The Nigerian Banking industry
Some 11 years ago, there was a consolidation exercise in the banking industry in Nigeria, initiated by the then CBN governor, Charles Soludo. It was announced in Soludo’s thirteen point agenda that there would be a 25bn recapitalization exercise of banks, and in order for the banks to achieve this new paid up capital, there would be a consolidation of banking institutions through mergers and acquisitions. It was further revealed that the capitalization and consolidation exercise were to be completed by 31st December 2005, and any bank who fails to meet the paid up capital by end of December 2005 or which remain un-sound/marginal would be liquidated by January 2006”.
Let us now go down memory lane. A significant part of the sweeping financial sector reforms enunciated in the famous address of the Governor of Central Bank of Nigeria, Professor Charles soludo in July 2004, was the marching order given to shore up their capital base to 25 billion naira. Onre of the options given to banks in their quest to meet up their demand was to access the capital market for funds. Many banks that were not thinking of being listed in the past had to rush to the stock exchange. The driving force of this bank consolidation was to ensure that the country had a sound financial system. The aim was to forestall those wobbling from carving in to distress position. The central bank’s decision was that banks that were wobbling should be given a lifeline; making it possible for them to survive so that depositors would not be in agony.
The relevance of the stock exchange to a company’s access to funds is a secondary one. A company does not obtain funds from the stock exchange but the existence of a free market in securities makes it easier to obtain them from Investors. The Nigerian stock exchange provides a market for companies’ shares and debentures and for certain other securities. It thus allows the transfer of these investments from one owner to another. The activity of the stock exchange leads, amongst other things to a great deal of investor interest in share prices. The flurry of the activities that started on the stock exchange in that 2004 until 31st December 2005 produced a little more than a score of banks with the stipulated capital requirement. Even for the banks who went for the option of merger and acquisition, the stock exchange was handy to play the role of a good umpire.
The Nigerian stock exchange played the major role of bringing banks and various investors together and these investors were able to put new long term funds into the banks. Another role played by the stock exchange was to allow some banks to take over other banks by issuing new shares as the purchase consideration. The acquiring banks therefore used their market status to finance expansion through acquisitions.
The Nigerian stock exchange again facilitated the purchase and sale of “second hand” securities during the consolidation exercise. The stock exchange’s requirement for the quoted banks to publish their account enabled the investing individuals and companies to assess more accurately the risk in picking up the banks’ shares as this requirement provided current assessment of the value of the different banks and their assets.
The Nigerian stock exchange also played the role of ensuring that the banks complied with the due process exercise which quoted companies were expected to comply with in relation to the dispatch of share certificates before listing of shares offered through initial public offerings (IPO). The stock exchange could sanction any erring bank by refusing to list its shares if there was any indication that the bank did not dispatch the investors’ share certificates.
An erring bank may lose chances of winning the stock exchange annual presidents’ merit award, assuming it has met virtually all the criteria. The bank would be regarded as negligent in its handling of shareholder’s affairs. The Nigerian stock exchange always endeavours to place premium on Investor protection.
Some of the remote role played by the Nigerian stock exchange during the banks’ consolidation exercise which can be viewed in terms of responsibilities of the stock exchange include: Providing facilities for the marketing of securities and by so doing creating a continuous market for security trading and allocation of scarce capital, establishing and enforcing regulations for security dealings (for example, through the requirement to publish a prospectus for any public issue) and publishing official daily list of securities with indications about prices and amount of dealings available.
Tycho Press.,Stock Market Investing for Beginners: Essentials to start investing successfully
Lodewijk Petram., Lynne Richards.,The world’s first stock exchange (Columbia business school publishing)