N25bn Capital Base: A Silver Lining in the Sky
By Enitar Ugwu
Even in the darkest hour, the possibility and inevitability of the sun emerging has never been in doubt.
This analogy holds true for banks, shareholders and depositors in the financial sector of the economy now with the new policy of hike in capital base.
It is not in doubt that since the Governor of the Central Bank of Nigeria (CBN) Professor Charles Soludo announced the hike of banks' capital base from N2 billion to N25 billion, things have not really been the same with banks.
As a matter of fact, there is palpable panic arising from that announcement. The loan is anchored on the fact that it might trigger off massive withdrawal of funds by depositors which by extension will lead to run in the banks.
But, good enough, this has not happened up till now. Thanks to assurances from prominent players, associations and banks in the financial system.
For instance, the Chartered Institute of Bankers of Nigeria (CIBN) came out public to say that "they are studying the proposed policy and will come out with its suggestions soonest in line with the request by the Governor of CBN at the Bankers Committee meeting of July 6, 2004."
Based on that, CIBN assured bank customers that, "whatever be the case ultimately, whether mergers or acquisitions, their deposits with banks are safe, noting that the CBN has also assured the banking public of the health and soundness of the banking industry.
They also revealed that the institute and the banks are at present working with other stakeholders in the industry towards evolving strategies and modalities that will facilitate smooth recapitalisation of banks to ensure that no stakeholders is in anyway hurt while pursuing the intended objectives.
The institute equally reassured the banking public of the safety of their investment and deposits while urging them to continue their normal transactions with the banks without panic, as every effort is being put in place to ensure that the present situation in the industry is addressed for the benefit of everybody, the industry and the economy.
The CIBN's assurances apparently as anchored on the work saddled on a 10-man committee it set up to look into ways of solving this knotty issue.
The committee we learnt is working on a proposal that will ensure a phased recapitalisation which "would enable banks that want to go into mergers and acquisitions to sort out the obvious knotty issues involved and achieve a nil-wil situation."
The panel in its working paper agreed that "the phased recapitalisation should start with N5 billion for a period of 3 years and then N10 billion for another two years and subsequently additional N5 billion for every 3 years."
They also suggested that, "banks that would want to operate small should be allowed capital base that will synchronise with their levels of operation."
However, they agreed that if the apex bank stuck to the N25 billion capital base, "it should be made a criterion for being a settlement bank and that any bank that attains it should automatically be made in a settlement bank pending the time a new benchmark is set."
Even as the banking public's nerves are being assuaged and banks are probing several ways of getting out of harm's way, some banks have already clearly set the peace.
For instance, Union Bank Plc (with Union Merchant Bank and Union Homes) have shareholders funds amounting to N32.7 billion while First Bank Plc (with FBN Merchant Bank) have shareholders' fund of N25.0 billion, both as at March, 2003.
Both banks can be said to be home and dry. Closing in is Standard Trust Bank Plc with Continental Trust Bank (N19.4 billion).
Also, information coming out from Intercontinental Bank Plc confirms the earlier thinking that the group will consolidate.
According to the information, members of the group and the associates which include Equity Bank of Nigeria Limited, Gateway Bank Plc, Global Bank Plc and Intercontinental Bank Plc would now consolidate into one bank.
With Capital/Reserves (shareholders funds) of N2.3 billion, N2.2 billion, N1.9 billion and N10.2 billion for Equity Bank, Gateway Bank, Global Bank and Intercontinental Bank, respectively, the consolidated figure of the Intercontinental Group stood at N16.6 billion as at end of last year.
The group's standing has also been greatly enhanced as at end of first half 2004 with estimated group capital and reserve in excess of over N20 billion.
Also, according to sources in the bank, to meet up the new challenge, the bank is considering the option of private placement by shareholders or rights issue while existing shareholders are already set to inject about N10 billion into the group.
The second option being considered by the bank is the acquisition of another bank in the system.
Another new generation bank on the verge of meeting the new capital base soon is Zenith Bank with N16 billion shareholders fund (besides the N15 billion expected from the IPO).
Also, on the same wave length is Guaranty Trust bank (n14 billion plus the N10.7 billion expected from the on-going public offer).
Just as one investor mentioned, both banks, GTB and Zenith, "would not have any problems as regards the new capital base because investors can't simply have enough of their shares."
United Bank for Africa Plc (UBA) with a shareholders' fund of N13.7 billion is one bank expected to meet the new capital base. Add this figure to the over N10 billion it is expecting to raise from the capital market and you begin to see why.
However, the bottom line is that, if the CBN sticks to its gun, two things are certain; depositors won't lose their funds and the banks that will emerge are the ones one can trust.
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