December 31 FYE: Implications for the Nigerian banks

 With the drive of the current administration of the Central Bank of Nigeria, CBN, to take the Nigerian financial sector to be at par with international standards, the recent pronouncement for all banks to have the same financial-year-end comes as no surprise. In more sophisticated economies, the financial institutions usually close their books at the end of the fiscal year. With this, regulators, analysts, investors and other gamut of interested parties in between have a clear cut idea of what their economy is doing.

The last 3 years since the CBN handed down the shore-up-your capital declaration, the financial sector, especially the banking industry, has witness a rapid growth. But that hasnt come without its own baggage of issues. With banks closing their FYE at different times, each was clamming one flag-post position or the other while the average Joe sits there bewildered; not knowing who is where.

The new FYE directive will solve that problem once and for all. 

For one, competition would be keen and cut-throat. Now that the end has come for year-end-deposits balances would be adjusted by markets which would now force bankers to look for deposits more aggressively. Competition is not really a bad thing as customers could now call the shots. Since deposits would be in short supply, any bank that wants to close the year on a positive note must find a way to delight its customers. 2009 would probably be a good year to be a banks customer. This could induce an increase in deposit rates; forces of demand and supply, with demand outweighing supply.

Also, this would definitely sieve the big players from the fringe players. The top ten positions would be keenly contested and there would probably be severe punishments for any bank caught in the bottom 5.

Since every bank would be closing its book by December 31st, industry pundits, and the rest of us mere mortals, can at last know the real size of the Nigerian economy. Massive account to account from one bank to another for year end is about to come to an end, the winner truly takes it all. Since the CBN depends on the figures provided by banks for year end to determine the size of banked funds in the economy, this would give us an accurate snap shot of where we truly are.

Another winner here is the NDIC. The NDIC takes an insurance premium from every bank based on the size of their deposits by December 31st. Legends have it that December 31st usually has banks recording the lowest deposit in the year which miraculously increases few months after. This is the time for NDIC to take its own pound of flesh.

The biggest question of all is how will the few heavy weight auditing firms be able to handle the 23 banks within 2  3 months when their books are due to be submitted to CBN for vetting? How will the CBN audit all these banks at once? Does that mean that there would be a scramble to employ more auditors?

This is really an interesting time.

The Start of a New Era

Today is my last day at First City Monument Bank Plc. That marks the end of an exciting 2 years of challenging and rewarding work at one of Nigeria’s finest banks.

The guys here are simply wonderful to work with. People are nice and they actually greet you and my colleagues are my friends.I was also lucky to handle some very interesting projects which have enlarged my understanding of so many things. But I have to go.

I am going to start my own business doing technology consulting, sales and writing enterprise applications for financial organizations. It is called TechnologyMBP which stands for Technology Makes Business Perfect. Now that am my own boss, I guess I am free to give myself pay rise every 2 months… (that would be fun!).

Global Africa: Presence or Profitability?

Following the ultimatum that Nigerian banks shore up their capital base if they are to remain in business, several banks have indeed gone over board with each one raising capital in excess of $1billion. Their aim in the long run, having been rescued from the shackles of being a bank in a developing nation, is to become a mega bank with global presence.

With large purses and an increased appetite for international trade and global financing, banks started to look for routes to invest these funds. Routes that will guarantee maximum returns on investment and create a true global presence. It became inadequate to have a good branch network within Nigeria, to remain a Mega bank with enough clout; the bank had to have presence in other countries asides Nigeria.

Early entrants within the banking industry controlled about 60% of the market share and had well established network within Nigeria and most importantly the United Kingdom. This branch network was necessary to help facilitate their international trade. The focus was never on the African axis as these banks were barely able to meet up with customer and service demands in their own home country.

With the consolidation exercise and the creation of bigger bank who have energetic, young and adventurous CEO’s at the helm of affairs, the banking industry was about to witness a phenomenal change. Emphasis was removed from merely being a Nigerian bank offering financial services; it became the case of meeting up with international best practice. Ideas started to flow. It became easy enough since these ideas were backed with the required purchasing power. The banking industry witnessed a significant evolution that changed the face of banking in Nigeria. Top of the range technology was deployed, service standards improve and international trade began to boom. Foreign investors realizing that the return on investment in Nigeria was high began to invest huge sums of money into the banking industry. Hedge funds, public offers, private placements offered excellent investment opportunities for these FDI’s.

Being armed with enough capital and having fully conquered the Nigerian markets, it was time to conquer the African markets. Global Africa was next on the agenda. Which bank was going to be the first to have adequate branch network in Africa. It was time to contest with the likes of Standard chartered Bank in the fight for the African business. After all, there was human capital, technology and the cash to be deployed to the rest of Africa.

The first country to witness the advent of Nigerian Banks become global was Ghana. With loose demands from their Central bank in setting up a financial institution, it was easy to open up branches in Ghana. Now, the whole of West Africa is having a taste of Nigerian banks. The issue is no longer which country to go to; the issue now is “we hope we won’t be the last bank to open up a branch there”

Now the frenzy is on. This brings me to my question. Global Africa is it all about creating a global presence or is it about creating investments that has a higher rate of return? With loose laws and minimum requirements to establish financial institutions in most African countries, creating a chain of banks in Africa has become an easy feat to achieve. Knowing how aggressive bankers are in Nigeria, they are not about to let this opportunity go without thoroughly maximizing it.

Having gone through the rudiments of starting up a new bank in other African countries, the acquisition of banking license, the acquirement of physical and human capital, It becomes obvious that Nigerian banks have more in sight than the mere returns on their investment. The question really is, if all these resources were to be deployed in the setting up a new branch in a viable area in Nigeria, would it achieve a higher rate or return on investment than that of a new deployment in Nigerian’s neighboring countries?