected the National Treasury’s proposal to repeal a contentious law that caps interest rates, despite opposition from the central bank governor and the High Court annulling it.

In South Africa, the continent’s most industrialized economy, the National Credit Amendment Act that was signed into law in August. It allows over-indebted consumers to have payments suspended in part or in full for as long as 24 months, or even scrapped if their financial situation has been found to have worsened.

Nevertheless, Citigroup still sees plenty of opportunity on the continent and plans to boost its digital investment in Nigeria and parts of West and Central Africa over the next 12 to 18 months, Pakcan said. The New York-based lender expects growth in the trade and treasury services business at 4% to 6%, she said.

This view is shared by McKinsey & Co., which notes that Africa’s banking market is the second-fastest in terms of growth and the second-most profitable.

Kenya is seen replacing Egypt as a preferred hub for managing treasury or shared service centers, technology research and development by more of Citigroup’s clients, Pakcan said. “This is mostly driven by how technology is developed in this market, the creativity, the talent, but also the stability that customers have been seeing.”

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