A regional bank has decided to open an office overseas for serving those businesses that are expanding internationally. Choose a country with a large financial center that you believe would be helpful to your customer base.
Opening a Regional Bank in Nigeria
Opening a Regional Bank in Nigeria
Nigeria with a swelling population which is approximately one hundred and sixty million, the number of middle class citizen has increased significantly over the last few decades. The people of Nigeria represent diverse socio cultural background which to an extent could be beneficial to foreign investors in the banking sector. However, some of the regional banks which have attempted to penetrate the Nigeria economy have faced quite number of obstacles. These challenges are linked to failure by the previous regimes to restore order in Nigeria hence created a room for malpractices in the banking sector.
Challenges that may be faced in the new environment
The rampant corruption involving government officials, lack of transparency in government project, weak legal system, bank frauds, money laundry, forgery and cyber affiliated crimes have all constituted a delicate environment for conducting business by the foreigners in this region. There has been total lack of confidence in the state officers. (Horcher, 2005).
Corruption is one of the biggest challenges affecting the business environment in Nigeria. Majority if international investors are forced to bribe government officials in order to get essential requirements for running of the business. For instance work permit must be facilitated through bribery so that it can be processed faster .It is also the order of the day for regional investors in the banking sector to manipulate their financial statements in order to evade payment of tax. These corrupt deals with state official might turn up to be quite expensive to the regional bank.
Nigeria is currently proving to be one of the regions in Africa in which internet related crimes are increasing becoming a headache to company operating businesses in the region. Hacking of banks information has been common therefore any regional organization that intends to venture into banking sector in the region must work on mechanisms to secure online information.
The political disorganization which has characterized the past regimes in Nigeria has threatened peaceful coexistence of the Muslims, who dominates the northern part of Nigeria and the Christians who occupy the southern part of the country. The political alignment in Nigeria most of the time constitutes balanced leadership from the southern Christians and Northern Muslims communities which must be well presented in the government by the major political parties (Horcher, 2005. However, due to mistrust in government dealing there has been weak legal system in Nigeria, which can be traced from the military regimes which have ruled Nigeria for a long period.
Through the central bank of Nigeria, the government is keenly regulating foreign financial institutions. Money laundry, bank frauds and those financial institutions which do not conform to the laid regulations governing banking sectors have been forced to exit the market. However the remaining ones have been strengthened and made more reliable through the central bank of Nigeria reforms.
The legal system in Nigeria has been incapacitated due to interference by state officials. Courts cases are being drugged for longer period, a well planned practice which occasionally compromises the delivery of justice to the affected parties. However, the current government is keenly making new changes in the legal fraternity in the whole country, which to a considerable length brings confidence to regional organization
Types of Economy
Nigeria enjoys mixed system of economy in which there is moderate state intervention, sizable public and private investors are allowed to participate in production, supply of goods and services .Provided foreign financial institutions conform to the set rules and regulations they would operate freely unless they violate the set policies. This kind of economy can be traced all the way back from the existence of both military and democratic leadership styles that have ruled Nigeria. Though external factors such the influences of foreign forces in Nigeria have also contribute to the mixes economy
Regional Integration and government involvement in the business
Nigeria is one of the members of Economic Organization of West Africa States which is a regional trading block consisting of fifteen countries. This can provide a better opportunity for spreading out to these countries if a regional bank is in Nigeria. As a manager the overall assessment would be on how far the market could be spread if an office is opened in Nigeria. The risks would be worth taking since the current political leadership is keen to eliminate fraudulent deals and restoring public confidence has been its top priority.
Foreign exchange Instruments
The bank can source for its finances partly by floating of its shares in the stock market and also through injecting reasonable capital from the mother bank. Preferably the bank can use cash instrument which could either be securities (bond, bills and stock) or loans, which of course would attract more middle class customers in the region.
Hedge foreign exchange
In order to offset losses that the bank may incur when starting its operation, the bank can make use of the following hedging options: purchase of insurance. This would protect the company’s against losses related to damage of its properties and any death from and injuries because this region is affected by extremists’ ideologies. Future contract and forward contracts can also be used as hedging strategies to ensure longer earning period (stack hedging).Similarly it can also utilize interest rate swap to cater for loans and bond issued in the market (Horcher, 2005).
Inflation in Nigeria has been steadily rising. This state is being orchestrated by the rising of insecurity in the region. Northern part of the Nigeria is currently experiencing extremism ideologies which has forced of essential commodities like food increase. Various monetary policies enacted by the central government, such as devaluation of the local currency, have also significantly made the local currency lose its value against the foreign currencies. This indeed is pushing inflation rate to move up.
Preferable, I would recommend the regional bank to establish permanent presence in the region. This would provide it with opportunity to closely monitor market forces from within and initiate the necessary adjustments that are likely to make the bank succeed. Their Customers would also have more trust to consider long term investment with the bank (Horcher, 2005).
Despite the challenges discussed above, Nigeria provides a more convincing business environment opportunity for regional banks to thrive well in. The highly educated population in Nigeria and their social live is likely to provide banks with not only expertise to work with but also customers to engage in long term investment. Information infrastructure too is getting better in Nigeria this is due to improvement in laws governing information and communication industry which has reduced theft of online information.
Horcher, A. (2005). Essentials of financial risk management. New York: John Wiley and Sons. pp. 1–3.