These days, the buzz words on the financial pages of
Nigerian newspapers and on the lips of many bankers are
consolidation and merger. Those words are beginning to
echo around the financial markets in London and New York
as Nigerian banks begin to woo potential investors to fund
them.

To many people, Nigeria and credible banking are
strange-bedfellows given the extent to which the country’s
reputation was damaged by the advance fee fraud,
commonly known as 419. So much so that most foreign
governments regularly warn their citizens and businesses
to desist from any dealing with Nigeria or its banks.

Faced with pressure from foreign agencies, the Olusegun
Obasanjo-led government is introducing some reforms:
These include the appointment of a fraud-czar and granting
the country’s Central Bank greater freedom to sanitise the
sector.

The recent appointments of Prof  Charles Soludo as the
governor of the bank has equally won commendations from
many in the financial sector.

Prof Soludo, a seasoned banker and academic, admitted
that the Nigerian banking  system today is fragile and
marginal. His vision is a banking system that is part of the
global change, and which is strong, competitive and reliable.

“We want a banking system which depositors can trust and
investors can rely upon,” he says.”Evolving such a banking
system is a collective responsibility of all agents in the
Nigerian economy.”

He adds that strengthening and consolidating the banking
system will constitute the first phase of the the reform, with
the second phase addressing the issues of diversification,
including programmes to encourage the emergence of
regional  and unit-specialised banks.

The inability of Nigerian banks to voluntary embark on
consolidation in line with world-wide trend has necessitated
the need to consider the adoption of appropriate legal and
supervisory frameworks, claims Prof Soludo.

In addition, the Central Bank is introducing a
comprehensive incentive package to facilitate mergers and
acquisition in the industry as a crisis resolution option and
to promote soundness, stability and enhanced efficiency of
the system.

Many believe these new measures are long overdue. The
Nigerian banking system, they say, is very marginal in
relative to its potentials and in comparison to other
emerging economies.

Many banks are family-owned and exist only because of
their close connections to Nigeria’s political elite. Some of
these banks are barely surviving and have been losing
money their depositors saved with them.

In 2003 for example, the Nigerian footballer, Jay-Jay
Okocha, lost about a million pounds in the collapse of a
bank owned by the family of a prominent Nigerian politician.

Prof Soludo wants to see more banks offering the right
services to ordinary depositors, which in turn will help
stabilise the lending environment in one of Africa’s biggest
economies.

Nigeria currently has 89 banks with many having capital
base of less than US$10 million and about 3,300 branches.
The South African bank, Absa, for instance, has lager assets
than all Nigerian banks put together.

To kick-start these reforms, the Central Bank has stipulated
that any bank that want to retain its license to operate
must have a minimum deposit of US$190 million by this
December.

Merger talks between banks and efforts to attract potential
foreign investors have led to a feverish activities in and
outside the Nigerian Stock Exchange.

The New York-based Emerging Markets Management, the
London-based Sisu Capital and Arvo Master Fund are some
of the prominent overseas hedge-funds now investing in
Nigerian banks.

More than 60 banks have already formed various merger
groups, while the rest have already reached or surpassed
the US$190million capital base stipulation.

Analysts believe the merger and acquisition drives will not
only lift the banking sector but that it will also rejuvenate
Nigeria’s stagnant economy and provide solid proof to
potential investors at home and abroad that the country is
a healthy place to do business.

But they also fear that there are rooms for abuses, which
need looking into.

There are suggestion that money looted from the Nigerian
treasury by past military and civilian leaders are being
re-invested in the emerging banks.

Experts warn that it is equally necessary for the Central
Bank and the Nigerian government to avoid making the
country a save haven for terrorist and drug money.

“In the banking sector, we all know what is
happening,”points out Mr Bisi Otegbeye, the managing
director of Regency Insurance Plc. “Two years ago, there
are recklessness, money laundering, round-tripping and
many other abuses. People were just doubling money and
there was no real growth in the economy. Banks were not
lending money long-term, so capacity of industries did not
expand.”

To counter these abuses, the Central Bank wants to see
the establishment of an inter-agency committee that will
co-ordinate anti-money laundering activities in the country.
The bank is also reviewing its guidelines in order to combat
some of the short-comings of the present reforms.

Mr Ignatius Imala, its head of banking supervision, says
that the most important elements in detecting
money-laundering or terrorist-related wires are having
complete and meaningful information on the originator or
transaction and recipient of funds.

“The Central Bank will review its guidelines to address this
aspect and ensure strict compliance by financial
institutions,” he says.

editor@thenewblackmagazine.com