Nowhere in Africa was banking as chaotic as in Nigeria. However Nigeria has since carried out one of the most radical overhauls of the financial sector in Africa in a revolution that sent shock waves across the country. Time is gone when wealthy business people raided their banks’ vaults, insider-borrowed and simply “killed” the financial institutions when things became too hot for them, writes TONY ELUEMUNOR in Abuja
Nigerian Banks dot the skyline.
Suddenly bigger has become better in the Nigerian banking industry as what were minions three years ago balloon into mega banks.
Now, rarely do three months go without a bank raising more money from the public through Initial Public Offers and other instruments.
Until December 2005, the Nigerian banking sector was crowded with some 89 banks. Some of them, such as the Lead Bank, were one office affairs owned by crafty business people because owning a banking licence meant they could trade in foreign exchange with customer welfare being a secondary consideration.
Also, owning a bank meant that the principals could raid the vaults and spend freely shareholders funds, workers salaries or Federal and State Government ministries’ and parastatal funds. If such funds built up to a level such to tempt the gambler in the bank owner, he could just pocket them and close shop. Gone down the drain would be workers’ salaries, share holder funds and life-time savings. Worst of all, a banker owner was guaranteed access to hassle-free loans that he could choose not to repay. When things got hot, all one needed was to have the bank declared insolvent after which he kept his loot.
Mr Obasanjo
Nigeria did nothing about this disease until it became an epidemic in the mid 1980s. Fortunately for the country, the then Head of State, Gen Sani Abacha lost some money in a failed bank. Rubbed the wrong way, the Strongman quickly minted the Failed Banks Decree and soon detention centres were teeming with rich detainees, who would remain under lock and key until they refunded the booty. Stories from such cases flooded the news media, detailing ingenious ways killing banks.
Among the most pathetic was that of the Crystal Bank founded by Chief Zebulon Abule. To remain relevant in the politics of the early 1990s as former military President Ibrahim Babangida kept on canceling power handovers to civilians, Abule found it prudent to dig his hands deeper and deeper into the bank’s coffers.
To make up for the shortfall, he took even more money from the bank to import cement. First, the consignment was delayed, and when it arrived, there was a slump in the cement market. Result? The bank could not honour cash calls. To make matters worse, the generals preferred to do business with Abule’s opponent in the race for the Rivers State Governor’s Office. Abule was jailed and his barely-breathing bank sold off to a young man, barely above 30, who experienced bankers thought was mad buying such a concern.
The young man, Tony Elumelu, renamed the comatose bank Standard Trust and from there, began the most aggressive bank expansion ever witnessed in Nigerian history. In five years, Standard Trust grew by the day and had opened branches across the country and introduced new banking products. Elumelu employed the young people who brought their youthful energy and zeal to bear on advancing the bank. When other banks closed doors to the public at 3pm, Standard Trust stayed on an hour or two longer. Every branch engaged in Saturday banking and it was the first to go really on line, enabling depositors to make withdrawals from any branch.
From there the mega-bank idea began to come alive, pushed also by the public excitement about the bank’s strategy of attracting deposits from rich men by sending to them beautiful and suggestively dressed girls with high targets that had to be met or they wee sacked. People called it institutional prostitution but the young man knew what he was doing.
When Nigeria opened its doors to cellular phone companies in 2001, it became clear that its banks were incapable of handling the new players’ huge transactions. The phone companies had to depend on foreign banks for loans and banking.
Earlier, it had been noticed that the companies operating in the capital-intensive oil sector did little borrowing from onshore as the banks lacked the capacity to handle multi-million dollar deals. Not even syndication could satisfy the businesses’ demand for credit. At one time, it took a 94-bank syndicate to finance a telecoms project.
As former President Olusegun Obasanjo’s second term began in 2003, he appointed Prof Charles Chukwuma Soludo to head the Central Bank of Nigeria. Soludo had never worked in the banking industry but had been in the academia for decades. So when the Bankers’ Committee (made up of bank chiefs) met on July 6, 2003, Soludo unveiled the nature of the expected transformation based on a 13-point agenda, the most prominent being the raising of the bank capitalisation base from N2 billion to N25 billion (exchange rate: 130 Nigerian Naira to the dollar) by December 2005 deadline.
Soludu told the Bank chiefs that he could visualise the Nigerian and world economy in year 2015 and 2050 when the world would have no more than 10 to 20 global banks.
“I see national and cross national mergers and acquisitions taking place in massive scales. It will not be a world for marginal or fringe players.”
He was of course basing his vision on a familiar trend. There has been no fewer than 7,000 bank mergers in the United States of America since 1980. This trend had gained pace by 1997 when Europe witnessed 203 mergers and acquisitions. One of the mergers in France alone produced a giant bank with a capital base of $688 billion. Another merger in Germany created the nation’s second largest bank with a capital base of $541 billion. Around the same time, Malaysia asked its banks to raise their capital base from $70 million to $526 million in just one year. Consequently, the number of banks in the country shrunk from 80 to 12.
At the pre-December 2005 level, the asset base of just one South African bank, Amalgamated Bank of South Africa, ABSA, was larger than that of all the 89 banks in Nigeria put together. Though 26 Nigerian banks were listed in the sub-Saharan top 100 banks by then, put together, they had only 10 per cent of the core capital (share holders funds and reserves) while eight South African banks accounted for 70 per cent. Other comparisons made Nigerian banks look Lilliputian. While eight South Korean banks had 4, 500 branches, all the 89 banks in Nigeria by 2005 totaled just 3,300
To prepare for the reforms, the CBN set up a committee of experts to advise the banks for free, so that each bank would get the same quality advice.
By the December 2005 deadline, 25 solid banks emerged instead of the 45 the CBN had envisaged as big banks simply acquired several smaller ones. Elumelu’s Standard Trust merged with the United Bank for Africa (UBA) with Elumelu as the managing director. It was surprising that such a shrewd entrepreneur would willingly submerge his company’s identity in another company, but that has made the man even more formidable a player in Nigeria’s business and finance sector.
With that merger too, the oil rich and entrepreneurial-savvy Southern Nigeria lost Standard Trust, a formidable bank under the control of one of its sons. The area boasts of the Zenith Bank, owned by Jim Ovie from Delta State, (Elumelu’s home state) and the Ibru family-owned Oceanic Bank, again from same Delta State.
The Yorubas of the Western Nigeria control Wema Bank and Guarantee Trust Bank owned by Chief Mike Adenuga, a big player in the African telecommunications whose Globalcom cellular phone company recently began operations in Ghana.
Other banks merged and had to change their names as they lost their former identities and leadership. Involved here were many Igbo-controlled banks, such as the African Continental Bank. Now, the real Igbo bank is Peter Obi’s Fidelity Bank. Obi is the gentlemanly Governor of Anambra State who has remained untainted by corruption.
The real loser in the mergers is the North. The Hausa-Fulani controlled banks had to merge with several others, thus losing their identities and ethnic leanings totally. Even the aptly named Bank of the North, which for years was jointly owned by all the Northern States, could not rally enough funds to remain in the hands of the North. It had to merge with several others to form the Unity Bank.
That was actually one of the aims of the bank reforms: To deny the banks their ethnic leanings and also to make it impossible for an individual or a family to have controlling shares in a major bank. But in the end, a few individuals and families still managed to maintain their control.
Within two years of consolidation, the gains have begun to show. Instead of 89 small banks each groaning under hefty operating expenses, formerly separate banks now operate together and enjoy economies of scale. This has reduced cost of intermediation, which had made several banks to focus just on mere trading in foreign exchange, treasury bills and direct importation of goods through dummy companies.
The banks have returned to the real business of banking, catering for the needs of the micro-small and medium savers instead of the mad focus on the really rich. Gone too are the past problems of ailing banks with weak capital bases, gross insider trading (as the ownership base has been widened), weak corporate governance with its tell-tale signs of non-performing credits and overdrawn accounts with the CBN.
Though diversification has not yet surfaced, the banks are becoming more regional as they spread out not just across Nigeria, but opening branches along the West coast and in major foreign capitals.
The Ecobank is fast becoming West Africa’s own bank as it enjoys a strong visibility in the entire sub-region. The main goal though is to integrate Nigeria’s banking system into the African regional grid and make it its hub, while becoming an effective player in the financial global system. Already in pursuit of this, the GTB’s shares are now bought and sold in the London Stock Exchange.
One direct result of this is that Nigerians abroad are now confident enough to invest in the banks through direct share holding, thus bringing their funds to drive growth and development in their own country.
To avoid shady deals during the banking reform, all mergers were based on the exchange of shares, not monetary payments, except in outright buyouts. Most importantly, the re-evaluation of fixed assets (in mergers) were not incorporated into the financial records of the consolidated banks until the CBN approved them after stringent checks.
Also, banks were promised amnesty on previous false reporting to encourage them to be open in their negotiations.
The rewards for successful consolidation included rights to trade in foreign exchange, permission to hold public sector deposits (they were withdrawn to reveal the actual strengths of the banks prior to the consolidation), and the chance to manage parts of Nigeria’s external reserves which had been the prerogative of foreign banks, mainly.
The net result has been stronger and more competitive banks. Suddenly, the N25 billion consolidation base has proved inadequate as individual banks have been caught up in a competitive frenzy to leave that $188 million base behind. Almost all the 25 mega banks have doubled that base within two years.
The institutions have also returned to the neglected area of micro-and small scale financing - the engine for growth as they have adequate funds to meet borrowers’ needs now.
In the past, a bank with the right connections such as Afex Bank, which went defunct even before the consolidation, held huge government deposits which it promptly misspent and went under. The politician and oil-dealer who owned the bank never repaid the money. Afex even operated salary accounts for MPs.
The banks are now being managed by professionals as opposed to when family members managed mom and pop banks. In this regard, the greatest scandal was when the wife of the owner of the now shut Savannah Bank, who knew nothing about banking, was the managing director. Such anomalies gave Obasanjo the chance to close the bank though mainly because the owner was his political enemy. But the fact that the managing director used company’s funds to buy a $10,000 (Sh660,000) bed made the man to lose public sympathy.
Has the consolidation succeeded? Zenith Bank supplied the answer on July 31 when it declared a profit before tax in excess of the N25 billion exceeding the consolidation target by a billion Naira for the year ended June 30, 2007. It is the largest so far by any Nigerian bank with N1.2 trillion in assets.
SOURCE: DAILY NATION
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