Cablegate: Citibank Nigeria: Contract Enforcement Constrains Lending.

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TO RUEHC/SECSTATE WASHDC 9570
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RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS LAGOS 000727

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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.

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Lack of Contract Enforcement, Credit Histories Constrain Lending
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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.

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Banks Lure Expanding Middle Class with New Products
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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.
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Recap Brings Citi Nigeria to Full Subsidiary Status
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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

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