Nigerian banking industry has witnessed tremendous changes in the recent years to make the banks much stronger and reliable.
This is a result of the financial restructuring program carried out by a few top banks in order to resolve issues pertaining to money.
One of the most recent and rather successful campaigns for this same issue is the recapitalization exercise. Before we get into pros and cons of this program, let’s know the state of banks in Nigeria before this came into picture.
The history of microfinance banks as well as financial institutes in Nigeria was the one that is in need of marketing orientation. Along with this, the absence of regulatory framework, indiscriminate issuance of bank licenses and as a result, the unhealthy competition led to unethical marketing practices and lack of ability for financing the economy as a whole.
The small sized banks that had to maintain expensive headquarters, cope up with increasing investment in software and hardware, and bear other fixed and operating costs; found all this difficult to overcome. This of course affected the cost gap between deposit and lending, while putting pressure on the banks to survive. Thus, recapitalization or consolidation was the only seemingly helpful option.
Consolidating banks and their outlets like ATMs has been instrumental in correcting these issues related to the financial sector. Along with this, it has also deters deficiencies and accelerated growth. It has made banking cost efficient by helping larger banks remove the excess resources invested in data processing, personnel, marketing, or overlapping branch networks.
In addition to this, the efficient banks acquired the small ones that took excessive resources. While overcapacity may be a potential problem, there is exceptional room for improvement in cost cutting through mergers. Hence, consolidation of banking in the country may be defined as a horizontal reduction in the number of bank offices, and an increased vertical depth in concentration of services.
While this plan does come with an attractive package at the onset, experts believe that this shiny program may not hit gold for most. They believe that it would be more theoretical than market driven. It is also believe that this policy lacks critical consideration of the realties on ground, and could be a pre-empted way of the authorities to take over certain groups and financial institutes that may have been the culprit of financial issues in the past.
While both pros and cons of this policy are strong, it is likely that this is here to stay as it also offers a perspective and innovative approach to banking.
This is a guest post by Onyeka Austine
Onyeka Austine writes for VConnect – a local search engine and information service provider in Nigeria.