By OKEY ONYENWEAKU
The relatively immense benefits accruable from a Holding Company structure is attracting many-a-Nigerian bank to tinker with their structures.
According to experts, the holding company structure helps a firm not only to protect its assets but also reduce risks.
Minimising tax, central control and concentration of property assets have also been fingered to be part of what firms crave in voting for the more flexible arrangement.
Achieving growth flexibility, development and succession planning have also been known to be better suited to the structure of Holding companies.
These attractions among other benefits have suddenly become trendy in Nigeria especially among the banks.
A holding company the experts say is a corporation that owns a controlling interest in one or more banks. However, the technical snag is that the Holdco does not itself offer banking services.
No doubt, more financial institutions seem to be in a hurry to join the likes of First Bank of Nigeria Holding Company and Stanbic IBTC and group to become holding companies.
A few days ago, the duo of Access Bank and Sterling Bank hinted that they already have approvals to become Holding Companies. These two financial institutions made their intentions public after feelers emerged that for about a month now, the lead drivers of GT Bank had been holding emergency board meetings to perfect its Holdco plans.
Indeed, the growing consensus today is that adopting a Holdco structure has caught on as the more beneficial management structure in the industry as several tier 1, 11 and 111 banks have presently gone back to the drawing board to perfect their new plans and get them running.
The example of Sterling Bank
The Chief Executive Officer of Sterling Bank Plc, Mr Abubakar Suleiman who announced that the bank has obtained the Central Bank’s approval in principle to enable it to restructure as a Holding Company said the Bank’s desire to operate as a Holding Company was driven by its plan to spin off its Non-Interest Banking window which became operational in January 2014 into an autonomous entity.
A disclosure notice sent to the Nigerian Stock Exchange said the bank believes that the proposed structure incorporates efficiencies around operations and financing efforts that will support the individual businesses in reaching full potential.
Concerning increased portfolio diversification, the bank said the Holding Company structure enables the Non-interest Bank and other non-core businesses achieve greater results based on focused management of the distinct businesses. Similarly, it said there will be improved efficiency resulting from the consolidation of key functions such as Compliance, Risk Management and other support functions, yielding improved prospects for individual business growth.
“Going into the Holding Company structure, our desire is to entrench our business model premised on impact capitalism where we believe that private sector capital and market-based tools will offer the best types of solutions to Nigeria’s most pressing social and environmental challenges,” the bank said.
“The Holding Company gives us the structure to explore our business model further,” the statement added.
The Access Bank perspective
Group Managing Director, Access Bank Plc, Mr Herbert Wigwe on his part said the proposed Holdco structure would enable the bank to further accelerate its objectives around business diversification, improved operational efficiencies, talent retention as well as robust governance.
He made it clear that the restructuring and strategic acquisitions across the continent will result in a more connected African banking network that builds on Access Bank’s existing foundation and enhances its value proposition to stakeholders, including customers and employees.
In a regulatory filing at the stock market, Access Bank stated that it has received CBN’s Approval-in-Principle to restructure to a Holdco. The bank has also received regulatory approvals to commence operations in Mozambique under the name Access Bank Mozambique, S.A. (Access Bank Mozambique).
Access Bank also announced that its subsidiary, Access Bank Mozambique, has entered into a definitive agreement with ABC Holdings Limited(ABC Holdings), a wholly-owned subsidiary of Atlas Mara Limited (Atlas Mara) to acquire African Banking Corporation (Moҫambique), S.A., (BancABC Mozambique) for cash, in a combination of definitive and contingent considerations.
With its strategy of delivering a robust banking operation which connects key African markets, Access Bank has also entered into a definitive agreement with GroCapital Holdings (GroCapital) to invest into Grobank Limited over two tranches. The first is an initial cash consideration for a 49 per cent shareholding and subsequently increased to a majority stake in the second tranche. Both tranches are subject to various regulatory approvals and the overall transaction is also subject to Grobank’s shareholder approvals.
GroCapital, whose shareholders include the Public Investment Corporation – which doubles as Africa’s largest investment manager, and Fairfax Africa Holdings – a leading global investor, will retain an existing but diluted shareholding in Grobank as part of the outlined transaction terms.
The push from GTBank
The Group Managing Director of GT Bank, Mr Segun Agbaje recently disclosed that the tier one bank was shopping for a helmsman
following on the plan to convert to holding company (HoldCo) structure by the first quarter of 2021.
He said the shareholders will benefit from the economies of scale of a larger banking network, including the associated cost efficiencies arising from the bank’s federated information technology system and replication of investments in innovative products across a wider range of markets.
Speaking on the succession plan, Agbaje explained: “What we are looking for now is a Managing Director for Guaranty Trust Bank Nigeria. The process has started and I have always told people that we have five Executive Directors and so all of them are going through a process at the moment.
“We are working with a consulting firm in the United Kingdom. We are looking at what we think the future would hold and what we think the Nigerian banking industry would look like. At the end of the process which would end at the beginning of the fourth quarter, we should have a Managing Director for GT Bank Nigeria. So, we are on track. So, succession to GT Bank Nigeria is well under control”.
The bank’s CEO said the arrangement for the HoldCo was going on very well. He explained that the bank has been working towards securing all the necessary regulatory approvals such as from the Central Bank of Nigeria (CBN), the Securities and Exchange Commission (SEC) and other regions.
“In terms of the work we are doing on it, the operational model for the HoldCo is set. You will have the centre, which is the controlling or holding company and you have a couple of business units. Operationally, what you would see is that in terms of HoldCo, we are going to do a one for one exchange, which means that the shares of GTBank would move up to the HoldCo’’.
In terms of the bank, operationally we are going to split it into three: You will have Guaranty Trust Bank Nigeria; Guaranty Trust Bank East Africa, almost operating as a region and you will have Guaranty Trust Bank West Africa operating as a region.
“We would then have other business units. The business unit we are looking at commencing with would be Asset Management, a Pension Fund Administrator (PFA) and a payment company. Hopefully this week, we would put in our application for final approval for the payment.
For the Asset management and the PFA, we are going through due diligence on an entity as we speak and if we close, they would be together. I believe that we would be ready to go live with the HoldCo, hopefully by the first quarter of next year. Things are going well; we have all advisers working and we are working on the operating model”, he also added.
Even as these developments continue apace, the Chief Executives of the three banks under reference have assured their shareholders that they would continue to deliver on their promises.
Analysts believe that Holdco arrangement is a way for owners of businesses to remove the toga of remaining in a narrow area of business and diversify and expand into other areas while exercising control and have an oversight function over their subsidiaries.
Commenting on the issue, Managing Director/ Chief Executive of Heritage Capital Markets limited, Chief Chidi Ajaegbu told Business Hallmark that more banks are becoming Holding Companies as a back door gambit of sorts to revert to the universal banking system which was truncated by the Sanusi Lamido Sanusi regime as Governor of the Central Bank of Nigeria (CBN).
The former ICAN boss said the Holdco system, however, allows the owners of the banks some flexibility to diversify into other areas of business other than banking.
“First and foremost, it gives them the flexibility of diversifying. You know as a bank you cannot own subsidiaries. HoldCos can now own a bank, own registry and other subsidiaries because it gives them the flexibility to get into a whole lot of other things. Besides, as the pioneer chairmen exit their mainstream banking outfits, they sort of need a structure around which they could continue to oversee what the bank is doing.
“So, most Holdco offices would now be in charge of outlining the strategic direction of the banks, oversight functions between companies, and carrying out other wide-ranging oversight functions, including probable auditing as against compliance; focusing more on auditing and compliance and protecting the interest of the shareholders and at the same time have a relationship that helps them have oversight on the bank.
So, in addition to having to focus in a very narrow area of oversight function and strategy, because you know that as a bank you cannot diversify into other areas, but the Holdco arrangement gives you the latitude to have oversight of the banks and also the flexibility to go into other areas. It is a back door approach to reverting to that universal banking system,” Ajaegbu explained.
In his view, Managing Director of BIC Consultancy limited, Dr Boniface Chizea said,
“I think they are becoming Holding Companies to ensure better control. It helps you to have a board in which all other subsidiaries are represented. And so, they would meet and discuss. They can also drive the same values, the same vision, the same mission. A holding company can have a bank, a mortgage and an insurance firm. There is an opportunity of intergroup transfer of business. The bank can transfer mortgage businesses to the mortgage subsidiaries and if you are funding a car purchase, you can transfer the insurance to the insurance firm.”
“You know the Holdco system, in the past, the business entities had a consolidated accounts system, in the sense that if there is any weakness in any of the units, it depresses the consolidated account. Now each subsidiary will command respect on its own as an independent entity,” the Managing Director of HighCap Securities Limited explained.
Indeed, these banks are in fact, following in the footsteps of FBNH Plc, FCMB Group Plc and Stanbic IBTC Holdings Plc which seem to have been fairly successful in running with a Holdco model for some time now.
Assessing the banks’ performances show that GT Bank posted a profit before tax of N109.714billion as at the end of June (Half-year H1) 2020, compared with the N115.787 billion recorded in the comparable period of 2019, while profit after tax (PAT) was primed at N94.271billion, down 4.9 per cent from N99.133 billion recorded in 2019.
On its part, Access Bank posted a Profit Before Tax of N74.306 billion in the overly challenging H1 2020 season even as it equally announced an interim dividend of 0.25K.
Significantly, and against all odds, the PBT numbers were up from the N 72.964 billion the bank had recorded in H1 2019. It also earned revenue of N 396.8 billion for H1, 2020.
Analysts trace this increase in PBT to ‘an increase in the balance of cash flow from operating activities.’
Also, net gains on financial instruments were up by 3000%, primarily fuelled by an N103.25 billion gain on derivatives instruments.
As for Sterling Bank, it delivered a profit after tax of N5.4 billion on gross earnings of N70.2 billion in the first half of 2020 compared with a PAT of N5.7 billion on gross earnings of N72.3 billion during the corresponding period of 2019.
This is even as the bank’s share price at the NSE stood at N6.45 as at the close of trading last Friday.
With the financial institutions decided on the way to go, analysts say the thing to do now would be to wait and see how the transition would pan out for the different entities.
This is even as it is hoped that the move will also result in enhanced corporate governance which serves to promote a consistent culture across the group and quality of service to customers thereby facilitating the sustainability of earnings.
Equally being expected on a good day is that there will also be better access to capital by leveraging the consolidated financial strength of the group which would have been otherwise difficult for each subsidiary company.
But then all of these are on the upbeat side. However, given that business, economics and finance are not exactly exact science, what happens then when