By Omoh Gabriel, Business Editor
When on July 6,2004 the CBN Governor, Professor Charles Soludo announced a thirteen point reform agenda for the banking industry at an expanded meeting of the bankers committee, bankers realised they are in for a tough time. Of the thirteen-point agenda announced by the governor only one was top most in the minds of bankers. That was the new capital base of banks. N25 billion: have it by December 31, 2005 or cease to be a bank in Nigeria. What the CBN did not disclose then was the fact that it was scheming to launch Nigeria banks into the global financial market Nigeria banks then were satisfied with local transactions on foreign exchange where they reaped economic rent in the form of commissions.
Most banks, at that time saw the reforms as an impossible tasks imposed on them by a village headmaster and took almost to the streets in campaign against it. Some though saw some sense in it and immediately set to work.
One year after, the 25 surviving banks are shaping up to best competition. The post consolidation results being turn out by banks which have declared their results thus far show that the banking sector is still the most vibrant in the Nigerian economy today. Survey of Nigeria banks show that three categories of banks emerged from the consolidation exercise. Banks which stood on their own and were ready from the word go to run the financial race in their own terms, those which acquired others in the guise of consolidation and were able to adjust their culture quickly with the culture of the dominant bank being adopted as business model and those which actually consolidated and have to work hard to integrate their operations, personnel, IT, and infrastructure.
So far the road is rough for this third category. These banks are frantically making efforts to integrate their culture. As one banker said it is like a man who got married to many wives, they have to live under the same roof pretending to be happy when in real sense there is no happiness. Most banks in this category are yet to come out with their first post consolidation results. The first two categories have released their annual accounts and the profits seem robust. But the last have not been heard of consolidation as the second round of the exercise is beginning to build up. This time it will not be policy induced but industry driven.
According to CBN Governor Professor Chukwuma Soludo ‚ÄúFrom what is going on in the Nigeria Banking Industry there will be further consolidation.‚Äù
Already, Zenith International Bank PLC has gone to the capital market to raise more funds. Intercontinental has done the same and many more banks are putting finishing touches to their plans to further increase their shareholders funds far beyond the prescribed minimum of N25billion. The drive for further funds is driven partly by the carrot dangle by the CBN for banks with capital base of $1billion to manage part of the nation‚Äôs foreign reserve. To further induce the banks into thinking globalisation, the CBN asked foreign banks to partner with Nigeria banks before they can manage the country foreign reserve. This has paid off handsomely as nearly all the twenty five banks now have foreign partners.
Further consolidation moves are being noticed in the industry. Talks on joining their businesses are on between First Bank Nigeria PLC and Eco-Transnational. While Ecobank Nigeria and First Bank are going about their businesses as if nothing is on, Eco Transnational and First Bank are engaged in deep talks, if fruitful will see the emergence of a pan Africa Bank that hopes to dominate the continent financial landscape. This will reduce the number of banks by one. Details of the planned merger are still sketchy but the move is on.
Indication are that IBTC Chartered Bank and Stanbic Bank are also engaged in talks of how to combine their businesses. The talks are said to be having some set back as a result of the insistence of IBTC Chartered Bank management to retain their Head office Structure. If the deadlock is eventually resolved and a merger takes place the number of banks in the country would have further shrank. IBTC which had a niche in corporate banking had acquired Chartered Bank with the hope of leveraging on its branch net work to launch into retail banking. But all seems not to be too well with the arrangement as inside sources say that IBTC culture and that of Chartered Bank are poles apart and as a result their appear to be some irreconcilable differences which has led to the exit from the bank core retail banking personnel. As at the close of business last week close to 50 of such staff have left the bank.
Banks are laying ambush for each other. In what looks like a typical hostile bid or take over bid, Access Bank made bold steps to buy majority stake in Afribank. It caused a steer in the capital market and the move was scuttled by Afribank management who put up spirited fight to keep Afribank in Business. If Access bank had succeeded the number of banks would have dropped further by one. The question that dominated discussions during the battle for the soul of Afribank was what Access Bank was going to do with the brand names Access and Afribank.
Mr. Aigboje Aig-Imoukhuede in a chat with Business Editors last year said that there will be no major bank failure in the country any more but that banks will take over any of the existing banks that show signs of weakness. He said that no bank is too big for a take over bid by any of the local banks or a foreign bank.
As part of the globalisation effort of Nigeria banks, some are already looking outside the shores of Nigeria. Already Union Bank, Intercontinental, GTbank, Zenith, Oceanic and others have open branches in Ghana and other West Africa countries. Some have targeted South Africa and East Africa. The bold move by Nigeria banks to venture off the shores of Nigeria is as a result of the confidence they now enjoy in the international fora. In the last one year close to ten Nigeria banks have ranked among the 1,000 top global banks.
The banking sector, today, is the fastest growing in Africa and with monetary authorities vision to make Nigeria the financial hub of Africa, and with its Financial Strategy 2020, in the works, the banks will continue to play leadership roles in the economy. It is the dominant sector in the Stock Exchange and the dominant driver of the progress at the Nigerian capital market.
Not surprising, the banking sub-sector accounted for 17 of the top 20 companies by turnover volume. As in 2005, the sub-sector recorded many block trades as shareholders realigned their portfolios after the consolidation programme and speculators took profit on some banking stocks.
The total market value of 288 securities listed on The Exchange increased by 76.55 per cent to stand at N5.12 trillion by year-end. The listing of new securities (equities and bonds) explains in large part the growth of the market capitalisation during the year. The banking sub-sector recorded many supplementary issues and the listing of scheme shares arising from the mergers and acquisitions elicited by the industry consolidation.
Improved activity in the Primary Market throughout the year arose principally from the increased recourse to the stock market by companies and the Federal Government, consequent upon the high lending rates in the money market and the slow down in banking operations at the height of the banking sector reform.
In 2006, The Exchange considered and approved 62 applications for new issues and mergers & acquisitions valued at NI .41 trillion, as against 52 applications for new issues valued at N730.54 billion in 2005.
The non-bank corporate issues accounted for 48 per cent of the new issues approved in 2006, with 40 applications valued at N678.54 billion, while the banking sector accounted for 41 per cent with 21 applications valued at N577 billion. The Federal Government bond issue accounted for NI 55 billion or 11 per cent of the total amount approved during the year
Further analysis of new issues approved in 2006 showed that the sum of N117.4 billion was raised through Initial Public Offering (lPO); N95.7 billion through supplementary issues; N53.8 billion through rights issues; and N168.5 billion through bonds issue, including the Federal Government bond.
In value terms, the bulk of the approvals in the banking sector were for mergers and acquisitions, for which 13 applications valued at N369 billion were considered. This accounted for 26 per cent of the total value of approvals during the year.
The sore point however is with the Alliance Bank group of 14 banks which the CBN withdrew their operating licences are still engrossed in legal battle with the apex bank one full year after consolidation.
The CBN Governor Professor Chukwuma C Soludo laments ‚Äú If only the owners will shed their ego thin and allow these banks to go into liquidation, by now may be the depositors of those banks could have gotten their money back. They have gone to court to simply stall their liquidation hoping that somehow they may found a way around, you know, is this not Nigeria , how can they just revoke my licence. So they are still hoping that someway or the other, something could still happen.
‚ÄúThere is just no way any of those banks can ever come back and operate as a bank in Nigeria , it is impossible. Those banks are finished. In fact many of those people who owned those banks should be in jail and indeed they know it. They know a lot about the banks and we know what they know. It is only that we are taking it step-by-step. But after a while, we know there will be a definite action because this cannot continue forever. From the point of view of the Central Bank, they can be in the court for the next 100 years, who cares? But my concern is for the innocent depositors whose monies are trapped there. And now for the first time in our history we have undertaken to pay up these depositors. But someone is saying ‚Äò‚Äòhow can you close my bank?‚Äù This edition of the review is the 10th
Vanguard annual banking review is therefore 10years old. It is a product that has endured. According to Mr. Gbenga Adefaye Editor of Vanguard some 10 years ago, or thereabout, there was what we called ‚Äúa little paradigm shift in Vanguard‚Äù. Vanguard used to be all sort. But 10 years ago, due to the relationship we had with Chief Rasheed Badamasi, who collaborated with us, he said look, you guys can do something, you need something serious. Pay a little more attention to the banks. So he actually helped us to commence the annual review of banks. And we have done that successfully for 10 years.
‚ÄúSome others have tried to do the same thing and failed. But for us we have been able to do it successfully for 10 years and we thought in this 10th edition, we want again to undertake another paradigm shift. Vanguard has been in existent for more than 22 years but because of integrity question, we never dabbled into Vanguard giving awards because people say so many things about awards and all of that. But we thought having been able to do this Annual Review for 10 years without questions concerning our integrity, we could as well recognise banks that are doing well, that are conforming to the reforms in the industry‚Äù.
This is why Vanguard is celebrating the 10th edition of the banking review with an award night as Nigeria banks prepare themselves for global challenges.