Nigeria Banking Update

The financial growth potential of Nigerian banks can not be achieved without strict but simple internal control systems.This was expressed by Mr. Atuche, MD of Bank PHB at the Committee of Chief Inspectors of Banks Meeting hosted by the bank in Lagos.The quarterly meeting is rotated among banks and discount houses in Nigeria to discus critical issues facing the banking industry.



S p e a k i n g on 'Business Focused Control in a Consolidated Bank',he said that chief inspectors of banks hold the key to unleashing another round of growth in the banking industry, noting that the industry looks up to inspectors to put in place the controls/risk management systems that will give most bank chief executives the courage to sign off on products like asset backed securities, uncollaterized limit based credit cards, futures and options, collaterised debt obligations (CDOs) and Credit default swaps (CDS) among other financial instruments. If the inventory ever gets taken, we may have to reckon that that the size of business currently being held back due to fear of inadequate control coverage may be much larger than the business currently on our combined balance sheets.


He noted that over 65 percent of the Nigerian capital market depends on the reliability of the controls and risk management system in place in the various banks and that is over N5 trillion of shareholders wealth, about the same amount in depositors funds but more importantly, the growth engine for our nation's emergence as top 20 economy by 2020 is also in your hands. Just about everyone is vulnerable in an increasingly complex financial services industry where best in class control/risk management are compromised. He however called on business leaders to consider how best to achieve a balance between maintaining control and delivering business growth through encouraging their organizations to develop a culture of intelligent risk taking.


The best outcome for banks, he noted, would be for the investment in compliance and control to actually become a value creating exercise in itself. He suggested several steps that could be adopted to put in place adequate control and risk management system into its risk profile, providing a clear and business plan that can be implemented, keeping the implementation approach simple, ensuring a clearly defined organization roles and accountability and building on existing workable systems as well as aligning the risk assessment and reporting cycles within the bank’s business.

With the prevailing political stability in the country, huge returns on investment, strengthening of the public private partnership and commitment to ongoing reforms,Nigeria has become a preferred investment destination for Investoes.This was made known by the Minister of Commerce and Industry,Chief Charles Ugwu and Executive Secretary of the Nigeria Investment Promotion Commission (NIPC) Engr. Mustafa Bello at the 5th Sino-Nigeria Business and Investment Forum (NBCIF) in Guangzhou,China.

The Minister told the huge gathering of Chinese investors and Nigerian businessmen that though conditions precedent for attracting investment into the country exist, the Federal Government is working tirelessly to ensure that the enabling environment surpasses benchmarks elsewhere.He made it known that the environment that exists in Nigeria is a safe one, the polity is stable, as we have just concluded a civilian-to-civilian transition and the opportunities that exist are tremendous.

He added that the consolidation of the banking and insurance sectors has put the Nigerian banks in good stead to provide the requisite financial services that will ensure the sustenance of the Chinese businesses. He said with returns of investment of 35-40 per cent and even as high as 70 per cent in some sectors, Nigeria presents one of the highest returns on investment (ROI) globally.He listed the sectors yearning for investments to include agriculture, pharmaceuticals, ICT, tourism, power, solid minerals and oil and gas among others.

The minister, however, emphasized the need for Chinese investments in the development of the petrochemical sector because of its multiplier effect on other sectors of the economy.He called on Chinese investors to make good the existing cordial relationship between both countries by making Nigeria their preferred investment destination.
In his own presentation, Bello observed that the reforms, which has enthroned new era of due process, transparency and anti-corruption initiatives and other institutional reforms have all contributed to strengthening the investment climate in the country.He said that the new regime of due process has saved the country $3 billion in the last three years.He reechoed Ugwu’s assertion that Nigeria remains one of the best investment destinations, citing the $500 million profit recorded by MTN in 2005, barley three years after setting up shop in Nigeria as indicative of this.

Moreover, he said that the BB- credit rating of the country by Fitch and S&P, and the forecast by Goldman Sachs that Nigeria will emerge as one of the 20 largest economies in the world by 2020 show that the country is a haven for investors.

Imo State Governor, Chief Ikedi Ohakim urged the Chinese investors to avail themselves of the prevailing atmosphere of peace and security and the investor-friendly disposition of his state and set up their businesses in Imo.He said that Imo State not only boasts of an educated workforce, its citizens are unarguably the most enterprising in the country.

Union Bank of Nigeria PLC has concluded arrangements for an Extra-Ordinary General Meeting to seek shareholders approval to raise additional capital through a placing process from strategic investors with multinational banking experience.The meeting, scheduled for Thursday, September 27, 2007 at the Royal Tropicana Hotel, Kano, would enable the Bank to seek the shareholders’ approval to take all necessary steps in pursuance of the process, subject to regulatory and statutory requirements to increase its authorized share capital from N7,500,000,000 to N10,000,000,000.

Furthermore, the shareholders’ consent would be sought by the directors to write off the goodwill of N15,721,202,896 arising from the acquisition of Universal Trust Bank PLC, Broad Bank of Nigeria Limited and Union Merchant Bank Limited from the N71,069,554,424 in the Share Premium Account and to utilize part of the Share Premium Account in writing off the outstanding goodwill as provided by Companies and Allied Matters Act 1990.

The Group Managing Director/Chief Executive of the Bank, Mr. Barth Ebong, stressed that the measures were part of the Bank’s strategic efforts towards further positioning it for the unfolding domestic and global challenges of today’s banking as well as consolidate its leadership position in the industry.

With a cumulative shareholders’ fund of over N100.50 billion, Union Bank remains one of the most capitalized banks in Nigeria, following the success of its last recapitalisation drive which raked in over N55 billion from its rights issue and public offer respectively, above its initial target of N40 billion.

Union Bank has also been listed among the Top 1000 World Banks for 2007 by The Banker magazine of the Financial Times Group. In its recently released yearly global banking rating for 2007, the Bank achieved an international ranking of 502 and a country ranking of 2 in Nigeria.Also recently, Fitch Ratings, a foremost international rating and research agency, assigned the Bank National Long and Short-term ratings of ‘A+ (nga)’ and ‘F1’, respectively, as well as Issuer Default Rating (“IDR”) ‘B+’ with a stable outlook.The recognitions are coming on the heels of 2000, 2001, 2002 and 2004 The Bank as well as 2006 Euromoney

RENOWNED economist, Prof. Sam Aluko has said that the nation's monetary, fiscal policies had remained impediments to the nation's economic growth.For instance, he pointed out that the Naira was "highly undervalued" when it should have been made convertible to reduce exchange rate pressure on it.Besides, he added that the fiscal policy required over-hauling, to bring about a more business friendly interest rate regime.

Aluko in a statement made available to the News Agency of Nigeria (NAN) in Akure, Ondo State recently, however, said, "it is better to leave the exchange rate of the naira as it is and take measures to continue to strengthen it."According to him, the exchange rate of the naira has been stable at N127.50 to the dollar since early this year, up from N132.50 in 2005. "There is no doubt that even at N127.50 to one dollar the naira is highly undervalued, the naira should be made convertible so as to reduce exchange rate pressure on it.

This is possible in view of the appreciable foreign exchange reserves that the country has built up, which is today about the 21st largest in the world and eighth in the low and middle income countries in Africa- only Algeria and Libya have higher foreign exchange reserves then Nigeria.
South Africa, with about 50 per cent of Nigeria's external reserves, makes its rand convertible, while Nigerian's naira remains inconvertible.The rand has appreciated against the dollar by about 30 per cent from 8.6 rand to one dollar in 2001, to 6.8 rand to the dollar today. When the Babangida regime began the devaluation of the naira in 1986, it was assumed that the exchange rate unit of the naira to the dollar would not be higher than five to one.

When in 1993, the naira was stabilised at N21 to $1, the advice to the Abacha regime was that gradually, the rate should be brought down to much below N20 to $1.It is no longer possible today because of the misbehaviour of the Obasanjo regime. However, it is possible to bring down the unit exchange rate of the naira to the dollar to about 100 to one, through a more dynamic performance of the Nigeria economy and by a closer-ordination between the monetary and the fiscal policies of government, without much disturbance to the existing incomes, wages and prices policies," Aluko said. The economist, who was obviously adding his voice to the controversy generated by the suspended Naira redenomination policy announced by the CBN Governor, Prof. Chukwuma Soludo on August 14, advised the apex bank not to act alone as if the naira is its private property.

On the implication of high interest rates for a growing economy like Nigeria, Aluko explained: "Pari Passu, with a healthier naira should be a reducing rate of interest, much less than 10 per cent for agricultural and industrial investments.Nigeria will remain uncompetitive in international markets as long as the rate of interest remains as high as 20 per cent, compared with 4.5 per cent in USA, about five per cent in Western Europe and 1.9 per cent in Japan.

Small and medium industries in Japan, for instance, the rate of interest is as low as 0.7 per cent. The naira cannot continue to appreciate if Nigeria continues to remain import-dependent even in those goods and services in which it should be an exporter. The monetary policy of the Central Bank should not be essentially devoted to reducing the quantity of naira in circulation, through arbitrarily withdrawing naira from the banks, it should be devoted more to assisting in the increased productivity of agricultural, industrial and service goods, as the Australian Central Bank had done over the years and as it continues to do.

In other words, in the Equation of exchange of MV = PT, the concentration should not be M (quantity of money) and its circulation but also on T (quantity of goods and services) as they are affected by price," Aluko postulated.He explained further that for the naira to continue to appreciate "exports must increased considerably and imports must reduce also considerably.
"Nigeria's share in the global output of goods and services must increase, so that by our running lower external deficit, Nigeria will continue to accumulate larger reserves and continue to adopt more planned economic policies that will make our economy less vulnerable to external shocks.

All these will make the naira exchange rate less volatile and increase the confidence of domestic and external investors in it and in the economy. According to him, better fiscal, monetary and exchange rate policies would bring down the rate of inflation, even though low inflation rate per se does not necessarily lead to economic growth. However, with the low external debt profile of Nigeria today, rapid growth, decreasing rate of inflation and increasing external value of the naira were possible and attainable.He want Governmrnt to ensure that the generality of our people know much more than hitherto on how the economy and our finances are managed, so that those who are able can make appropriate input and exert control over the activities of government, including those of the Central Bank.

In that case, the type of sudden bombshells from the Central Bank on banks, insurance and on the strategic naira will, in future, be avoided. Although the governor of the Central Bank announced the strategy on the naira, it is the voice from abroad. Professor Soludo should not be condemned, but the Obasanjo regime that allowed itself to be held hostage and thus totally surrendered the economic, financial and monetary policies of Nigeria to foreign interests since May 29, 1999.

Automated Teller Machine (ATM) was introduced into the banking system to solve the problems associated with late night or off banking hours withdrawal of money. In other words, it was conceived to serve the people where there are no tellers (bank officials) either due to closure or over the weekend when there are limited working hours.

It could only be natural therefore that the whole world, including Nigeria would embrace this innovation aimed at making banking easier. The banking industry in Nigeria caught the ATM bug about three years ago, although, it was not entirely unknown to any stakeholders in the industry before this time.And as usual, in line with the Nigerian system, various issues have been raised over the introduction of the ATM in the banking industry.

The first issue that comes to the fore is the efficiency of the ATM in Nigeria. The company, Interswitch Consortium which supplies the ATMs to Nigeria banks have been unable to do a proper link or interconnectivity among banks. The ATMs body with ATM card could cash money anywhere in the country and at any bank, eateries or supermarkets.And in fact, the designers of the ATM expected it to be universal, that is, anybody with ATM cards could cash money anywhere one finds himself or herself. As a matter of fact, this is possible in over 170 countries of the world, but definitely , Nigeria is not part of these countries for obvious reasons.

Apart from this problem, other problems associated with it is the malfunctioning of the equipment. This may be partly due to the lack of indepth technical knowledge of the handlers. For instance, it is common for the ATM to deduct money from ones account without actual payment to the owner only to re-credit such account.There is also the ‘pick failures’ which prevent the equipment from dispensing the correct amount of cash.

Many banks in Nigeria today do not encourage its use as such because of the associated problems which may not even allow for account balance in some instances. But then, those who invented the ATM actually anticipated some problems that may arise with the introduction. However, the type of problems being encountered in Nigeria may differ entirely from the ones they anticipated in a healthy society.

By far the most disturbing problem is that of fraud and attempted fraudulent acts of some unscrupulous Nigerians. As usual with some Nigerians, they have been devicing various means of stealing money out of the ATMs. In actual fact, many have succeeded in robbing ATMs, while some were not that lucky as they were caught in the process and handed over to policeman.
Unfortunately, these fraudulent activities of fraudsters are responsible for the managements of different banks in the country to decide not to leave the machines outside the banking hall when they close for the day. Ordinarily, the ATMs are expected to operate for 24 hours a day, but nowadays, most banks place the machines permanently in the banking hall to prevent thieves and the likes from stealing money from it.


As noted earlier, the designers of the machines must have anticipated some little problems here and there. For example, it was learnt that the first ATMs were off-line machines, meaning money was not automatically withdrawn from an account. The bank accounts were not (at that time) connected by a computer network to the ATM. Therefore, banks were at first very exclusive about who they gave ATM privileges to. Giving them only to credit card holders (credit cards were used before ATM cards) with good banking records. But this problem was disposed with the moment real ATM cards were produced. This is a card with a magnetic strip and a personal ID member to get cash. ATM cards had to be different from credit cards (then without magnetic strips) so account information could be included.


If the inventors had anticipated some problems in this regard, definitely not the types confronting the use of the ATMs in Nigeria. For one, the machine could only be used successfully in a country where honesty is the watchword and clearly that is hard to find in Nigeria.Again, the machine is designed to operate in an environment where all logistics are put in place. That is also an expensive demand in Nigeria. What all these add up to is that the ATMs may become moribund in Nigeria, except if all these anomalies are checked which is anyway doubtful. What’s more the menace of fraudsters, could loudly be contained and which may continue to dissuade the banks from progating its extensive use, thereby discouraging them from further developing on the ATMs.