The direction of the banking industry in 2010 will be largely determined by resolution of the eight rescued banks, the establishment of the proposed Asset Management Company, Banking reforms, electronic banking issues, sustained recovery of the global economy and the amnesty program of the federal government.

Resolution of the Eight rescued Bank
The sacking of the executive management of eights banks namely based on revelations of the CBN special examination of banks generated so much turbulence in the industry in 2009 leading to mass retrenchment across the industry. Industry operators however said that the resolution of these banks namely Afribank, Finbank, Intercontinental Bank, Oceanic Bank, Union Bank, Spring Bank, Equitorial Trust Bank and Bank PHB  vis_a_vis recapitalisation, mergers and acquisitions might generate greater turbulence depending on the approach.

According to a company secretary of one of the banks that escaped the CBN hammer, “I think recapitalisation, mergers and or acquisitions especially of the eight administered banks will be a major issue in the landscape of the financial services industry as this is likely to generate a lot of controversies and distortions in the short term before things settle down.”

Similarly, Managing Director/Chief Executive, Partnership Finance and Investment Company, Mr, Victor Ogiemwonyin said, “the major market  issue in 2010, will be how the eight  banks under CBN Administration are finally resolved. Acquisition by anyone, local or foreign, without resolving the ownership question will pose the major challenge.

I think the best option will be for local banks to be encouraged into mergers with them and CBN to give five year forbearance and obtain a repayable note from the new merged institutions for the investment put into these banks by the CBN. This way the shareholders will get some of their investment restored and hope for growth of the new bigger institutions. The CBN will get their investment repaid while everyone gets some settlement. Those involved in related fraud can be persecuted under the appropriate laws.”

Related to the resolution of the eight banks, according to Dr Uju Ogubunka, Registrar/chief Executive, Chartered Institute of Bankers of Nigeria (CIBN) are the efforts of other banks to raise fresh capital through public offers and bond issuance. It would be recalled that Wema Bank and Unity Bank were directed to recapitalise by the apex bank.

Also a number of banks namely First Bank, GTBank, Diamond Bank, Fidelity Bank have indicated interest to raise capital through bonds. These capital raising efforts is expected to generate activity and pressure in the industry. And according to Mr. Wale Abe, Executive Secretary, Financial Market Dealers Association, the resolution of the eight banks and capitalisation exercises might lead to the advent of foreign investors in the industry.

He said, “The present banking crisis present its own opportunities, if all the fillers is anything to go by, then the coming of foreign and participation of foreign investors in our banking industry would be earlier than anticipated. This may facilitate the emergence of more efficient but nimble banks that compete on the basis of global standards as from 2010”
Asset Management Company

One of the revelations of the special CBN audit is the huge amount of bad loans in the books of banks, which combined together is close to N1.5 trillion. As a result most of the banks posted huge and unprecedented loses of over N1 trillion. In order to address this, the AMC is proposed to take off the bad loans from the banks thereby given then much needed liquidity and restore their balance sheet. All these, according to Ogiemwonyin, however depends on how quickly the National Assembly passes the Act for the establishment of the company, noting that the even the recovery of the stock market is dependent on the speedy establishment of the AMC.

Banking Reforms
The special audit of banks by the CBN marked the beginning of another banking reform program to address the bouts of distress in the industry. Operators said that they expect more reform measures from the apex bank in 2010, and the nature and direction of these measures would influence the industry during the year. Ugubunka noted that there would be focus on Microfinance banks, and more banks’ chief executives might bow out in the process.

Interestingly the apex bank has indicated it would soon announce comprehensive reform program for microfinance banks, and a new code of corporate governance that would usher in a new era of accountability, transparency and regulation in the industry. In his view, Wale Abe note that the   impact of the reforms introduced in 2009 will linger on next year. “Not even the CBN guaranty (of interbank placement) will fully restore the much needed confidence until the benefits begin to unfold regarding the sectors’ impact on the real sector. So the CBN need to create a robust systemic risk system that has plagued the sector for too long. The banks may have to work extra hard if the populace confidence is to be restored and demonstrate the safety of depositors’ money.”

Electronic Banking
Electronic banking has played a major determining factor in the banking industry in the last five years. Year 2010 is not expected to be different. Expects predict that banks would deploy more resources in terms of information communication technology infrastructure (ICT) to provide electronic banking services in apparent attempt to reduce cost and improve. But a major electronic banking issue expected to impact significantly on the industry is the CBN directive to banks on off_site ATMs and the licensing of two more independent ATM deplorers namely Cham PLC and Cooperative Support Services last month.

Global Economic Recovery/Amnesty Program
Very critical to the direction of the banking industry in 2010 are the recovery of the global economy and the amnesty program of the federal government.

Wale Abe and an Executive Director of Ecobank as well as a former CBN Director noted that these two factors are very instrumental to other factors that would influence the industry and the larger economy in 2010.

“The Amnesty programme of the GOVERNMENT is good as at now, but post amnesty deals and their implementation will impact either positively or negatively on the industry especially if the present peace efforts are not sustained. Within the little period we have witnessed with the settling down of the militants at the camps, this has resulted in increased sales of crude oil and thereby improving the country’s earning capacity.

Failure to sustain this might mean a serious setback for the economy and the sector especially as far as the foreign exchange market is concerned.”