Alien banks are coming!

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.”

Indeed, many of the banks that came up strong from the banking consolidation engineered by Sanusi’s predecessor, Prof. Charles Soludo, eventually unravelled. While some went under, others were auctioned off by industry undertaker, the Asset Management Company of Nigeria, yet others are being made up for prospective suitors. The banking sector bled plenty of red ink, and many bank employees lost their jobs. Many of those remaining at their work posts had their wages reviewed downward, and were made contract staff or casualised. Things are bad, banks now shore up profitability by charging N65, after the fourth withdrawal made in every month, on the ATM platforms of other banks.

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.