Though a lawyer, Otunba Subomi Balogun,
probably stands out as the doyen of today’s Nigerian banking industry.
His admirers call him “sure banker,” and he is founder and owner of
substantial interests in an indigenous bank. But with the disgrace and
brutalisation meted out to many Nigerian bank Chief Executive Officers
by the Central Bank of Nigeria under the watch of Lamido Sanusi, no
banker will be too keen to stand out so much in the crowd these days.
Many that were regarded as sure-footed maestros of the art of banking
were caught flat footed by “Hurricane Sanusi.”
After
the purchase by South Africa’s Nedbank of Ecobank Transactional
Incorporated shares, and entry into Nigeria, by Standard Chartered Bank,
first through StanbicIBTC, and later as a stand-alone private banker,
other foreign investors took caution when the unexpected Central Bank of
Nigeria demolition derby overran Nigeria’s banking industry. Investors
who had looked forward to playing in the industry, lost interest and
held tightly to their money. Their view for a kill froze. And except for
new kid on the block, Heritage Bank, regarded as a reincarnation of the
Societe Generale Bank, indigenous investors also “chilled.”
Instead
of investing through direct equity participation, foreign investors
took a detour, to granting (albeit low interest) loans to Nigerian
banks. This strategy would ensure that they recouped their capital along
with the interest accruable. A new generation bank recently obtained a
$400 billion Eurobond loan. You must have noticed that only the
indigenous banking “mongrels” that emerged from the Soludo consolidation
are listed on the floor of the Nigerian Stock Exchange.
The
only fully foreign-owned bank is not listed. If you consider the
strategic importance of the banking industry to the economy of a nation,
you may wax patriotic and insist that Nigerian banks should all be
owned by local investors. This will, however, limit their access to
funds, technical knowhow, and foreign markets. It also reduces their
efficiency, relative to their counterparts with global operations.
The
obverse is also true. Where foreign investors come in via equity
participation, the banking sector will attract more funds, without the
mandatory interest expenses. It will also gain access to foreign
technical and management expertise and markets. After Qatar National
Bank’s acquisition of 23.5 per cent of its shares at the value of $513
million, Ecobank Transnational Incorporated celebrated the transaction
as “a great asset and a good support (that) opens up for (ETI), horizons
in North Africa and in countries in the circle (circuit?) of the QNB.”
Though
ETI ownership structure is not limited to Nigeria, spreading throughout
West Africa, there is no doubt that more foreign banking interests,
like Atlas Mara Co-Nvest, are angling to invest in Nigeria. Nedbank of
South Africa that bought into ETI in 2008 is looking to up its
stockholding to 20 per cent. This should open up ETI as it migrates from
a sub-regional, to a regional, bank, with operations in many more
African countries.
When foreign banks
go beyond just partnering already existing local Nigerian banks, and
investing as stand-alones, like Standard Chartered Bank, it shows
confidence in the economy. It is even better if, as stand-alones, they
launch into the economy through the local bourse. Of course, the
enabling environment must be in place for that to happen, but it sure
demonstrates greater confidence in the economy, the political structure,
and the people of Nigeria. It guarantees that the huge deposits that
they will garner will be invested locally, and not spirited elsewhere. A
portion of their dividends will also remain within Nigeria.
Banks
have enormous powers, which legendary American financier, J.P. Morgan,
serially demonstrated. He used customers’ deposits to buy up businesses
like a railroad company, the General Electric and the US Steel, the name
he gave the steel company that he bought from his contemporary and
rival, Andrew Carnegie. But of course, as Nigeria awaits more foreign
investors into its banking industry, government must find ways to
encourage them share the gains (and the losses) of their operations with
Nigerians.
The idea here is not about
nationalisation, where government acquires shares in banks, but
communalisation, where ownership structure and returns benefit both
foreign investors and Nigerians on Main Street. Many will recall that
Japanese companies like Toyota went to sell their products in America,
but also got listed on the New York Stock Exchange. The Japanese
companies became localised, and the Americans heaved a sigh of relief.
Japan had not come to raid America after all! The feeling was contrary
when, in the early 1980s, a Saudi Arabian consortium bought up Perpetual
American, an American savings & loan company. Both the Federal
Reserve Bank and Wall Street got a tad worried.
The
communalisation of ownership of the Nigerian banking industry agrees
with the anti-trust position of capitalist American economy, which broke
up John D. Rockefeller’s behemoth Standard Oil Company and J.P.
Morgan’s railway monopoly, in the early 20th Century. That economic
philosophy also empowered an American Federal Court to grant Henry Ford
rights to market his Model A (precursor of the Model T) cars, and to
compete with the automobile cartel, the Association of Licensed
Automobile Manufacturers of America.
One
major factor that attracts foreign banking interests nowadays is that
Nigeria’s economy has delivered remarkable returns to the foreign firms
that have invested in the new emerging market. And, like the old
multinational companies that came to post-independence Nigerian economy
with their advertising agencies in tow, the new investors need the banks
that are already familiar with the ways they do business in their home
countries.
For instance, as the
stand-alone Standard Chartered Bank serves private banking interests of
high net-worth individuals and firms from the Organisation for Economic
Cooperation and Development nations, it will serve South African
business interests, like Shoprite, MTN and DSTV, through its StanbicIBTC
partnership. They speak the same language. QNB and Nedbank of South
Africa could also steer ETI to service both Southern African and Middle
East business interests.
With renewed
interest by foreign investors in the bludgeoning Nigerian emerging
market and the biggest economy in Africa, more foreign banks will be
coming to Nigeria. The Bank of British West Africa came to Nigeria at
the turn of the 19th Century, to handle both retail banking and foreign
exchange transfer needs of the United Kingdom’s business interests.
So,
relevant government agencies, like the CBN and the Ministries of
Finance and Trade, must prepare ahead of the repeat of this tendency.
But more importantly, the indigenous banks must upgrade their
structures, operations and human capital, to effectively compete with
the foreign banks that are coming soon — to raise the bar.