Fresh Banking models in Nigeria

[gogannaka]

Guardian newspapers.

THE Central Bank of Nigeria (CBN) has concluded plans to approve new banking models for the nation this weekend, the apex bank's governor, Sanusi Lamido Sanusi, said in Lagos yesterday.

Sanusi, who spoke at a seminar organised by AME & T Group and the Financial Institutions Training Centre (FITC), under the title, "Trust and Policy Rendering: Reworking Nigeria's financial system in the face of global reform," said some banks, like WEMA Bank and Bank of the North, in the past ventured into areas that were beyond their area of initial focus.

According to him, "this weekend, we are going to approve some certain guidelines on investor banking models."

He also revealed that the apex bank would start working with the Securities and Exchange Commission (SEC) to bring the issue of banking specialisation to completion.

The framework in the possession of the CBN, he said, would provide for classification of specialised banks such as infrastructure banks, non-interest banks, agriculture banks, banks that cater for Small and Medium Enterprises (SMEs) and regional banks.

"The framework for the reform was developed to not only tackle the underlying causes of the crisis, but to ensure that a sound financial system with adequate capacity to withstand future shocks ... is established," Sanusi said.

The CBN chief, however, said that indications had begun to emerge that the banking sector is on the upsurge following the intervention by the CBN, with no foreign bank cutting down credit lines to Nigeria and foreign investors showing increased interest to invest in the banking system.

According to Sanusi, "our economy was the fourth largest in Africa six years ago, we have since then overtaken Algeria and Egypt, our GDP is now second to South Africa's and by 2011, Nigeria would be the biggest economy in Africa"

The Guardian had exclusively reported that the categorisation of banks in Nigeria into four groups with different capitalisation levels would commence before the end of the year.

A top official in the CBN informed The Guardian at the weekend that the apex bank was working on the modalities and talking to various stakeholders.

It is expected that when the format comes out, it will comprise categories of banks that will play in the international arena, specialised banks, regional, and national banks.

The different categories of banks, he said, would have varying capitalisation levels depending on their niche areas.

The implication, according to him, is that once the format becomes operational, each bank's capitalisation level will be determined by the group it belongs to, adding that a bank's operational field usually determines its capital base.

Currently, all Nigerian money deposit banks have a minimum capitalisation level of N25 billion courtesy of the banking consolidation of 2004.

Earlier, Managing Director/CEO Financial Institutions Training Centre (FITC), Dr. Lucy Surhyel Newman, said the seminar was expected to institute a new benchmark in the industry, with the introduction of Trust Policy Rendering Index (TPR-Index), as well as provide an interactive forum from multi-stakeholders perspective, to review critical trust and confidence issues.

"What FITC and AME & T Group are doing via this seminar is giving the opportunity to develop the blue-print of what may tomorrow become a well sought after feedback tool for consumers, operators and regulators of the financial services system within the region," he said.

Sanusi had recently reiterated that the blue-print for reforming the Nigerian financial system in the next 10 years would be built around four pillars of enhancing the quality of banks, establishing financial stability, enabling healthy financial sector evolution and ensuring that the financial sector contributes to the real economy. The governor then took the opportunity of the platform to unfold the full details of the four pillars of the reform programme.

He said the CBN would initiate a five-part programme to enhance the operations and quality of banks in Nigeria, comprising industry remedial programmes to fix the key causes of the crisis; implementation of risk-based supervision, reforms to regulations and regulatory framework; enhanced provision for consumer protection; and internal transformation of the CBN which has commenced.

Sanusi explained that the key features of the pillar on establishing financial stability would centre on strengthening the financial stability committee within the CBN and establishing a hybrid monetary policy and macro-prudential rules.

It would also include the development of directional economic policy and counter-cyclical fiscal policies by the government and further development of capital markets as alternative to bank funding.

He added that some of the potential levers for the new macro-prudential rules may include limiting capital market lending to a set proportion of banks' balance sheets, prohibiting banks from using depositors funds for proprietary trading, private equity or venture capital investment, adjusting capital adequacy and forward looking capital requirement driven by stress tests by the CBN.
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Is this how the consolidation should have been done years ago?

[bakangizo]

No. Consolidation is different from categorization. What it means is that banks would now specialize in offering particular services. I don't know if that is very necessary, but we wait and see.

[IBB]

I believe is a risk mgt strategy. I heard he (Sunusi) studied Risk Management

[gogannaka]

The Central Bank of Nigeria (CBN) yesterday rolled back its former governor Professor Chukwuma Soludo's banking reforms of 2004, saying it is relaxing the capital base requirement for banks by unbundling the present universal banking structure that made it mandatory for banks to have a minimum capital base of N25 billion.

The new structure will commence in a few months time, CBN's Director of Banking Supervision Samuel Oni said at a press briefing after a meeting of the Bankers Committee in Abuja. He said the whole idea of the new structure is to discontinue with the universal banking licensing regime.

Under the new arrangement, which is similar to what obtained before the banking consolidation of 2005, regional, specialised and non interest banks would emerge with different categories of capital base.

Managing Directors and Chief Executives of banks present at the briefing said they were in support of the proposed structure.

"It is very good to banks and all banks welcome this positive development", the Managing Directors of Skye Bank Plc and Fidelity Bank Plc together with the Deputy Executive Officer of Stanbic IBTC Plc said.

CBN said it is redoing the universal banking model. "We are coming up with a banking system structure to look at how we think that banks would begin to do business in terms of assisting the economy and ensuring that depositors' funds are not put into danger," Oni said.

He also said, "We are coming up with a policy that would bring all of those present services and subsidiaries of banks into a financing holding company which is going to be a non operating holding structure model in which a bank would become a subsidiary of that non operating financing holding company."

Banks would be made to concentrate on banking activities under the new setting. Separate licenses would be issue to different categories of banks, he also said.

According to him, separate licenses would be issued for a commercial bank, microfinance bank, mortgage bank and or investment bank. Any bank that wants to go international or national would also have a separate license, he said.

There would also be a separate license for banks that would want to concentrate on Small and Medium Enterprises (SMEs) or funding of agric. "That is the kind of regime that we would want to pursue in the next few months", Oni said.

He said relevant agencies of government such as the Securities and Exchange Commission (SEC), Corporate Affairs Commission (CAC), and the Federal Inland Revenue Services (FIRS) are being briefed on the new development.

Under the present banking system, banks have subsidiaries involved in mortgage, insurance, investment banking among other. These would be separated in the new structure. The new policy, Oni said, is to create room for financial activities to have a model where banks do not divert their capitals and deposits into speculative activities or high risk ventures.

CBN said capital base of the new banking structure would be based on the operating capacity of the emerging banks. "If the banks withdraw from the non-core business it would actually grow the sector. It would create new opportunities for banks. You may even get bigger institutions that specialise in a particular area, providing genuine jobs for people," Managing Director of Fidelity Bank Plc Reginald Ihejiahi said.
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We are seeing real reforms in the banking sector.
I remember there was a time under soludo that banks were almost forced to divest from thier investments in the telecommunication companies. I don't know if they actually did.
I hope we will get more banks and they would once again become one of the leading providers of employment.