CITIBANK NIGERIA: CONTRACT ENFORCEMENT CONSTRAINS LENDING.

UNCLAS LAGOS 000727 SIPDIS SIPDIS STATE PASS TO EXIM E.O. 12958: N/A TAGS: ECON EFIN PGOV PREL NI SUBJECT: CITIBANK NIGERIA: CONTRACT ENFORCEMENT CONSTRAINS LENDING. ¶1. (U) Summary: Citibank, the only U.S. bank operating in Nigeria, believes corporate lending is constrained by difficulty in enforcing contracts. Retail banks have difficulty verifying customers' identity and credit worthiness; to get around these problems, they lend to civil servants and employees of large companies. As the middle class expands, credit bureaus and a national identification system will help others get access to credit. End summary. -------------- - Lack of Contract Enforcement, Credit Histories Constrain Lending -------------- - ¶2. (U) Citibank identified non-enforcement of contracts is a major problem facing the Nigerian banking sector, Emeka Emuwa, Managing Director (MD),Citibank Nigeria told Econoffs. Even banks, such as Citibank, which do corporate lending in Nigeria, are constrained by the huge cost and length of time it takes to seek redress for a breach of contract. At the retail banking level, banks have difficulty identifying creditworthy individuals. This has greatly limited banks' consumer financing programs to mostly civil servants and employees of large companies. Though Citibank does no retail or consumer banking, contract enforcement is a major challenge, Emuwa said. Other obstacles to doing business, including the country's erratic electric power supply and low manpower quality, have increased Citibank's cost of operating in Nigeria. -------------- -------------- Banks Lure Expanding Middle Class with New Products -------------- -------------- ¶3. (U) The lower age of cars now driven by Nigerians is an indication that the middle class is growing, Emuwa said. Nigerians now purchase more recent, albeit used, cars than they previously did. Also, more sophisticated roofing sheets and better quality tiles are being used in buildings where previously very basic items were all people could afford. This, plus the intense interest in the stock market, he said, is a clear indicator that the Nigerian middle class is expanding. ¶4. (U) Banks are developing new consumer products to exploit this growth. Private credit bureaus are springing up and will help some of these potential borrowers establish credit histories. Currently, large percentages of Nigeria's population are employed in the informal economy, and have no fixed income, let alone a credit history. In addition, Emuwa believes the introduction of the proposed national identification system will also help to expand the pool of borrowers. -------------- -------------- Recap Brings Citi Nigeria to Full Subsidiary Status -------------- -------------- ¶5. (U) With 82 percent American capital, Nigeria International Bank - Citibank, is the only U.S. bank and with the UK's Standard Chartered Bank, one of only two international banks in Nigeria. Citibank has a large corporate banking operation with a clientele of multinational, regional, local and public sector companies. The bank recapitalized from USD 100 million to USD 200 million in 2005, in line with the Central Bank of Nigeria's directive to all banks to recapitalize to 25 billion naira (USD 192 million). With the addition of new U.S. capital, Nigeria International Bank Citibank became a full subsidiary of Citibank. ¶6. (U) Recapitalization of the banking sector is unlikely to cause the economy to overheat. Emuwa is carefully watching increases in government spending which he believes have the potential to cause overheating. Recent Central Bank Governor Soludo's comments about foreign banks entering the market have been misinterpreted, according to Emuwa. The Governor said only that he would not allow a foreign bank to take over any of Nigeria's ten largest banks. He did not, Emuwa stressed, bar foreign banks from taking an equity interest in Nigerian banks. Hutchinson