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Post-acquisition Competition Haunts Banking Industry


December 4, 2011


As the newly recapitalised banks get set to raise the tempo of banking in the country, analysts caution that this is the time for the regulatory authorities to watch out for another round of cut-throat competition and reckless risk-taking by  banks, writes Festus Akanbi

In terms of ranking, the recent banking consolidations are expected to lead to upsets among industry operators as some of the banks once recognised as the industry front runners are edged out of the Tier I segment of the market on the back of the mergers and acquisitions that have just taken place.

On their part, members of the banking community are anxiously waiting to see the new face of the Nigerian banking which analysts, explained will be characterised by the shift in customer loyalty from one bank to the other when competition actually starts. Industry watchers said it is natural for bank customers, including depositors and borrowers, to adjust to the new dispensation as competition heats up among banks.

On the sidelines are a group of industry watchers including operators who expect the recent acquisitions to create large and complex banks which could also be vulnerable to operational challenges, like those found wanting after the joint audit of the Central Bank of Nigeria and the Nigerian Deposit Insurance Corporation in 2009.

Eight banks were pronounced unfit after the audit in 2009. The list comprised Intercontinental Bank Plc, Oceanic Bank International Plc, Afribank Plc (now Mainstream Bank Limited), Bank PHB Plc (now Keystone Bank Limited) and Spring Bank Plc (now Enterprise Bank Limited). Others were Union Bank Plc, Equitorial Trust Bank Limited and Finbank Plc.

So far, the recapitalisation of five of the eight rescued banks has led to the acquisition of Intercontinental Bank Plc by Access Bank Plc, while Sterling Bank Plc has decided taken over Equitorial Trust Bank. Similarly, Ecobank Transnational has gobbled up Oceanic Bank which it plans to merge with its Nigerian subsidiary, Ecobank Nigeria Plc.

First City Monument Bank Plc and the African Capital Alliance-led consortium are still in the process of getting regulatory approval from the Securities and Exchange Commission for the planned takeover of Finbank Plc and Union Bank respectively.

Further reports show that although negotiations are still ongoing between Finbank and FCMB, the transaction is yet to receive the full endorsement of SEC while reports emanating from Union Bank concerning its recapitalisation process with a consortium of investors led by African Capital Alliance are not palatable with the unconfirmed exit of some of the investors.

Emerging Leaders

Examining some of the issues that cropped up during the acquisitions, analysts said the ongoing industry consolidations will lead to the creation of large and complex banks, a development they noted could throw up challenges for the entire banking system. They said that the need to avert the collapse of banks which were considered too big to fail in the past had necessitated government's intervention in the banking industry in recent the past.

Because of the degree of optimism exuded by the three banking groups that have concluded their acquisitions so far, analysts contend that other banks which used to be front runners in terms of their balance sheet and branch network will have to up the ante or be out performed by the emerging entities. This is because they are already being seriously challenged by those banks hitherto categorised as Tier II, fringe or mid-sized banks.

For instance, a combination of the branches of Ecobank Nigeria Plc and Oceanic Bank will give the new Ecobank Nigeria about 650 branches, given the fact that Ecobank Nigeria currently has 250 branches while Oceanic Bank has 400 branches. The combined bank will also have 1,450 automated teller machine platforms and a customer count of close to 5 million.

Even, Sterling Bank, which was not among the industry leaders, appears set to become a top Tier II player after its acquisition of ETB. The combination of both financial institutions would create a bank with over N360 billion in customer deposits, N550 billion in assets and more than 185 operational branches across Nigeria. The merger is expected to give the new entity access to some lucrative accounts in companies like Globacom, a major player in the Nigerian telecommunications sector, Conoil Plc and upstream oil and gas sector, which were being serviced by ETB before the deal.

The Access Bank-Intercontinental Bank merger, on the hand, will produce a bank which will rank third by assets and deposits, respectively, and usher it into the Tier I bracket.

This is a position that has been corroborated by Afrinvest West Africa and Renaissance Capital Limited, both Lagos-based investment firms. Both investment firms also noted that there is the potential for significant growth in the retail banking segment with the combined entity having a customer base of over five million customers.

The Honeymoon is Over

But concerned industry operators have observed that so much energy is being dissipated at celebrating the success of the rescue operation in the banking industry, saying that the gains of the intervention by the Central Bank of Nigeria and the Asset Management Company of Nigeria may be eroded if measures are not put in place to safeguard the emerging banking groups from the mistakes of the past.

They contend that rather than be consumed by the euphoria of a successful rescue of the affected banks, there is need to put in place appropriate measure to ensure all the issues that could throw up challenges in the near future are nipped in the bud as quickly as possible. Apart from making sure that banks do not take reckless risks in such a way that will pose threats to the entire system, industry watchers said the onus also lies on the regulatory authorities to ensure that no individual or group is allowed to hijack any of the existing banks.

Are the Regulators Prepared?

But how prepared are the regulators to bark and bite whenever any of the operators chooses to derail? The CBN and the Nigerian Deposit Insurance Corporation have continued to boast that the stage has been set for a crisis-free banking system in the country.

As the official undertaker in the banking industry, the NDIC says it is more determined in ensuring that both the existing banks and the emerging ones are run in a manner that will guarantee safety of investments and deposits at the end of the day.

Speaking in Dutse, Jigawa State, at a workshop for business editors and financial reporters, managing director/chief executive of the NDIC, Alhaji Umaru Ibrahim, who admitted that it would be difficult for any regulator anywhere in the world to accurately predict the time another bank failure or crisis might occur, he however stressed that efforts were being made by the corporation to stem any bank failure.

Ibrahim pointed out that there was a new trend in the world financial system called Globally Significantly Important Financial Institutions, targeted at protecting big banks from failing. He added that the NDIC was working to ensure that even if any of the banks failed in the country, it would not lead to a systemic collapse.

“The distress syndrome usually occurs in the normal process of business of an institution and this means it can happen any time. The best that any regulator can do in the circumstance is to put in place stricter regulatory and compliance measures that would not allow managers of the respective banking institutions to abuse the rules of the game,” he said.

Director, Asset Management Department of the NDIC, Mr. A. Adeleke, further explained that interest of the depositors and that of the nation are the reasons all the distressed banks in the country were not completely shut down by the CBN but were allowed to go through the bridge option.

He explained that 'rehabilitation' via the takeover of ailing banks in the country began with banks that had no national spread. It started in 1992 with one bank. By 1993, the number had risen to five while it shot up to ten in 1995. In 1996 and 1999, two banks were taken over while seven banks were sold to new investors.

The NDIC boss said the CBN and the Bankers Committee decided to set up a N1.5 trillion Financial Stability Fund, which would be funded over the next 10 years to cushion the effects of distress in order to address concerns in certain quarters that government money is being used to rescue failed banks.

He explained that while the CBN was contributing about N50 billion to the fund, the banks' counterpart funding would be about 3.5 per cent of their annual profit before tax, adding that the essence of the fund was to compensate AMCON for any loss incurred in the process of bailing out rescued banks.


Source: Thisday

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