Managing and resourcing Nigerian banks’ diasporic operations in the UK: An empirical study

Diaspora banking

The term ‘diaspora banking’ refers to overseas banks’ provision of banking services to people in diaspora communities. Consequently, many large banks are now adopting a model that allows them to serve their diaspora populations (e.g. Nigerians living outside Nigeria) (Alechenu, 2021). The Nigerian banking industry started expanding its operations into other countries in 2002. Two Nigerian banks initiated the cross-border banking expansion by establishing their presence in a few countries, especially in Africa (Abosede et al., 2018). The initiative increased after the 2004 Nigerian banking consolidation exercise, when the minimum capital requirement for banks was increased from USD $17 million to $210 million (Bernard Azolibe, 2022). The industry witnessed an increase in total assets from $23 billion before the consolidation to $127 billion after the consolidation in 2008 (Abosede et al., 2018). After the merger, around ten Nigerian (wholly owned) banks expanded and established subsidiaries in at least one African country, compared to only two in 2002. The United Bank for Africa led the drive for foreign expansion among Nigerian banks, establishing its presence in over 20 African countries and some countries in Europe and America (Bernard Azolibe, 2022). Several factors were responsible for the cross-border expansion of Nigerian banks, some of which were economic and others ideological. However, the expansion drive was motivated mainly by the need to increase profit and the value of shareholders’ funds. Bernard Azolibe (2022) asserts that the main factor driving this expansion into Europe and other developed nations was the banks’ desire to establish their presence in the global banking market and facilitate their customers’ international banking transactions (Abosede et al., 2018). The ideological factors influencing the cross-border expansion of Nigerian banks are associated with many underlying principles and beliefs that guide their global activities (Akinyoade and Uche, 2018), including Pan-Africanism, economic nationalism, financial inclusion, neoliberalism, developmentalism, cultural diplomacy, and globalisation. These ideas shape Nigerian banks’ understanding of their roles as profit-driven entities and agents of national development, regional cooperation, and global influence (Adewumi, 2021; Aremu and Saka, 2020).

An important context is that of Nigerian banks’ operations in the UK. As of June 2021, according to the UK Office for National Statistics, 312,000 people living in the UK were born in Nigeria; which indicates the size of the total diaspora market for Nigerian banks. Consequently, since 2008, many Nigerian banks have entered the UK’s banking market to provide commercial banking services, attracting customers within diaspora communities. Ogbuagu (2013) explores the role of diaspora-remitted earnings in developing the banking sectors in Sub-Saharan African countries. Some remittances may be channelled through African banks with an overseas presence. Such a process is beneficial, as it provides capital and facilitates further business for banks. For example, data obtained via Bloomberg LP (2024) illustrate that in 2021, Zenith Bank PLC reported having received 2.5% of its revenue from its operations in Europe (including the UK). Standard Chartered Bank PLC obtained 13.6% of its revenue from its activity in Europe and the Americas in 2021. These statistics highlight the role and importance of diaspora banking in the economic development of a nation. Meanwhile, existing academic literature has not yet explored the motivations underlying foreign banks’ diaspora operations in the UK, especially Nigerian banks. This study aims to fill the noted gap in the literature by exploring Nigerian banks and their diaspora operations in the UK.

Banking regulations in the UK and diaspora banks’ employee productivity

Overseas banks operating in the UK are subject to UK laws and regulations. They are overseen by UK regulators (Alsharqawi and Younes, 2020) and require a licence to undertake deposit-taking activity. The banking licence is issued following completion of the process outlined in the Financial Services and Markets Act (2000). Once a foreign bank is issued with a banking licence, the Prudential Regulatory Authority (PRA) aims to hold banks to the UK standards regarding prudential regulation (Alsharqawi and Younes, 2020). However, there are specific provisions for overseas banks according to their operational structure. First, a bank with a UK subsidiary is held to UK conduct standards but is overseen by the country in which its headquarters is located in relation to prudential regulation. The conduct of an overseas subsidiary operating in the UK is regulated by the UK Financial Conduct Authority (FCA), and the PRA oversees its prudential regulation. In both cases, the staff members working at the banks’ UK branches and headquarters are subject to regulatory requirements designed to create personal responsibility, including senior management, certification, and revised conduct rules. The senior management vetting process, led by the PRA and FCA, applies equally to the senior management teams in subsidiaries of overseas banks (O’Reilly, 1992).

Recent changes in the banking industry have altered bank practices from operating according to traditional banking principles to new ones. The old banking model is authoritarian, with bureaucratic norms, seeing staff members as costs. In contrast, the new banking model is built on technocratic standards. It is driven by performance and sales, and it considers staff members as resources, valuable assets contributing to the banks’ overall goals. In the UK banking system, as Brubakk and Wilkinson (1996) argue, there has been consistent agitation against the old banking model’s approach to recruiting and managing employees. They insist that the perspective of staff members being costs because of the money involved in paying their wages is outdated, and banks should move away from such an ideology and adopt the new model. Hence, Morris (1986) concludes that the new banking model’s approach, which sees staff members as assets, is most appropriate for current banking operations. This is especially true in this modern era of technology, wherein banks seek to recruit highly skilled workers with the necessary technical and digital competence to manage banking services. Similarly, Storey (1992) asserts that banks should adopt the new model, as it enhances efficiency more than the old model of adopting ‘dualism’, since banking operations have been within the framework of ‘unitarian’ for decades. Accordingly, the role of bank personnel is rapidly changing as banks are shifting from conventional banking models to more digital, automated methods, thereby transforming these jobs into technology-oriented services (Thakor, 2022). McKinsey & Company (2023) agrees that the nature of their contributions and the requisite skills are experiencing substantial transformation, as banks are transitioning to technology-driven service models, necessitating fewer personnel. Similarly, Thakor (2022) contends that the emergence of artificial intelligence (AI), digital platforms, and fintech has resulted in substantial transformations in the delivery of banking services. For example, AI-driven solutions, such as chatbots, deal with consumer enquiries, thus reducing the need for human personnel (Thakor, 2022). This creates new hurdles, as personnel must cultivate competencies in digital technologies, data analytics, and AI. Consequently, Brynjolfsson and McAfee (2022) assert that there is an increasing demand for specialised skills in digital transformation and data science. The authors contend that effective AI integration relies on the collaboration between bank staff members and AI systems, with humans offering supervision, which indicates that human capital remains essential in key banking roles despite the transition to automation. Thakor (2022) adds that employees’ creative and problem-solving skills continue to be valuable notwithstanding the automation of banking transactions.

Meanwhile, Gall (1993) argues that although many banks have embraced the new model, bringing about change in the banking industry, it is too early to conclude that the new model produces excellent outcomes. Banks’ efforts to improve employee productivity have gradually increased. Cooke et al. (2019) demonstrate that for an organisation to be successful, it must be able to attract employees who can perform to a high standard. Gruman and Saks (2019) argue that most organisations are confronted with various challenges and thus need to encourage enhanced employee performance in order to overcome such challenges. Organisations should therefore provide an enabling environment wherein employees are empowered to take charge and design their own jobs and roles in order to enhance their performance and achieve success on behalf of their organisations. Furthermore, Gruman and Saks (2019) suggest that organisational policies and practices should be integrated in order to establish a well-defined standard by which organisations can guide employees’ activities and enhance their performance. However, there are others (e.g. Karatepe et al., 2019) who contend that service organisations, like banks, in which there is a standard interface between the bank’s staff members and the bank’s customers, must invest in their employees in order to enhance their job satisfaction, productivity, and overall profitability (Hur et al., 2022).

Institutional theory and its application to banking

Drawing on Chowdhury and Maung’s (2022) research on the accessibility to external finance from the informal institutional perspective, the present study adopts institutional theory in its exploration of the operations of Nigerian banks’ subsidiaries in the UK. Contemporary institutional theory (neo-institutionalism) suggests that modern organisations rely heavily on their immediate environments (Meyer, 2008). The model demonstrates that different stakeholders and actors (governments, organisations, and individuals) are affected by institutions (Scott, 2002). Similarly, as Scott (2004: 2) suggests, institutional theory ‘considers the processes by which structures, including schemas, rules, norms, and routines, become established as authoritative guidelines for social behaviour’. Accordingly, Bruton et al. (2010: 428) posit that an institutional framework comprises specific ‘regulations, rules, norms, values, and other assumptions on what signifies proper behaviour’. Thus, abiding by institutional rules, regulations, and norms allows organisations to safeguard their positions and legitimise their environmental operations (Scott, 2007).

Therefore, the concept of ‘institution’ can generally be considered a set of formal and/or informal constrictions in an environment (North, 1990). Formal constraints include legal constraints, such as laws and regulations, while informal constraints include societal values and norms (Jepperson, 1991). Similarly, Scott (1995: 33; 2005: 8) defines institutions as ‘cognitive, normative, and regulative structures and activities’. North (1990: 1) adds that institutional regulative structures guide behaviour by creating, monitoring, and enforcing the ‘rules of the game in the financial sector’. It is also understood, however, that normative structures guide behaviour by specifying what could be appropriate (e.g. norms and values) in social and business contexts (Scott, 1995). Therefore, Meyer (2008) concludes that institutional theory considers the regulatory, social, and cultural influences that stimulate an organisation’s legitimacy in any environment. Figure 1 below presents the institutional theoretical framework used in the present study.OPEN IN VIEWER

Considering the role of institutional theory in an organisation, it is reasonable to argue that a country’s institutional framework may affect its banking operations in numerous ways (Bruton et al., 2010; Chowdhury and Maung, 2022; Scott, 2007). Chowdhury and Maung (2022) affirm that such an institutional environment limits and defines organisations’ operations and opportunities, including those of banks. Therefore, the institutional factors that impact banking operations in an environment include government rules and regulations as well as social norms and values (e.g. the employee recruitment process and the reimbursement system) (Chowdhury and Maung, 2022). For instance, in the UK banking sector, robust regulations are enforced by the FCA and PRA, and these provide instructional directives to UK and foreign banks’ operations. These regulations dictate the banks’ operating terms and conditions, thus affecting banking operations in the UK financial market.

Furthermore, Bose et al. (2018) note that other institutional factors in the external environment, like favourable market incentives and the availability of capital, influence banking operations. Therefore, a heavily restrictive and highly regulated institutional environment could hinder banks’ establishment and operations as well as lead even to regulatory arbitrage. Bose et al. (2018) argue further that an unfriendly external climate may introduce regulatory barriers, inhibit the level of capital investment, and discourage the establishment of foreign banks. Dunkelberg and Wade (2015) identify both bureaucratic red tape and excessive financial regulations as the two most essential impediments to the establishment and operations of banks in any country, indicating that the formal institutional environment greatly influences banking activities.

However, there are also studies that suggest that informal norms equally affect banking practices (Khanna and Palepu, 1997). Thus, banking activities can also be stifled by normative components. For instance, Bose et al. (2018) explain that banks that lack a strong banking network may need help achieving their objectives, which could affect their competitive advantage.

Therefore, based on these extant studies of institutional theory, we conclude that while an effective regulatory environment and cultural values are vital for banking operations and development, excessive institutional rules and regulations, as well as hostile cultures and poor social norms can impede foreign banks’ diaspora operations in the UK banking industry. In this study, we highlight the relative importance of formal and informal institutional requirements in banking operations in the UK. Although our research shows that one institutional framework may have a higher impact than another, both frameworks are equally essential in supporting the establishment of new banks and their subsequent development.

Phase 1: the quantitative study

We began our study with a survey of 34 participants with various levels of experience working in UK subsidiaries of Nigerian banks. The survey was conducted over 5 weeks over the period from the end of July to the beginning of September 2023, ¹ and the sample was self-selective. Participants completed the survey virtually via MS Forms, which allowed us to automate single response verification and collect responses on an easily usable platform. A list of the questions used is given as Supplemental Appendix 1 to this study. Given that little has been written on diaspora banking models and given the lack of published data on subsidiary banking units operating in London, it is difficult to estimate the total number of employees working in diaspora banking operations and thus determine an appropriate population size. We analysed the PRA’s List of Banks as Compiled by the Bank of England to ensure that our study would have good coverage of the known operating banks. The sample covers seven individual banks and a variety of work-experience levels: branch staff (12), back-office staff (3), branch managers (15), and senior managers (4).

The primary sample comprised banks that use the subsidiary model and those that use an overseas deposit-acceptance model. Both structures are outlined in a previous section. Subsidiaries are registered banks in the UK and are recognised as banks in their own right by the Bank of England. They are also required to retain staff members who can undertake risk-related activities, as recorded in the UK Financial Services Register. In terms of the subsidiaries, the number of risk-taking staff members is given in Table 1 above. These figures indicate the relative size of diaspora banking operations in terms of the number of banking employees. It is noteworthy that such staff members are highly skilled workers who are likely to have knowledge specific to the UK financial system and its regulatory framework.

Phase 2: the qualitative study

We took a qualitative approach in Phase 2 of the data collection to complement the initial findings of the quantitative study undertaken in Phase 1 and gain yet more insights into the diasporic operations of Nigerian banks in the UK. We interviewed six key bank employees (in either London or Lagos) who were familiar with Nigerian bank subsidiaries’ operations in the UK. The participants were required to meet certain eligibility criteria for inclusion in the semi-structured interviews. All the eligible participants were interviewed online via Microsoft Teams. We carried out a content analysis by means of the frequency technique in order to identify and analyse patterns of words and themes occurring in the interview transcripts.

Phase 1: quantitative analysis of the reasons for Nigerian banks’ operations in the UK

The questions posed in the survey sought to explore two key areas. First, why do Nigerian banks operate either branches or subsidiaries in London? Second, we sought to quantify responses concerning general perceptions of cultural differences and regulatory knowledge. While we explored these themes in open-ended interviews, we wished to have a general indication from a wider sample size (34 compared to 6) so that we could report the findings based on a greater number of respondents.

The survey contained two questions in order to ascertain the reasons why Nigerian banks possess UK-based and UK-registered subsidiaries. The answers available to the participants were ‘yes’, ‘no’, and ‘don’t know’. Some inconsistency, rather than unanimous answers, among the participants’ responses, meant that statistical hypothesis testing was necessary for us to be able to interpret the results. In plain terms, we are confident that the majority assertion was correct at a stated confidence level, despite erroneous responses. On a bank-by-bank basis, we undertook a single-tailed t-test to confirm the statistical differences from a null hypothesis: The bank does not engage in an activity (when the respondents answered ‘no’).

In order to obtain estimates of statistical confidence arising from the responses, ‘no’, ‘don’t know’, and ‘yes’ were numerically coded −1, 0, and 1, respectively. This enabled the construction of a single-sample, right-side, t-test. The aim here was for each bank, to run a null hypothesis (the bank does not engage in an activity [when the respondents answered ‘no’]) and a corresponding alternate hypothesis (the bank does indeed engage in that activity). After we had computed the t-statistics, we were then able to compare them with t-critical values from a t-distribution, which allowed us to assess statistical confidence. For example, if we can obtain a significant result when assessing the 5% significance level, we can be 95% sure that the bank does engage in a particular activity.

For each bank, and for each measure, to construct a t-statistic, we follow

t = X ¯ i − μ S i n i

μ in this context is equal to 1.00, as we are testing the significance of the average response value from 1.00.

Where X ¯ is the average value of responses (as values −1, 0 and 1) relating to an individual bank (i). S denotes the standard deviation of the responses, and n denotes the number of responses from a given bank.

The two hypotheses in this test are:

H₀: μ = −1 - Implying that the sample is indistinct from a unanimous ‘no’ answer

In all cases, the alternative hypothesis was accepted at significance levels varying between 95% and 80% confidence, indicating that all six banks exist to serve diaspora communities in the UK and maintain UK-registered subsidiaries to accept deposits in UK pounds sterling. This is certain to varying extents, as shown in Table 2 below. In order to facilitate the analysis, we coded the answers −1, 0, and 1 for ‘no’, ‘don’t know’, and ‘yes’, respectively, and calculated the average answer for each bank.

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Table 2.

The average responses by the banks to questions concerning the banks’ reasons for operating in the UK.

Bank	Serves a diasporic community - Average result	Serves a diasporic community - t-statistic and significance level	Deposits in pound sterling accepted - Average result	Deposits in pound sterling accepted - t-statistic and significance level
Union Bank	0.25	2.53*	0.50	2.00**
Polaris Bank	0.40	2.10*	0.60	4.00*
First City Monument Bank	0.14	1.14***	0.86	1.60***
Ecobank	0.66	3.32*	0.33	2.30*
Access Bank	0.00	1.73**	0.50	2.60*

It is sometimes appropriate to consider results obtained at significance levels lower than the typically sought 5% significance level (95% confidence). According to Kim (2015), it is appropriate to consider working at lower confidence levels, where the power of tests is strong and the probability of type 1 and type 2 errors are approximately equal. In addition, when a study’s sample size is small, the penalty for low degrees of freedom is a higher significance threshold. Hence, it is sometimes necessary to consider lower confidence levels, because of the higher power of outliers.

Phase 2: qualitative analysis of the findings

Since Phase 1’s results were inconclusive, Phase 2’s qualitative data analysis complements the results of the quantitative study, providing richer insights into the topic, as presented below.

Study limitations and areas for further research

This study has shed new light on a critical but underexplored aspect of diaspora banking operations, focussing on Nigerian banks’ subsidiaries in the UK. However, it is acknowledged that the findings have several limitations, which also serve as recommendations for future studies on the topic. The first of these observed limitations is that although a mixed-method approach was used for the data analysis, obtaining a large sample size for the two methods (both quantitative and qualitative) was difficult, mainly because the population appears to be small. Thus, recruiting a significant number of individuals working in these subsidiaries or with experience in foreign banking operations was challenging, partly because most of these subsidiaries recruit few employees to run their UK subsidiaries. As a result, the researchers had to make the most of the relatively small sample size: 34 respondents for the quantitative study and 6 interviewees for the qualitative section. Although we reached data saturation at the fifth interview, the sixth was still conducted in order to enrich the study’s findings and enhance its credibility and reliability. Nonetheless, the small sample size is recognised as one of the study’s limitations. Therefore, it is recommended that future research use a larger sample size to ensure the results are more generalisable. Furthermore, most of the respondents for this study are middle-management staff members, and it is recommended that future research might include upper-management staff from the banks, such as CEOs or MDs of these Nigerian banks and the upper-management team members at their UK subsidiaries. This approach will provide more insights into the objectives underlying the diaspora banking operations of these Nigerian banks in the UK.

Policy implications

This research underscores the strategic importance of Nigerian banks in the UK, serving as a pivotal bridge for facilitating financial transactions between the UK and Africa. Their role in enabling cross-border trade, investment, and remittance movements is significant, and they are thereby able to contribute to economic development on both sides. Nigerian banks’ diaspora banking operations serve as a strategic bridge for foreign enterprises and investors seeking to tap into Africa’s growing markets. Therefore, our study findings present significant policy implications for Nigerian banks in the UK, UK authorities, and the Nigerian government.

First, Nigerian banks must ensure regulatory alignment and compliance with Nigerian and UK regulatory frameworks. Policy initiatives must ensure that these banks adhere to the rigorous compliance standards of UK financial regulations, encompassing anti-money laundering and know-your-customer mandates while remaining cognisant of the distinct developmental and economic objectives these banks seek to fulfil in Africa. Similarly, Nigerian regulatory authorities should enhance collaboration with their UK counterparts to achieve effective regulatory compliance while advancing the developmental objectives of these institutions.

Second, while Nigerian banks in the UK do not predominantly focus on diaspora consumers, a significant untapped opportunity exists in this segment of the market. Formulating diaspora engagement policies that actively promote the expansion of these banks’ services to address the financial needs of the Nigerian diaspora could be a strategic move. Policy reforms may encourage banks to offer more specialised financial products, like diaspora bonds, remittance-linked savings, and customised mortgage options. This untapped potential presents a significant opportunity for growth and development.

Finally, although Nigerian banks’ diaspora banking operations in the UK facilitate talent transfer and capacity-building in human capital, a primary operational difficulty identified in the study is the absence of a comprehensive, localised recruitment plan. Policy interventions should prioritise the improvement of recruitment and training processes in order to integrate local talent in the UK into these businesses. Nigerian regulatory authorities could partner with UK institutions to promote knowledge exchange and training initiatives and thereby cultivate a varied workforce adept at managing the intricacies of international banking, thus benefitting both countries.