CBN'S NEW BANKING MODEL
In the aftermath of the 2009 financial crisis in the banking sector, the Central Bank of Nigeria (CBN) under the leadership of Mr. Lamido Sanusi initiated series of reforms to restore public confidence and stability in the system. Some of the reform measures resonated well with the stakeholders in the industry, while a few attracted mixed reactions. The consensus is that any effort towards sanitising the industry and the economy will be a welcome development.
It is in this wise that the latest plan by the CBN to categorise the banks in the country into three separate models must attract more than passing interest. Details of the new models unveiled recently by the apex bank indicate that Nigeria will now have commercial banks, merchant banks and specialised banks.
According to the Deputy Governor of CBN in charge of Financial System Stability, Dr. Kingsley Muoghalu, each category will have a specific minimum share capital. Under Commercial Bank category are three sub-groups of commercial bank international, with a minimum share capital of N50 billion, commercial bank national with a minimum paid up capital of N25 billion and commercial bank regional with a paid up minimum capital of N10 billion.
Among the big banks in the commercial bank international category are First Bank, Zenith Bank, Diamond Bank, Guaranty Trust Bank, Fidelity Bank, Skye Bank and First City Monument Bank. Three banks, namely First Bank, United Bank for Africa (UBA) and FCMB, have been designated as holding companies. Under existing laws, a bank holding company is created when an existing bank institutes a holding company of which the bank becomes a subsidiary. It follows that the designated holding banks can, with the approval of the CBN, offer considerably broader spectrum of products and services. None of the holding banks will be allowed to engage in real estate or registrar transactions.
The CBN has, in this regard, granted new international banking licences to nine banks. It has also given September this year as deadline for rescued banks to be merged or acquired, and May, 2012 for banks to divest all their non-banking functions. Altogether, this new model of banking envisioned by the CBN is not a bad idea. It is public knowledge that the idea was first floated by the CBN Governor soon after assumption of office two years ago. It is, we believe, one of his strategies to put the banking system in good stead, to respond to the exigencies of today's local and global financial systems.
It is a plan which, if well managed, offers several useful benefits. It will, for instance, enable the selection of products and markets based on a particular bank's size, location, spread and other factors. In addition, commercial banks through this model can choose to focus on financial products and services relevant to their category. Of particular interest, also, is the way holding company activities can be used to partially overcome geographic restrictions on banks. Clearly, banks and bank holding companies have a basket of alternatives from which to make product selections.
Realistically, if each bank concentrates on its core competencies in service delivery in its particular category, this new plan may transform the Nigerian banking landscape. But, if this initiative is not well managed, it might take us back to the era where anybody with slush funds could own a bank. Close monitoring and supervision is, therefore, essential to avoid abuses of the existing universal banking model.
We welcome this categorisation, though we would have preferred that the minimum share capital for the regional category be pegged at N25 billion. We also suggest that shareholders be given a chance to have a final say before the official take off of the model.
As much as the future of the banking industry has a better outlook with this model, a key concern must be its implications for the banks' customer base, which consists of businesses, government units and individuals to whom the banks lend and from whom they borrow. This is vital because a bank's customer base goes a long way in determining its features. We urge the CBN to factor every essential element into its plan before the new banking model takes effect.