Offshore Banking and the Financial Performance: A Study of Selected Nigerian Banks with Offshore Branches

Abstract

Some Nigerian banks have found it worthwhile to extend their branch expansions to some offshore locations. However, this move also made the Central Bank of Nigeria to issue a circular in 2008 to all Banks to ensure the viability of the offshore branches while protecting the shareholders’ funds and interests. The study employed ex post facto research design, descriptive and empirical analysis methods. Analyses were based on published data on relevant performance index of the banks and operating indices of their offshore branches. Three banks were selected for the study from the seven banks that operated offshore branches. Data were extracted from the annual reports for 2009-2012 period. Empirical analysis was anchored on regression model. Profit before tax was treated as the performance index and, thus, entered the model as the explained variable while operating income, deposits, loans and advances, other assets and profit before tax of the offshore branches entered as the explanatory variables. The intercept of the model and the coefficients of the operating indices were estimated via the Least Squares (LS) techniques. The results revealed that banks recorded varying values in offshore operating indicators. Ghana proved to be a more lucrative location for banking business. Operating incomes and deposits did not significantly affect the profit before tax of the banks as evidenced by the p-values of the t-statistic of their coefficients (p-value = 0.1309 > 0.05 and p-value = 0.3311 > 0.05) respectively, and that loans and advances exerted negative but insignificant effect as shown by the p-value of 0.8594 which was less that the relevant level of 0.05. The aggregate effect of the operating indices was found to be significant. The operating indicators exhibited high strength (99%) in explaining variations in performance of the parent banks as evidenced by the very high R-Squared 0.99. Consequently, the study concluded that offshore banking possesses great potentials to determine and explain banks’ performance. Recommendations, amongst others, were that Nigerian Banks currently operating offshore branches should deepen their banking business for optimal performance. The Central Bank of Nigeria should enhance its supervisory capacity with additional monitoring strategies.

Key Words: Offshore Branches, Operating Indices, Performance Index, Financial Performance