CRIMA Renews Call For Banks' Stratification
Stories by Ayodele Aminu and Amarachukwu Ona
The Credit Risk Managers Association (CRIMA) yesterday re-echoed the need for the stratification and spelling out of the qualifying terms associated with each category of banks in the country.
President of CRIMA, Mr. Ahmed Yusuf made this call yesterday at the association's monthly breakfast forum in Lagos.
Similar call was made penultimate week by the Chief Executive Officer of Pharex Limited - a credit rating firm, Mr. Eghes Eyieyien who also advocated the stratification of banks into three categories with each having different kinds of capital base.
The Central Bank of Nigeria (CBN) had penultimate week directed that all banks in the country beef up their capital base to N25 billion before December 2005.
But the CRIMA president stressed that "the classification will allow banks to gravitate to class of choice, grow up the scale and get down graded if they fail to sustain qualifying terms."
He continued: "Rather than making us all big banks, give us an opportunity to decide who we want to be. Make categories - grade A bank, grade B banks and so on. Set the benefits that each of these banks will benefit depending on their category.
"If you create benefits for each class of the banks, some of them will rationally gravitate towards being a stronger bank", he said.
He also harped on the need to set the rights and duties of each class, stressing that two years will be adequate to achieve this since the Basel 11 mechanism of determining capital adequacy would have become effective by then.
Yusuf described the increase in the capital base of banks as forced mergers and acquisitions, saying it may not achieve the synergy and strategic interest needed in mergers and acquisitions.
"When we look at the causes of mergers and acquisitions, what will gravitate the mergers is strategic interest and value. But looking at Nigerian situation, the only reason why institutions will come to merge is to meet the capital base.
"So when they merge, the synergies will not emerge. And when there is no synergy, the impact on restructuring will come to the surface.
"It is obvious that downsizing with benefits will set in, some infrastructures will be retarded and branches closed down among others. And all these are cost. These cost becomes a responsibility rather than obligation because you are not prepared for the merger, it was forced", he said.
The CRIMA president also noted that shareholders' interest might be endangered since shares will be merged, which in turn would bring lower values for their investment.
"This is because the base has been expanded beyond strategic interest of the owners. And because banks needs to render returns that will enable them grow their market prices, they will be under high short-term income pressure to justify the ratios they were making before the merger", he said.
Given this scenario, Yusuf said that banks would now focus on trans-national trade, instead of productive investment that will support the economy.
The Pharex boss had stressed the need for the banking watchdog to stratify banks into Investment, Universal and Settlement banks with each having a capital base of N5 billion, N15 billion and N25 billion respectively.
While acknowledging that the new capital base is good for banks to consolidate through mergers, he had maintained that N25 billion statutory minimum paid up capital for all banks is not good enough.
"Why not stratify banks into three different categories instead of using a one side fits all? A bank like Investment Banking and Trust Company Limited (IBTC) noted for its tack record investment banking should not have more than N5 billion capital base, while the others (Universal and Settlement banks) be allowed to shore up their capital to N15 billion and N25 billion respectively," he said.
While maintaining that raising banks' capital is not the solution to the lingering problems in the nation's banking industry, he had harped on the need for mobilizing into the vaults of banks, majority of funds (about N450 billion) outside the banking system.
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