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Some bank officials
have expressed reservations about the new banking model recently
introduced by the Central Bank, which is to be operational from
October. They are of the opinion that the problems of the industry runs
deeper than mere change of business model.

A source at First
Bank Nigeria, who pleaded anonymity because he was not authorised to
speak on the issue, said the industry is still getting a hang on the
issues raised. According to him, some banks may begin serial meetings
as the week begins. “An exposure draft had been circulated by the CBN
earlier, so the provisions are not new,” he said.

In the new
circular, the Central Bank stated that commercial banks would have to
discontinue activities not related to core banking, their primary
objective.

“It is a choice
between setting up a holding company in order to retain these
businesses under one roof, which implies massive structural challenges,
or selling them off (which I imagine the apex bank would prefer). Now,
if you put yourself in the shoes of the Nigerians who’d have to make
these decisions, do you imagine they would willingly let go?” he said.

Availability of required capital

The Central Bank,
in the new guidelines, said new capital requirement would range from
N10 billion to N50 billion, depending on the level of business they
want to operate. Banks that operate regional banking will require N10
billion, national banks will require N25 billion, while banks that want
to operate international licence would require N50 billion minimum
capital.

The source at First
Bank said the new capital requirement for banks who desire to continue
running their international branches may be realisable.

However, he
expressed worry over the efficiency of investing such an amount of
money when most banks are still struggling to get back on their feet.
“Question is, in the current circumstance, is this the most efficient
use of such resource?” he asked.

According to him,
the new banking model may not necessarily be the way out for the banks
as the issues arising in the industry were not all generated because of
the absence of specialised banking.

“I do not think
this would aid monitoring and improve regulation by the regulatory
body. These are not the reasons why the industry imploded in the first
place.”

He added that this
new process may not also necessarily address the huge percentage of yet
unbanked Nigerians, and that the deadline given to the banks may be
moved, even though the banks are ready for the transition.

Another banker, a staff at Zenith Bank, stated that the initial stages of the transition would not be without some confusion.

“To me, it won’t
change much. In fact, it may cause confusion. You could consider this
from various angles. From the viewpoint of the body of the present
operational staff, most of these banks already have members of staff
specialised in these varying banking services. Limiting them to just
one form of banking would mean that all the staff that are in other
sections would be rendered jobless, unless they would be sent on
special trainings to fit into their new job descriptions, and not all
banks would do this,” he said.

Sunday Salako, a
member of the National Economic Management team, however, said going
back to the basics is the best move to take now.

“That was what we
were doing before. There used to be merchant banks, community banks,
finance houses, and the rest of them and then we had commercial banks
that focused mainly on core banking, retail banking,” he said.

He blamed the
current crisis on the universal banking approach, which allowed banks
to engage in all forms of finance activities, including insurance
underwriting. “Now, they want to go back to the old template. It is a
good thing, going back to the basics. Perhaps, if we didn’t have all
these mumbled up, some of the fraud uncovered in August 14 may not have
occurred at all.”

He also added that
this model would help banks take up functions that they would be
convenient with and that can suit their available funds. “Each bank can
decide on which type of business it would like to run, according to
their expertise and capital accessibility,” he said.

In 2002, the
Central Bank, through the Universal Banking guidelines, authorised
banks to engage in non-core banking financial activities either
directly, as part of banking operations, or indirectly, through
designated subsidiaries.

The Central Bank,
in a circular last week, said the primary objectives for its current
reforms was to ensure the protection of depositor funds by ring fencing
“banking” from non-banking business; redefining the licencing model of
banks and minimum requirements to guide bank operations going forward;
effectively regulating the business of banks without hindering their
growth aspirations; and facilitating more effective regulatory
intervention in public interest entities.

By the circular, the CBN stated that all existing universal banks
are required to prepare and submit their plans on ensuring compliance
with the requirements of the new banking regime not later than 90 days
from October 4, 2010.