Some Nigerian banks have started disposing their off-shore subsidiaries, particularly in Europe, the United States, and some African countries, a development which operators say is informed by the need to cut off unprofitable appendages, leaving leaner and more efficient institutions.
Some banks have also commenced consolidation of their merger and acquisition exercises through the disposal of buildings housing branches of the banks they bought.
Concerning the disposal of their off-shore subsidiaries, the banks are being discreet, so as not to run foul of the host country’s regulatory authorities and Central Bank of Nigeria (CBN)’s laws, since the two regulators were privy to granting of the operational licenses, hence their preference to shop for buyers of the licenses as against liquidation.
However, subsidiaries in West African countries are expected to undergo major operational review before their eventual merger with the acquirer banks’ subsidiaries. Both exercises, which sources in the banks regard as the final phase of the merger and acquisition programme, are expected to witness another round of job losses involving senior management staff who were the major beneficiaries of the foreign postings by the acquired banks.
But the CBN has claimed ignorance of the plan.”Selling licenses, I don’t have information on that,” says Mohammed Abdullahi, CBN spokesman.
But, Razia Khan, analysts with Standard Chartered Bank, London said, “What we’re likely to see now is a much-needed rationalisation in the sector. When Nigerian banks first raised enormous amounts of capital, it was clear that this was not always being deployed rationally, as seen through the ‘just because’ regional expansion. Now, with banks giving much more thought to profitability and return on capital, we will see some banks disposing of subsidiaries that made little economic sense, to begin with.”
Besides, BusinessDay investigations further revealed that most banks are conscious of the emerging post merger competition, which is expected to reveal the actual strengths and weaknesses of the banks. Consequently, the banks are opting for the lean but effective operational model, with reach and quality of service coming more from high level information technology deployment, than from bloated branch and manpower content .
The development is coming on the heels of a n ew approach being adopted by banks in the treatment of fixed income securities in their balance sheets, to cope with the open disclosure demanded by the implementation of the International financial reporting standards (IFRS) being adopted by banks and other quoted firms in the country.
The last Bankers’ Committee meeting was said to have deliberated on the challenges posed by the new reporting format.
“There is need for harmonisation and hence the need for all of us to come together for a common framework. The Federal Government bonds form a significant portion in our balance sheet. Treatment by the National Accounting Standards Board (NASB) was very prescriptive, while IFRS is much more judgmental. Our concern is the need for consistency, as single interpretation is necessary,” says Hamda Ambah, executive director, FSDH, at the recent post Bankers’ Committee meeting press briefing in Lagos.
Consequently, while the banks were able to evade the full disclosures in their balance sheets, depending on the performance of the bonds in the past, the new IFRS, requires that the banks be transparent in their reporting format, irrespective of the performance of the securities, to the extent that shareholders and investors could pick up their annual reports and determine the performance level of the banks.
Johnson Chukwu, MD Cowry Asset Management, says “The impact will differ among the banks, depending on the size of each banks balance sheet and its method of reporting the bonds in its records. For instance, if a bank books the bonds as investment, it will not be required to ‘mark it to market’; hence it can carry it at ‘cost to maturity’. If however, the bank records the bond as part of its trading portfolio, it will be required to ‘mark it to market’ and recognise the difference between the cost of the bond and the current market value, as loss on the portfolio.
“The issues about maintaining off-shore subsidiaries or treatment of fixed income securities are prices we have to pay for development and quest by some banks to remain relevant in the next dispensation. Besides, you should not forget the fact that some of the acquirer banks did not bargain for some of the assets and liabilities acquired and I think, it is logical for them to do away with some, if only for them to remain relevant and competitive,” a senior management staff of one of the banks told Business Day yesterday.
According to the CBN, effective May 14, 2012, no bank shall be allowed to retain a subsidiary that is not a CBN-approved offshore subsidiary; jointly owned with two or more banks for a money market activities; investment in SMEs; or a Custodian. The operators have therefore resorted to selling the licenses to other interested parties, to avoid running foul of the law.
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