The Nation Newspaper

Tag: Depositors

  • Making ATMs serve depositors better

    Making ATMs serve depositors better

    Automated Teller Machine (ATM) is a key element of cash-less banking, which was introduced last year by the Central Bank of Nigeria (CBN). ATM is meant to ease certain banking activities. Rather than going to their banks, customers can make withdrawals using their debit cards at designated ATM points. But these days, it is not that easy as customers encounter problems such as poor network; system failure and long queues at ATM points. LUCAS AJANAKU writes on the need for banks to increase the number of ATMs to alleviate depositors’ sufferings.

     

    He had bandages on his head and hands. On seeing him, one would think he was a robbery victim.

    Alhaji Zakarau Kangiwa, 54, was not a robbery victim. His problem was caused by the failure of an automated teller machine (ATM).

    According to him, early this month, he travelled to Abeokuta, the Ogun State capital on business. Business over, he boarded his car for the journey back to Lagos. When he got to Ifo, still in Ogun State, his car developed a fault.

    He was directed to a nearby mechanic workshop by a passer-by. After examining the car, it was discovered that his alternator was faulty. He was told that the repair would cost him N16,000. He had only N6,000 and his ATM card. Confident that he could get some cash, he dashed into the premises of a nearby bank.

    “I was directed to a nearby ATM in Ifo. When I got there, the vault was empty. Since I don’t live in that area, I became worried, especially as it was getting dark. There was no one around. Another good Samaritan told me that the only place I could get another ATM is Sango-Ota. I quickly boarded a bus to Sango. When we got there, the bus ran under a stationery articulated vehicle,” he said.

    According to him, after the five occupants of the bus were rescued, they were taken to Ota General Hopital where they were attended to. “Pieces of the shattered windshield of the bus pierced my head and other body parts. The doctor carried out several minor surgeries to remove them,” he recalled, adding that if the first ATM had worked, he probably would have been saved the predicament.

    A London-based businessman, Felix Ilori, will not forget the experience he had with an ATM when he came to the country recently. Shortly after his arrival, he converted his hard currencies into naira, opened an account and got an ATM card. He travelled to Ilawe Ekiti in Ekiti State for the wedding of a kinsman. He exhausted his money on fuel, hoping to withdraw from an ATM. At Ilawe, he went to the only ATM around. He was disappointed.

    “When I got to the ATM point, I inserted the card only to be told my financial institution was not available. I tried it again and I got the same response. I was frustrated and my cousin saw it on my face,” he said. He was advised to go to Ado Ekiti, the state capital, which is about 25 minutes drive away. At Ado Ekiti, he got the same message. He would have been stranded if not for the assistance from his people.

    These are, but a few of the pains bank customers who use ATMs go through in the country. If it is not network, it is non-availability of cash for the machine to dispense to customers. At other times, it would be the refusal of the banks to load the ATMs with cash.

    Idimu Road, Egbeda in Lagos has no fewer than eight banks. Some of these banks have between four and six ATMs installed on their premises, but most times, it is only one of the ATMs that is loaded with cash. This leads to long queues at the only functional ATM, subjecting the customers to the vagaries of the elements – the sun and rain.

    Frustrated by the long queues outside the banking hall, customers who are even prepared to pay the bank charges that go with on-counter transactions, are not encouraged to do so because the halls are usually filled to capacity without any arrangement made for their comfort.

    Another problem with the ATMs is that they are deployed in cities and scarcely in rural communities. But this was not the case before the CBN rolled out a policy that saw to the removal of all off-site ATMs. Before then, there were quite some ATMs in strategic locations in the country.

    Justifying the rationale for the removal of ATMs from off-site locations, the CBN said one of the policies guiding the operations of ATM consortium (ATMC) is that the ATMC shall have the mandate to deploy ATMs at public places while the banks shall deploy ATMs only within their premises.

    The apex bank also said the banks were competing with the ATMC in the deployment of ATMs in public places, adding that a worrisome trend is the number of ATMs at the airports and hotel lobbies, which if unchecked could congest these public places. It added that in line with its policy on shared payments infrastructure by the industry and the need to respond to the rising demand for ATM services by the public, the CBN decided to license an additional ATM consortium.

    But with the full roll-out of the cash-less exercise, the apex bank has since rescinded this decision.

    But Deputy Governor (Operations), CBN, Tunde Lemo disagrees.

    Said Lemo:“There was no reversal. Recall that at the time, the CBN said banks should not put branded ATMs outside their banking premises in off-site, it was because then, when you get to some key locations, such as Hilton, you see 25 ATMs; virtually every bank is there and yet other areas are not well-served. So, we felt that instead of wasting resources, why not get licensed Independent ATM Deployers (IADS) to have those equipment there that will serve the industry. The IADs, then, were just three and so we had three in those important locations as opposed to having between 20 and 25 different machines, just to save cost. But recall that at that time, we did’t have a cash-less programme. We decided to look away from that to encourage banks to invest heavily in ATMs. So, it was the cash-less programme that made it unnecessary to do that and of course, we have since ensured that they were compensated for the change in policy.”

     

     

  • Protecting depositors’ funds from abuse

    The Central Bank of Nigeria (CBN) is taking extra measures to protect depositors’ funds in banks with Holding Company (HoldCo) structure. COLLINS NWEZE writes that the banking watchdog sees insider-related loan abuse as likely threat to the arrangement.

     

    SINCE the 2009 reform, there have been lots of activities in the banking sector. The activities include the

    overhaul of the risk management structures; adoption of 10-year tenure for bank chief executive officers; repeal of universal banking and the adoption of Holding Company (HoldCo) structure.

    HoldCo, a conglomerate formed for the purpose of holding controlling interest in several companies, enables a corporation to diversify its investments, manage other firms, and contribute to the growth of its subsidiaries in other sectors. Five banks have keyed into the HoldCo structure with four completing the process in November, last year. The banks that have adopted the HoldCo structure include FirstBank of Nigeria, Stanbic IBTC Bank, United Bank for Africa and First City Monument Bank. Union Bank is yet to complete the process.

    To curb excesses and insider abuses, the Central Bank of Nigeria (CBN) is watching closely the HoldCo structure. The CBN took the step to ensure that the lenders do not abuse lending privileges presented by the structure, which was introduced after the CBN set aside the universal banking regime in 2010 and gave banks the option to either divest all their non-banking subsidiaries and become pure commercial banks or form a HoldCo.

    The banks’compliance with CBN’s regulation on the Scope of Banking Activities & Ancillary Matters, No. 3, 2010 requiring the separation of commercial banking business from other financial services businesses led to the establishment of HoldCo.

    CBN Governor Sanusi Lamido confirmed during this year’s Renaissance Capital Investors’ Forum in Lagos that banks are restricted from lending to their HoldCos to protect shareholders’ funds from insider abuse. Any bank that violates the rule, he said, would have the loaned funds deducted from its shareholders’ funds as return capital.

    The thinking is that although the regulator has under the Bank and Other Financial Institutions Act (BOFIA) mandated the banks to adopt the structure, there is also need to monitor their operations to forestall abuse. The HoldCo structure allows commercial banks to be properly ring-fenced from the other non-commercial banking activities.

    CBN Director, Banking Supervision Mrs. Tokunbo Martins said should the HoldCos breach single obligor limits without the prior approval of the CBN, such loans would be regarded as impairment to capital, or deducted from the lender’s capital base.

    She said for the purpose of credit transactions, the rule covers banks’ related parties, listed as financial holding company (FHC), and other subsidiaries within the HoldCo structure.

    Also, credit transactions by the bank within the group would be treated as FHC lending to a bank within its group. Also, the bank should treat the loan as a liability, but credit by a bank to its FHC would be regarded as a return of capital and deducted from the capital of the bank in computing its capital adequacy.

    However, bank lending to subsidiaries within its group, especially where the credit is fully secured, would be assigned a risk weight of 100 per cent, otherwise it would be deducted from the capital when computing capital adequacy.

     

    What HoldCo entails

    The HoldCo, which will have a separate board, will own the bank and its subsidiaries as separate and independent entities, reporting directly to the board of the HoldCo. While some banks opted out of this structure for reasons favourable to them, few others believe it is the best way to go in their business while adding value to new and existing shareholders.

    According to the CBN, the review of risk weights assigned to some identified exposures is without prejudice to the risk management control functions put in place by banks to mitigate credit concentration risks. It is also in line with its risk-based supervisory agenda.

    Martins said the recent crisis in the banking industry highlighted several weaknesses in the system, key of which was the excessive concentration of credit in the asset portfolios of banks.

     

    Challenges before HoldCos

    The HoldCo structure adopted by some banks will face adverse tax implications, especially, excess dividend tax, tax experts have warned. Taiwo Oyedele, a chartered accountant, said based on the tax law, where the dividend paid by a company is higher than its taxable profit, the excess dividend will be subjected to 30 per cent tax.

    He explained that should a HoldCo receive dividend from its bank subsidiary, and then redistributes the dividend, it will be subjected to 30 per cent excess dividend tax, not withstanding that the subsidiary that earned the profit had paid 30 per cent income tax. Also, withholding tax at 10 per cent is always deducted before distributing the profit to the HoldCo. He said banks had previously faced the similar challenges under the universal banking model on their exempt income.

    “Where tax exempt income has been excluded from the determination of taxable profit, but forms part of the distributable profit available for dividend, this will result in the dividend paid being higher than the taxable profit,” he said. Oyedele said the problem will become more pronounced under the HoldCo structure since there will be at least one company between the bank and the shareholders.

    Also, the Managing Director, Partnership Investment Company Plc, Victor Ogiemwonyi, said banks that have adopted the HoldCo structure will have to contend with the burden of double taxation.

    Ogiemwonyi, who is also a Member of Council, the Nigeria Stock Exchange (NSE), said subsidiaries of banks that adopted the structure have to pay taxes as well as the quoted company. He said aside the challenge of taxation, the structure is in the interest of stakeholders. He said the HoldCo structure will increase earnings for investors and is also in line with the CBN’s policy boost transparency and accountability.

    But the management of FBN Holdings Plc has said the tax challenge has been handled. Its Chief Executive Officer, Mr Bello Maccido, said the HoldCos, at inception, faced a major concern over possible interpretation of tax statutes that would lead to the double taxation of dividends. There was also concern about the magnitude of transaction costs that would be incurred by the banks in responding to the change in regulations.

    “It was, therefore, necessary for HoldCos to seek mitigation of some of these costs through waivers and concessions from the regulatory authorities. It was very clear that without government’s intervention, the companies would have faced possible challenges in this regard,” he said.

    Maccido said the Financial Services Regulation Coordinating Committee (FSRCC) has created the platform for the HoldCos to table their tax and transaction costs problems to regulators and supported the idea of creating an industry working group.

    He said the Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, in concert with the Federal Inland Revenue Service (FIRS) team was instrumental to ensuring that the tax issues were heard and resolved in good time to meet the CBN deadline.

    He noted that the Securities & Exchange Commission, NSE and Central Securities Clearing System (CSCS) were receptive to discussions on ‘reduction of transaction costs’ for bank holding companies.

    Experts said the tax statutes, as at 2010, did not contain specific provisions for taxation of pure non-operating holding companies as envisaged by CBN. The tax issues that came up for discussion include: Avoidance of Double Taxation on Dividends Received by the companies, Minimum Tax, and Administration of Withholding Tax (WHT).

    However, a Council Member of Chartered Institute of Taxation of Nigeria (CITN), Ayodele Otitoju, said any tax resolution that does not involve the institute is not backed by law. He said taxation is legal and any action taken against its statutes will not stand.

    “The CITN should be party to that resolution. Any tax deduction not backed by law remains an illegal deduction and can be addressed in court. Any change to tax law should pass through the legislative process,” he said.

    However, Chukwuemeka Eze, a tax expert and lawyer, said taxing dividend from HoldCos amounts to overkill. He said it is only when the dividend is reinvested or transmitted into further ventures that it should be taxed. “The dividend can only be taxed if it is reinvested at a second venture; otherwise, it amounts to double taxation. The position of the law is that it is only when the money is reinvested, that it should be subjected to further taxation,” he said.

    Besides the taxation, analysts said managers in HoldCos also face other challenges. A banking analyst, Equity Research, at Renaissance Capital (RenCap), Adesoji Solanke, said as expected under this type of evolution, there is a lot of value moving around. However, he said it was too early to determine the extent to which value would be lost or created under this new structure, or the degree to which the need for new capital becomes more apparent or diminished post-deal.

    He said there were some challenges expected as the banks adopted new structures. For instance, since the HoldCo likely has a controlling interest in several corporations, he said management might have limited knowledge in the industry, operations and investment decisions of the controlled company. Such limitations, he said, might result in ineffective decision-making.

    Sylvester Okafor, a business Executive at Rockview Financial Services Limited, said there could also be a problem with a change of control. He said: “With a new reporting structure in place, former management reports to a larger group of shareholders and new board of directors even as it protects the interests of the subsidiary’s shareholders. Therefore, competing interests between management might result in contention and poor decision-making, which can negatively affect share prices,” he said.

    Okafor said minority shareholders might also face challenges with HoldCos, because while the HoldCos pay taxes on profits from their subsidiary companies, shareholders pay taxes on dividends received from them.

    He explained that with a new controlling shareholder, minority shareholders must pay more to maintain their previous shareholding and replace the directors. This change of control may cause contention between the shareholders and the HoldCos.

    “Additionally, many of the holding company’s investments may have unprofitable assets or business lines. If the holding company engages in similar industry sectors, management may face systemic risk, or conversely if the company is engaged in different industry sectors, the holding company may fall susceptible to several volatile market changes that make it difficult to mitigate risk. This can result in residual losses that the holding company may not have envisioned before purchasing the corporations,” he said.

     

    Which banks are involved?

    Already, five banks have keyed into HoldCo structure with four completing the restructuring as at last November. Already, FirstBank of Nigeria, Stanbic IBTC Bank, United Bank for Africa and First City Monument Bank have adopted the HoldCo sructure. But Union Bank is yet to complete the process.

    FBN Holdings has been listed on the NSE after delisting FirstBank of Nigeria Plc, transferring its shares to FBN Holdings. FBN Holdings comprises FirstBank of Nigeria Limited, FBN Capital Limited, FBN Life Assurance Limited, FBN Insurance Brokers Limited and FBN Microfinance Bank. FBN Holdings, the new entity, is organised along four major business groups, including commercial banking, investment banking and asset management, insurance and other financial services.

    The Managing Director, FirstBank of Nigeria Limited, Bisi Onasanya, said the new structure will present a better deal for its shareholders, especially as they got equal proportion of their shares in the FBN Holdings. He said the bank has off-loaded First Registrars and some other subsidiaries, while existing subsidiaries, including FirstBank, have become a subsidiary of the FirstBank of Nigeria Holdings (FBNH).

    Onasanya said the new structure would enhance its competitiveness, streamline operations across non-bank financial services and exploit opportunities for synergies among the subsidiaries.

    According to him, there is also the need to align and cluster similar or overlapping businesses under four broad business groups namely Commercial Banking, Investment Banking & Asset Management (IBAM), Insurance and Other Financial Services.

    Onasanya said under the new structure, existing shareholders of FirstBank have been migrated to FBN Holdings via a share-for-share exchange between the shareholders of FirstBank and FBN Holdings.

    Also, FirstBank’s shareholdings in each of the HoldCo subsidiaries and the associated investments have been transferred to FBN Holdings while FirstBank’s shareholdings in each of the IBAM subsidiaries have been transferred to FBN Capital Limited, also owned by FBN Holdings. However, the restructuring will not alter the beneficial shareholding structure of the FBN Group, but it would enable it to grow its franchise both within and outside its borders.

    The Stanbic IBTC Bank has also completed its transformation into a HoldCo structure with the delisting of the bank’s shares and listing of the shares of the newly formed Stanbic IBTC Holdings Plc on the NSE.

    Before this decision, Stanbic IBTC Bank had struggled all through this year, its worst in recent times. The bank opened with year-to-date negative return of 11.45 per cent as at November 22, 2012. Although Stanbic IBTC Holdings’ listing market capitalisation of N130.3 billion fell short of Stanbic IBTC Bank’s closing value of N137.81 billion, the HoldCo structure could form a major springboard for significant capital appreciation in the period ahead.

    Analysts said subsequent capital gains could impact on underlying values of shareholders, who had benefitted through the share restructuring process. Chief Executive Officer, Stanbic IBTC Holdings, Mrs. Sola David-Borha, said the HoldCo would consolidate the strengths and expertise of different business unit and enhance the group’s ability to drive future growth.

    “The HoldCo would guarantee significant benefits to shareholders, employees and customers. Under the new structure, Stanbic IBTC will be averaging the global network of Standard Bank Group, Africa’s biggest banking group in terms of assets and earnings, to which Stanbic IBTC belongs,” she said.

    David-Borha also said HoldCo structure is consistent with the group-wide approach of the Standard Bank Group, which would allow the various subsidiaries to call on the group-wide expertise of the parent model.

    She noted that the HoldCo would ensure that the commercial banks retail depositors were not exposed to the risks associated with the non-banking activities of others in the group, and that customers of Stanbic IBTC and its subsidiaries would continue to enjoy the services provided through the other subsidiaries by keeping existing lines of business, “and so the employee base would not be affected adversely.”

    The Managing Director, United Bank for Africa, Phillips Oduoza, said given the bank’s exponential growth and investments across Africa, it was beginning to derive significant values from these investments hence the decision to have a HoldCo. That decision, he said, would keep its entire bank and non-bank subsidiaries in the group.

    Under the new structure, a non-operating company to be listed and known as UBA Holdings Plc, would become the parent company of three intermediate holding companies namely; United Bank for Africa Plc, UBA Africa Holdings Limited and UBA Capital Holdings Limited.

    The UBA, holds the Nigerian commercial banking businesses, including the bank’s branch in New York, UBA Pensions Custodian and UBA FX Mart; UBA Africa Holdings Limited holds and oversees all the African commercial banking businesses, excluding Nigeria, while UBA Capital Holdings Limited holds all the group’s investments in non-commercial banking businesses.

    Chairman, FCMB, Jonathan Long, said the decision to form a holding company was in line with CBN’s directive to banks to separate the non-banking subsidiaries from commercial banking. He added that the bank decided to adpot this arrangement, so that the non-banking businesses within a holding company would deliver and unlock value to the shareholders.

    He said the new arrangement would see the migration of shareholders of FCMB to the Holdco, via a share for share exchange, sale of other disposable subsidiaries and transfer of permissible non-banking subsidiaries and investments from the bank to the Holdco.

    According to him, the companies that would be transferred to HoldCo include: FCMB Capital Markets Limited, CSL Stockbrokers Limited, CSL Trustee Limited, First City Assets Management Limited, Legacy Pension Managers Limited and the bank’s investments in Samba and Kili Private Equity funds (managed by Helios Investment Partners).

    The Group Managing Director, FCMB, Ladi Balogun, said the arrangement was done in such a way that it would benefit the shareholders, stating that they should continue to support the bank in its efforts to deliver high returns.

     

     

    Shareholders’ views

    The Co-ordinator, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said the HoldCo structure remains a good arrangement, especially it is what the CBN wants. He said the shareholders have no choice because they cannot go against the will of the regulator, but can only watch to see how the structure pays off.

    “I don’t have any problem with the structure once there is food on my table. We have embraced the structure provided our dividends are paid and corporate governance is adhered to,” he said. He said in running the HoldCos, banks are not expected to go against the Bank and Other Financial Institutions (BOFIA) Act.

    The National Co-ordinator of Nigerian Shareholders Solidarity Association (NSSA) Sir Sunny Nwosu said the structure will protect shareholders’ value and lead to increased capital market valuations.

    Also, Farouk Umar, president, Association for the Advancement of the Rights of Nigerian Shareholders (AARN), said the restructuring will result in greater value and provide each entity with easier access to long term capital to finance growth.

     

  • NDIC and depositors

    NDIC and depositors

    •Payouts to depositors was long awaited, but it was, in most instances, too little and too late.

    To the Managing Director of the Nigeria Deposit Insurance Corporation (NDIC), Alhaji Umaru Ibrahim, the corporation may well be on course to bringing the saga of failed banks to a closure. Speaking at the 24th Enugu International Trade Fair, he claimed that the corporation had paid N90.13 billion to depositors of 48 failed banks as at December 2012, out of which over N10 billion was paid in 2012 alone. Another N2.50 billion was said to have been paid to depositors of the 103 closed micro finance banks (MFBs). The shareholders of the defunct Alpha Merchant Bank, Nigeria Merchant Bank and Pan African Bank (in-liquidation), got a largesse in the cumulative liquidation dividend of N373.04 million, N620.0million and N293.0million, respectively, during the period.

    For the hordes of frustrated depositors and shareholders it is, no doubt, a case of being better late than never. Unfortunately, the corporation failed to state the amount outstanding in favour of the depositors, which would have provided a basis to evaluate its performance.

    However, the corporation still deserves some credit for pushing relentlessly to bring the unfortunate saga to a closure.

    But the question, of course is – what kind of closure? The question is pertinent because the banks in this category were those that actually had their licences revoked by the Central Bank of Nigeria (CBN) between 1994 and 2006. We consider it unimaginable that a class of depositors would have to wait for nearly 18 years to get their deposits refunded to them. How will the NDIC compensate those that have died? And did the corporation make adjustments for the factor of inflation in the final payment?

    The above, however, nowhere compares to the fact that a definite date is even far from set for closure to the saga.

    No doubt, the larger portion of the blame would go to the intransigent shareholders who tied down the banks’ liquidation process through court actions. The managers who ran the banks aground would also share in equal measure. Litigation of course meant that the NDIC – even if it wished to – could not proceed with the winding down process until the cases were disposed of. Unfortunately, the NDIC itself seems to have been ill-served by its own tardy bureaucracy soon after some of the cases were decided.

    The entire saga cannot but bring to mind the crass delinquencies that typified the era. This was no doubt compounded by the stark inability of the regulators to come to speed with the dynamics of the period, the result of which the process of banking consolidation became an avenue for some smart Alec operators to prey on the system. We saw instances in which capital issues were aborted after which the issuers vanished into the impunity-suffused atmosphere of the era. Till date, no steps were taken by the regulatory authorities to get the issuers to refund prospective investors their money, not to talk of the issuers and their cohorts being brought to book.

    If only for the sake of the industry and the investing public at large, an early resolution of the failed banks saga has become imperative. Settling the depositors is however only one of two-parts to the closure; the other part is for the authorities to revisit and punish the iniquities of the era. Without both, there can be no talk of a closure.

  • Depositors get N73.5b ‘liquidation dividends’ from NDIC

    The Nigeria Deposit Insurance Corporation said it had paid N73.55 billion as liquidation dividends to 250,119 depositors as at December 31, 2011.

    The corporation made this known in its 2011 Annual Report, saying that the payments were made to 11 banks out of the 13 liquidated banks within the period under review.

    NDIC said that it declared additional liquidation dividends to depositors of Cooperatives and Commerce Bank, Commercial Trust Bank, Commerce Bank and Ivory Merchant Bank.

    It said the capital adequacy ratio of commercial banks rose from 4.06 per cent in December 2010 to 17.71 per cent in December 2011.

    It added that the banking industry’s capital base was strong during the year under review as equity capital decreased by 11.81 per cent from N249.71 in December 2010 to N220.21 billion in 2011.

    NDIC said that banks’ reserves with the Central Bank of Nigeria increased to N2.266 billion in 2011 from N179.89 billion in 2010.

    The report, according to the News Agency of Nigeria, stated that adjusted shareholders funds increased to N1.93 trillion in 2011 from N312.36 billion in 2010.

    It said that the improvement in the banking industry’s capital adequacy was primarily due to the activities of the Asset Management Corporation of Nigeria (AMCON).