For Lamido Sanusi, governor, Central Bank of Nigeria, CBN, the catalytic role of banks in development of Nigeria’s economy is so critical that it cannot be left to chance. He believes that since banking is the engine oil that lubricates the wheel of commerce and industry, the apex bank needs not delay in implementing measures that would enhance the flow of credit to critical sectors of the economy. Sanusi feels that dismantling the universal banking system that is currently in operation would achieve the aim. So, after last week’s bankers committee meeting held in Abuja, it was agreed that a new banking regime would be ushered in to replace the existing model.
In the new order, all the banks’ licences will be revoked and fresh ones issued. All the banks will unbundle their respective non-banking activities and obtain licence for each of them to be able to operate in the country. According to Samuel Oni, director, banking supervision, CBN, the idea behind the new regime is to restructure the banking industry so as to properly define banking activity. In the universal banking regime, each bank obtains one licence and with that, it carries out operations in insurance, mortgage, investment, micro finance and so on. Those areas are regarded as the bank’s subsidiaries.
The new regime will also usher in different categories of banks — national, regional and international. This implies that the scope of operation of each bank will be properly defined. For instance, if a bank has a national licence, it can not operate outside the shores of Nigeria. For it to do that, it must obtain either a regional or international licence that will enable it transact business either regionally or internationally.
Oni explains that one of the reasons for introducing new system is to bring specialisation in both banking and non-banking activities. Under the system, banks that have interest in Small and Medium Enterprise, SME, funding, will acquire the licence to do so. This will afford the banks the opportunity to concentrate fully on that thereby developing the right infrastructure and manpower to engage in SME funding. Also, a bank with mortgage financing licence will concentrate wholly on housing business. In the thinking of the CBN, that will enhance real sector financing as separate banks have separate different licences to engage in specific aspects of the real economy.
The new era is also intended to protect depositors’ fund and ensure that investors in commercial banks are not exposed to risks incurred from non-banking activities. In the current regime where banks own insurance companies, mortgage institutions, microfinance banks, investment houses and other subsidiaries, funds deposited in their banks are used to do businesses in the subsidiaries, so if there is any financial risks in those subsidiaries investors in the bank are usually affected. “We want to protect depositors by ensuring that their funds are not diverted to speculative and high risks activities by banks,” Oni emphasised.
When the system is unbundled, all the existing subsidiaries of banks would be put into a financial holding company which is a non-operative structure model in which the banks that own the subsidiaries, will become a subsidiary of the non-operative financial model.
Rilwan Be Belo-Osagie, managing director, First Security Discount House said, unlike the existing structure in which the minimum capital requirement of existing banks in the country is N25 billion, the capital base of banks in the new dispensation will be determined by the nature of the bank’s operations as well as the level of risks it is ready to take. “The capital base will be a function of a bank’s operating capacity in terms of what it can do. The capital will be commensurate with the level of risks it is taking as well as the kind of business it wants to do,” Belo-Osagie clarified.
With this new regime which will kick off in the next 12 to 18 months, it appears the CBN has rolled back the 2005 banking reform of former CBN governor, Chukwuma Soludo. Soludo’s reform was based on the universal banking structure and required that banks should have a minimum capital requirement of N25 billion before transacting business. Under the new arrangement, which is similar to what obtained before the Soludo regime, regional, specialised and non-interest banks would emerge with different categories of capital base.
Some financial experts and economists have commended the new idea yet, some are of the view that if every leadership of the CBN continues to introduce reforms that counter those of his predecessors, the nation’s financial system may not gain the stability it needs to contribute to the economic development of the country. Their argument is that every leadership should rather aspire to consolidate on existing structures for the sector.
During the 2005 banking sector reform, most bank executives criticised the the reform vehemently saying that it was impossible for them to raise the N25 billion requirements. But with this new reform, the bank’s executives say that they are in full support.
Kehinde Durosinmi-Eti, deputy managing director, Skye Bank, says the banks’ chiefs are in total support of the new arrangement because it increases the rate at which banks can lend money.
Another fear expressed by stakeholders is whether the CBN will have the capacity to supervise the multiple licences which will be issued in the new regime. Since each operation will carry different licence, there will be several licences in operation and that means more supervision by the regulatory authority. But Belo-Osagie explained that issuing multiple licences would not increase the pressure on CBN rather; it will properly define banking operations and separates it from other financial activities. According to him, if a bank decides to go into insurance, the National Insurace Commission,NAICOM, will supervise it while the pension’s commission, PENCOM, will supervise banks with licences to engage in business in pension matters.
One other issue which Ifeanyi Onyekachi, a sacked banking staff, raised was the fear that more banks workers may lose jobs under the new structure. But his fear was dispelled by Reginald Ihejiahi, managing director, Fidelity Bank, who said the new banking structure “has nothing to do with workers. It is about how the banks are restructured. They take high risk activities using depositors’ fund to do that. The new system will create bigger institutions which will in turn create bigger jobs and skills. Institutions like insurance can become bigger than banks,” Ihejiahi insists.
In weeks to come, more facts may emerge as regards the new banking regime. But, just as the CBN says, the model is still being worked out. How it eventually unfolds will determine the future of the nation’s economy.
Lamido Sanusi, CBN governor
Oni: We want to protect depositors
Belo-Osagie: Clarifies minimum capial requirement
Durosinmi-Eti: Banks’ chiefs in support of new reform |
