Ademola Adedoyin
In the hands of Nigeria’s policy drivers, banking, and to a good extent, the bankers, have over the years, received raw deals. With penchant for tinkering with the statute books and other banking regulations now and again, the authorities have turned the Nigerian banking sector to one big financial laboratory where all manners of experiments are carried out at regular intervals.
Last week, the policy makers were back in the financial laboratory. Now set for a new experiment, the existing regime, the universal banking system, will, in the months ahead, become history. A new system, in which license will be issued for each financial offering, will replace the existing order.
Samuel Oni, Director, Banking Operations of the Central Bank of Nigeria, CBN, explained the rationale behind the new experiment: He said: “This is part of the ongoing reforms to redraw the banking structure to ensure that commercial banks face their traditional business and ensure that depositors’ funds are not endangered. The new arrangement would protect commercial bank activities from pressures from non-commercial banking operations, to allow them concentrate in the provision of their traditional banking activities.”
With Oni’s pronouncement, the CBN has eventually put words to action in respect of the universal banking regime which the current CBN helmsmen had consistently hinted was on its way out long before the 298th meeting of the Bankers Committee which held early this month where the CBN Director made the pronouncement.
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Under the new arrangement in the works, operators would henceforth, seek and get licenses for each model of banking operations such as commercial banking, mortgage banking, investment banking, micro finance banking etc. In the new dispensation, uniform capital base for all the banks would also become a thing of the past as operators would be issued with different categories of licenses depending on whether such operators are carrying out banking business at international, national or regional levels.
The Central Bank of Nigeria, in 1999, under Joseph Sanusi, had introduced the Universal Banking license scheme, a regime that allowed operators to play in all sectors of financial markets with a single license. The universal banking scheme is a one stop financial shop that enables a bank to serve as a supermarket for wholesale and retail financial services, offering wide range of financial transactions.
What the universal banking concept has going for it is the convenience it offers customers as it makes it possible to receive all financial services one needs under the same roof. If Joseph Sanusi made universal banking a reality in Nigeria, his successor, Professor Charles Soludo consolidated the scheme. With Soludo’s Consolidation Programme which was introduced July 2004, minimum capital base was raised from a low average of about N1.4 billion to N25 billion. The banks had a deadline of about a year and half – December 2005 to meet the new capital requirement. From well over 80 banks, by the time Soludo’s deadline came to pass, only about 24 players remained on the field. Of course, survivors, with their healthy financial state were strong enough to operate the universal banking scheme successfully. The CBN under Soludo encouraged them to do so.
What the new regime sets out to do is to reverse this and return to the era where the banks would face what has been described as their “traditional business and ensure that depositors’ funds are not endangered.” The argument of those in support of the new order is that in the Soludo’s dispensation, the banks got so much money but there was no outlet making the banks to go into risky areas through which they got their fingers burnt years later. Financial experts are however of the opinion that this development may not be strong enough to completely throw away the scheme as the new order tends to. The contention of these experts is that when it is well regulated, the universal banking scheme encourages the emergence of big banking entities strong enough to withstand the vagaries of the market.
We should not make a mistake about this: the move to break down bank offerings and make commercial banks face their “traditional roles” is not peculiar to Nigeria. Globally, that move is on. But in other climes, in particular the developed economies, this move is being resisted and the authorities are cautious in executing this fresh thinking. HSBC, the vast financial Empire with headquarters in London is threatening to go back to Hong Kong where it originated or Australia, should the United Kingdom government carry out the breaking down of bank’s offerings to different licenses.
In the United States, City Bank, Bank of America and other powerful interest groups are lobbying to ensure that they remain intact as they are. The reason for this lobbying is simple; Yes, commercial banking is more visible and attracts several customers, but the big earnings and the mega profits come from Investment Banking, and other financial services which are not necessarily easy to categorize as the “traditional areas” of commercial banking.
The point at issue here is that universal banking as a scheme is not entirely devoid of merits, just as the new order is not also without its shortcomings. The poser really is: why throw universal banking out of the window completely? If some banks could have one billion dollars as capital base to run international operations and maintain offshore branches, why not allow such banks to operate universal banking scheme, while those with licenses to operate at national and regional levels are allowed to face the traditional commercial banking activities? Why can’t the government bring all the financial regulatory authorities together as an entity, make them strong and independent enough to regulate the banking sector, in particular, the ones with international licenses and then leave such banks under such strict regulations, to continue to operate under the universal license scheme.
These are some posers Lamido Sanusi and his team needs to ponder about in the months ahead as they proceed with this new experiment in Nigeria’s vast financial laboratory.
