By Udeme Ekwere   Monday, 13 Sep 2010

Analysts have said that the recent abolishment of universal banking model by the Central Bank of Nigeria may increase volatility in the Nigerian capital market.

The CBN had on Wednesday, drawn the curtains on universal banking in the country, in compliance with the statutory provisions of the Banks and Other Financial Institutions Act.

The apex banking regulator had said that the action would make commercial banks clear on their activities, while defining their businesses along commercial, merchant or specialised banking lines.

However, capital market analysts at Proshare Nigeria noted that the move might further heighten the instability recently recorded in the market.

The firm’s position was contained in a statement posted on its website and signed by the company‘s Managing Director/Chief Executive Officer, Mr. Olufemi Awoyemi.

According to him, ”The CBN’s directive to abolish the current universal banking licences, create new regional, national and international banking licences, impose International Financial Reporting Standards on the entire industry, establish new minimum capital requirements and bar commercial banks from proprietary trading, asset management, equity underwriting and general investment banking activities is simply the final act (dénouement) of Mr. Lamido Sanusi, in a bid to firmly stamp his ideas on the country‘s banking system.”

Universal banking is a system that allowed banks in the country to be involved all financial business transactions. This system gave them a kind of structure that allowed them to go into non-core banking transactions, which included their engagement in other sectors, where they did not have the required expertise.

However, Awoyemi, in the statement, noted that, ”The new banking regulations will spur the creation of new smaller regional banks, force internal restructurings in many of the major banks and unleash new competition for scarce consumer deposits. Local stock exchanges will also witness increased volatility during the next 90 days.”

The analyst noted that the regulations totally upend all the current bank market share projections, bank profitability assessments and structural competitive analyses of the Nigerian banking sector.

He added, “The implication of the move is that new regional banks will be licenced,” adding that banks that confined their activities to only two geopolitical zones of the country will pose significant challenges to the current national banks that operate in those zones.

According to Awoyemi, the directive will make local companies to move their accounts from the large national banks based in Lagos to the regional banks.

Source: The Punch