19 August 2012

Nigeria: Bridged Banks - What Are Their Scorecards?


In August last year, the trio of Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited emerged from the ruins of the troubled Afribank Plc, BankPHB Plc and Spring Bank Plc to compete in the nation's banking industry amidst some unresolved challenges. How far have they surmounted these challenges, asks Festus Akanbi

To the unrepentant critics of the bridging option adopted by the Central Bank of Nigeria (CBN) for the resolution of the crisis that bedeviled some of the banks rescued from the brink of collapse in 2009, the claim of a return to profitability by the bridged banks can only be verified when the three banks make public their last financial results. Those in this group include some shareholders who are still licking their wounds over the loss of their investment in the legacy banks (Afribank Plc, Bank PHB Plc and Spring Bank Plc), which metamorphosed into the new institutions namely Mainstreet Bank Limited, Keystone Bank Limited and Enterprise Bank Limited respectively. Others include some former directors of the legacy banks who are naturally unhappy over the loss of their jobs and attendant influence.

However, industry affairs watchers told THISDAY last week that one year down the line, the three bridged banks may have bounced back to reckoning having successfully undergone the incubating processes supervised by the CBN as the main regulator and the Asset Management Corporation of Nigeria (AMCON), the main shareholder of the banks for now.

Major Push

Perhaps, the major push for the stabilisation of the banks came through fund injection by AMCON, a breakdown of which showed that N285 billion was given to Mainstreet Bank, Keystone Bank got N283 billion while Enterprise Bank was given N110 billion. However, one year down the road, the takeover of the three banks still elicits mixed reactions. A recent report by the House of Representatives ad hoc committee which probed the near-collapse of the capital market faulted the exercise. Also, there have been divergent views on the performance of the banks since their establishment from market analysts as well as shareholders of the defunct banks.

However, Managing Director AMCON, Mr. Mustafa Chike-obi, told THISDAY last week that the financial results of the three banks should be ready any moment from now. According to him, the results which are still being scrutinised by the CBN will be made public very soon.

A senior analyst at BGL Limited, Mr. Femi Ademola, was quoted as saying that no meaningful appraisal could be done without seeing their financial statements. "They are still stabilising and I do not expect any fantastic results from them. If the banks say they are making profits, to me, that is not explanatory because as there is nothing to gauge their performance. If they say they are doing well, from what perspective?"

The Banks're Solid, AMCON Insists

But the AMCON boss allayed the fears of the banking community over the financial health of the banks, saying, "These banks are no longer losing funds, which they were doing before the nationalisation. But I must say that there is a lot of work ahead for them because they need to remain competitive."

Just a fortnight ago, AMCON announced the selection of two world-class financial advisory firms, Citigroup and Renaissance Capital, to come up with the best option to sell the banks. While AMCON is awaiting the reports of the advisers, which are due in six months, Managing Director Cowry Assets Management Company Limited, Mr. John Chukwu, has tipped foreign investors to take a larger chunk of the equities of the banks. Chukwu said the situation of things in the nation's banking industry had necessitated the choice of strategic foreign investors for the three bridged banks. This decision, according to him, would help build a solid base for the banks which are just regaining their feet after the intervention of regulatory authorities in Nigeria. He suggested that at least 60 percent of the shares of the banks should go to foreign investors while local shareholders should make do with the remaining 40 percent.

However, Chike-Obi told THISDAY that although the proposal was good, the choice is left for the advisers who have been hired to do the job.

Managing Director, Keystone Bank, Mr. Oti Ikomi, said his bank was fully back in business. According to him, "Keystone Bank's results for full year 2011, which show a considerable improvement is ready. Approval in principle from the CBN is in place, subsequent to a well-conducted audit by our external auditors - KPMG. Keystone Bank financial control is finalising the issuance process and we expect to release our accounts very shortly." He said the bank had made considerable progress in the last one year and customer confidence had been reinstalled. Business growth is progressing and staff morale is significantly improved."

To Ikomi, Keystone Bank has been repositioned for efficiency, market share growth, even as he added that there have been improved governance and controls in the financial institution. "We have put in place a 'let's build' strategic focus to be a top five bank in Nigeria by 2015, focusing on innovation and meeting customers' needs in the middle market and retail banking, he said.

Mainstreet Bank

A statement made available to THISDAY by Mainstreet Bank said the management has been able to stabilise the bank within its first year as well as regain the confidence of all the stakeholders (customers, staff, shareholders and regulators). The bank claimed it has streamlined its business processes by focusing on its traditional areas of strength; retail, commercial and corporate segments, as well as the public sector of the economy.

According to the statement, the bank returned to profitability after January, 2012 and has sustained the tempo with a year-to-date group profit of N3bn in the first five months of year 2012.

Despite the trouble with some of its former employees, the statement from the bank said management accorded adequate attention to issues relating to staff welfare."For instance, staff were granted access, which they had sought in vain over the years, by paying out over N400million in excess deductions in contributions to the National Social Insurance Trust Fund (NSITF). Furthermore, employees were granted full access to their legacy pensions funds which Management and the staff union jointly handed over to a consortium of pension fund administrators to manage on behalf of staff. All loans granted compulsorily to staff to buy the shares of the legacy bank which were virtually lost in the wake of the stock market crash of 2008, were written off by management as a gesture of goodwill."

Labour Issue

One of the challenges faced by the new banks was that of labour. For instance, some former employees of Mainstreet Bank have continued to engage the management of the bank in a pitched battle over their exit package which they alleged did not take care of years of service they put in for the legacy Afribank. About 600 of them claimed to have been eased out with barely two month salary as total severance pay. The development led to the setting up of a tripartite committee by the federal ministry of labour consisting of the National Union of Banks and Insurance and Finance Employees (NUBIFEE),and the Assocaition of Senior Staff of Banks, Insurance and Financial Institutions (ASSBIFI) the bank management and representatives from the labour ministry. A source disclosed that the recommendations of the committee had already been forwarded to the labour minister for implementation.

However, Chike-Obi said legally, the bridged banks do not have any obligation to the legacy institutions, explaining that by law, the employees may not have a case against the new banks since their employment contracts were deemed to have died with the legacy banks. He, however, stressed the need for dialogue between the management of the banks and the affected former staff.

"So the legal position is that Afribank employees who are not the same as Mainstreet Bank employees (because they had no employment contracts) were victims of a liquidated bank as it were. That's the legal side. But the human side is that people have worked, people have earned whatever it is they are entitled to, and so I think from the human side, it will be good if there is a way to come up with a reasonable middle of the ground answer. It does not help if the either side takes an extremist view of the matter," Chike-Obi said.

Apart from the labour issue, the banks' market shares are still very low. Confirming this, Ikomi said the major challenge that a bank like Keystone faces is really how to ensure that it meets the needs of its customers and grows its market share.

"We are extremely unhappy and dissatisfied with the current level of market share that we have. I tell my members of staff and executives that it gives me sleepless nights. We have to take this bank to the next level. So it is unacceptable to be where we are now.

So how we can grow the business and win an extensive support base of untapped customers out there is our big concern. That is our major challenge.

"The other challenge we have revolves around our operations, our information technology (IT) environment. In banking, you have your core banking applications and you have your hardware. So at the end of everyday or every month, there are some programmes you run. In the legacy institution, when they ran such programmes at the end of the month, sometimes the system would not be available to attend to customers until about 3 pm while the bank had been open since 8 am and in some cases, the system will not be available for about two days. We were, however, very fortunate in Keystone Bank that with the full approval of our board, we have been able to install a new hardware system from IBM, which went through a very competitive process. We evaluated IBM, HP and other providers. So we have installed a new IBM hardware system."

Afribank, BankPHB and Spring Bank were bridged in August 2011 just a month to the deadline given the eight rescued banks to find new buyers. According to the regulators, the action was taken earlier than the September 30 deadline because the then troubled banks, unlike their peers, did not show any capacity to recapitalise before the deadline.

The bridged banks were thereafter sold to AMCON on August 6 through a subscription agreement. Under the deal, AMCON injected a total of N679 billion into the three banks, thus raising their capital adequacy ratio to 15 percent respectively and also enabled them to pay back the funds that CBN injected into them in 2009.

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