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APRIL 30, 2007 VOL. 21. NO 3 |
A Growing Confidence
By Udo Onyeka Since the introduction of reforms in the banking sector by the Central Bank of Nigeria (CBN), an aspect of which is the jack-up of the minimum capital base of all banks operating in the country, from two billion naira to N25 billion, thereby reducing the number of banks from 89 to 25 and a combination of other regulatory policies, the local banks seem to have sufficiently built a huge confidence that is transforming them into global players by partnering with some of the world’s best financial institutions. Notedly, the outstanding mark made in the short post-reform era in the sector in particular and the country’s economy at large has, indeed, opened up the sector to international financial institutions. For instance, as a result of the reforms, there is a steady increase in Foreign Direct Investment (FDI), by more than $700 million, just as there is greater confidence of both local and foreign depositors and institutions in the banking system. Perhaps, it is this confidence reposed on the sector and indeed the entire economy that motivated five international financial institutions to agree to recently invest the sum of $161million (N20.5billion) in Intercontinental Bank Plc. The Source was told that the foreign firms are to invest $161million of convertible preferred equity into the bank. The institutions include: Vectis Capital, EMP Africa Fund, AIG Global Emerging Markets Fund, L.P.R Merchant Bank and RICO. It was gathered that the institutions would not only provide capital but also operational and strategic assistance to Intercontinental Bank. According to a statement from the bank, the funds will be used in the bank’s strategic growth plan. “They are demonstrating a high degree of confidence in the bank, its growth strategy and overall Nigerian banking market,” the statement said. The transaction was said to have been arranged by a New York-based Investment outfit, Nova Capital Partners, LLC. According to the Group Managing Director of Intercontinental Bank, Dr. Erastus Akingbola, “We are extremely pleased to have this investment from such a renowned group of international investors. These organisations will bring their global capacity and financial leadership to bear on the operations and performance of Intercontinental Bank, in its drive to excel on the stage of global banking.” As part of the business agreement, the transaction is subject to certain conditions, including regulatory and administrative approvals. Vectis, one of the new investors, is a leading emerging markets private equity firm. It manages funds targeting both South eastern Europe and the West African region. Vectis, a well known global player is based in Athens, Greece. It invests in rapidly growing companies and in variety of industries. Vectis, along with the other preferred share investors, will be represented on Intercontinental Bank’s board and are expected to utilise their extensive international business network to add value to the bank. EMP Africa Fund II is the largest of the five under the management of Emerging Capital Partners, a leading Pan-African private equity fund manager with offices in Washington DC, Johannesburg, Tunis, Casablanca, Abidjan and Douala. Similarly, the decision of the International Finance Corporation (IFC), the private sector arm of the World Bank Group, to invest $50 million in the United Bank for Africa Plc to boost the bank’s share offer is said to be as a result of the renewed confidence of the international business community and investors in the banking sector. IFC and UBA signed the $50million convertible debenture that would be converted into an equity as well as give IFC a two per cent equity stake in the bank. The equity stake will also allow IFC have a seat on the board of UBA. Instructively, this is the first time IFC is making direct equity investment in any Nigerian bank. The Source learnt that since the deal was sealed with IFC, more investors, especially foreign ones, have indicated interest in the UBA share offer. According to a UBA source’s “the expected coming of IFC as an investor through the convertible debenture stock appears to have increased investors’ confidence in the bank to the effect that following this development, its vision of becoming a pan-African financial institution would be realised faster. On his own, Group Managing Director, UBA, Tony Elumelu, said “This is a dream come true. Apart from the financial aspect of the deal, the strategic alliance will also enable UBA to leverage on the IFC’s strong corporate governance and robust risk management platform. This transaction reinforces our relationship with IFC and our common commitment to developing the financial markets in Nigeria and the rest of Africa. We hope to make this strategic partnership a success story which should also translate into increased shareholder value for our investors.” The IFC’s Country Manager for Nigeria, Solomon Adegbite-Quaynor, had earlier explained that the $50 million loan was part of a $75million financing and advisory services package which the IFC board approved for UBA. He said that with the strategic alliance, IFC would provide advisory services in UBA’s regional expansion, co-financing large infrastructure and industrial projects, helping to develop mortgages, insurance and structured finance businesses. “IFC will also advise the bank on establishing a credit bureau, developing its retail business, financing micro, small and medium enterprises, corporate governance and developing new classes of fixed income capital market products” he said. Apart from Intercontinental Bank and UBA, foreign financial institutions having been making in-roads into local banks operating in the country for strategic alliances. Infact, to buttress that Nigeria banks have shored up their image in adhering to the best practices was when the CBN announced that international financial institutions foreign reserve must partner with local banks. So having noticed huge opportunities and sanitisation of the sector by the regulatory bodies, many acclaimed international financial institutions came calling, seeking partnership with the local banks. First, it was J.P Morgan Chase of United States of America (USA), which partnered with Zenith Bank Plc. J.P Morgan is a leading global financial services firm which boasts of assets worth $1.2 trillion and operations in more than 50 countries. First Bank of Nigeria Plc equally entered into an alliance with the world’s number one bank, HSBC; the same with IBTC Chartered Bank Plc, whose strategic alliance is with Credit Suisse (formerly Credit Suisse First Boston). Others include UBS Gobal AM with UBA and Merill Lynch with Union Bank of Nigeria, among others. With these strategic alliancies, analysts say, Nigerian bank would soon begin to take on big ticket projects. The Source gathered that some banks have already started taking on big projects. For instance, UBA provided the seed capital of N5 billion as loan to the Cross River State government, which was used to pay Julius Berger to start construction work at the Tinapa Resort. Also, Zenith with five other banks supported the Murtala Mohammed Airport Terminal’2’ project championed by Bi-Courtney with N20 billion. The other banks are Access, GT Bank, First Bank of Nigeria, Oceanic and FCMB Plc. Again, this growing confidence has led to the acceptance of Nigerian banks opening up subsidiaries in other countries. The latest in this direction was the commissioning of Zenith Bank’s UK Ltd, which subsidiary is wholly owned by Zenith Bank Plc. Apart from this, other Nigerian banks have gone off–shore, making in-roads into other West African countries such as Ghana, Gambia, Sierra Leone as well as other African countries such as South Africa. According to some financial analysts, for any Nigerian bank to pass the rigorous approval process of the Financial Services Authority of UK, considered as the strictest financial regulatory authority in the world, means that the world’s financial sector has begun to reckon with Nigeria. |
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