Nigeria Banking Update

A MAJOR step towards the merger of Unity Bank and Ecobank is about to happen, signaling the expected second round of consolidation within the banking industry. Ecobank Plc and Unity Bank Plc signed a Memorandum of Understanding (MoU) with the expected combined balanced sheet in excess of N400 billion.The merger groups stated that the combination is a friendly and business induced one that allows opportunity to further expand in the country.

The Managing Director of Ecobank, Offiong Ambah, said the combination would produce one of the biggest banking franchise not just in Nigeria but automatically in Africa by virtue of Ecobank's affiliation with Ecobank Transnational Incorporated (ETI), which already has its presence in 18 countries in Africa.He explained that the coming together of the two banks is entirely induced by their common vision which aligns with ecobank's strategic intent of being among the first three banks within the country it operates. According to him,Ecoobank Nigeria is not a Nigerian bank but an international institution operating in Nigeria and by the proposed consolidation, is seeking to expand its franchise in the country.

The Managing Director of Unity Bank, Falalu Bello described the agreement as the beginning of a dream come true for his bank which from the commencement of the consolidation exercise in July 2004 sought to create a truly national franchise. He however said with this next consolidation, it can begin to look beyond being merely a national but also an international player.Also speaking at the event, the Chairman of Ecobank, Chief John Odeyemi stated that the arrangement will be completed in the next three month saying that the emerging organisation would be entirely beneficial to stakeholders of both banks. His words: "This business combination is entirely a win-win situation for all stakeholders. To our shareholders, it is opportunity for improved returns and for the banking community, it is opportunity for more wealth and value creation. They are looking forward to accomplishing this combination faster and"Since we have a shared vision of wanting to be first always, the combination is going to accelerate our desire to be the first three top banks in Nigeria and to become a pan-African bank," he said.

The Chairman of Unity Bank, Professor Akin Mabogunje, stated that hope and faith saw them through the bringing together of nine banks under the N25 billion capitalisation. He also said: "We found out that Ecobank was smiling in our direction. It was a smile we could not resist, so it is a journey, which I hope will amaze the world.".He said"It is not just Africa we will be taking about, but we will also take a place in the global environment. We want to be one of the greatest banks that will do business in the global environment," he said.

Ecobank currently has 133 branches concentrated in the Southern part of Nigeria, while Unity Bank with 215 branches located mostly in the Northern part of the country which will ensure that the merging entity is present in almost all the states of the federation, while Ecobank's affiliation with ETI will also facilitate their expansion to the global community. With the MoU signed, the banks will make their presentation to the regulatory authorities to obtain the necessary approval, a process they expect will not last for more than three months.

This merger arrangement came on the heels of the botched merger arrangement between Ecobank Transnational Incorporated, the parent company of Ecobank Plc and First Bank of Nigeria Plc. In the words of ETI Chairman, Mr. Mande Sidibe, at the bank's yearly general meeting held recently in Cotonou, Benin Republic, the agreement between the two banks (ETI and First Bank) expired before it was concluded. He said "Both banks discussed and decided to forget the merger," he said.

It would be recalled that Unity Bank is made up of nine legacy banks, namely; Inter City Bank, First Interstate, Tropical Commercial Bank, Pacific Bank, Centrepoint Bank, Societe Bancaire, New Nigeria Bank, Bank of the North and New Africa Bank, while Ecobank did a sole capitalisation.

Corporate governance is the process and structures by which the business and affairs of an institution are directed and managed in order to improve the long-term shareholder value by enhancing corporate performance and accountability, taking into account the interest of other stakeholders. Retention of public confidence through the enthronement of public confidence is very crucial given the role of the industry in the mobilization of funds, the allocation of credit to the needy, the payment system as well as the implementation of monetary policy.

Corporate governance is one of the most critical issues in the financial industry across the globe. Failure of the Industry in the past has made it imperative to promote good corporate governance. Financial scandals around the world and the recent collapse of major corporate institutions have brought to fore the need for the practice of good corporate governance.
Poor corporate governance was identified as one of the major factors in virtually all known instances of financial distress in the country. It was against this background that 13-point agenda was introduced during the banking sector consolidation in 2004 thereby enforcing a new code of corporate governance for banks.

The emergence of mega banks in the post-consolidation era task the skills and competencies of boards and managements in improving shareholder values and balance same against other stakeholder interests in a competitive environment and the major area that the corporate governance code seeks to address is the enhancement of the requisite skills and competences of board and management of these banks. In view of the greatly enhanced resources of the consolidated entities, board members may lack the requisite skills and competencies to effectively redefine, re-strategize, restructure, expand and/or refocus the enlarged entities in the areas of change of corporate identities, new businesses acquisitions, branch consolidation, expansion and product development. To ensure that bank directors upgrade their skills and knowledge, the CBN in collaboration with the Financial Institutions Training Centre (FITC) initiated a continuous education programme for bank directors. The programme was aimed at raising the level of corporate governance in the banking sector.The central goals which the programme seeks to serve, include creating a platform for bank directors to continuously upgrade their knowledge on corporate governance, equip the directors with the requisite skills and insights needed to discharge their onerous responsibilities on the boards of their various banks, thereby raising the standard of governance in the sector.

Good corporate governance makes for a more judicious use of resources, it serves the long-term interest of shareholders; it delights and attracts local and international investors. Apart from serving as the catalyst for economic growth, the Nigerian banking industry has acquired some unique features which attract the worldwide attention. Not surprisingly, the sector had led the vanguard in the introduction of change and innovation in business management in Nigeria. Again the performance of our banks in the last two years has given cause to cheer. It is therefore, not surprising to note that the Nigerian banking sector is being asked to champion the efforts being proposed to make Nigeria one of the twenty leading economies of the world by the year 2020.

The code of corporate governance stipulates that the number of non-executive directors should be more than that of executive directors subject to a maximum board size of 20 directors. At least two non-executive boards members should be independent directors (who do not represent any particular shareholder interest and uphold no special business interest with the bank) appointed on merit. The code added that there should be strict adherence to the existing Code of Conduct for bank directors, failing which the regulatory authorities would impose sanctions including removal of the erring director from the board.”.The existence and proper functioning of securities regulators and stock exchanges to enforce rules relating to transparency and disclosure and to strengthen market discipline. The Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (SEC) exercise some regulatory oversights on banks listed on the stock exchange.

Corporate governance must be seen as a vehicle that countries use to attract investors-both local and foreign- and assure them that their investments will be secure and efficiently managed in a transparent and accountable manner.

The challenges of post - consolidation in the banking industry in Nigeria with the emergence of 25 mega banks have continued to impact collaboration, cooperation, competition and conflict both within and outside each bank, most especially in bank’s external relationships. These have continued to shape business outcome and survival of corporate organizations. Banks have continued to respond to these challenges and opportunities, by choosing among wide range of alternatives in strategic decision making in order to attract, maintain and retain clients who are the lifeblood of banks. One of such strategies is the banking expansion and internationalization.

The challenges of globalization has made it imperative for business entities all over the world, to take advantage of the limitless opportunities that this phenomenon offers to expand the scope of their businesses as they move outward their home countries. Brazil had experienced the international expansion of European banks, and built synergistic mutual relationships that have brought economic transformation and rapid development to the country.The Nigerian banks cannot be different. Though some banks like Union Bank of Nigeria Plc, First Bank of Nigeria and United Bank for Africa started their international expansion long ago, much has not been heard until recently, when there is an increasing wave of banks clamoring to expand beyond the shores of Nigeria.

Factors that led to clamoring for banking internationalization include:
•The success of banking consolidation and subsequent public offers have led to soaring confidence among top executives who now believe in the doctrine of Nigeria’s emergence as one of the 20 greatest economies by 2020. Soludo’s doctrine has given birth to many disciples who believe that Nigerian banks can do it.
•The opportunities that internationalization offers in terms of foreign exchange earnings, technology transfer, exchange programmes and training for staff abroad, and returns for investors.
•The vision of their founding fathers and the contemporary realities in the international business arena have been the driving forces that have brought this awareness that they have to move outward to compete. The desire to be global players with world class services according to many of these banks’ visions coupled with federal government economic agenda for 2020 have resulted in banks’ internationalization and expansion.
•The international expansionist tendencies of foreign banks all over the world, most especially in Nigeria, and the success stories that have resulted from such experiences have made strategic managers to see the need to compete globally. As at today, every bank top executive is highly inspired to follow the same example and make a name for himself.
And the excess funds accruing from their public offers would be too much to handle locally because of high level of investment risks, such funds can be invested abroad to mitigate risks.Whatsoever be their reasons, Nigerian banks is ripe enough to compete globally and take advantage of globalization.

Nigerian banks and capacity to excel internationally:
Nigerian banking system has come of age. Over the years, top Nigerian banking executives have been trained abroad and have also gathered international experience that would come into play as they compete globally.” Nigerian banks have well trained professionals with diverse competencies that would come into play in their international business management as they compete globally and “there are many ‘Soludos’ who are ready to take on the world in global banking competition in which they are going to engage or already engaged. In spite of all odds and political instability, Nigerian banks have excelled in the circumstances they have found themselves.

Many Nigerians have continued to show their concerns over the likely dangers that Nigerian banks would face as they move outside the country. Nigerians are worried, whether these banks would be able to present a global brand that would enhance Nigeria’s image abroad but Nigerians in Diaspora believe that “Banks coming abroad would not have a choice than to follow international banking norms and best practices as obliged by the constitutions and laws of their host countries; doing contrary would be met with serious sanctions. Banks would have to embrace new banking culture that is void of lobbying for exemptions when rules are violated and Nigerian banks would learn to understand the demands of those societies and their banking ethics. It is not going to be business as usual and no room for unethical banking practices. With strict compliance to their banking laws, Nigerian banks would compete favourably and excel. If the banks can select their best talents, orientate and indoctrinate them to be compliant to rules before their international posting to avoid problems relating to fiscal indiscipline and integrity at work.

The world is waiting to see Nigerian banks perform excellently abroad as they move out. However, they can present and represent Nigerian brand as they conform with global best practices, and showcase the mental acumen of managerial excellence of well managed world class bank.

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.