Friday, July 25, 2008

Nigerian Banks Among the World Best

Quite often the road to good fortune could be rough initially. When the Central Bank governor, Professor Charles Chukwuma Soludo, announced the banking consolidation programme on July 6, 2004, to bank chief executives in his office in Abuja, many of them were taken aback. Banks that were finding it difficult to raise the then stipulated N2 billion shareholders’ funds saw the directive to raise N25 billion as minimum amount for doing business in the country as the death knell for the industry. The CBN governor was roundly criticized by many industry commentators. The National Assembly even made moves to reverse the policy but the strong support which Chief Olusegun Obasanjo, the then president, threw behind the policy made it to stay.
Professor Soludo did not stop there. Shortly after the banking consolidation exercise he further announced that any bank that could shore its shareholders’ funds to $1 billion would be allowed to manage some portion of the Nigerian foreign reserves. This was again seen as a very tall order. The reason for this was straightforward.
Getting the prescribed N25 billion shareholders’ funds by the banks was never a tea party. From over 90 banks that were in operation before the new shareholders’ funds prescription, only 25 banks emerged. Even so, it was not easy for some of the 25 that made it. Against this backdrop therefore, a call for $1 billion shareholders’ funds was like some fairy tales to the 25 banks that survived the exercise.
However, some of the banks with foresight took up the challenge and what looked like some nightmare for the industry turned out to be a bag of good fortune. The same banks that literally crawled to the N25 billion mark soon started the chase for the $1 billion target and virtually all those that attempted it met with good success. This was seen as the kick-off of the second phase of self-induced consolidation in the Nigerian banking industry. Operators imposed on themselves minimum shareholders’ funds of $1 billion, about N120 billion.
Not only has this given Soludo a good sense of satisfaction that his dream to build very strong financial institutions in the country has now been acknowledged, even outside the shores of Nigeria the banking industry is now beginning to be recognised as well.
For the first time in the history of the industry, some Nigerian banks were adjudged by the Banker Magazine, a subsidiary of Financial Times of London, to be among the best 1000 globally last year in terms of capitalisation. This year, six Nigerian banks also made the list. They include Oceanic Bank, Intercontinental Bank and Access Bank. The others are Guaranty Trust Bank, the United Bank for Africa and Zenith Bank. The six also made it to the top ten leading African Banks’ chart in that order and it goes to show the mileage the industry has covered within this short span of banks consolidation.
The Banker Magazine even acknowledged this in the report. “Buoyed by the Central Bank of Nigeria Governor, Chukwuma Soludo’s 2005 N25 billion minimum capital requirement legislation, Nigerian banks have grown from strength to strength,” the magazine noted.
This is quite commendable and it goes to show that whenever the country is determined to do a thing, with commitment and zeal on the part of those executing the policy, a lot could be achieved. We therefore salute the astuteness of the managers of these banks as well as the regulators and call on others to work hard to make the list next year. Those that made the list must not rest on their oars because getting to the top is one thing and remaining there is another.
Even so, we believe the real trophy for the industry would actually come when the banks are able to serve as the engine of growth in the economy. Nigerians or precisely the industrial sector can hardly make any meaning from these awards when they cannot access funds for investment within the country. Getting loans for manufacturing activities is still such a tough hurdle for most manufacturers across the country. It is either the banks are demanding some incredible assets as collateral which the investors may not be able to meet or would simply load the lending rate with some hidden charges to discourage the investors.
Since the banks have not been forthcoming in assisting operators in the manufacturing sector, a lot of people going into business these days have found commerce more attractive since banks are much more willing to lend to this sector. But simple economic theory dictates that growth of an economy is largely dependent on the growth of the real sector and with this sector lagging so much behind in terms of growth, the nation’s economic growth will continue to suffer.
We acknowledge the fact that lending to the real sector carries substantial risk element considering the volatile policy environment where policy somersaults are common place. It is equally a fact, however, that the higher the risk the higher the returns. It seems the unwillingness of Nigerian banks to take risk was what was responsible for the general low returns on capital as reported by the Banker Magazine. According to the magazine, “this year’s figures show that despite such enormous growth, return on capital for the sector has actually fallen from 21.9 per cent last year to 18.6 per cent while in South Africa, return on capital leaped from 38 per cent to 42 per cent.”
We would want the banking sector to address this aspect of their business operations even as they continue to win laurels both home and abroad because it is only when the real sector is grown that their trophies would make meaning to the generality of Nigerians.