By STANLEY OPARA

Sunday, 6 Feb 2011

The need to institute good Corporate Governance code in the financial system cannot be isolated from effective risk management structure. With the regional banking model being projected as instrument capable of mitigating banks’ exposure to risks, STANLEY OPARA writes on possibilities under the model

 

Beyond a board and a management that are properly constituted, the success of any bank, especially in this era of huge liquidity challenges, is tied to its ability to identify environmental strengths and weaknesses.

It is, however, important and strategic to have a true picture of the bank’s scope vis-a-vis the forces of demand and supply in its immediate business environment.

Hence, the need to check the tendency to bite more than could be chewed.

In a bid to entrench this idea in the financial system, the Central Bank of Nigeria, last year, reversed the universal banking model bringing to bare a revised sculpt. This move, however, was a conscious and calculated one by the regulator.

For the CBN, it was not another way to show it was working or show its appreciation for foreign financial practices. It was a tailor-made model targeted at addressing weaknesses and stretches in the country’s financial system and put operators in the right pedestal.

No doubt, the regulator wanted the continuous existence of some banks, which had hitherto stretched their cost obligations under the guise of remaining a common umbrella – ‘the universal banking club.’

Amid these considerations of the apex bank, events in recent times had shown the profuse love of Deposit Money Banks for international banking licences. One bank that had set the ball rolling as far as the regional banking model is concerned is Wema Bank Plc.

Experts, however, have attributed the bank’s association with the model as healthy and a better way to face the realities on ground in the country’s financial sphere.

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

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

The chief Executive Officer, FDC, Mr. Bismarck Rewane, in one of the company’s monthly economic releases, had said that the competition in the other banking categories would also be fierce in the medium- to long-term when new entrants would have settled in, with regional players developing capabilities to compete at those levels.

To these analysts, superior customer service and the ability to churn out innovative products will be critical success factors for players shrugging in the new era.

The Group Managing Director/Chief Executive Officer, Wema Bank, Mr. Segun Oloketuyi, has, however, said that the new model would give room for improved infrastructure and enhanced electronic banking platform following the economics of capacity and strength.

This, he added, would open new vistas to develop more effective banking products, improved risk management structure and recovery, aid repackaging of existing products and services with improved features and benefits for competitiveness, and subsequently restore banks to the path of profitability.

In allaying the fears of some banks that might not want to be termed regional, Oloketuyi said although regional banks offered physical operations in a defined geographical area alone, the banks could offer the same bouquet of banking services like every other bank.

“In Nigeria, a regional bank can operate in a minimum of six and a maximum of 12 contiguous states Those states must be within not more than two geo-political zones, as well as within the Federal Capital Territory. For us, this is well thought-out and strategic,” he explains.

He added, “We have greater proportion of our infrastructure in the target South-South and South-West market. Over 90 per cent of our branch network is in this region. The region accounts for 98.7 per cent of our total loan portfolio. A total of 137 out of the bank’s branches (88.96 per cent) are located where we have chosen to operate.

“This shows we have comparative advantage in this Region.”

Today, a lot of banking businesses are conducted outside the walls of a bank. This make banking unlimited by location or distance. Experts, have, however, explained that with the required technology deployed, banks seeking to go regional would not have problems covering areas gap where they intend winding down operations.

The Wema Bank boss, also said that corresponding banking relationships with other banks would play a major role to bridge the gap for banks nursing some form of fear going regional.

“What an average customer wants is quality service delivery. The quality of service will more than compensate for the spread of operations, and in turn, there will be improved productivity and profitability. Opening of more branches in our areas of operation becomes necessary, and that calls for more hands in those new branches to drive the business,” Oleketuyi explains.

He noted that going regional would not indicate demotion and would not, in any way, make a bank a state-owned enterprise.

For instance in Wema Bank, the current shareholding structure is: Odua Investment Company (South-West States), 10 per cent; a core investor, 40 per cent; and others (no single shareholder holds more than 1 per cent in this category), 50 per cent.

Oloketuyi said, “A regional bank can offer the same bouquet of banking services as a national or international bank. For Wema, we have greater proportion of our infrastructure in the target South-South and South-West market.

“The region accounts for 98.8 per cent of our total loan portfolio and 96.9 per cent of our deposits as at October 2010. A total of 137 out of the bank’s 154 branches (89 per cent) are located where we have chosen to operate. We have comparative advantage in this region.”

It is believed that regional banking will serve to encourage banks to go back to achieving a greater degree of “handshake” with their host communities. Consequently, banks will be better focused, more knowledgeable, and more involved with their host communities. This level of interaction will definitely raise service level and ultimately improve the lot of the communities.

However, experts believe that opting for such licence will enable banks to refocus their business in order to provide better services where they have comparative advantage rather than dissipating so much efforts and achieving little.

Source: Punch