Nigeria Banking Update

WHEN Prof.Charles Chukwuma Soludo-led Central Bank of Nigeria (CBN) came out with the consolidation in the banking industry, a lot of people did not think it would succeed.Today, we see the beauty and the benefits. Such banking consolidation exercise was to create a stronger, safer and swifter banking industry. In truth, a few but strong and enabled banks capable of giving confidence to depositors and customers were destined to emerge from the programme.

These new banks were to be the anchor of a newly industrializing Nigeria. The Soludo consolidation proposal was initially presented as a proposal but it later assumed the nature of an immutable law. It became a policy without discussions. The consequences for banks that could not recapitalize were that such banks would neither participate in the CBN officially regulated foreign exchange market nor allowed to access deposits from government departments, ministries and parastatals.

However, when the consolidation programme came to an end on December 31, 2005, the banks that could not meet the hurdle were simply and callously liquidated, thereby flushing jobs, deposits, and other financial assets down the drain.

Again, Professor Soludo announced on Tuesday, August 14, 2007, that as part of a major policy shift on Nigeria's currency, from August 1, 2008, the Naira would be redenominated to knock off two zeros to the left, while the exchange rate could be N1.25 Kobo to $1, while N20 would be the highest denomination. He further announced that part of Federation allocations would be shared in dollars. In other words, under the new Naira regime, the new currency structure will phase out all denominations above N20, that is, the current 50 naira, 100, 200, 500 and 1000 notes would be phased out.

This landmark development which Nigerians did not support was to transform the country; the economy would be better for it. Perhaps, a lifetime initiative that can only be embarked upon by a man who has the knowledge and who is audacious. It was obvious that the President of Nigeria encouraged this initiative but later withdrew his support for an undisclosed reason.

When you change your money from Dollar to Naira, it somehow appears worthless. By the time you buy ABC items, the money is gone. Each time you get to the Nigerian market, you discover that Nigerian market men and women have priced their goods in dollars whereas Nigeria's currency is the Naira. The new Naira regime would change the psyche of Nigerians and the way they react to pricing of goods. As it is in Nigeria, inflation could be driven by people's manner of reaction to pricing.

The new Naira regime could cut down inflation; the money value could be better appreciated; investors would go for it; it won't have negative effect on investment; more money would go to the bank instead of being kept in the homes; it would cut down on high level armed robbery; it may induce mostly economic immigrants who were forced to flee Nigeria due to the harsh economic climate to hurry back to Nigeria.

Their positive efforts abroad, if put into positive use in Nigeria, could earn them more dividends than where they are marching on a spot in a vicious circle. In other words, those looking for greener pastures would remain in Nigeria; and there could be lesser brain drain, among others. I will also say that Naira abuse would be minimized.

What Soludo is proposing has been done from time to time by other countries. For instance, Argentina, China, Israel, and recently, Ghana in July 2007, have done it. Presently, Ghana's currency is stronger than the Dollar. The new Naira regime is a way of recalculating the relationship between the Naira and the Dollar.

The coins are coming back. In an economy where coins are not used or people refused to accept coins, with currencies in circulation all the time, that economy would have some serious challenge surviving.

Written by Chinedu Arizona-Ogwu

Fitch Global Ratings, a foremost international rating Agency, has assigned Union Bank of Nigeria PLC National Long and Short-term Ratings of ‘A+(nga)’ and ‘F1(nga)’ respectively, as well as Issuer Default Rating (“IDR”) ‘B+’ with a stable outlook.

The Agency explained that the “F1” rating indicates Union Bank’s “strongest capacity for timely payment of financial commitments”.

The report stated that IDR, short-term, national and support ratings reflect the probability of support for Union Bank in case of need from the Nigerian authorities. It said Union Bank’s well-established domestic franchise would mean a high level of willingness to support but the propensity was limited by the ‘BB-IDR’ assigned to Nigeria.

Fitch noted that the Bank would report robust earnings growth during the 2007 financial year, owing to the continued improvement in economic activities and buoyant credit demand. It said that improved depositor confidence caused the Bank’s total deposits to rise by 21 per cent year-on-year to N411.5 billion during the 2006 financial year, while it considers market risk to be low and liquidity levels adequate.

The Agency also acknowledged that Union Bank’s initiatives to improve its Information and Communication Technology (ICT) as well as risk and control structures would help to alleviate operational risk pressures.

It further noted that Union Bank is a Nigerian-listed universal bank, established 90 years ago with an extensive branch network through which it extends universal banking services and is one of the four largest banks in Nigeria in terms of assets, with a strong banking franchise.

Union Bank has overtime developed into the largest financial supermarket in the country, with viable subsidiaries, specializing in mortgages, insurance, trusteeship, stockbroking, property development/management and share registration. Each of these subsidiaries is a leader in its relevant sub-sector and contributing substantially to the Group’s gross earnings.

THE Central Bank (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) plan to introduce a comprehensive Banking Supervision framework and has sent a draft to banks requesting their inputs.The scheme to be known as Consolidated Supervision is a comprehensive approach to banking supervision which seeks to evaluate the strength of an entire group to which a bank belongs, taking into account all the risks which may affect the bank, regardless of whether such risks are carried in the books of the bank or to related entities.

The basic objective of the planned consolidated supervision is the promotion of the overall evaluation of the strength of a group to which a bank belongs, in order to assess the potential impact of other companies in the group on the operations of the bank. The practice allows financial sector supervisors to understand the relationship among the legal entities and to assess and monitor how effectively the group identifies, measures, monitors and controls risks, and to recognise incipient problems.

The CBN's circular is to prepare the regulatory authorities to undertake a much more complex responsibility of regulating banks with subsidiaries and branches outside the nation as well as those that are engaged in non-banking businesses such as insurance, pension and securities.

The CBN circular reads in part: "In keeping with global trend and current best practice in supervision, the CBN in conjunction with the NDIC have developed the attached draft framework for the consolidated supervision of banks in Nigeria as a complement to the risk-based supervisory framework earlier released to the Nigerian banking industry in 2005."

It stated that the objectives are :To ensuring that no banking activity goes on without supervision, irrespective of location, thus eliminating regulatory arbitrage; eliminating double leverage/gearing in the computation of capital adequacy of conglomerates; and ensuring that all the risks incurred by a banking group, no matter where they are booked will be evaluated and controlled on a global basis and to also,enable the CBN/NDIC identify more quickly, emerging problems and work with banking organisations and other supervisors as appropriate, to take prompt corrective measures on identified problems and help supervisors to gauge earlier, the effect of potentially adverse events on banking organisations and on the financial system in general."

The circular said, "One of the outcomes of the bank consolidation programme is increased competition within the sector and a heightened appetite by banks to become internationally active, particularly within the West African sub-region as well as, Europe and America."

According to the CBN,following the adoption of the universal banking in 2001 and the recent consolidation exercise, financial institutions in Nigeria have expanded their activities, often through subsidiaries beyond their traditional areas of operation.Financial groupings have thus emerged, combining banking, insurance, pension funds, discount houses, finance companies, primary mortgage institutions, micro-finance banks and securities businesses. From a regulatory perspective, the above developments have led to an appreciation of the limitations of the segmental approach to supervision in addressing some concerns.Such concerns, it explained, included what it described as "Contagion risk" -- the possibility that problems in one part of the group may affect other entities within the group.

In addition the apex bank said the banks have become more complex and less transparent with some of them having overseas branches/affiliates/subsidiaries and, therefore, more difficult to manage than institutions with more clearly defined mandate and more specific focus.

The CBN circular stated: "A network of complex and overlapping managerial and operational structures within a single conglomerate further accentuate the problem as risk diversification and risk-spreading arising out of this would also raise issues regarding risk management and risk-based supervision that may not be easy to address in a solo regulatory paradigm.

Arbitrage opportunities usually created by differing regulations and supervision standards among supervisory agencies as each of the subsidiaries in the group is supervised on a solo basis by the agency that oversees its sector of operation. The supervision of related entities on solo basis obscures the interdependencies that exist within groups.Against the background of the foregoing and the existence of multiple supervisory and regulatory agencies (CBN, NDIC, SEC, NAICOM, PENCOM, etc) as well as the need to embrace international best practice, the adoption of consolidated supervision of banks in Nigeria has become imperative."

The CBN, however, clarified that the proposed framework which would provide required guidelines for the CBN and NDIC in the implementation of consolidated supervision of banks in Nigeria would not stop other regulatory agencies from performing their statutory functions.

First Bank of Nigeria Plc has recorded another milestone in the history of capital issue in the Nigerian capital market as broken at the 38th yearly general meeting of the bank held in Abuja . The Bank recently issued 3.1 billion new shares made up of rights of 1.5 billion and offer for subscription of 1.6 billion ordinary shares of 50kobo each at N31 and N33 per share respectively in a bid to raise N100 billion through hybrid offer,ended up raising N500 billion at the end of the offer.This represents an oversubscription of 400 per cent.

Alhaji Umaru Mutallab, chairman of the bank said the proceeds of the offers would be used to deepen the bank’s retail infrastructure in Nigeria through the expansion of branch network, strengthen subsidiaries capital base to support business growth, expand First Bank’s capital resources to selectively exploit value creation opportunities in the regional financial markets and elsewhere, especially in Africa, Middle East and Asia and to also support enlarged operations and broaden markets management capabilities.

He remarked that the feat accomplished by the bank in the financial services sector arose from the bank’s unique experience and history, which had helped shape contemporary realities in the nation’s financial services industry, adding that it is of interest that with more than a century of successful operations, First Bank, like the vintage wine, gets better with age, a development which has made it a national icon and a strategic international player.He noted that the bank has continued to engage in constructive economic and social activities through proactive and dynamic disposition, dedicated to the well-being and future of the country that it has ceaselessly delighted its customers and other stakeholders.

He said FBN is a clear reference point as a one-stop financial supermarket for a wide range of local and international customers.He promised the existing and potential investors that the board and management of the bank of the bank would not let them down in terms of their expectations from the bank, noting that they shall continue to institutionalize corporate integrity, excellent customer service and a self-reinforcing wealth creation process as well as remain committed to the development of the Nigerian economy.

Dr. Faruk Umar , president of the Association for the Advancement of the Rights of Nigerian Shareholders (AARNS) observed that the concern of investors is how much the bank would retain, noting that the investors do not want their money to be returned.He advised the bank to take advantage of the oversubscription to acquire some bank with low capitalisation.

Asiwaju Akintunde Asalu, president of Nigeria Shareholders Solidarity Association (NSSA) also advised the bank to work towards keeping all the money, otherwise in another three years, it would be back to the capital for fresh capital issue because of the increasing competition in the banking industry.But Brigadier Emmanuel Ikwue (rtd), chairman of the Coordinating Committee of the Zonal Shareholders Association cautioned the board of the bank against retaining all the proceeds of the capital issue because of its negative impact on returns on investment.

Mr. Jacobs Ajekigbe, managing director and chief executive of First Bank in his response to the shareholders comments said the board of the bank would be guided by return on equity in taking decision on how of the oversubscription would be retained. He said the board would review the shareholders’ suggestions and come up with a position on the issue. During the financial year ended March 30, 2007, First Bank reported gross earnings of N90.3 billion compared with N67.4 billion in 2006 while its profit after tax stood at N20.4 billion compared with N17.4 billion in 2006.The shareholders approved a dividend of N1.00 per share and a bonus issue of one for every six held by them as at August 17, 2007.

Intercontinental Bank Plc has made history in the annals of international finance having been rated as the second fastest growing bank in the world by The Banker Magazine, the influential and leading international business magazine. Intercontinental is also ranked by the Magazine as the biggest bank in Nigeria, number five in Africa and the 355th biggest bank in the world by first tier capital making it the first Nigerian bank to be rated among the world’s top 500 banks.


The Banker Magazine, a subsidiary of the Financial Times of London, in its 2007 edition of the TOP 1000 WORLD BANKS rating released in July, described Intercontinental Bank’s outstanding growth as symbolic of the massive impact of the Nigeria’s banking reform. The Magazine noted that: “Nigeria’s Intercontinental bank reflects the huge consolidation and regulatory change that has taken place in Nigerian banking in the past two years,” adding that the bank rose by a record 522 places to be ranked at 355, with capital ballooning to $1277 million at the end of February 2007.”.The bank also made strong showing in other financial indicators listed in the rankings. It emerged as the 31st bank in the world by Capital Assets Ratio indicating capital soundness, the 56th bank in the world by Real Profits Growth and 74th strongest in the world by Return on Assets.



The Governor of the Central Bank of Nigeria, Professor Chukwuma Soludo, poured praises and commendations on Intercontinental Bank Plc for its achievements and leadership of the Nigerian banking industry.He noted that Intercontinental Bank is the first bank in Nigeria to cross the $1 billion mark in capital, raising its share capital to over N156 billion, making it the biggest bank in the country by capital.Professor Soludo made this statement while welcoming the board and management of the bank who paid him a courtesy visit in his office in Abuja. He said he is delighted by the bank’s stellar performance, the CBN Governor congratulated the board and management of the bank saying: “It is my honour and pleasure to receive you. I wish to congratulate the board and management for your achievements.He recounted that: “As soon as the result of The Banker Magazine ranking was released, I got a call from London informing me of your achievement and I called your Chairman immediately to congratulate him.,” adding, “you have dared, you have overcome, you are still soaring and you have lived up to your name, Intercontinental. I want to again congratulate your board and management”He said that the CBN will accordingly honour the pledge it made last year to allocate an extra $500 million of the nation’s foreign reserves to the first bank that crosses the $1 billion (N130 billion) mark in tier one capital, to manage.

Professor Soludo also used the opportunity to redeem the pledge he made last year that the CBN will allocate an extra $500 million to any Nigerian bank that makes the $1 billion in share-capital to manage. He said: “Yes we made a promise on allocation of foreign reserve management and the promise, we are bound to keep.” Intercontinental Bank is the first bank to cross the $1 billion mark and it is biggest by capital in Nigeria.

Intercontinental Bank is currently working with world class consultants to ensure that its processes and service delivery are of the highest international standards as it now directs great attention to competing with the best banks in the world.The bank made become a clear industry leader with the highest foreign direct investment in the banking industry and the most successful public offering in Nigeria. It has also declared one of the highest profit before tax ever declared on the Nigerian Stock Exchange.