Financial analysts in the country have said more banks will soon convert to a holding company (HoldCo) structure due to the many restrictive policies of the Central Bank of Nigeria in the sector.
Recall that the Central Bank of Nigeria recently granted approval to Guaranty Trust Bank, Sterling Bank and Access Bank Plc, to convert their operations to holdco.
The three will join FBN Holdings, Stanbic IBTC Holdings and FCMB Group who were already operating holdco structures.
A holding company is a company set up for the purpose of making and managing (for its own account) equity investment in two or more companies, being its subsidiaries, engaged in the provision of financial services, one of which must be a bank.
According to the Head of Financial Institutions Ratings, Agusto & Co, Mr. Ayokunle Olubunmi, if the present tight monetary policy regime continues, most banks would start considering adopting holdco structure.
According to him, with the way the CBN regulation is going, the income banks get based on their traditional banking licence is getting limited. “I see more banks scaling some of their subsidiaries and going into holdco in the medium term.
Moreover, the industry has become more competitive as more banks are being licensed, he added.
“But if you now have a holdco structure, it enables you to venture into non-traditional banking businesses such as insurance, asset finance, among others,” he said.
“Also remember that another major advantage that banks have is that they have national spread. For instance, a bank that is diversifying into insurance doesn’t need to be worried about how to reach your customers. Obviously, since they have enough capital, they can attract the right talent,” he stated.
On his part, the Head of Research, United Capital, Wale Olusi, who anticipated that more banks would be adopting holdco structure, said though the CBN regulation is more, banks in the country are trying to move in line with changes in the sector.
“Most of them want to do fintech, asset management, among others. They have the option and some of them have taken it. They can also decide not to do it again in the future.”
The Chief Executive Officer, Sterling Bank Plc, Mr. Abubakar Suleiman, had said the bank’s desire to operate as a holdco was driven by its plan to spin off its non-interest banking window, which became operational in January 2014 into an autonomous entity.
He had said the bank believed the structure would incorporate efficiencies around operations and financing efforts to support the individual businesses in reaching full potential through increased portfolio diversification and improved efficiency among others.