Remi Ogunmefun
5 May 2008
opinion
Lagos — One of the remarkable fall-outs of the last banking consolidation exercise is the opportunity it has presented to Nigerian banks to access the global market.
Some Nigerian banks are already taking advantage of the situation and are opening offices all over Africa, Europe and America. Banking which used to be a domestic business is now a global affair. The recent expansion of Nigerian banks into the global market is what the world's wealthy nations have done many years back- establishing branches all over the world. Nigeria banks such as First Bank, Union Bank, UBA, Intercontinental Bank and GT Bank are beginning to branch out gradually into the global market. These steps are no doubt bold and commendable.
There has always been global banking.It dates back to hundreds of years particularly during the colonial era when the leading Western nations partitioned the world. The impact of global banks in the market place has also led to several studies in recent years which have enabled us to have a clear picture of what advantages and gaps the global banks are presenting to the world. One of those studies which I found very interesting is the work of Lowell L Bryan and Jane N Fraser. Both were employees of the New York office of McKinsey way back 1999. I came across their work "Getting to Global" at the Columbia Business School when I went there for the Columbia Senior Executive Program. In that study, these two brilliant consultants were of the opinion that "Over the next 30 years, geographical and regulatory business in the world will fall, electronic distribution will start to parallel and even to by pass physical distribution, installed capacity will become obsolete before it is depreciated, and focused competitors will attack like piranhas. Companies will have to restructure or die." They went further to say that economic integration, driving the expansion of global markets will promote the formation of global markets in accounting, chemicals, food, health care, the mass media, pulp and paper, telecommunications and many other industries. This view was expressed in 1999. How true! Those predictions are coming through in today's global business.
Financial globalization which is taking root in the world is driven by the progress the world has made recently in telecommunications, liberalization of trade, data processing, removal of restrictions on capital movement and the opening of domestic capital market. When we look at the Nigerian banks, however, we need to ask ourselves if we really tooled up to take the benefits of globalization and make Nigeria the financial centre of Africa.
When the consolidation exercise was conceptualized, I was one of the Nigerians who had serious doubts about the success of the exercise. I was then looking at the domestic environment and the various regulations and restrictions placed on capital inflow into Nigeria at that material time. Many of us at that time were of the view that except the stringent measures accompanying capital inflow such as the type of fund, the legitimacy of the source of the fund and the requirement of proof, it might be difficult to source the enormous capital required for the consolidation exercise. That 25 Banks emerged from the exercise is indeed a massive achievement and very commendable. However, I believe that much of the capital flow for the consolidation exercise must have come from offshore sources. I may be wrong but since there is no public document that reported on the source of funding of the banking consolidation exercise such a view may not be misplaced. What this consolidation exercise may therefore reveal is that a large number of Nigerians maintain good account balances with Western and Middle Eastern Banks which if our Banks had been active in the global market would ordinarily be on their books. Nigeria as a leading African nation and with the kind of resources we command , we should have at least two Banks competing very well in the global market.
We are said to have 25 mega banks. No Nigerian should be deceived. There is yet to emerge a mega bank in Nigeria. Even First Bank that is considered number one in Nigeria does not even measure up to the third tier banks in Asia. Its total assets are not even up to what a leading county bank in New Jersey or New York State commands. We are therefore a long way from what a mega bank should be except we want to celebrate mediocrity in Nigeria. We need to do more. We need to continue on the consolidation exercise if we must make Nigeria a competitive nation. The current capital of our banks is too low to compete in the global market and definitely too low for even the domestic market.
The United Kingdom with all its reputation as a leading financial centre of the world at one point recently had only four major UK owned banks. These banks were the major pivot of their global activities. I am of the view looking at the recent fallout of the consolidation exercise that the long term strategy of the consolidation exercise needs to be reviewed. For example, if we drive through any of our high streets in Nigeria whether urban and sub- urban centers, one can count ten banks with expensive buildings each running after the same customer. Banks are busy chasing each other's clients without creating new ones. It is even suspected if good risk investment opportunities are not thinning out domestically. I am therefore not surprised that some Nigerian banks are already branching out of Nigeria. The big issue is not just getting global but thinking through the process and having the right strategies to succeed in the global market.
Pavel and Mc Elravey like many researchers of the impact of global banking are of the view that the market is witnessing speedy growth. The obvious fact is that as financial globalization expands, which currently is the situation, financial services will become more integrated and more competitive. It is being predicted by studies of people like Pavel and McElravey that banks that operate in future global market will have a lot of opportunities. The world today is gradually moving towards boundaries that have no economic delineation; resources are now available in limitless capacity and the world is now having access to suppliers and expertise at ease where ever they may be in the world. Many studies conclude that as markets continue to open, competition will be fiercer and those who refuse to find new markets apart from their domestic ones will find themselves not able to face the competition. As a result, many Nigerian banks need to build more capacity than they do currently.
It is without doubt that globilization has its own problems but it is not insurmountable. Over the years financial institutions that moved into the global market were reported to have reaped success. The problems they encountered were resolved through acquisition of new technologies, better transport and more efficient communication. The legal process is being harmonized and law firms are also getting global.
We need to have at least two Nigerian banks that are real mega banks operating actively in the global market, having competitive presence in all the financial centers of the globe. This is because global banking is the demand. We need to take Nigeria's capability beyond current situations. Those that have been granted a public charter to operate our banking institutions need to do more than they do at present. We need to have the culture of thinking big and getting out of our comfort zones. A bank management that is satisfied with current status quo does not qualify to continue to operate the public charter granted by the Nigerian people. The issue I have thrown up requires a think through process for the appropriate strategy. I have always been fascinated with the application of military tactics to business. A thought process that great thinkers like Tzu Su bequeathed to the world of business. One thing that is very lacking in our environment is readiness of operators of the Banks to appreciate that the integration of people of different backgrounds and experience is very essential to win and be successful in the market place.For example, I would love to see a brilliant Military Officer schooled in war tactics being recruited into the bank and merging the strategic business units to drive new or existing markets. I have always wondered how the Romans were able to conquer the entire Europe and nearly all of Asia with all the barriers of geography and difficulty of troop movement of those days. Nigerian banks currently participating and thinking of going global are advised to look at the Romans strategy in conquering the world.
My dream is to see Nigeria as the financial centre of Africa and one of the leading financial centers of the world. We cannot do it with the present inadequacies. We need to strengthen the Nigerian banks in all its ramifications. A Swiss bank for example has 50-50 split between its foreign and domestic assets. Nigerian banks should be pursuing activities that drive potential foreign customers to them. It would be a great day in the future when we start witnessing westerners using Nigerian banks for their banking activities. It is not impossible.
No matter how brilliant a bank executive may be, he cannot achieve anything remarkable in the global market without an enabling environment and a good reputation at home. We need to open more of our domestic market to investors. We need to look at our laws and make it easy for access to our domestic market. All restrictions that inhibit easy access should be removed. We must be strict on transparency in business. The cost of doing business in Nigeria must be substantially reduced. We should as a matter of urgency make Nigeria currency convertible in the world market. African nations in particular should begin to learn to share infrastructure and integrate our markets. We should allow free movement of talents and remove all forms of job restrictions. We must invest in infrastructure, spend money on education. We must create a stable nation where the rule of law reigns and public safety is guaranteed. Nigeria banks cannot succeed in the global market when back home our reputation is bad. It is essential we create and maintain a good platform of integrity at home to enable us succeed globally. Above all, government must support and ensure that the financial services sector remains healthy and stable.
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