Nigeria Banking Update

The community banks according to the CBN, were discovered to have closed shop and consequently, are to be liquidated. It would be recalled that the federal government launched the micro finance and regulatory policy for Nigeria on December 15, 2005.

The new policy created two categories of micro finance banks - MFBs licenced to operate as unit banks and MFBs licenced to operate within the four walls in a state. Community banks were therefore given 24 months to recapitalise and convert to MFBs in line with the conversion requirements of the CBN. As the deadline for conversion lapsed, and the affected CBs failed to forward the necessary statutory returns to the apex bank as earlier directed, the CBN had issued what it called "last warning "To the chairmen and directors of the failed CBs to within 21 working days from the date the first request was made, make the returns to the appropriate quarter in CBN.The returns information, which should be provided by the CBs as at the last date of their operation, should cover:
• statement of the assets and liabilities;
• comprehensive and verifiable list of depositors showing their name, addresses and the amounts in their favour;
• list of all debtors including their addresses and the amount owed to the CBs; and
• list of its assets (movable and fixed).
Out of the 750 CBs, which operated in the country hitherto now, only 407 have successfully transformed and registered by the CBN as MFBs.

Analysis on the proportion of failure by state wise in the country reveals that Ebonyi and Zamfara states recorded the least number of one each, followed by Niger, Kaduna and sokoto states having two failures each. The highest number of 14 failures each occurred in Edo and Delta states. This failure figures do not however represent equal levels in each state of the federation as there are clearly some states with less than 10 and others with more than 120 community banks prior to CBN conversion policy deadline.

Meanwhile, this last request by CBN serves as the last warning to all chairmen and directors of the affected CBs as failure to respond appropriately within the specified period shall make them liable for persecution in the court of law.

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

Eleven banks were last year sanctioned by the Central Bank of Nigeria (CBN) for breaking the rules, according to a report released on Tuesday in Abuja.The report, compiled by the CBN, also disclosed that 48,894 borrowers owed banks N1.553 trillion by December 31, 2006.

Nigeria International Bank (NIB) had five infractions, the highest number, followed by Fidelity Bank, Afribank, and Access Bank, which committed four each.Equitorial Trust was penalised for three contraventions. Sterling Bank, Union Bank and Guaranty Trust were culpable for three, while IBTC Chartered, Ecobank, and Oceanic were sanctioned for one each.Seven banks were free of contravention in 2006: United Bank for Africa, Zenith, First Bank, Bank PHB, Diamond, First City Monument, and Stanbic.

The report says "Contraventions for which the offending banks were penalised were as follows: non-implementation of recommendations in the previous examination; failure to adhere to CBN circular reference BSD/FE/48/Vol.6/304 dated March 29, 1990, in respect of the minimum information to be contained in a credit file; and failure to obtain the prescribed documentation for some letters of credit and invisible trade transactions.

Other infractions include: non-adherence to foreign exchange regulation, such as failure to report to the CBN, customers who defaulted in the submission of shipping documents 90 days after negotiation; and failure to adhere to CBN Circular reference SD/DO/CIR/VOL.1/2001/22 of November 29, 2001, by using unconfirmed letters of credit to import finished goods, among others.

Appropriate penalties/sanctions on banks that contravened regulations were imposed on the affected banks, in line with the provisions of the Banks and Other Financial Institutions Act."
Some 54 banks were penalised in 2004 for 212 contraventions. More than 50 banks were sanctioned in 2005 for over 160 offences.

On the Credit Risk Management System (CRMS), the report said the system web-enabled CRMS database had a balance of N1.553 trillion, involving 48,894 borrowers in 2006, against N1.388 trillion and 34,366 borrowers in 2005.

As at December 31, 2006, in absolute terms, both the Naira value and the number of borrowers grew, reflecting the growing confidence of the public in the banking system.It stated that 1,193 cases of fraud and forgery, involving over N4.6 billion and various other sums of foreign currencies, were reported by banks last year, out of which 612 cases - amounting to over N2.6 billion - were reported to have been lost to perpetrators of the crime.

The report also said that liquidation dividends of private sector depositors of the banks that failed the capitalisation requirement will be paid to the CBN paid by the Nigeria Deposit Insurance Corporation (NDIC).And, on another flank, it disclosed that 14 Nigerian banks are partnering foreign ones to manage the country's external reserves.

So far, the CBN has allotted between $325 million and $1 billion to the 14 partnerships, depending on the class of their mandate. Foreign bank custodians/asset managers that show interest in developing local capacity and partnering with Nigerian banks would be allotted more funds to manage."

By January 1, 2008, only 450 out of a total 700 community banks across the country would operate as Microfinance Banks to cater for the needs of the micro, small and medium-scale enterprises, the Central Bank of Nigeria (CBN) said yesterday.This was made known in Calabar at the ongoing 6th Annual Seminar of the Nigeria Deposit Insurance Corporation (NDIC) organised for Finance Correspondents and Business Editors.

The apex bank had in December 2005, announced a new Microfinance framework.Under the regulatory guidelines, Unit Microfinance Banks are expected to have a minimum of N20 million capital base, while the State Microfinance Banks are required to beef up their capital base to the tune of N1 billion. Licences of those that are unable to scale through the recapitalisation exercise are to be revoked.

As at end of last month, about 407 have already been given licence to open and commence business along side four non-governmental organizations (NGOs) and its expected that by the December 31, 2007 deadline, the remaining 250 community banks that are unsuccessful would have their licences revoked by an exit strategy that is being worked by the CBN and NDIC in order to create a soft-landing for the institutions and instil confidence in depositors.disclosed already about 150 community banks out of the 250 that are unlikely to meet the deadline have closed down even before the commencement of the consolidation exercise in the sub-sector.He however assured of CBN’s commitment in ensuring that depositor’s funds in the remaining institutions are protected. “The CBN and NDIC are working out an exit strategy for these institutions in a way that we will not hamper depositors confidence.The CBN intend to run a certification programme for operators and regulators in the first quarter of 2008.The programme will help them to upgrade the skills of operators in the industry.

All licensed microfinance institutions will undergo a certification programme within the next three years. This is to ensure that the programme is self sustained and driven by credibility and professionalism on the part of the institutions selected to drive it. The supervisory board of the programme would be headed by the CBN.The certification programme will aimed at establishing high standard for the certificate, benchmarked on international best practices and training curricula.The CBN would adopt zero tolerance in ensuring that the issue of insider abuse, which was common with the community banks, does not arise.For instance, as apart of its measures, ownership structure would be diversified,Management must be suitably qualified, experienced, competent, committed and certified microfinance practitioners. MFB should operate in line with commercial principles, best MF practices and high accounting, auditing and MIS standards.

Union Bank of Nigeria Plc plans to float a hybrid offer next year in its quest to remain formidable in the Nigerian banking industry. Consequently, the bank has obtained the permission of shareholders to float a combination of rights and public offer as well as a global depository receipt (GDR).At the 38th annual general meeting held in Abuja last week, shareholders approved the bank's recapitalisation plans, part of which includes the issuance of 1,117,650,000 ordinary shares out of the unissued share, to be allotted to existing shareholders.

Union Bank currently has 15 billion authorized shares, out of which, only about 9.65 billion units are on issue.According to the notice to shareholders in the annual report, "The new shares be issued and allotted provisionally to existing shareholders and that any shares not taken up by the existing shareholders within a stipulated period to be determined by the directors shall be offered for sale first to other interested shareholders of the company." The GDR, which will also be issued out of the un-issued shares of the bank after consideration of the rights issue, will be by way of preferential allotment. Mr. Barth Ebong, group managing director said the bank is challenged to do better in view of the extreme competition in the industry. "The kind of business we do today are huge. We require huge capital to in order to meet the required single obligor to grant such financing. That is why we need huge capital in the banking industry today."He told shareholders of the intention to list more of its subsidiaries on the Nigerian Stock Exchange (NSE).

The bank's full fledged subsidiaries include Union Trustees Limited, Union Assurance Company Limited, Union Capital Markets Limited, Union Registrars Limited, Union Property Company Limited and Union Homes Savings and Loans Plc which was listed in 2005. "As we grow more of our subsidiaries, we will ensure that they are profitable enough to make us proud." He said the bank was undergoing a transformation of its operations in order to improve on the quality of service. "Our channels of distribution will be improved. We are reviewing staff salaries because of the need to attract and retain good hand and we will endeavour to have presence in major commercial centres across the country. At the end of the transformation, the bank will be placed on an unassailable position in the banking industry in Nigeria," he said.

For the year ended March 31 2007, the group posted gross earnings of N88.1 billion, 32.3 per cent above the N66.6 billion posted in the comparable period of 2006. Profit after tax rose by 22.4 per cent from N10.8 billion to N13.22 billion while dividend increased by nearly 54 per cent from N6.3 billion to N9.65 billion which translated to N1.00 per 50 kobo share. Shareholders also got a bonus of one for every five previously held.