Nigerian Banks Are Now Shifting To Holding Company Structures

Zenith Bank, one of Nigeria’s Tier 1 lenders, is the latest addition to financial holding companies, after obtaining the central bank’s approval for its Zenith HoldCo in March 2023.

Such a move assists banks with expanding their portfolio and earnings while protecting their core banking operations, according to an industry analyst.

Zenith now joins First Bank of Nigeria, which changed its name to FBN Holdings, with this move; FCMB Group, which is now known as First City Monument Bank; and Stanbic IBTC Bank, presently known as Stanbic IBTC Property, which were the main Nigerian moneylenders to embrace the holding organization structure.

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Following the cancellation of universal banking licenses due to lender abuse, the Central Bank of Nigeria (CBN) issued a guideline in 2014. The CBN offered the banks two choices: either remain in core banking or enter financial holding services.

“A financial holding company is nonoperating where it exists solely to carry out investment in approved subsidiaries without engaging in the day-to-day management of same.”

“That diversification is an advantage to the parent company,” says an official at one of the three banks that obtained the license first but was not authorized to speak to the press. “It helps you to diversify your portfolio into different financial services areas that give you the bottom line at the end of the day.”

The official said, he knows of a lender that ran into trouble due to exposure to the power, oil and gas sectors that created nonperforming loans beyond permissible levels, noting that the banking group kept paying its dividends throughout the period.

He explained that the possibility of switching to a holding company is good news for the banking industry, noting that the advantage is that the parent company can manage and coordinate all of the units.

“If you are into one line of business and there is a problem in that sector, it will affect you for that particular year. But when you have various types of financial services, if one is not doing well, it may be affected by macroeconomic factors; others could be doing well.”

credit: Global Finance Magazine

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