By Stanley Opara

Tuesday, 19 Oct 2010

Analysts at Financial Derivatives Company Limited have said the new banking regime will result in fierce competition in the sector.

According to them, increased competition, especially at the regional level, is expected.

The competition in the other banking categories, they added, would also be fierce in the medium- to long-term when new entrants settled in and regional players developed capabilities to compete at those levels.

In the company‘s monthly economic release made available to our correspondent on Saturday, the analysts said superior customer service and the ability to churn out innovative products would be critical success factors for players.

They maintained that the segregation of banking industry would significantly lower the barriers of entry for intending parties that want to play in the banking sub-sector. They added that this could make the industry unattractive for the already existing players, as the low barrier would likely attract new participants.

From the revised banking model released by the Central Bank of Nigeria, capital requirements for the specified banking licences are N10bn for regional banks, N25bn for national banks, and N50bn for international banks.

”The CBN has drawn the line between core banking business, propriety trading and investments in hedge funds and private equity firms. This delineation of banking and non-banking services is expected to foster greater specialisation. “However, bank-holding companies generally may have a higher funding cost, meaning that some banks may lose revenue as they could be forced to spin off non-bank subsidiaries,” FDC analysts explained.

The CBN, they said, believed that the segregation of the banking industry would cause banks to focus on their lending activities by granting credit to critical sectors that had continued to be starved of credits.

Granting credit to these sectors, especially agriculture and manufacturing, the company added, was expected to impact employment and real Gross Domestic Product growth.

”Agriculture accounts for over 40 per cent of GDP and remains the largest employer of labour. Improvement in agriculture production due to enhanced credit disbursement may lead to self-sufficiency in food production and increased farm produce exports,” it explained.

 

Source: Punch