Daily Independent Online.
*
Monday,July 19, 2004.
Banks
can’t play the role of development finance institutions, says Akabueze
Managing Director of NAL Bank Plc, Mr. Ben Akabueze, could
be described as a thoroughbred Nigerian given his birthplace of Maiduguri.
Besides, he had his early education in Sasse-Buea, Cameroun, as well as
Onitsha, in Nigeria, and his first degree from the University of Lagos, Akoka
in 1982, where he graduated with a First Class (Hons) in Accounting. He cut his banking teeth at Citi Bank
Nigeria, now Nigerian International Bank Limited, having worked for a few years
in some other notable private sector firms in the country. He joined NAL Bank
in 1999, as Executive Director in-charge of Investment and Corporate Banking, a
position he held till 2000 when he became the managing director.
With the fair-complexioned financial guru, it is not just
banking business, as he is also a pastor with the Redeemed Christian Church of
God (RCCG). In this interview with Finance Editor, Mojeed Jamiu, Akabueze speaks
on the new N25 billion capitalisation requirement by the apex regulatory bank,
the impacts on the financial system and the role banks will play in the new
world order. Excerpts.
The
Central Bank of Nigeria (CBN) just increased the capitalisation of banks,
operating in the system, to N25 billion, which must be achieved by December
2005, how is NAL Bank positioning itself under the new dispensation?
First, I think I should use this
opportunity to clarify the misconception, which I have noticed in some of the
reports in the press since this matter came up because people are linking the
N25 billion to the previous N2 billion. But the issue is, the CBN has only made
up specifications, regarding the paid- up capital of banks and you know that
banks’ shareholders’ funds comprise the paid-up capital and other
reserves.
This time around, what the apex bank is
talking about is the shareholders’ funds. So, you may actually achieve
N25 billion shareholders’ funds without having a paid- up capital
anywhere near that. So, in any case, this N25 billion is not to be compared
with the N2 billion.
You see, most people in the banking
industry had expected an upward review in the capital requirement but not
anything near the N25 billion, which the CBN announced last week.
At the beginning of this year, when the
CBN came out with the monetary policy and came out with only N2 billion paid-up
capital by end of December next year, it seemed like that circular was to apply
for two years.
So, people had kind of stopped focusing
on any possible increase beyond the N2 billion paid-up capital, which was
announced at the beginning of the year. Yes, the development came as a shock to
every one. But again, as you rightly observed, each institution’s
capacity to cope with this challenge would vary.
It will depend on where the institution
is currently, the pedigree of that institution, which in turn means whether it
can raise additional new capital, whether it will be an attractive candidate
for merger, or whether it has the capacity to acquire others itself.
For us at NAL, we believe that NAL has
got pedigree after nearly 44 years. The board and owners of this institution
are not about to let the legacy of NAL disappear, hence I can assure you that
NAL will rise to the challenge of this new development. We will remain in this
industry in one form or another beyond that date.
What
gives you this kind of confidence and what strategies are you putting in place
to ensure that you meet this new target?
Well, as of now, we have close to N6
billion in shareholders’ funds. I hope you know that meeting the N25
billion target does not necessarily mean that you should raise all the money
yourself. This could be through a combination of approaches, including merging
with other institutions, merging to raise additional capital, merge and
turnaround to acquire some other institutions.
You see, at the end of the day when the
dust on all these things settles, I don’t think it is as daunting as we
are looking at it now. If 25 banks that have even only one billion naira each
should come together, they would have met the requirement. If five banks of our
size in terms of shareholders’ funds come together, they would have met
it.
Eighteen months is long enough to begin
and conclude merger and acquisition deals once the will is there. Before now,
there is the talk about the necessity or otherwise for consolidation in the
banking industry for people to consider mergers and acquisition but, its all
been left to everyone’s discretion. However, that discretion has been
taken away now and it’s a matter of survival. In fact, I think people are
going to very quickly cut through whatever constraints and get through with it.
The first
salvo fired by the new Central Bank of Nigeria (CBN) Governor, Professor
Charles Soludo, when he took over was an advice to banks to merge. As if that
was not enough, he again came with the N25 billion capital requirement for
banks. Are these moves encouraging for an economy like ours, especially the
forced mergers, as it were?
Well, you know the CBN governor tried to
present his own case quite forcefully too with this new approach and a major
plank for it was to increase the capacity of Nigerian banks to play their
inter-mediation role. It is very easy for us often to state the fact that in
the US, there are regional banks. But in reality, one of those regional banks
in terms of size are larger than most of the banks in Nigeria, even from that
one branch.
You see, the relative size of their
economy is so high such that the budget of a university is larger than the
entire budget of Nigeria as a country.
So, if that bank is just serving that
university community alone, it would be serving an account that is greater than
the Nigerian economy altogether.
When we make those comparisons, we also
need to take certain factors into consideration. In the US, there has also been
a general trend towards real consolidation in the banking industry. For the
past 10 years, we have had over 7,000 mergers and acquisitions in the US alone.
It seems to me that the pronouncements of
the CBN governor are reflective of the policy thrust of the present government.
Sir, if
at the end of the day, this N25 billion issue comes out to be a reality, how is
NAL Bank going to play in the unfolding scenario, given its 44-year history and
quality management?
As you said, basically for every player
in the banking industry in the country today, there are just four options open
to you in this type of situation. Option one is to try to meet the new capital
requirement by yourself if you have not done so. The second option is to merge
with others to meet it. Option three is to acquire other smaller banks to be
able to meet the new capital requirement. The last option is to offer yourself
up to be acquired by somebody else.
However, these options are not mutually
exclusive, it can be a combination of some of the options or it can as well be
a sequencing thing. You can do this and try something else, but the important
thing at the end of the day is that in one form or the other, the institution
remains.
For us at NAL Bank, basically, we are
looking at two principal options, which are merging with others as well as
acquiring other banks.
Whether at the end of the day we will
still be called NAL or any other name is a decision I can’t take now. But
what I can tell you is that NAL has pedigree, strong brand and that at the end
of the day, we might still end up with an institution called NAL, or that would
have NAL in its name because the owners would find out that there is value to
be derived in that entity.
In other
terms, are you already discussing with some of these other smaller banks you
talked about and could you give us their names?
For now, I cannot give the names of any
of the banks because that is something that will happen when the time is ripe. I
can assure you that such announcements are made jointly by the institutions
involved in such deals.
There has been this talk that the banks
are not actually supporting the real sector of the economy, and the belief is
that with the N25 billion requirement, banks will now be able to play in a
bigger market and play a more supportive role in the economy.
Let me first tell you that I disagree
with you vehemently that the banks have not been supporting the real sector or
the so-called real sector of the economy. Sometimes, one has to question what
is so real about the sector. Is it a manufacturing sector that is essentially
engaged in packaging of goods other than manufacturing? But let’s look at
the fact on the ground, which is that there is no serious operator in the real
sector, who has a viable project and a good management in place, as well as
sufficient equity in his business, that has not been able to attract the
capital that he needs to support his business.
Otherwise, the little progress that we
have made will not be there. But then, let me say that on the SMEIES,
currently, there is close to N23 billion that has been set aside and
investments are close to N10 billion and not the N5 billion that you talked
about. For banks to put N10 billion within these two years in the SMEs should
not be taken light. Here, I am talking about the money you put in as equity and
not the ones they have put in as loans.
The banks are there to support economic
development, but the banks are not Development Finance Institutions (DFIs),
these are commercial banks and I can tell you that there is a major difference
between DFIs and commercial banks. People often expect the banks to play the
role, which DFIs should play, but this should not be so.
Banks are not venture capital companies,
but people expect them in Nigeria to play the role, which venture capital
companies are playing. It doesn’t just happen like that anywhere else in
the world. Government is supposed to energise the industries. The Bank of
Industry (BOI) has only received N5 billion in four years, even if it has
disbursed the entire sum, that is all it has done.
Banks have put in N10 billion in just
about two years and yet, people and the government are criticising the banks
that they are not performing, it doesn’t just add up. On the issue of
whether the new N25 billion will enhance the capacity of the banks to support
the real sector of the economy, I will say probably. But at the end of the day
the key impediment to the banks ability to supporting the real sector is the
fact that the needs of the real sector are such that the banks are not in a
position to meet them.
The needs are often for long-term,
low-cost funds and Nigerian banks don’t have the long-term funds. When 60
per cent of their deposits are 30 days and below in tenor, how can they use
that to support long-term lending? By the statistics that the Central Bank
itself shared, only between three and four per cent of the funds available to
the banks are long-term funds. So, how can the banks lend?
It is a principle that you don’t
give what you don’t have, hence if you do not have long-term funds, how
can you give it out? When the banks conceived the SMIEIS initiative, they made
it very clear that it would not be a loan scheme, but rather an equity scheme.
Funding doesn’t get any longer term
than equity. That is the longest term you can get because there is no repayment
date, because it is equity, there is no obligation to pay dividend unless there
is a profit. One can also argue that it doesn’t get lower in terms of
cost from the cash flow perspective. And that is why the banks settled for that
and said this is the way it will be because they figure that what the
industrial sector needs is stable funds. One thing is that many of the
operators were unhappy because they did not want the equity arrangement,
because in any case, many of them know that they will take the loans and
default at the end of the day, and not repay, yet they want to hold on to their
businesses.
Yes, when the banks get larger, it will
improve their capacity to attract such low- cost funding, especially from
outside the country. A lot of the real low-cost lending that banks do now is
based on the intermediation from funds from outside the country. So, when the
banks get bigger, they will be able to do more in terms of the intermediation.
Fundamentally, what should happen is that
the structure of the Nigerian economy has to change so that long-term funding
can become available to banks in the country.
Some
people have actually argued that the SMEIES is not really necessary, and that
it was initially a CBN idea before the banks bought the idea. The CBN in one of
its reports classified most banks in Nigeria as small-scale enterprises with
capital base of less than $10 million and the same CBN wants the banks to
support the banking sector. Don’t you think this is contradictory?
You have basically answered the question
in the conclusion you have reached. But seriously speaking, I think people also
have to be careful especially CBN officials. They must be very careful on the
kind of comments they make about the banking system.
It does not do anybody any good at the
end of the day for people to keep disparaging the banking industry. The banking
industry already has its own problems. Yes, the banking industry could be
better, but the truth is that at the end of the day, every sector of the
economy in this country has problems. Every single sector of this economy could
be better than it is and relatively speaking, the banking industry has done
better than most.
So, when people just keep disparaging the
banking industry, at the end of the day, they are doing more harm than good to
the economy. There is over N400 billion outside the banking system. What the
regulators and every stakeholder need to do is to join hand to work with the
banks to see how the bulk of this money could be brought back to the banking
system, so that we can increase the capacity of the banks, so that they can
play their intermediation role.
But if everyday, people pick up the
newspapers and they read negative things about the banks, it is no strong
incentive to the banking system.
From the
look of things, it seems the bank executives have accepted the merger option
from the CBN with pronouncements at their meeting last week though most of them
feel the N2.5 billion is on the high side. Do you think it is still necessary
to set up the 10-man committee to review the N25 billion issue when it was
clear that the CBN never consulted the bankers before arriving at that sum?
First of all, I must tell you that I was
not at the bankers’ forum in Lagos where the issue was discussed, because
I had to go to Abuja for some other important engagements, which had been earlier
scheduled.
The CBN, from time to time, organises
what is known as the interactive forum where they invite people from the
banking industry, manufacturing, finance, academic and the oil sector, as well
as others and even the political parties. We had the chairman of the ruling
party, the People’s Democratic Party (PDP) in attendance at the last
meeting. We looked at issues on monetary policy and deliberations at such forum
are fed into CBN’s own policy committee and these issues are seriously
taken into consideration. That was why I was in Abuja and I have not been
briefed on what transpired at the Lagos meeting of the bank CEOs.
But your question says is the committee
still necessary? I will say probably. The CBN governor, in laying out his
agenda, specifically called for input. But of course, that someone calls for
input does not compel him to change his mind unless the input is persuasive
enough.
To that extent, if he calls for input,
bank CEOs are right in setting up a committee to look into that, there is a
good platform to send forth the input. What he does with it at the end of the
day is another matter. My understanding of what the CBN governor did was to
take the opportunity of his inaugural meeting with the CEOs to outline his
vision for the industry. That is not unusual when someone assumes a new
position.
Sometimes, it might be possible for you
to modify, given recent information available to you and I think it is still
premature to worry about what this could or could not do for the relationshipwe
have on ground now.
