Although it obtained a regional banking licence in the wake of the recent regime of classification of banks, the management of Wema Bank Plc has lined up processes to go for a national licence. The bid has raised questions about the sustainability of regional banking in Nigeria, writes Festus Akanbi
After the initial enthusiasm that greeted the regime of categorisation of banks into international, national and regional groupings, which was ushered in by the Central Bank of Nigeria (CBN) in May 2010, indications have emerged that keeping Nigerian banks at the lower wrung of the ladder may not be sustainable after all.
The CBN Governor, Mallam Lamido Sanusi Lamido, had made a case for different layers of operations in view of the unhealthy competition among money deposit banks and the attendant erosion of confidence in the banking industry prior to the CBN intervention of 2009.
In Nigeria, international banks require minimum capital of N50 billion ($320 million) under the new regime. National banks require minimum capital of N25 billion while regional banks, which can operate in only 6-12 states are required to have N10 billion. Banks that got international banking licence include Access Bank Plc, Diamond Bank Plc, Fidelity Bank Plc, and First Bank of Nigeria Plc, First City Monument Bank Plc, Guaranty Trust Bank Plc, Skye Bank Plc, Zenith Bank Plc and United Bank for Africa Plc.
Under the national banking category are banks, which include Citi Bank Limited, Ecobank Nigeria Plc, Stanbic IBTC Plc, Standard Chartered Limited, Sterling Bank Plc and Unity Bank Plc.
Wema Bank Plc and the defunct Equitorial Trust Bank applied for a regional banking licence. The latter has since merged with Sterling Bank Plc.
Other banks that were being speculated for regional licence were Societe Generale Bank Limited and Savannah Bank. The two institutions were said to be at the verge of returning back to business although nothing concrete has happened in that direction so far.
However, as the only surviving regional bank, (since the other two banks were yet to open for business,) all eyes were on Wema Bank as industry watchers expected the bank's management to fully register its presence in the South-west, and South-South regions, where it claims to have the largest chunk of its customers base.
However, barely two years of operation as a regional bank, the management of the bank said earlier in the month that it was gunning for a national banking licence, a development which industry watchers say signposts the imminent collapse of a regional banking mode in Nigeria. The bank said it is set to reapply for National banking licence following the prospects of N35 billion tier capital injections by the end of this year.
Managing Director/Chief Executive of the bank, Mr. Segun Oloketuyi gave the indication of a national licence appeal while presenting the operating results of the bank to the capital market regulators and operators few weeks back.
In a response to THISDAY enquiries, Oloketuyi said, "Regional banking is sustainable. However, it will be an easier model to run by newly licensed banks, going by our experience. Wema bank is a 67-year old institution that had set up a large structure to operate as a national bank. We have a large amount of assets and our risk-weighted assets are equally large. By regulation, a bank's capital must cover at least 10% of its risk-weighted assets. A bank with N400billion in risk-weighted assets is required to have at least N40billion in capital, but most banks are even targeting not less than 15% in Capital Adequacy Ratio
"In our own case, we certainly require more than N10billion (the minimum capital for a regional bank) to operate and meet the required capital adequacy ratio, given the current size of our risk-weighted assets. Our plan to revert to national status on recapitalization is to be in a position to put a good number of our assets lying waste in some parts of the country back to use.
"However, the strategy this time will be different. We are not going everywhere in the country. Our branch network will be greatly influenced by compelling business cases and in locations where we have competitive advantage."
Is Regional Banking Sustainable?
Banking industry analysts said by going for a national licence, Wema Bank has shown that regional banking is not sustainable in the country for now. A former bank chief who spoke on condition of anonymity said his conclusion was drawn from the failure of small capitalised banks, especially community and microfinance banks which found it difficult to break even in Nigeria.
Wema Bank is presently a commercial bank with regional authorisation; licensed to operate in two geo-political zones: South-south, South-west and the FCT. The bank has 131 branches spread round these 12 states and FCT.
Spokesperson for the bank, Mrs. Kemi Aina explained that "On the planned application for a national banking licence, the bank is not beating a retreat, rather, the bank believes that there are viable business opportunities in other zones outside our present area of authorisation and once we obtain necessary approvals and conclude the capital raising process, we can take advantage of these opportunities.
It is important to note that our initial application for a regional bank licence was to enable the then newly resurrected bank to start from its position of traditional strength, gain better expertise, build momentum and eventually take on a larger market space."
On the argument that regional banking is unsustainable in Nigeria, Mrs. Aina said the bank does not share the view. "No, we do not share this view. The regional banking licence is sustainable and we hope the licensing regime is here to stay."