New Capital: Can Banks Achieve Planned Strategies?
By Ayodele Aminu
Since July 6, 2004 when the Central Bank of Nigeria (CBN) Governor, Professor Charles Soludo made his famous but highly contentious declaration on bank recapitalisation, a vivacious public debate has been raging. From N2 billion, he directed banks to raise their capital by 1150 per cent, from N2 billion to N25 billion before end December 2005.
Expectedly, this development did not and was not expected to go down well with bank chiefs. Accordingly, they opposed the new capital at various times suggesting other measures like a downward review of the capital base, stratification of banks and deadline extension.
About a week and half after the directive was given, it was still "business as usual for banks" as there was the believe that the policy might be reviewed.
But following President Olusegun Obasanjo's public declaration of his support for the policy, banks had no other choice than to seek ways of achieving the new capital either by raising additional capital through local and foreign investors, merge or offer their selves for acquisition.
And if a rehash of the events that have jolted the banking industry were to be summarized, the decision of the big banks which account for over 70 per cent of funds in the inter-bank market to recall their matured placements and refusing to roll-over or grant new ones as well as the policy of the CBN to embark on phased withdrawal of public sector funds traumatized the entire industry making some banks default in meeting their financial obligations of their depositors.
Following this development, about 10 banks were at various times sent out of clearing by their respective settlement banks. This unhealthy state of affairs however took a dangerous dimension last Friday when it was rumoured that 25 banks, including one or two settlement banks had been thrown out of clearing. Of course, after investigation it was discovered that there was no iota of truth in the rumour. Only eight banks excluding any of the settlement banks were said to be out of clearing. Unconfirmed reports however says the rumour of the 25 banks out clearing was the handiwork of one of the banks whose financial health had been in dire disarray, a situation that had necessitated its being sent out of clearing almost two and half weeks now.
Beyond that, banks as a matter of fact including those, which obviously would not meet the N25 billion capital benchmark, were compelled to come out with the various strategies with a view to reassuring their respective customers.
Banks that have however, met the new capital include First Bank of Nigeria Plc and Union Bank Plc, while those about meeting it are United Bank for Africa Plc, Zenith Bank Plc, Standard Trust Bank Plc, Guaranty Trust Bank Plc and the Intercontinental Group.
Below are excepts of the statement made by some banks:
Ecobank Nigeria Plc said it would meet the N25 billion new capital base through a combination of fresh funds from its parent company - Ecobank Transnational Incorporated (ETI), additional funds from its existing shareholders as well as acquisition of one or two other banks.
Managing director/chief executive officer, Ecobank Nigeria Plc, Mrs. Funke Osibodu who made this known at a press briefing in Lagos recently, said 70 per cent of the required funds would be provided by the ETI, while the remaining 30 per cent would be raised through existing shareholders and acquisition of one or two more banks in the country.
"Our parent company Ecobank Transnational Incorporated intends to increase its paid up capital to $150 million and be listed on the stock exchanges of Nigeria, Cote D'voire, South Africa and Ghana.
"Part of the funds expected from that process would come to Nigeria and the new countries they intend to have presence in. Ecobank Transnational is solidly behind us because Nigeria is a very important country to them.
The Intercontinental Group says it has collapsed the group which is made up of Intercontinental Bank, Equity Bank (Nigeria) Limited, Gateway Bank Plc and Global Bank Plc, into a single entity.
"By this decision, the Intercontinental Group's consolidated shareholders' funds is estimated at about N20 billion in the first half of 2004, making it the third largest in the Nigerian banking industry.
"Though at N20 billion the bank is N5 billion to meeting the new stipulated minimum capital, the group has indicated that it has at least two options that would push its capital base above N30 billion well ahead the 2005 deadline.
"One of the options which appear already guaranteed is the recapitalisation of profit as the consolidated profit of the members of the group was over N5.5 billion in 2003 while 2004 profit is expected to hit N8billion.
"However, the group may aim at substantially surpassing the minimum capital base by resorting to post-consolidation Initial Public Offer (IPO)," the group statement.
As at December 2003, the group's total assets stood at N152 billion, total deposits amounted N103 billion, while branch network currently stands at 150.
Chairman, First Atlantic Bank Plc, Olorogun O'tega Emerhor, has also unfolded a three-prong plan to comply with the new N25 billion capital requirements prescribed by the CBN.
Emerhor who spoke at the formal opening of the Awka branch of the bank in Anambra State, listed the plans to include attracting new foreign investors into the bank, merging with or acquiring banks of similar interests; and encouraging select customers to acquire interest in the bank.
He said the prescription of the apex bank would result in consolidation within the sector, thereby producing bigger and internationally competitive banks.
"First Atlantic is in talks with a number of like-minded institutions to exploit their various areas of strength in a business consolidation/merger that will involve both local and international institutions", he said.
Emerhor said that the capitalization requirement would assist First Atlantic achieve its vision of emerging as one of Nigeria's top five banks, adding that it was aiming to surpass the N25 billion benchmark to emerge as "a globally competitive institution."
According to him, the bank had initiated discussions with some foreign investors interested in investing in the bank, adding that the conclusion of these negotiations would represent a major plank of its capitalization plan.
Managing Director/Chief Executive Officer of the bank, Mr. Babajide Rogers has reassured the bank's customers and other stakeholders that plans are already on to meet the new minimum capital base requirement.
"We are on course and will surely meet the new minimum capital base requirement as necessary strategies have been put in place towards this end," he assured.
Among the strategies being explored according to Rogers, is the adoption of a strategic alliance with a few banks. This, according to Rogers would soon be unveiled. Gulf Bank, he said, was also in discussions with two other big banks for purposes of consolidation.
Fortune Bank says it is ready for the new phase of banking that will emerge from the ongoing consolidation of the banking sub-sector, as it will create huge advantage for its teeming customers to increase their capacity .
While explaining the bank's position on the current demands in the economy, the Management noted that Fortune Bank ranks among the 20 topmost banks with the highest shareholders' fund and explains that the position offers the bank a market leader status in a market of about 89 operators, excluding the discount houses and mortgage banks.
They further explained that the current demand by CBN on increase in share capital base merely calls for strategic initiatives, which if carefully thought out, and must not be treated in isolation with the current demands by the economy and the level of activities available to the system.
Managing Director/Chief Executive Officer, Fountain Trust Bank Plc, Mr. Segun Aina recently at the bank's 3rd Quarterly retreat in Lagos said one of the strategies to be adopted involves the broadening of the bank's Initial Public Offer [IPO].
Existing shareholders, he had said, have also expressed their willingness to increase their holdings.
Besides, he disclosed that his bank has re-opened discussions with foreign investors who had earlier expressed interest in the bank.
He however assured that at the end of the merger talks, whether the bank retains its structure or transform into a more vibrant entity, the essence of its identity as a provider of innovative banking services and products would be enhanced, and will guarantee the maximum security of its depositors funds.
The Board of directors of NNB International Bank Plc has approved the increase of its authorized share capital to N10 billion to with view to helping the bank meet its funding requirement as well as meet the statutorily requirement for banks as directed by the CBN.
The Board has also been authorized "to initiate and negotiate a merger and/or acquisition or business consolidation with banks whether foreign or local for the purpose of complying with the CBN directive." This is expected to be one of the major thrust of the bank' Annual General Meeting (AGM) billed for September 27, 2004 in Lagos.
Some of the options being considered by Trade Bank Plc include injection of fresh funds from existing and prospective shareholders, consolidation with banks of like-minds as well as offering itself for acquisition.
The bank says it has commenced discussions with other top players in the industry with a view to forming a strong alliance that would become one of the top players in the banking industry.
"We have already commenced talks and have reached advanced stage with a group of 13 other banks. The group has been holding meetings on weekly bases. Five out of the 13 have signified their willingness to consummate the merger, while the remaining ones have been given up till September 15 2004 to make up their mind on whether or not they would be part of the team," the bank had stressed.
The Diamond Bank through its spokesman, Mr. Ikem Ossai says the bank had seen the global trend years before now, adding that this was the impetus behind the discussions it initiated with key financial institutions in South Africa with the aim of building cross-border strategic equity alliances and strengthening financial capacities and reaching for global competition.
" Diamond Bank has put strategies in place to significantly raise its shareholders' funds as well as lead in the consolidation vanguard within the industry. We have actually taken a number of far-reaching steps toward implementing these strategies", he said.
The Managing Director, Mr. Chika C. Mbonu observed that "the successful turnaround of Assurance Bank has strengthened its capacity to take advantage of the opportunity presented by the new policy, and that with a network of 22 branches strategically located across the country, the bank can build synergies through consolidation with other institutions that will be in the best interest of all its stakeholders, especially its customers."
Mbonu revealed that about a month before the new policy pronouncement, the bank's shareholders initiated moves to increase the capital and already mobilized over N1 billion which the CBN has certified. He stressed that the bank has articulated strategies to meet the new challenges and ensure business continuity, and will continue to explore all options including ongoing discussions with other financial institutions with shared values to meet the N25 billion capitalization requirement.
With a paid up capital of N3 billion and shareholders' fund of over N9 billion, Oceanic Bank intends to single handedly raise the N25 billion minimum capital through its Initial Public Offer (IPO) where over N17 billion is expected to be raised.
Managing director/chief executive officer of the bank, Chief (Mrs.) Cecelia Ibru gave an indication in this effect at the weekend during a media parley organised by the bank.
The Board of Hallmark Bank rose from a meeting two weeks ago to set new financial benchmarks that will enable the organization consolidate its past achievements and cope with emerging challenges, especially the N25 billion capitalization.
"The Board envisages that by 2011 when Hallmark Bank will have clocked 20, it would be posting a total asset base of N500 billion and a shareholders fund of N50 billion," a statement had disclosed.
The bank's Company Secretary and Legal Adviser, Mr. Eze Okorocha, said the targets are both realistic and achievable. He stated that the necessary machinery has already been put in place to facilitate the implementation of the programmes outlined by the Board and to achieve compliance with the new capitalization as well as the new Vision 201 1.
Prudent Bank Plc says it is already discussing "with banks and institutions of like mind", adding that details to this effect would soon be made available as soon as discussions have been concluded.
While maintaining that the N1.2 billion the fresh funds being raised by the bank through rights issue had already been in place before the CBN directive, sources told THISDAY that the bank intends to raise its capital to N7.5 billion within the few months.
The source could not however confirm whether the additional funds would be raised through the capital market or existing shareholders.
The Executive director, EIB International Bank Plc, Mr. Gbenga Ademulegun says EIB is "already taking proactive steps by looking at various options for recapitalisation, while at the same time exploring possible alliances, acquisition and/or mergers."
He assured "no matter what happens, the bank will continue to exist in the new dispensation, after December 2005, judging by the tremendous patronage it has enjoyed form all stakeholders over the time."
Equitorial Trust Bank on the other indicated that it might shoulder the responsibility of meeting the N25 billion new capital alone in view of its shareholders support.
"The shareholders of ETB have decided that the brand identity of the bank should emerge undiluted at the end of the current restructuring process in the banking industry," its managing director, Mr. Ike Oraeokwuotu had said.
IMB International Bank Plc and its core investor - African Petroleum Plc have set up a dual board committee comprising the managing directors, chairmen and executive directors of the two organizations to map out strategies of ensuring that the bank complies with the N25 billion capital base.
Deputy managing director, First City Monument Bank Limited (FCMB), Mr. Ladi Balogun had stated that the bank had already been working on raising its capital.
"Our invitation to new investors will extend to both local and international investors," he had said, adding that the bank was also looking into several options such as consolidation.
Apart from raising its authourised share capital to N15 billion, Broad Bank in a statement, says it would achieve the new capital by "expanding its shareholding base to admit new shareholders, both local and offshore, thereby changing its status from a private company to a non quoted Public Liability Company (PLC)."
Besides raising additional capital by way of rights to move its shareholders funds from N3.2 billion to over N10 billion before November this year, Platinum Bank says it is "considering merger options with banks that share its values and may in addition, recommence negotiations with credible foreign investors, with whom it has subsiding three-year agreement in principle, to invest in the bank with the aim of meeting the minimum capital.'
United Bank for Africa (UBA) says sit would meet the new capital before December this year. "By the time you see our accounts, you'll find out that our shareholders' funds as at March this year is N19.5 billion, so which means that what we need to meet the requirement is just N5.5 billion.
"Even at that we had planned to go to the market sometime before the end of this year to raise additional N10 billion. So, we believe by December this year, we should be able to meet the N25 billion requirement," the managing director, Mallam Aliyu Dikko had told THISDAY.
To reinforce its position among the banks that are likely to meet the new capital, Afribank intends to raise N9 billion to brings the groups total shareholders' funds to N17 billion. The bank in a statement, did not also rule out as a last resort, the possibility of acquiring some of the banks it currently clears their cheques.
Lead Bank says it "is currently putting in place strategies and structures that will ensure continuity of its service after the December 2005 deadline stipulated by the CBN for all banks to beef up their capital base to N25 billion.
Pacific Bank, one of the foremost commercial bank in the country, has concluded plans towards meeting the new minimum capital base of N25 billion recently mandated by Central Bank of Nigeria (CBN).
Speaking yesterday with the Thisday Newspaper, the bank's Managing Director/ Chief Executive Officer, Mr. Kunle Adeagbo assured the bank's teeming customers and all stakeholders that workable strategies have been mapped out to ensure that the bank raises its capital base to the required amount before the expiration of the time allowed by the apex bank.
He revealed that raising the capital base of the bank had been one of the key strategic platforms on which the bank's management had agreed in its repositioning drive, which predates the recent prescription of the CBN.
His words, 'In order to achieve extraordinary success, you must have an extraordinary plan. Part of the plans of the bank includes going into strategic alliance with some formidable offshore banks and other organizations. "
It would be recalled that members of the board and management of Pacific Bank visited the Vice President, Alhaji Atiku Abubakar last year with a team of foreign investors, which was headed by Donald V. Watkins, Chairman of a U.S bank. Donald during his visit had announced their decision to enter into strategic alliance with Pacific Bank.
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