Banks: To be or not to be.

Author:Thompson, Jato

Some 30 to 40 Nigerian banks are not looking forward to New Year's Eve. They face the chop when a new minimum equity law comes into effect. Jato Thompson explains.

Nigerian banks, faced with the December 31, 1998 deadline by which they have to recapitalise and bring their equity base up to a N500m minimum, are finding themselves in a losing race with time. Banks had been given a 24-month period in which to reorganise their equity base but, with only seven months to go, a number are struggling.

Anxious bankers are now wondering if the monetary authorities will in fact go ahead and close down banks that fail to meet the deadline.

The same authorities, in what was widely regarded as a landmark move, liquidated 26 banks in one fell swoop late last year. and indications are that the December 31 deadline will see more banks fall by the wayside. Less than 30 of the remaining 82 banks in the country have so far been able to bring their paid-up capitals to the specified minimum of N500m. The remaining 52 (a clear 63% of what remains of the Nigerian banking industry), have not. They are experiencing varying difficulties, ranging from inability of existing shareholders to make up the amount by way of rights issues, to the lack of buyers for the shares now out on public offer.

The merger and acquisition option favoured by the central bank does not seem to appeal to the other banks which want to maintain their status quo. Perhaps they may reconsider as the ultimatum draws still closer.

The efforts to meet the capitalisation demand have become the major pre-occupation of the management and board of the banks. While the central bank's gesture in raising the minimum capital from the erstwhile N5Om and N4Om for commercial and merchant banks respectively to N500m was welcome in the case of commercial banks, analysts are raising fresh doubts regarding the wisdom of its blanket extension to the merchant banking sub-sector. The managing director of Prudent Merchant Bank plc, Mr S.O. Ogundipe, pointed out to African Business that an ideal merchant bank does not need huge capital since most functions and services they engage in are fee-based.

Mr Ogundipe, who established the Nigerian Merchant Bank in the mid 1970s and successfully managed it for about five years, is nevertheless critical of many merchant banks in Nigeria. He said that many have aped the commercial banks in terms of function and that this trend has simply been exacerbated by the N500m stipulation...

To continue reading