UNIVERSAL BANKING SUSPENSION, GOOD FOR BANKS

Universal banking suspension, good for banks
By Oluwaseyi Bangudu
Finance experts have affirmed that the embargo on universal banking is not likely to have adverse effects on Nigeria's banking climate, if the requirements for such transitions are met appropriately.

Gamaliel Onosode, Chairman, Zain, and a leading boardroom player in Nigeria's corporate environment, said the policy is a welcome one, as he did not think it was a good idea introducing universal banking into Nigeria.

'I can only say that I am delighted. After trying it for the years that they have, the Central Bank has now come to the same conclusion that I had at that time, just as when consolidation was introduced. I felt that room should have been created for banks that still desired to remain relatively small as quality is not equated with the size of the bank.'

Akinbamidele Akintola, finance analyst at Renaissance Capital, an investment firm said, 'Right now, you have a situation where banks have insurance companies, stock broking companies, and all other sorts under them in the name of 'universal banking.' What they are hoping to do is make sure that banks focus on their core designation, like if a bank is a commercial bank, all it does is core banking activities.

'I do not think this should adversely affect the banking industry, but the concern is, does the Central Bank of Nigeria have the manpower, efficiency, and capacity to really execute this? That is the concern,' he said, adding that the CBN did not state if the new policy was to affect existing banks or interested parties.

Back to the basics
Mr. Onosode argued that the abolition of universal banking would effectively mean all smaller banks can now exist to run in a capacity that would be convenient for what they were specialised in.

'I didn't see why all banks should become mega banks the way they were. That was my view at that time; effectively, we are going back to that, as there are going to be smaller banks now. The larger the number you have of that sort, the more difficult it would be to regulate them effectively so as to achieve the objective that they were set up to achieve.'

Mr. Onosode said universal banking had the tendency to weaken transparency, if the quality of the existing supervision and regulation was not improved.

He noted that when a bank wants to have all kinds of businesses, it becomes very difficult to prevent it from getting its fingers burnt, from putting depositors' money in all kinds of high risk ventures, which may not succeed and put the interest of all other stakeholders in trouble.

Apart from the transparency issue, Mr. Onosode also said it is easier to generate and create skills, as these facilitate proper monitoring and management to be carried out in respect of these banks, as opposed to what is o btained now.

He further added that the real sector is not being well supported by the banking sector as it is supposed to, because the banks – rather than invest in the real sector – would seek lower risks adventures because of the high risk involved.

Recycled policies
The Central Bank of Nigeria (CBN) on Monday, said it will soon discontinue the issuance of universal banking licenses to operators, in line with ongoing reforms in the banking sector, to consolidate on the stability recorded so far.

Under the new policy, operators would be expected to apply for and get separate licenses for each model of banking operations, including commercial banking, micro-finance banking, mortgage banking, and investment banking.

The Central Bank is expected to spell out the details of the implementation of the policy in a transitional period that would last between 18 and 24 months to ensure that normal banking operations are not disrupted.

Under the tenure of Joseph Sanusi, a one-time CBN governor, some financial observers had called for the replacement of old models with the introduction of universal banking to create a level playing field for both commercial and merchant banks. This was finally introduced in 1999.

They had also argued that Universal Banking is a global phenomenon and the country cannot afford to be left out, even though the conditions precedent to a successful universal banking practice in the country were, and perhaps, are still not in place.