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When Professor Charles Soludo, Governor of
the Central Bank of Nigeria (CBN) on July 6,
2004 at the Bankers Committee meeting pronounced a new capital base of N25 billion for banks in Nigeria with full compliance date fixed for December 31, 2005, not many stakeholders in the industry took him serious. Those sharing such sentiment may have reasoned that many banks were still finding it difficult to meet the two billion naira capital base fixed by his predecessor, Joseph Sanusi, let alone the N25 billion capital base directed by Soludo. However after pockets of half-hearted protest by stakeholders in the industry, they seem to have come to terms with the bitter reality that the N25billion capital base has come to stay, with no likelihood of a shift in the December 31, 2005 deadline.
Soludo had justified the measure as aimed at strengthening depositors’ confidence that their deposits were safe in banks, especially with the ugly trend of distress that had eaten into the industry. Perhaps to lend credence to the CBN’s new reform agenda, President Olusegun Obasanjo had reportedly said that Nigeria should have between 12and 15 banks by the end of 2005 from the current 89.
In order to meet the CBN new capital base, some banks have been keeping the capital market agog as they strive to raise fresh funds. A number of banks have gone into hasty mergers, while others settled for acquisition of some smaller banks as their own recapitalisation option.
As at the last count, six banks have gone to the capital market between August and November to raise fresh funds to recapitalise while many others are- on the verge of following suit.
It was sweet music for Zenith International Bank. It had gone to the market to raise N18 billion but ended up raking in a whopping N48.5 billion. Its offer was over-subscribed. Similarly Guaranty Trust Bank had its offer over-subscribed and is laying claim to a capital base ofN34 billion, well beyond the prescribed N25 billion. Trailing Zenith and Guaranty Trust Bank is Oceanic International Bank, which raised N16.03 billion while Access Bank, one of the fastest growing banks wanted N8.70 billion. Afribank which has been embroiled in shares crises and was hitherto the fourth largest bank, finally stormed the market late October seeking N17 billion, followed by Intercontinental Bank whose offer is still on. Intercontinental Bank is seeking a total of N16.5 billion from the capital market.
Perhaps, what constitutes the major fallout of the CBN directive on the new capital base are the several marriages consummated by banks in the name of mergers. So far, five mergers involving 21 banks have taken place. The first group of banks to go into merger comprises All States Trust Bank, Gulf Bank, Hallmark Bank, Lion Bank and Universal Trust Bank, which came together to form First Amalgamated Bank. Next is Astrabank Plc, a new name for First Atlantic Bank Plc, Assurance Bank Limited, Manny Bank Plc and Guardian Express Bank Plc all fused into one.
Similarly, Magnum Trust Bank, Prudent Bank Plc, NBM Bank Limited, EIB International Bank Plc and Trust Bank of Africa Limited have merged to form Sterling Bank. Total deposit base of the group is put at N66 billion with a combined branch network of 120.
Other banks that have merged are Intercontinental Bank Plc, Equity Bank of Nigeria Limited, Gateway Bank Plc and Global Bank Plc which fused into Intercontinental Group. The fifth merger so far consummated consists of Wema Bank Plc, Fountain Trust Bank Plc and Lead Bank. However, this merger has not come up with any new name. Although, no other merger has taken place, LEADERSHIP checks revealed that many banks are having discussions in this direction. The most likely merger that stakeholders believe wil1 occur is that involving banks whose investors are mainly from the North. A total of 12 banks fall into this category.
However, of the 12 banks, there is a question mark on five of them. Whereas Societe Generale Bank of Nigeria promoted by the acclaimed godfather of Kwara politics, Dr. Olusola Saraki, African International Bank Limited and Bank of the North still have CBN hammer on their necks for breaching banking rules, Lion Bank and Inland Bank have entered into merger and acquisition respectively. While Lion Bank has merged with four other banks to form First Amalgamated Bank, Inland Bank has been acquired by Guaranty Trust Bank. Infact, this is the first acquisition that has taken place.
Similarly, LEADERSHIP gathered that some state governments in the East are thinking of pooling resources for ACB International Bank.
Instructively, the scenario has continued to draw comments from industry players and analysts with all pointing to the fact that there is a looming crisis for industry players and consumers.
Professor Mike Obadan, an economist and financial analyst, in his contributions on the N25 billion capital base stakeholders’ debate in September, had said that the prescribed N25 billion would not guarantee banks’ soundness unless fundamental causes of distress in banks are tackled. He listed these factors as adverse internal and external stocks, unstable economic policies, adverse economic conditions and unguarded liberalization of entry into the banking industry. Others are deficiencies within the boards and management, reckless use of depositors funds and inadequate supervision and enforcement of regulations.
Senator Venmark Dangin from Plateau state and member of Boards of Director in Diamond Bank shares the view that the N25 billion is harmful to the economy as, according to him, the coming together of various banks with different systems of operations will lead to boardroom Crises and unemployment. Giving an instance, he said when 10 banks come together, although they all have company secretaries and legal advisers, the emergent bank will have room for only one company secretary and legal adviser with others thrown into the labour market. He also said the new development will bring back the days of customers sleeping in the bank when the industry was not deregulated.
Mrs. Aderonke Adedeji, MBC International Bank Limited director who, like President
Obasanjo, foresees the exercise resulting in 15 banks also shares the view that there will be problems, with different banks having to align under one roof.
Another person who has added his voice to the debate on the likely consequence of the N25 billion capital base, is Weneso Orogun, Managing Director of Financial Standard newspaper. He said the consequence of the current merger by banks would manifest in job losses and the spectre of foreign domination in the industry. He said liberalization and deregulation of banking in Nigeria had contributed to redressing tile glaring imbalances in the distribution of wealth in Nigeria, maintaining that Soludo’s proposal is going to erase that and lead to closure of many banks, especially those predominantly owned and managed by northern interests. Indeed, of all the opinions aired by both industry players and analysts, LEADERSHIP investigations have revealed three consequences that the N25 billion capital base and bank mergers and acquisition portend for the industry.
Prominent among these is the likely job losses that the ongoing mergers and acquisitions will cause. To give credence to this fear, the staff unions of banks - Association of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI) and National Union of Banks, Insurance and Financial Institutions (NUBIFIE) have at different fora expressed this fear, cautioning that banks going into mergers should not tinker with the idea of laying off their staff without following the collective agreement. Significantly, this fear has now enveloped the industry.
Another consequence of the merger is the likely return of monopolistic market, which the new generation banks had erased, thanks to deregulation in the industry from the late 80s. Analysts believe that the emergence of mega banks, will have grave implications for competition because consumers will be exposed to few banks like it was in the 70s and 80s. The result and effect being poor services which are still dominant in older banks known as the old generation banks. Those who share this view argue that the era of arm chair banking where the few big banks held bank customers to ransom is likely to resurface. And according to them, the bank customers will suffer for it. Apart from the fear of poor services resulting as a direct consequence of few mega banks as projected by CBN after 2005, there is this other fear that the emerging mega banks will have no room for small savers as all of them will likely concentrate on corporate organizations and government establishments who are big time savers. The consequence of this, as LEADERSHIP investigation revealed, will be a hike in the minimum amount required by the banks for opening of individual savings and current accounts.
For instance, some new generation banks require amounts that are beyond the common man for opening of either savings or current accounts. Notable among them being Zenith Bank Plc and Guaranty Trust Bank. Whereas, Zenith Bank pegged their minimum amount for opening of individual current account at N500, 000 that for GTB is between N100,000 and N200,000. Many others falling into the new generation banks’ category require as much as N50, 000 and over before an individual opens an account, For Standard Trust Bank (STB), apart from the student account that it requires N5000 as minimum to open the account, others cough out as much as N50, 000 and above. Significantly, the old generation banks’ attempt to follow the new generation banks to require huge amounts from potential customers who want to open account was checkmated by CBN in 2002. Then UBA, Union Bank and First Bank of Nigeria were demanding N10, 000 above from individuals a clear departure from their practice. CBN had waded in after several complaints from people and pegged the amount at N5000. But Tony Chiejina, Head of Corporate Communications of Zenith Bank that blazed the trail of banks requiring hundreds of thousands from individual account holders told LEADERSHIP that their public offer was a way of also meeting the needs of low income earners to have a stake in the bank.
The Chartered Institute of Bankers of Nigeria (CIBN) had suggested that the banks be grouped into three with prescribed minimum capital base being - investment bank N5 billion, universal bank N12.5 billion and megabanks N20 billion, with the compliance period being 2004-2006. The CIBN argued that healthy banks, in their reckoning, need more time to grow their capital while the unhealthy ones could be given shorter period to restructure, merge and return to health.
Unfortunately, it is glaring that the suggestion has been discarded, if the determination of the CBN to stick to the December 2005 deadline and the current hasty mergers by banks is anything to go by. In any case, the coming months will paint the picture of the industry and truly that is what keen watchers, bank employees and millions of customers are waiting with apprehension to see.
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