When on July 6 the CBN Governor Professor Charles Soludo announced a thirteen point reform agenda for the banking industry at an expanded meeting of the bankers committee, bankers realised they are in for a tough time. Of the thirteen-point agenda announced by the governor only one was top most in the minds of bankers. That was the new capital base of banks. N25billion: have it by December 31st, 2005, or cease to be a bank in Nigeria.
Most banks, then, saw it as an impossible task and took almost to the street in campaign against it. Some saw some sense in it and immediately set to work. Five months after, nearly all the banks in the country are singing the praise of the policy saying they have been playing in a marginal form. Bankers now insist that even if Soludo decides to back down on the policy there is no stopping them from grouping together to form bigger banks.
As at the time of this survey six banks seem ready to stand on their own. They are First Bank with a shareholders fund of N36.2 billion, followed by Zenith with N36.06 billion shareholders fund from its IPO, Union Bank with a total shareholders fund of N34.5 billion, and Guaranty Trust Bank which has already acquired Inland Bank with shareholders fund of N34.5 billion. Other banks that are likely to retain their brand names are UBA with a shareholders fund of N18.1billion which will go to the capital market this year to raise additional funds, STB which 2004 accounts is not available. Afribank which is already in the market scanning for funds and Intercontinental bank with its consolidation plan with Gatewaybank, Equity Bank and Global bank. Also, the Wema merger group may retain the name Wema.
Other banks are not letting go. They are forming strategic alliances in their bid for survival and five of such have emerged thus far.
The very first is the proposed marriage between Allstates Trust Bank, Gulf Bank, Hallmark Bank, Lion Bank and Universal Trust Bank which came out with a merger plan in the name of First Consolidated Bank. The banks signed a memorandum of understanding to work out details of the merger. The deal which was brokered by top executives of the five banks saw representatives of the five banks coming together to agree on the modalities for the merger. The decision of the five banks to merge saw family egos and ethos shelved as representatives of the five banks agreed to form an alliance, which is seen as a forerunner to the emergence of Nigeria’s first mega merger in banking history, a thing that looked almost impossible before now.
Shortly after that, the Intercontinental group announced its own consolidation plan.. In the group are Intercontinental Bank, Gatewaybank, Global Bank and Equity Bank.
Yet another is the Astrabank made up of Assurance Bank, Guardian Express Bank, Mannybank and First Atlantic bank
This was followed by the Sterling bank group made up of Prudent Bank, Magnum Trust Bank, Eko International Bank, Trust Bank of Africa and NMB bank. Each of the banks in the emerging big bank were expected to raise its minimum capital base to N5 billion. As a result the bank to emerge is targetting a minimum capital base of N30 billion for a start. The merging five banks have up to March 2005 to wind up their individual operations.
The latest of the merger plan is that between Wema Bank, Leadbank and Fountain Trust. In each of these, the first step has been taken - that of finding a partner to work with. The five groups have gone back to the drawing board to work out details of their merger plans which will lead to their signing a memoradum of agreement.
The emerging picture is that 13 mega banks are already with us if all went well with the current merger arrangement being put together by banks. The eight banks that are likely to retain their names and the five proposed mergers already translate to 13 mega banks. This effectively takes 29 banks out of the pool of existing banks in the CBN register of banks that have scaled the N25 billion minimum capital base hurddle. This leaves 60 other banks that are yet to announce their plans. If the remaining banks decide to pair five each, this will bring about another 12 mega banks. This means that it may be possible that by December, 2005, 25 banks will emerge from Professor Soludo’s merger game.
So far the road is rough for some who may not be able to find a partner. Such banks are frantically running from one bank to the other with merger proposals.
Speaking to Vanguard in an interview on the current reform in the banking industry, the governor of CBN, Professor Charles Soludo, said the CBN had the option of liquidating about five banks at the time he assumed office while quite a few others were in and out of sound condition. He said the system was at the verge of collapse and needed necessary measures to address the situation once and for all. The decision on what figure to use, he said, was very well debated by the CBN. According to him there were several suggestions on what amount to use as benchmark.
Some, he noted, suggested N50 billion, others N32 billion and some other presons N25 billion. Soludo said that N34 billion was almost taken but for the fact that those who were for N25 billion were more. The Figure he said was not arbitrarily chosen as some may want to suggest but very well debated and arrived at given the fact that the BOFIA empowers the CBN to, from time to time, determine the minimum capital base of banks and other financial institutions.
According to CBN Governor while some banks were busy doing other things, some others made very useful suggestions and inputs to the final guideline on opertional modality of the reform. He disclosed that the forebearance aspect of the guideline came from suggestions from the banks
The banks are now in a no go back situation with the reforms. One thing is clear though. At the end of the reform, a completely new landscape will emerge in the Nigerian banking industry. The playing field will have been levelled and the issue of big and small banks then will be relative. What will then be the deciding factor is the application of human resources in these banks which is more in the former new generation bank than the older ones. If banks are to compete favorably, now is the time to plan human resources. The bank with the best brains will win the day.
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