Banking industry: Trends after recapitalisation

By Femi Ibirogba - updated: Monday 21-07-2008

Chukwuma Soludo,
CBN GovernorTHE well spelt-out Soludo solution of recapitalising the financial sector of the economy, no doubt, has been yielding great results and achieving its goals. According to the Central Bank of Nigeria (CBN), the goals of the consolidation exercise are to create a sound and more secure banking system that depositors can trust; build domestic banks that investors can rely upon to finance investments in the Nigerian economy, enable banks play more active role in national development.

The goals also include to enable Nigerian banks emerge as competent and competitive players in regional and global financial markets; to drive down cost structure of banks, improving banks, efficiency and encouraging competition with the goals of lowering interest rates and providing affordable credit to the economy, among others.

A careful evaluation of the operations of the financial sector players and unfolding events since the consolidation started reveals that the goals are gradually being realised, without being biased. Some Nigerian banks are ranked with their peers at the world level; service efficiency is on the positive side; the surviving banks are stronger in capital base and some other indices used in measuring healthy financial institutions.

While there was a reduction in the number of banks from 89 to 25 in 2006, the number of bank branches rose by 33 per cent from 3,382 to 4,500. Total asset base of banks rose by 104 per cent from N3.21 trillion to N6.56 trillion. Capital and reserves rose by 192 per cent from N327 billion to N957 billion. Capital adequacy ratio rose by 42.6 percentage points from 15.18 per cent to 21.6 per cent, and ratio of non-performing loans to total loans improved massively by 51.3 percentage point from 19.5 per cent, all within the first year of the exercise.

Apart from these, there are several other bye-products of the exercise, and these include the following.

ATM revolution and cashlessness
The effort to gradually make Nigeria a cashless society started yielding positive results immediately after recapitalisation of the banks. The 25 surviving banks, as a result of fund-raising activities at the Nigerian Stock Exchange or through the means of merger or acquisition, had capital to invest in branch network expansion and the Automatic

Teller Machine (ATM).
The advantages of using the ATM make Nigerians embrace its use. This general acceptability leaves the bank that refuses to put ATMs in place lagging behind, forcing every bank to install the machines. Is it not amazing how banks put these machines to use for the convenience of their clients? Time is saved and risk of carrying cash around is somehow reduced.

Opportunities to investors
The confidence reposed in the surviving banks, no doubt, encouraged investments through the Nigerian Stock Exchange. For almost two years after the consolidation, the banking sector solely lifted up the volume and value of transactions at the market. The era, definitely, saw the Nigerian Stock Market grow up to the admiration of other world capital markets. Kudos to the banking sector as a result of the public confidence brought about by the Soludo solution.

Rounds of public offers embarked upon by banks before, during and after the recapitalisation gave and still give thousands of Nigerians the opportunities to invest their money for wealth creation, multiplication and preservation.

These investments, surely have lubricated the economy through the multiplier effects. Above all, the reform has been establishing the culture of investment in Nigerians. This, of course, is a key factor that has helped other developed nations develop their economies. Consuming public is a depleted public, but investing public is a wealthy public, and this will be the portion of the country as the trend continues.

Micro-finance institutions and poverty alleviation
Certainly, micro-finance institutions are the results of the grand reform in the banking sector, and these institutions are lubricants, if well-managed and coordinated, to the economy.

As at now, about 721 micro-finance banks have secured operational licences from the Central Bank of Nigeria, and they are spread across the states of the federation. The recent development is that the stronger among the commercial banks are taking serious interest in participating in the micro-finance subsector. For instance, Intercontinental Bank, in conjunction with Blue International from South Africa, has inaugurated its own micro-finance unit, and other stronger banks are following suit. This participation of bigger banks will lead to competition and efficiency in the administration of micro-finance institutions.

Governments, too, are not left behind. For instance, the Oyo State government, in collaboration with Intercontinental Bank, has inaugurated a micro-credit scheme to empower the small and medium scale entrepreneurs.

Scale-induced merger
During the capitalisation period, there were mergers and acquisition that were rather involuntary, or that were reform-induced. They were externally motivated to merge by the reform policy.

A higher level of merger emerges after the hurdles of consolidation. This time, it is economy of scale that motivates the merger moves. A recent one, for example, is the one between IBTC and Stanbic Banks.

IBTC, a bank with Nigerian root, and Stanbic Bank from South Africa, were fully capitalised as required by the reform policy, each surviving and doing well before the merger. Analysts believe efficiency, network expansion, better information and technology system that are derivable from synergy and economy of large scale operations, which were internal, motivated the merger.

The increasing competition, as well, and the need to restrategise to gain the larger portion of the market and stay relevant cannot be ruled out of the factors that produced a mega bank.

Another move of merger that could have produced another giant banking entity, however, hit the rock recently. Ecobank and Sterling Bank have suspended their move to merge, bringing a halt to a bright idea.

It is however hoped that the trend of economy of scale-induced merger will continue, for the foundation has been laid and the competitive environment facilitated by the reform calls for it.

Too many banking products
A somewhat ugly phenomenon is a myriad of banking services and products with no distinctive features. Some conservative products and services analysts believe that there are about three to four banking products, including Savings Accounts, Current Accounts and Fixed Deposit Accounts, saying all other variations are traceable to those three categories.

It is embarrassing that bankers/marketers of the products at the lower cadres of banks cannot even explain products/services that they market most of the times. Some analysts believe the products being rolled out are to exploit customers with various hidden charges coming along with those identity-confusing products.

NIDC’s Purchase and Acquisition arrangement
The Nigerian Deposit Insurance Corporation’s Purchase and Acquisition arrangement, an epiphenomenon of the reforms in the financial sector, has brought succour to several Nigerians whose money and investments were trapped in the failed banks. Speaking recently, the Managing Director of the corporation, Mr. Ganiyu Ogunleye, described the acquisition of most failed banks as a justification of the reforms carried out by the Central Bank of Nigeria.

The corporation has, so far, paid N74.2 billion to depositors of 11 failed banks out of N84.5 billion trapped in 13 banks. The corporation would have paid all the private deposit liabilities under the P&S arrangement but for litigations on the suits filed by some stakeholders of Fortune International and Triumph Banks.

Mr. Ganiyu Ogunleye said recently, “Sequel to the Federal High Court decision on Societe Generale Bank’s lawsuit, the number of banks for resolution by NDIC reduced to 13, however, the lawsuits filed by stakeholders/directors of Fortune and Triumph Banks are still pending before the courts.”

This is a welcome bye product of the reform and it should be pursued to a logical conclusion so as to restore depositors’ total confidence in the banking system.

Oceanic Bank: An emerging global force

Odidison Omankhanlen, Lagos

Cecilia Ibru, MD, Oceanic BankWith the recent ratings of Oceanic Bank International Plc as the best bank in Nigeria, by The Banker Magazine, a subsidiary of Financial Times of London, and the bank’s third quarter results, the bank has eventually emerged a positive force in the financial sector, both within and above. It will be recalled that the bank, which now occupies the fifth position in Africa, was in the seventh position in 2007.

This new report from the international medium has again consolidated the leadership position of Oceanic Bank in the banking and finance industry in Africa and across the globe. The Banker said the “rankings are based on the definition of Tier 1 capital as defined by Basel’s Bank for International Settlements (BIS). According to the report, ”the definition is stricter than total stockholders’ equity and covers only the core of the bank’s strength-the shareholders’ equity available to cover actual or potential losses.

Tier 1 includes common stock, disclosed reserves and retained earnings, and in the case of consolidated accounts, minority interests in the equity of subsidiaries that are less than wholly owned, but excludes cumulative preference shares, revaluation reserves, hidden reserves, subordinated and long-term debt.”

The explosive growth of Oceanic Bank shot up its ranking from 875th in the world in 2007, with Tier 1 capital of $297 million to 310th in the world in 2008 with Tier 1 capital of $1.75 billion. The bank, it will be recalled occupied the 995th position in 2006.

The feat attained by the bank is the first to be recorded by any bank in the African continent, with analysts describing the monumental success as a result of focused and insightful management, taking a full advantage of the banking consolidation carried out in the last few years.

The success recorded by the bank, the experts further posited, would go a long way into building more confidence in investors who would see Nigerian banks as having the financial muscle and shock absorber to be international players in the global financial market.

The Banker noted, “the dominance of South African Banks in the sub-Saharan Africa region is under threat. For the second year in a row, Nigeria’s banks have soared up the global league tables and are knocking on the door of the more established ‘blue-blood’ brands of South Africa.”

The report further added that the total Tier 1 capital of Nigerian banks in the top 1000 has more than doubled to $11.29 billion in 2008’s rankings from $5.38bn in 2007. At first and second place were Nigerian banks. Oceanic Bank leaped a staggering 565 places up the rankings from 875 in last year’s rankings to 310 in 2008. Oceanic’s Tier 1 capital exploded from a meager $297 million to $1.75 billion. United Bank for Africa (UBA) also made spectacular strides, jumping 484 places to 392, with a growth in Tier 1 capital from $296 million to $1.25 billion.

Oceanic Bank, it would be recalled, won both the 2006 and 2007 edition of the Bank of the Year Award, for its innovation, transformation and dedication to developing the real sector of the economy. In the same vein, the bank has further consolidated its leadership position with its recently released third quarter results. The bank earned N106.7 billion in within the nine months of its operations in 2008.

With a profit before tax of (PBT) of N40.7 billion, representing an increase of 148 per cent growth from its previous year figures of N16.4 billion, the bank posted N33.6 billion profit after tax as against N13.6 billion made in the preceding year of 2007. The percentage growth on both the turnover and profitability of the bank confirmed it as most consistent bank in the country, in terms of profitability growth.

The bank, it would be recalled has just been named The Best Bank in Nigeria, in terms of Tier 1 capital, in a recent review carried out by The Banker, a subsidiary of the Financial Times of London. A breakdown of the nine months financial statement indicated gross earnings was on the upward swing growing by a whopping N59.22 billion to N106.74 billion which represents 125 percent increase over N47.52 billion earned in the same period in 2007.

Profit after tax (PAT) moved in tandem with other fundamentals as it went up by N19.98 billion or 147 percent to N33.61 billion in contrast to N13.63 billion posted in 2007. Chief Executive Officer of the bank Dr. (Mrs.) Cecilia Ibru speaking on the third quarter results said the high turnover and profitability are the manifestation of strategies put in place by the management to take the bank to a greater height.

She assured that the bank would ensure bumper returns on investments of its shareholders while rendering the best services available in the industry to its teeming customers. Oceanic, she assured, would be the best bank in all ramification. Commenting on the results, financial analysts commended the bank’s management for its focus, resilience and the strategies put in place to become the best bank in the country in terms of asset base, capitalization and profitability.

Analysts have also attributed the success of the bank to its core value, stating that its success cannot be separated from the tenets of its vision and mission. The bank’s core value concept is tagged, TEAMS. With the launch of TEAMS, an acronym for Transparency, Equal Opportunity, Accountability, Merit and Service Excellence recently by Oceanic Bank, the bank joined the league of highly successful organisations all over the world which formally made public the secret behind their organisations’ monumental success.

The bank’s recognition of the importance of having an enduring and guiding values, sacrosanct principles to be tenaciously held by all staff, has transformed into greater efficiency on the part of the staff and profitability for the bank. The culture, entrenched in TEAMS, is characterized by an indomitable will to persevere and prosper in one of the world's most competitive industries- banking.

The message of TEAMS basically is that Oceanic Bank would continue to be very transparent in all its dealings as always, give equal opportunity to all and sundry and remain accountable to both regulators and shareholders. These values are hinged on trust, which allows space and tolerance both within the hierarchy and towards the outside world.