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Banking Sector Consolidation In Nigeria: The Day After By Maiwada Zubairu Kano. June 17, 2006
PREAMBLE The phrase “The day after” is a title of a movie that portrayed the survival of city civilization after a nuclear holocaust. The banking consolidation that lasted for 18 months could be likened to banking sector holocaust for it has reduced the banking population to less than half of what it was prior to consolidation, from over 80 banks to just mere 25 currently. The key intended outcome of the shake up was more capitalized – thus stable and internationally competitive mega banks.
Alas, the day after, we are faced with the realization that for such intended outcome to be actualized, there are daunting challenges that have to be overcome. These challenges include, Human resource realignment, technology integration, stakeholders concern and monitoring and supervision.
This write up intends to bring to the fore the issues that are pertinent to facing such challenges with a basic premise that – the intervention of the monetary authorities is critical if not a necessary precondition for the banking industry to confront such challenges. It is not enough to force mergers, acquisition and outright liquidation. For those banks that survive and continue to operate, necessary intervention and policy frameworks must be outlined by the monetary authority in order to assist the sector overcome such challenges and possibly reap the gains of consolidation
HUMAN RESOURCE REALIGNMENT
The process of human resource planning is one of the most crucial, complex and continuing post consolidation challenge that management of newly emerged banks must tackle. The management must estimate the structure of the new emerged banks; the number and type of employees needed have to be determined. Many factors affect this determination; they include business forecasts, expansion and growth, design and structural changes, management philosophy, and human skills mix.
The newly emerged banks are faced with generational and skill gaps. It is now the vogue to do away with employees in their 50s regardless of their skills and experience because they are perceived to be out of sync with those in their 30s and 40s in the “new philosophy” of banking operations. Those in the 30s and 40s are perceived to be armed with MBAs and MScs along with Information Technology skills that are seen to add value to the operations. Few if any of the emerged banks are thinking of how to build a “bridge” or even “conveyor belt” to fill in those gaps.
TECHNOLOGY INTEGRATION In the current rat race to outperform the competition, information technology (IT) has dominated financial – banking transaction. From on-line real time to ATMs, many of the emerged banks were at different stages with regards to the use of IT for their operations. In fact, prior to the merger, IT languages such as LAN, WAN, platforms, banking software were strange to many of the banks branches. The big questions are: Ø What will be the price for increased technical and user conformity with IT specifications, protocols and software for the smooth take-off of the merged banks? Ø How will operational efficiency be maintained so that customer service satisfaction is maintained during the IT integration process? Ø How long will it take to upgrade the HR skills needed to conform to IT integration?
STAKE HOLDERS CONCERNS Banks restructuring, by its nature, is a disruptive process because it does affect these key stakeholders – shareholders, customers and employees. Post restructuring creates ownership struggle between key shareholders in terms who owns what and by how much? Security valuation of pre-merged banks becomes a hot issue and securities trading become virtually frozen because individual banks securities pricing could hardly equate to the equity price of the newly emerged bank. As a result, no one, perhaps not even the SEC could estimate the negative effect such events have on the security market deepening in the financial sector - the sector which banks dominates.
Customers are also affected at differing levels depending on whether they are deposit or credit customers. Delayed accounts reintegration both at the front and backend operations has affected customer service delivery in terms of efficiency and effectiveness. Deposit customers especially those that are victims of “unhealthy“ mergers or acquisition are being confronted with very serious uncertainty with regards to utilization of their deposit balances. Credit customers are also affected by renewed credit terms especially with regards to pricing and maturities. On the whole, banker- customer relationship is affected – very often in a negative way.
One of the principal backlashes of the banking sector restructuring is the sheer number of bank employees that are thrown and are continuously being thrown out in the labour market, unprepared and unskilled. The consequences both to the banks and employees are many. Newly emerged banks have to bear the liquidity pressure of paying off disengagement and severance packages to the staff that are being disengaged. Then they will have to deal with the uniformity of remuneration packages – which most often are higher than hitherto. This again creates liquidity squeeze in an uncertain economic and political environment where deposit markets are being more difficult to penetrate and investment income is difficult to generate.
Staffs that are laid off leave the sector with mixed feelings especially in a society devoid of social safety nets. A lifelong career cut shot within a matter of months. That creates bitterness and skepticisms in the whole banking reform process. Those employees that remain within the system continue to operate with some aura of skeptic loyalty. To many this might not be the end of Solodo banking solution.
MONITORING AND SUPERVISION.
Post consolidation monitoring and supervision challenges are beginning to emerge. Strange bedfellows are beginning to emerge in our fragile economy, conflict of interests are emerging as a results of universality of the banking operations and banks are seizing the opportunity of increased capital and taking up more risks. These and many more moral hazards create monitoring and supervision challenges for the monetary authorities. The big question is: do the monitory authorities have the institutional capacities and capabilities to manage such diverse and complex banking operations?
LAST WORD It is now six months since the expiry date of the capitalization deadline. Bits and pieces of consolidation and reintegration news coming out are not encouraging. Monetary authorities are running out of patience and have begun issuing warnings and deadlines with regards to full integration. How far have the banks gone and how much time will they need remain unanswered questions. There are so many unknowns. What is known however, is the fact that for the banking reform to succeed and for financial systems to remain stable there must be a coherent policy framework that is attuned to both institutional settings and the structure of the economy.
Maiwada Zubairu MD/CEO, KNOWLEDGE DYNAMICS LTD P. O. BOX 11169, KANO
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