South Africa’s financial stability threatened by MTN group’s $10 billion penalty in Nigeria (SARB’s review)
MTN group’s problems in Nigeria is a major challenge to South Africa’s financial stability, the Central Bank explained in its second semi-annual financial stability review published on November 7, 2018.
Late September 2018, the Central Bank of Nigeria (CBN) required $8 billion of illegally repatriated dividends from South African groups MTN and Standard Bank (Stanbic IBTC) as well as three other local banks. There is also a $2 billion fund from the tax administration that caps the total amount required from MTN group to $10 billion.
The South African Reserve Bank (SARB) in its report, explains that there are two possible scenarios related to those events which could affect South Africa’s financial stability. The first is that MTN is unable to resolve the matter and is compelled to pay the required funds. This would increase the risk of a rise of bad debts for the banks which support the group, since the group can no more use its banking capitalization which has been dropped for two years now to $12.4 billion (its level on November 7, 2018).
The second scenario would be that MTN leaves Nigeria. According to SARB, this could send a bad signal to investors (both stakeholders and bondholders) who could seek ways to sell their parts in the group. A situation which can lead to a real capital flight. Let’s note that MTN Group has indicated that the negotiations it initiated are progressing in a good direction. This is indicated by all the parties involved without clear indications of where they are in their negotiations with Nigerian authorities.
Source: Ecofin Agency