Analysts: More Banks to Adopt HoldCo Structure to Diversify Earnings

By Obinna Chima

Analysts have predicted that more commercial banks will soon convert to a holding company (HoldCo) structure as they seek to diversify their revenue and remain competitive in the financial market.

The analysts who spoke in separate interviews with THISDAY, also attributed the recent decision by some banks to change to holdco structure to the Central Bank of Nigeria’s (CBN) restrictive policies.

Until recently, FBN Holdings, Stanbic IBTC Holdings and FCMB Group, were the three financial institutions operating a holdco structure. But the central bank recently granted approval to Guaranty Trust Bank, Sterling Bank and Access Bank Plc, to convert their operations to holdco.

A holdco 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.

The Head of Financial Institutions Ratings, Agusto & Co, Mr. Ayokunle Olubunmi, anticipated that more banks would be applying for holdco licence “once they see that those that have gotten approval are doing well.”

“Also, if the present tight monetary policy regime continues, most banks would start considering adopting holdco structure. The beauty is that you don’t have anything to lose because there are lots of opportunities in the financial system and the banks have the resources.

“I see more banks up scaling some of their subsidiaries and going into holdco in the medium term.

Even if you look at the global banks, a lot of them are gradually diversifying into non-core banking business,” Olubunmi said.

According to him, with the way the CBN regulation is going, the income banks get based on their traditional banking licence is getting limited.

Moreover, the industry has become more competitive as more banks are being licensed, he added.

“Even the lending business, we have a lot of microfinance banks getting into it. The tight monetary policy regime such as the loan-to-deposit ratio (LDR) and others, restrict the kind of businesses that they can do. “Even the merchant banks, the kind of businesses they can do are restricted.

“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.

He recalled that during the universal banking era, the banks were able to generate revenue from other non-core banking business, saying the benefits they reaped from them is primarily what is driving it.

“For example, based on the experience that GTBank had in their electronic banking business, they realised that there are lots of opportunities in the switching business; even in assets management, which is one of the reasons the bank is going for the holdCo structure.

“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: “I think they are trying to move in line with changes in the sector. Most of them want to do fintech, asset management, among others.

“The CBN regulation is a lot and so they are trying to get other businesses that can help them weather the storm. They have the option and some of them have taken it. They can also decide not to do 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.

On his part, GMD/CEO Access Bank, Mr. Herbert Wigwe, had said the bank was focused on building the scale needed to become a leading African bank, adding that the move to holdco demonstrates further commitment to delivering “our strategic aspirations of becoming Africa’s gateway to the world in line with our vision to be the world’s most respected African bank.”

Guaranty Trust Bank had anticipated that the holdco would have greater strategic flexibility to adapt to future business opportunities as well as market and regulatory changes that is currently the case.