In better news, Wema Bank has asked the Central Bank of Nigeria for, and received permission to, give up its "national" banking license and apply instead for a "regional" banking license.
Sanusi's predecessor as CBN Governor, Professor Charles Soludo, raised the minimum capital requirements of Nigerian banks from =N=2 billion to =N=25 billion in 2004, giving banks were given until the end of 2005 to comply. The consequent forced mergers-and-acquisitions have collectively come to be known as the "banking consolidation", which left the federal republic with 25 banks (now 24), down from an initial 89.
Soludo planned to raise the minimum capital requirements again, to force a second round of consolidation, aiming to create (via consolidation) Nigerian banks (plural) the size of South Africa's "Big Four" banks.
The consolidation process was a good idea, and in spite of the later collapse in the financial and equity markets under his watch (his closeness to President Obasanjo, and to the powerful banking barons and other plutocrats who supported the Obasanjo clouded his judgment), the consolidation alone guarantees Charles Soludo's tenure will be remembered mostly positively. I am not being sarcastic or snarky; the bad stuff will pass and be forgotten, while the positive effects of the consolidation will be with us for a long time, probably forever.
Mind you, too much of a good thing can be bad. I would love us to have banks as big as South Africa's Big Four, but I didn't think continued rounds of forced consolidation was the best way to achieve it.
The total assets of the biggest South African bank (which is also Africa's biggest bank) are equivalent to 80% of the assets of the entire Nigerian banking industry.
The total assets of the fourth largest South African bank is equivalent to 50% of the assets of the entire Nigerian banking industry.
In order to use consolidation to build Nigerian banks of similar size, we would have to consolidate everything together into two banks.
I don't know about that.
There are between 100 million and 150 million Nigerian citizens. For all the talk about the Big Four, South Africa, with a population of 50 million (between half and one-third of ours) has more than four banks ... way more than four banks.
It is like electricity. The South Africans produce 40,000 megawatts, and it is insufficient for them. Regardless of the magnitude of production, the Nigerian electrical distribution grid seems capable of carrying only 4,000 megawatts (one-tenth of the South African total) at any given time.
It is good to raise electricity tariffs (same as it is good to raise capital requirements for banks), but the goal should be to increase the number of firms generating and distributing electricity, not to lower demand (through price increases) until there is only 4,000 MW of demand, matching the 4,000 MW of supply.
We shouldn't be trying to live down to our too-small economy, but looking instead to expand each element, each unit of that economy.
If our economy grows X% a year, every year, and each of our banks also grows by X% a year (or better), then over a number of years, the biggest four (or eight) Nigerian banks will organically and sustainably reach the size of the Big Four South Africans. But they will not be the only Nigerian banks, much like the Big Four South Africans are not South Africa's only banks.
I know that is a colloquial explanation, lacking the "isms" and "misms" of economics textbooks ... but this is a blog, not a dissertation.
Early in his tenure, the current CBN Governor, Sanusi Lamido Sanusi, appeared to agree with Soludo, insofar as both men believed another round of consolidation was in order. Sanusi came into office suggesting 15 banks might survive a second round of consolidation, and hinted he thought 15 was an ideal number of banks for Nigeria. Interestingly, this Reuters article suggests 9 of 24 extant banks received bailout funding, and that these 9 banks will be the prime target of the Asset Management Company being set up to take over non-performing loans (a.k.a. "toxic assets") in the banking industry. The inference is 15 banks are healthy enough not to need substantial bailouts or AMCON relief.
Sanusi Lamido Sanusi has been accused of harbouring nefarious intentions by sections of the commentariat and of the population, usually by people who suspect nefarious intent from any indigene of certain parts of the country. The CBN boss is a veteran of the Nigerian banking industry. Did he know before taking office that 15 of 24 were healthy? Is that why he suggested 15 would be an appropriate number of banks for Nigeria? Or is there some other, unstated reason he prefers 15? Is he culling the 9 weakest to get to 15 because, well, because that is where he wants to go?
I don't think the banks are being culled.
The Central Bank has done a lot to prop them up, when they could have let them collapse. The CBN is also actively seeking suitors to buy up the ailing banks; in a sense AMCON exists to make the banks more attractive to potential buyers. Where Soludo introduced a rule to block foreign majority ownership of Nigerian banks, Sanusi seems keen on foreign partners taking over the weaker banks.
As with most things in Nigeria, we will have to wait to see what happens before we have any idea what the decision-makers are thinking. They don't tell us anything. When they do speak to us, they tell us what they want us to think, not what they think or what they will actually do. And our media lacks the necessary teeth to dig out the facts from underneath the subterfuge; besides, in the absence of credible media protection, they would be running to much of a financial or even life-and-death risk if they did.
In December, 2005, Charles Soludo set out his "MICROFINANCE POLICY, REGULATORY AND SUPERVISORY FRAMEWORK FOR NIGERIA". It included provisions to license and recognize two different types of micro-finance bank:
(a) The "unit" or "community" bank, which will be permitted to open branches in a single community, subject to capital requirements of =N=20 million for each branch opened.
(b) Micro-finance banks licensed to operate throughout a specific state, subject to paid-up capital requirements of =N=1 billion, as well as to meeting a separate set of requirements for each branch opened.
It appears Sanusi Lamido Sanusi is applying the same two-tier concept to "macro" finance banks. As part of his wide-ranging changes to Soludo-era regulations, Sanusi moved away from "one size fits all" capital requirements to create two tiers of macro finance banks:
(a) "National" banks, which are licensed to operate throughout the federal republic and must continue to meet Soludo's =N=25 billion threshold; and
(b) "Regional" banks, which must meet the lower threshold of =N=10 billion, and are limited to operating in a minimum of 6 contiguous states and a maximum of 12 contiguous state, the relevant states not to fall in more than 2 "geo-political zones" (i.e. regions).
Thus, when Wema Bank could not successfully recapitalize to the required =N=25 billion of a national bank, they asked the CBN for extra time to recapitalize at the level of a regional bank, becoming the first of the new regional banks.
Let me say here that I think this is, in a way, a continuation of the Soludo-era reforms. Sanusi is refining the reforms, working out the remaining kinks in the system ... at least I hope that is what he is doing.
I guess we now have a four-tier banking system, with each of the tiers likely to specialize in a particular set/type/form/scope/etc of economic activity. If only they start acting like banks and not like speculating money-changers, this could be a good thing.
Actually, we might have a five-tier banking system, as the biggest Nigerian banks and financial services firms are still expanding across Africa, most recently InterSwitch Ltd acquiring 60% of Uganda's Bankom. InterSwitch is Nigeria’s market leader in the electronic transaction switching and payment processing.
All this is normal, natural, organic.
I have expressed a lot of concern about our financial industry on this blog .... but I have high hopes for our future.
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