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Stakeholders divided over suspension of universal banking

By Babajide Komolafe, Peter Egwuatu, Yinka Kolawole and Michael Eboh

Stakeholders in the financial service sector are divided over the plan of the Central Bank of Nigeria (CBN) to replace universal banking system with niche banking – specialised, regional sector specific banking. The Senate committee on banking has accepted the concept but said the Senate will propose a bill to split the CBN into two separate bodies, one regulatory and the other supervisory.


While some stakeholders said it is a welcome development which will curb sharp practices in the banking system and enhance supervision, others criticised the decision as  a policy somersault which shows that the leadership of the apex bank is uncoordinated and lacked focus churning out policies as the spirit leads.

The CBN last Monday announced a new policy in the banking industry aimed at stopping the practice of universal banking by banks within the next 18 months in favour of niche banking and specialization within the industry.

To this extent, it stated that it shall begin the re-licensing of banks that want to operate in specific areas of the financial sector such as mortgage, investment, micro-financing or international banking.

The plan of the apex bank was announced during a post Bankers Committee meeting in Abuja last week by the Director Banking Supervision, CBN, Mr. Sam Oni. He said, “The idea was to restructure the banking sector and bring an end to ‘one size fits all’ system currently operated by many banks in the country.

According to Oni, “We are coming up with a new banking system structure to look at how we think banks will begin to do business in terms of assisting the economy, in ensuring that depositors’ funds are not put into danger.” He noted that on the basis of that, the CBN is “rolling out a holding company structure model for the financial system What that means is that we are coming up with a policy that will bring all of those present services and subsidiaries of banks into a financial holding company, which is going to be a non-operating holding structure model in which a bank will become a subsidiary of the non-operating holding company.”

Oni explained that “the existing banking structure is such that you have the bank owning all of these subsidiaries including mortgage, investment, and insurance and so on. The idea is to actually begin to create a niche for each of the financial activities.

“What we are trying to do is to have a model like is done elsewhere where you do not bring into jeopardy the deposits of banks by diverting such funds to speculative activities and other high-risk ventures.”

The  decision of the apex bank according to a former Director in the Nigeria Deposit Insurance Corporation represents policy somersault. He said, “We are going two steps backwards.

What was the essence of consolidation? It was to address undercapitalisation, shortage of long-term funds and underdeveloped information systems but now reversing that and  making room for smaller regional banks will further weaken our economy.  Remember that some telecom companies had to source funds from abroad because none of our banks could provide the funds. The proposed policy is merely to make our banks fringe players in the market for multinationals.”

Also faulting the new policy, the chief executive of a mortgage institution noted that recent experience from the fallout of the current crisis in the banking sector shows that the CBN has a big challenge in effectively supervising and regulating the market, with the CBN governor even suggesting outsourcing regulation of  some sections of the financial industry. “Is it when they now further segment the market by categorising banks that they will be able to effectively supervise them?

“Look at the mortgage sector, when was the last time that the CBN held the COMIN  (Committee of Mortgage Institutions in Nigeria) meeting with the operators. Even, the consolidation exercise for the mortgage industry that has long been overdue is yet to come to light because the CBN does not have the required manpower.
“Sanusi must be careful in his latest plan to categorise banks as any hasty move can trigger another crisis in the financial sector, with the country yet to recover from the current one.

“What the banking sector needs now is continuity of its policies. Categorisation of banks will mean discarding all the reforms of the past years. What we need is continuity, not policy somersault.”

Similarly, a director of a PMI said that the CBN governor does not seem to have a clear-cut direction of where he is headed. “Categorisation of banks is obviously a backward movement. The principle of universal banking was to strengthen the Nigerian banking sector in order to be able to compete in the global setting.

“In any case, even within the advent of universal banking, the financial institutions are still well categorised with institutions already existing to deal with the various target markets. Besides the 24 universal banks with a global appeal, there are about 900 micro-finance banks, more than 98 Mortgage banks, about 80 Finance Houses, Discount Houses and numerous bureaux de change.

“We also have Federal Mortgage Bank of Nigeria (FMBN), The Bank of Industry (BOI), The Nigerian Agricultural Cooperative and Rural Development Bank, Nigeria Export and Import Bank (NEXIM) and the Urban Development Bank.”

According to Mr. Adebayo Adeleke, Secretary General, Independent Shareholders Association of Nigeria (ISAN), and Mr. Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria (PSAN)  the decision to suspend universal banking shows an uncoordinated CBN leadership. Adeleke  said, “ We do not know the direction that the Central Bank of Nigeria (CBN) led by Lamido Sanusi is going.

The action to categorise banks in Nigeria is a policy somersault. It shows that Governor Sanusi policy is not coordinated. There is lack of vision on the part of the CBN leadership. This is nothing but policy reversal which was part of the things that crippled the capital market. It has also been the bane of Nigeria’s development. One step forward, 10 steps backward. How can we progress?”.

In the same vein, Okezie said, “ I don’t know the direction that CBN is heading to. In most part of the world, there is universal banking. Banks should be allowed to operate in the areas they can do well instead of being compelled to a particular class. We are in a competitive era; any bank that cannot play the market will close shop voluntarily. This categorisation of banks show that CBN has no tangible policy in place to drive the economy.

Already we have mortgage banks, community banks, issuing houses etc what is the rational to categorise banks when all these institutions are already in place. Why another categorisation. Operators should decide what area to concentrate based on the area they have competence and can make profit.”

But to some financial sector operators the decision to suspend universal banking is a step in the right direction and justified by the revelation of the CBN audit of banks last year.

Mr. Victor Ogiemwonyin, Managing Director/Chief Executive, Partnership, Partnership Investment Company noted, “There is no doubt that the concept of universal banking has been totally abused in Nigeria. Universal Banking as defined was to put similar businesses on a platform that will allow them  gain size and sell their services across the platform, and better able to withstand risks.

What we have seen in the Nigerian variant of universal Banking has been a model more like the old conglomerates, that had any number of businesses that were sometimes far flung, requiring different management skills, which in most cases did not exist within the Bank. We have seen many of our banks become importers and property developers competing with their customers. Specialisation will allow them focus and manage their risk exposure better.”

Executive Secretary, Financial Market Dealers Association of Nigeria (FMDA), Mr Wale Abe noted that the decision of the apex bank was necessitated by the weakness of the universal banking system. He said, “Universal banking presupposes that you do many things under one roof. But it became evident that there was little understanding of the products and services by operators and regulators.

The reversal is prompted by need to ensure that banking system does not grow beyond the capacity of the operators and regulators

When you focus on what you want to do , you would excel in it, you would understand the risk of that line of business. And it becomes easy to supervise the companies.

Going down memory lane to justify the suspension of universal banking, Mr. David Adonri, Managing Director, Lambeth Trust and Investment Limited, said, “There were serious apprehension when Nigeria changed from single unit banking to universal banking.. The fears expressed by the antagonist of that policy then was that infection from one sector of the banking industry could easily be transmitted to other sectors of the industry.

I think event in the recent past has  justified that apprehension, that it was not really  beneficial for the country to embrace universal banking.

Additionally, some countries that we usually copy  and follow their policies line, hook and sinker, like the US, do not practice universal banking. The US is discontinuing universal banking because they have seen the effect and the role it played in financial crisis that spread to other parts of the world recently.

The protective measure of banks specialising has now been properly understood and realised. I think it is from the benefit of hindsight, from the way the Nigerian economy have been affected by that wrong policy and also seen what advanced economy are doing, that we are also taking the remedial measure, now to discontinue universal banking.”
Commending the decision of the CBN , Mr. Chinenyem Anyanwu, Managing Director, Dependable Securities Limited, said that specialisation would enhance the performance of the banks. He said,

“As the banks specialise in what their capital can carry them, they will surely show dexterity,  they should be able to post positive results, this may not happen in the next twelve calendar months, but it surely will be begin to show up as we progress, because as soon as that is done and they begin to apply their minds to what they know best to do and they are in position to do by capital, it will be a positive thing.”

Similarly, Chairman, Consolidated Shareholders Association of Nigeria, Barrister  Raymond Anyiwo, said the specialisation of banks would benefit the economy. He said “ In my own view. I think the categorisation of banks will yield good fruits to the economy. The policy also has exonerated the CBN Governor, Lamido Sanusi of the accusation of nationalising the banks in the country. Remember that Sanusi was accused of having the intention to sell the banks as well as nationalising the banks. I think with the categorisation of banks Sanusi has the intention of making the sector become buoyant.

I believe the categorisation of the banks will enhance specialisation. Every bank will concentrate on the area it has capacity in terms of capital, manpower etc. I will be very happy if the banks would be monitored and supervised effectively. If banks concentrate in their areas they can do well, it will boost profitability. I don’t like the present situation where banks do every thing, i.e becoming jack of all trade and master of none. Every bank should face the aspect of banking it can excel effectively. My only worry is whether the CBN has the capacity to monitor and regulate the various categorisation of the sector.”


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