Return of universal banking beckons, as more banks adopt Holdco structure

THE universal banking model that existed in the Nigerian banking sector before 2010 has been predicted to be resurfacing by Agusto & Co. Limited.

The firm said it expects more banks to adopt the Holdco structure as they show interest in investing in other sectors.

Universal banking is a term for banks that offer a variety of comprehensive financial services, including both commercial banking and investment banking services.

Universal banks may offer credit, loans, deposits, asset management, investment advisory, payment processing, securities transactions, underwriting and financial analysis.

The Pan-African credit rating agency and the business information provider said this in its 2023 Nigerian banking industry report, titled, ‘The Nigerian banking industry – A resilient industry navigating a volatile operating terrain’, released on Thursday.

It said, “As the competitive landscape is changing, the holding company structure is gaining more prominence with banks seeking to diversify into new businesses such as pension and asset management, while responding to the disruption by fintech companies.”

“We expect more banks to go the HoldCo route as the competitive landscape changes. Similarly, environmental and social considerations are also expected to be more prominent in the near term.”

According to the report, the Nigerian banking industry had continued to be resilient despite the raging macroeconomic and regulatory headwinds that had constrained performance in the last three years.

Innovation and malleability of the banks as reflected in the transition to the financial holding company structure and upscale of banking licence by some players had upheld the industry, it said.

Agusto & Co. noted that the industry’s loan book rose by 27 per cent in FY 2022, spurred by increased activities at the differentiated cash reserve requirement window, higher deposit base and naira devaluation.

“We believe many banks will take advantage of rising liquidity following the eradication of arbitrary CRR debits to grow the loan book, especially since the working capital needs of businesses continue to rise given the weakening domestic currency and other inflationary pressures,” the report said.

It should be remembered that the Central Bank of Nigeria (CBN) repealed the universal banking regime and required banks to divest from all non-banking business in 2010.

The guideline issued to this effect defined the new types of banking licences, permitted activities and transition timelines for restructuring.

Special banks/institutions such as the Primary Mortgage Institutions, Microfinance Banks, Non-Interest Banks, Development Banks and Discount Houses were allowed to continue to perform their specialised roles within the framework of existing guidelines, while all the existing universal banks were asked to prepare and submit to the CBN their plans on compliance with the new banking regime not later than 90 days from October 4, 2010.

 

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