Bankers, Senate panel query N25b capital base for banks
By Gbenga Agbana, Bukky Olajide, Babatola Adeyemi (Lagos) Alifa Daniel and Azimazi Momoh Jimoh (Abuja)
BANK chiefs, industrialists and shareholders yesterday differed on the decision by the Central Bank (CBN) to raise banks' capital base to N25 billion by the end of next year.
Also, the Senate Committee on Banking, Financial Institutions and Insurance, has disclosed plans to query the apex bank for exceeding its suggestion of N10 billion new capital base.
While several industrialists and shareholders yesterday said that the decision would end the distress syndrome that had dogged the country's banking sector for years, some bank chiefs expressed fears that it could wreak untold havoc on the sector.
The CBN governor, Prof. Charles Soludo, made the disclosure at a special meeting with about 2,000 bank chiefs in Abuja on Tuesday. The current capital base for old banks is N1 billion while that of new ones is N2 billion.
The Guardian learnt that Soludo's meeting with the bank chiefs was unusually stormy. After reading his prepared speech, the CBN governor told the bankers that he would not take questions from them. He, however, named four of them who would react on behalf of the others.
An enraged bank chief, however, disagreed and insisted on talking. He moved to the microphone uninvited and demanded from the CBN chief, who was meeting with them for the first time since assumption of office, how the apex bank arrived at the N25 billion figure and what prompted the raise, among other questions. The bank chief's questions were roundly endorsed by his colleagues but the CBN boss could not provide answers. Many of them left the venue wearing long looks.
Some of the bank chiefs said yesterday that the figure is too high and could result in foreigners taking over the sector, thereby negating government's desires for the nation and the industry.
It was further learnt that a South African firm is contemplating closing shop in Nigeria over fears that its parent company may be unwilling to commit such funds to the sector in the country.
But some other bank chiefs and industrialists believe that the plan would result in a great development for the economy.
The managing director of First Bank of Nigeria Plc, Mr. Moyo Ajekigbe, his counterpart at Zenith Bank Plc, Mr. Jim Ovia and the CBN Director of Banking Supervision, Mr. Ignatius Imala, on Tuesday told reporters in Abuja that the Bankers Committee support the decision.
Some bank chiefs who spoke to The Guardian opted for a macro-economic indices-based solution, which borders on reformation and revaluing of the naira rather than a huge capital base for banks.
According to them, the country's currency is devalued in terms of number, therefore N25 billion in the United States dollar will still amount to nothing.
The head of Investment Banking, Capital Bank Limited, Mr. Gabriel Edgal said that while the new minimum capitalisation is good, as there is a need for strong financial sector, the fundamental issue is giving value to the naira so that it will compare favourably and positively with the foreign exchange.
According to Edgal, the CBN has not done a research on the negative impact of high capitalisation and mergers as the apex bank presented only its success stories.
He said that there are countries that have tried this and failed. He argued that countries financial system differ on different indices.
"We need not use the model of developed countries to judge things and implement things here," he said.
Edgal said that the framework for mergers and acquisitions should be in place as it entails many issues such as legal, diligence and ownership.
According to him, the time given for these banks is too short, whereas the underlying principle and framework must be in place before mergers can succeed.
He said that Nigerian banks are too localised and should start competing in the region and then move gradually to the level of the developed countries.
To the immediate past President of the Chartered Institute of Bankers of Nigeria (CIBN), Mazi Okechukwu Unegbu, Nigerian banks are weak, therefore, the minimum capitalisation of N25 billion is a welcome idea. He, however, expressed worry over the human (or management) factor of banks in case of acquisition.
According to Unegbu, merging and acquiring will be good for the system and will curtail bank failures that took place in the 1990s.
The former president noted that Nigerians have a tendency of "this is my own." He said that people prefer their business to go extinct rather than merge with others but this new capitalisation will compel them to do it.
He said further that there are no mega banks in Nigeria that can compete with their foreign counterparts, not even in South Africa.
According to him, mergers and acquisitions will create mega banking institutions that will operate universal banking, which will help the productive sector of the economy.
Unegbu said that most of the banks are not technically connected, that is they are not online. "The merging will help them to become online as they will have enough funds to do so."
Merging, he said, will also allow them to combine operational facilities and this will reduce cost.
A consultant economist, Mr. Henry Boyo welcomed the plan, saying that it will prevent banks from going into liquidation.
According to Boyo, the stronger the capital base, the more positive banks will perform and the better it gets for the economy.
He, however, advised that the market for foreign exchange should be able to incorporate the dynamics of liberalisation.
To him, the present system of market for foreign exchange makes it possible for a parasitic supply chain and sharp practices.
His words: "Everywhere in our economic system where free market forces are not allowed to play on the field, serious price distortions, lack of transparency and dislocation to our economy will occur."
The President, Nigerian Shareholders Solidarity Association (NSSA), Chief Akintunde Asalu, described the plan as attainable, adding that it would enhance investors' confidence in the sector.
While noting that the development is a reflection of the high inflation rate in the country, Asalu suggested that banks which could not meet the target should consider the option of merger, while the big ones should work on acquisition.
Asalu said: "It is a lot of money and it is attainable. The problem has always been with the government. The high figure we have for paid-up capital is as a result of inflation. Government has been the beneficiary of inflation, companies have lost."
He continued: "The CBN ought to address itself to the problem of inflation. I have been bothered personally about the paid-up capital of banks and companies.
"A bank doing the business of N5 billion with a N100 million paid-up capital may not be good enough. There is the need for somebody to wake banks up. The attempt by CBN is laudable."
On the effect it could have on the shares of banks, Asalu said: "It will certainly affect banks' stocks. The banks can merge and there could be acquisition in order to get at the expected target.
"Now, only three of the new generation banks are close to the target. They are right on track. To do business, there should be sanity. You must be prepared."
The 89 banks in the country have up to December 2005 to meet the new capital base requirement.
However, the banks are at liberty to merge or the healthy ones can acquire the weak outfits to the new equity base.
"It is a good thing for the market. What we would have is a few banks, but solid. In dollar terms, it will be about $180 million, which can then compete with some small and medium international banks. The share capital of banks now cannot compete with that of some stock-broking firms abroad. Now, we are going to see real banking rather than trading that is obtainable now."
Olusekun continued: "Interest rate may come down. With a lot of money in the kitty of banks, they might create new credit products."
On the effects the new capital base might have on banks, stocks, he said: "Investors would get rid of the shares of banks that are not likely to sail through to buy the shares of big banks."
Local manufacturers have also given a tacit support to the new capital base for banks initiative.
Indications to this emerged in an interview yesterday with a top official of the Manufacturers Association of Nigeria (MAN).
According to the official, from the explanations given by Soludo, government seemed to have sincere intentions.
He added: "Two things are clear from Soludo's explanation. One, we need bigger banks. And following after this is the fact that banks' overhead and cost of funds will come down. These may eventually translate to low interest rate."
Interestingly, the President of the Lagos Chamber of Commerce and Industry (LCCI), Chief Olusola Faleye had stated at a media-briefing Tuesday in Lagos, while speaking on the need for lower interest rate, that: "The banks on their part also need to review their overheads to sustainable levels in order to reduce the ultimate cost of funds."
But the Senate committee prefers the N10 billion it had earlier suggested and plans to query Soludo on the N25 billion target.
The Vice-Chairman of the committee, Senator Farouk Bello Bunza, said that his committee would soon invite Soludo and other CBN managers to clarify the issue.
His words: "My committee will invite the CBN management and dialogue with them. We proposed N10 billion and if CBN is going to increase it to any other figure apart from this, the committee deserves to be consulted.
"We will invite them and when they come, we will consider their reasons and if their` arguments are superior, we will help sell their decision to the public, but if our own arguments are superior, definitely, the N25 billion proposed as new capital base will have to be slashed."
Bunza however, stated that they welcomed the idea of raising banks' capital base to among others, reduce distress in the sector, protect depositors' interest and restore confidence in the financial institutions.
The lawmaker however, argued that there was need for government to be moderate in raising banks' capital base.
He said: "In as much as we all agree that the previous capital base of N2 billion be raised to make banks serve as catalyst to development and to make them compete internationally, I believe the proposed N25 billion is too much.
"The increase should be gradual to enable more banks cope. We should not encourage monopolies in the banking industry. With the proposed new capital base, more than 30 banks are likely to merge. Such a situation will be critical to employment situation in the country as thousands of bank workers are going to be sacked."
The Senator also disclosed that based on pressure from his panel, the CBN had suspended the idea of introducing N1,000 note into the economy.
Bunsa said: "I know that the former CBN Governor, Joseph Sanusi, after listening to arguments put forward by our committee, agreed to suspend the introduction of the proposed N1,000 note.
"We are yet to discuss that with the new CBN governor but I still believe that the suspension stands."
