Banking in 2007
Often the critical roles which banks play in fostering economic development does not seem to be appreciated and this would explain why you do not see too many reviews of the developments in the banking sector as part of the usual end of year reviews. But yet banking should be the lubricant which oils the wheel of economic progress. If there are any complaints, if there are any surprises; it would be the fact that banks appear to thrive while the rest of the economy is in a tail spin. Witness the huge profits which banks have been declaring defying happenings else where in the economy. It would also appear that developments with the regular banks have captured the centre stage while momentous development in the other segments of the financial sector in being treated with scant regard. No one seems to be talking about the important developments with Community Banks ( CBs ) which are expected to convert to Micro Finance Banks by the end of December, 2007.
The Central Bank has served notice of its intention to publish the names of all CBs that have obtained either provisional approvals or final licenses as microfinance banks by December 31, 2007. It is reported that 145 community banks have ceased operating across the country and the CBN has asked such banks to remit to it the statement of their assets and liabilities, comprehensive and verifiable list of depositors and a list of all debtors which is a tall order of a request as most of the affected CBs have stopped operations many years back. The affected banks are in the throes of having their operating licenses effectively withdraw. It would be recalled that when the CBN introduced the Microfinance Policy on December 15, 2007 that it specifically targeted the micro and small scale businesses which are marginalized from the perspective of their ability to access institutional credit from the regular banks and if we appreciate the importance and impact of this category of businesses for the development of an economy particularly for an economy with a large informal sector like Nigeria, the developments in this connection would easily qualify as a major and momentous one for the economy in the year under review.
The other major developments at the level of the regulatory institution that is worthy of mention in this review would be attempts made to restructure the national currency. First was the introduction of coins to complement the currency structure and the experiment with alternative quality of paper for the production of the notes to explore the possibilities of underwriting their greater durability. The coins are yet to make the desired entry as there are not too many coins seen in circulation. I recall that in a paper I did after the introduction of the coins, I did observe that the coins would be used if we adopt an approach which would make their use based on specific needs, i.e. if we can configure vending machines, and sundry other payments such as payment of charges for packing at car parks that would be accessed based on the use of coins. There is no way the banks will have the clout to compel any customers to accept coins otherwise! The other development was the land breaking attempt at currency redenomination. Unfortunately the Country was denied the benefit of that experiment which for all you know could have had salutary effects on the economy particularly from the perspective of making the Naira the currency of reference in the west Africa sub region. One is not oblivious of the enormous challenges this could have entailed but we must accept that often limits and ceilings are imposed by our collective aspiration and imagination. After all the banking consolidation exercise which today has many fathers was vehemently opposed on introduction and but for the political support could have been aborted at birth! As I argued then in the paper a published following the announcement of the redenomination scheme; if Ghana could introduce currency redenomination successfully, why not Nigeria? I think that a kiss of death has been administered to this policy and I am not one so naÔve as to talk about its suspension.
The other development worthy of mention is the endless return to the Stock Exchange by banks to recapitalize. It would be recalled that following the arguments which raged post consolidation that most of us argued that regulatory mandated recapitalization might appear an aberration, it was what was actually needed at the particular point in our banking experience and that after that further recapitalization would be market induced. This prediction has been borne out today. It is true that the CBN dangled a carrot before banks by indicating that banks with minimum level of capitalization, the equivalent of one billion dollars would be allowed to partner with the CBN in managing the nationís foreign reserves. But even if that was not the case competitive pressure would have ensured that this trend was experienced. The consolidation exercise would seem to have leveled the playing field for the banks. But the fact remains that in the public mind such leveling has not really occurred. Witness the unprecedented development with regard to the recapitalization outing of the First Bank of Nigeria whereby for the rights issue the over subscription was of the order of 140 per cent and for the public offer it was of a whopping 750 per cent. Evidence of the face, if any was ever needed that public confidence is still very much reposed in the Elephant! The First Bank also did something unprecedented as it resolved and announced its decision to pay interests on an annualized rate of 5 per cent over an identified period of time. It must be observed here that there are some bogus claims by the banks regarding their performance. In my limited experience as a shareholder of some of the banks; they claim to pay dividends but I never get to receive them in the manner promised to support such claimed payments!
But it has not been smooth sailing with some of the post consolidation banks. Some of the problem cases have been duly advertised with all the muck. For instance, the Sterling Bank development which is now under interim management is a case in point. But some of the untoward happenings you get to hear through the grapevine. Some people who are still closet antagonists of the Central Bank for its capital offense of recapitalization which has pulled the rug from under their feet and taken them off their comfort zones came out blazing on all fours with all the base sentiments in full display. I just wondered how people thought such a massive exercise which was done within a tight schedule could have been prosecuted without glitches. One of the major surprises of this development has been the surprise depth which the capital market has shown even if one has heard of some sharp practices in this regard. There were also some banks which made passionate attempts to increase their size through the process of mergers. While some successes have been recorded in this connection; the most notable of this is the Stanbic Bank/IBTC merger. There were some glaring failures such as the much touted Eco Bank/ First Bank merger. The banks have now embarked on aggressive network expansion. There is hardly any nook and cranny of the country you will not find bank branches. Some of the banks have been quite aggressive in this regard and have recorded significant presence. One of the most aggressive in this regard as every one would attest is Zenith Bank. There has also been a considerable attempt made at leveraging on automation to augment the quality of service offering. Unfortunately there have been some negative developments with the operations of ATMs. We hear some of the banks have been casualties of fraud and that is some instances some customers who have tried to use their cards without success have had their accounts erroneously debited. The banks have also been quite aggressive in floating subsidiaries. Most banks now operate as financial supermarkets. Some of the advertisements have also been quite catchy and creative. So also the payoff lines; “in your best interest” “you are welcome” etc. I hope the CBN has not abandoned its statutory responsibility of vetting some of the ads that make claims which one feels should be substantiated in the interest of the banking public. We hope that as progress is made with driving the rate of increase in the rate of inflation downwards that it would reflect in cascading level of interest rates for the greater health, growth and development of the national economy.
By Boniface Chizea
The Central Bank has served notice of its intention to publish the names of all CBs that have obtained either provisional approvals or final licenses as microfinance banks by December 31, 2007. It is reported that 145 community banks have ceased operating across the country and the CBN has asked such banks to remit to it the statement of their assets and liabilities, comprehensive and verifiable list of depositors and a list of all debtors which is a tall order of a request as most of the affected CBs have stopped operations many years back. The affected banks are in the throes of having their operating licenses effectively withdraw. It would be recalled that when the CBN introduced the Microfinance Policy on December 15, 2007 that it specifically targeted the micro and small scale businesses which are marginalized from the perspective of their ability to access institutional credit from the regular banks and if we appreciate the importance and impact of this category of businesses for the development of an economy particularly for an economy with a large informal sector like Nigeria, the developments in this connection would easily qualify as a major and momentous one for the economy in the year under review.
The other major developments at the level of the regulatory institution that is worthy of mention in this review would be attempts made to restructure the national currency. First was the introduction of coins to complement the currency structure and the experiment with alternative quality of paper for the production of the notes to explore the possibilities of underwriting their greater durability. The coins are yet to make the desired entry as there are not too many coins seen in circulation. I recall that in a paper I did after the introduction of the coins, I did observe that the coins would be used if we adopt an approach which would make their use based on specific needs, i.e. if we can configure vending machines, and sundry other payments such as payment of charges for packing at car parks that would be accessed based on the use of coins. There is no way the banks will have the clout to compel any customers to accept coins otherwise! The other development was the land breaking attempt at currency redenomination. Unfortunately the Country was denied the benefit of that experiment which for all you know could have had salutary effects on the economy particularly from the perspective of making the Naira the currency of reference in the west Africa sub region. One is not oblivious of the enormous challenges this could have entailed but we must accept that often limits and ceilings are imposed by our collective aspiration and imagination. After all the banking consolidation exercise which today has many fathers was vehemently opposed on introduction and but for the political support could have been aborted at birth! As I argued then in the paper a published following the announcement of the redenomination scheme; if Ghana could introduce currency redenomination successfully, why not Nigeria? I think that a kiss of death has been administered to this policy and I am not one so naÔve as to talk about its suspension.
The other development worthy of mention is the endless return to the Stock Exchange by banks to recapitalize. It would be recalled that following the arguments which raged post consolidation that most of us argued that regulatory mandated recapitalization might appear an aberration, it was what was actually needed at the particular point in our banking experience and that after that further recapitalization would be market induced. This prediction has been borne out today. It is true that the CBN dangled a carrot before banks by indicating that banks with minimum level of capitalization, the equivalent of one billion dollars would be allowed to partner with the CBN in managing the nationís foreign reserves. But even if that was not the case competitive pressure would have ensured that this trend was experienced. The consolidation exercise would seem to have leveled the playing field for the banks. But the fact remains that in the public mind such leveling has not really occurred. Witness the unprecedented development with regard to the recapitalization outing of the First Bank of Nigeria whereby for the rights issue the over subscription was of the order of 140 per cent and for the public offer it was of a whopping 750 per cent. Evidence of the face, if any was ever needed that public confidence is still very much reposed in the Elephant! The First Bank also did something unprecedented as it resolved and announced its decision to pay interests on an annualized rate of 5 per cent over an identified period of time. It must be observed here that there are some bogus claims by the banks regarding their performance. In my limited experience as a shareholder of some of the banks; they claim to pay dividends but I never get to receive them in the manner promised to support such claimed payments!
But it has not been smooth sailing with some of the post consolidation banks. Some of the problem cases have been duly advertised with all the muck. For instance, the Sterling Bank development which is now under interim management is a case in point. But some of the untoward happenings you get to hear through the grapevine. Some people who are still closet antagonists of the Central Bank for its capital offense of recapitalization which has pulled the rug from under their feet and taken them off their comfort zones came out blazing on all fours with all the base sentiments in full display. I just wondered how people thought such a massive exercise which was done within a tight schedule could have been prosecuted without glitches. One of the major surprises of this development has been the surprise depth which the capital market has shown even if one has heard of some sharp practices in this regard. There were also some banks which made passionate attempts to increase their size through the process of mergers. While some successes have been recorded in this connection; the most notable of this is the Stanbic Bank/IBTC merger. There were some glaring failures such as the much touted Eco Bank/ First Bank merger. The banks have now embarked on aggressive network expansion. There is hardly any nook and cranny of the country you will not find bank branches. Some of the banks have been quite aggressive in this regard and have recorded significant presence. One of the most aggressive in this regard as every one would attest is Zenith Bank. There has also been a considerable attempt made at leveraging on automation to augment the quality of service offering. Unfortunately there have been some negative developments with the operations of ATMs. We hear some of the banks have been casualties of fraud and that is some instances some customers who have tried to use their cards without success have had their accounts erroneously debited. The banks have also been quite aggressive in floating subsidiaries. Most banks now operate as financial supermarkets. Some of the advertisements have also been quite catchy and creative. So also the payoff lines; “in your best interest” “you are welcome” etc. I hope the CBN has not abandoned its statutory responsibility of vetting some of the ads that make claims which one feels should be substantiated in the interest of the banking public. We hope that as progress is made with driving the rate of increase in the rate of inflation downwards that it would reflect in cascading level of interest rates for the greater health, growth and development of the national economy.
By Boniface Chizea
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