De-marketing campaign taken to high-profile customers

Government ministries, corporate organisations and high-net worth individuals are being targeted in a fresh round of “high-level de-marketing” campaign in the banking sector aimed at gaining greater market share of deposits. This is part of the intensified competition in the banking sector, which is giving the monetary authorities a lot of concern.

Some bankers have claimed that the de-marketing strategy, in which rumours are spread about the supposedly precarious state of some banks, is being orchestrated by some first-generation banks to get customers of others to move their accounts and businesses to them.

The banks are said to be deliberately nurturing the perception of being the only “safe” banks to the detriment of rivals.

About a dozen banks have been mentioned in recent weeks as having some form of distress due to the effects of the global meltdown sent to heavyweight depositors and top ministry officials in text messages and unsolicited e-mails.

But the Central Bank of Nigeria and the Federal Ministry of Finance have insisted that all banks are generally safe and that government will prevent any bank failure.

Some industry sources say that the second generation and mid-tier banks are the main victims of this campaign and a few have seen limited run in the past few weeks with staff of some companies and government organisations moving their salary accounts from these banks.

Some bankers had previously accused stockbrokers that were heavily indebted due to losses from margin trading of spreading the false rumours to generate tension in the banking industry.

The stockbroker have since rejected this claim.

The Central Bank of Nigeria is worried that the spreading of such rumours could further undermine the banking sector confidence, and has reeled out sanctions for such unprofessional conduct including hefty fines.

The apex bank’s concerns are hinged on the uncertainties over the banks exposure to the stock market and petroleum products importers who have suffered losses due to the recent depreciation in the value of the naira.

The level of distrust in the system was responsible for the surge in inter-bank lending rates in recent weeks, to which the CBN has responded by expanding its discount window to provide liquidity for banks that might be short of cash.

Insiders said on Monday that at least 18 banks have so far accessed the CBN’s expanded discount window to meet short-term obligations.

A top banker, who did not want to be named said the conduct of rivals amounted to “risky” behaviour.

He said, “We know that the banks are tied together in one way or the other, if one falls, others will follow, so it is in our best interest to keep banks afloat. Even if one only bank fails, there will be a run on healthy banks because customers will say ‘if it can happen to that bank why can’t it happen to mine.’”

Source

Unwholesome practices in some financial institutions

THESE are not the best of times for some of our aristocrats. Neither are things getting better for some of our banks and other financial institutions. As the global economic crisis continues to shoot without missing, individuals and corporate bodies are learning to fly without perching. They are adopting different survival strategies. But the problem now is that while the kite perches, it does not allow the eagle to perch as well. Bear with me if I tend to be speaking in parables. It’s because of the enormity of the problems we will share together here today.

Aliu Eroje

VIEWPOINT 29 MARCH 2009

Last week, African Petroleum Plc came up with a disturbing allegation. In a two-page advertorial in some national dailies, the management of AP accused Nova Finance and Securities Ltd. and Alhaji Aliko Dangote of unethical manipulation of AP shares. This, the company claimed, had led to a decline in value of its shares. Whatever be the outcome of investigations into the matter by the Nigerian Stock Exchange and the Securities and Exchange Commission, it is imperative to note that this type of negative stories is partly why many Nigerians have lost confidence in the stock market.

In the same token, many are also losing confidence in the banking sector. There are variegated rumours regarding the good health or otherwise of our banks. Part of these rumours is that some banks are a few kilometres away from distress. Before the 2004 consolidation exercise in the industry, such a practice was rife. In 2006, the rumour resurfaced. To stem this tide, the Central Bank of Nigeria, in a circular, warned against this trend. Towards the end of 2008, some disgruntled elements in the industry sent text messages indicating that the five banks selected as market makers to arrest the downturn in the stock market, had liquidity problems.

Now, the problem is back. Industry sources attribute this unwholesome practice mainly to the cut-throat competition among top players in the sector. Each of the top five banks is struggling to be the number one. Those in the league of 10 are fighting to be among the first five. And like jilted lovers, they run each other down in what is known as de-marketing.

There is also the Soludo angle to the whole issue. The first term of the CBN Governor expires in May this year. Hence, there are some interest groups angling to take over his position. And the best way to do this, perhaps, is to rubbish his major legacy – the banking consolidation. There are other reasons hinging mainly on the desperation of the banks to stay ahead of competition.

Both the CBN and the Chartered Institute of Bankers of Nigeria had intervened in the past to stop the trend. The CBN Governor, Chukwuma Soludo, has had cause to reassure citizens that our banks are still very strong. He had warned that de-marketing or whatever name they call it would do nothing but undermine the banking system.

Beyond de-marketing, there are some other financial malpractices the CBN needs to look into. One of them is the allegation that most banks indulge in foreign exchange fraud (see our cover story today). Reports at my disposal indicate that these banks use fake international passports to obtain Basic Travelling Allowance, which is usually in dollars. They sell these dollars in the black market in order to make undue profits. This, perhaps, explains why dollar is expensive now. And this is partly why the prices of imported items have risen to the rooftop.

Our major problem is greed; or dishonesty if you like. Elsewhere, billionaires pool resources together to better the lots of humanity. In June 2006, for instance, American billionaire investor, Warren Buffett, announced a donation of almost all his assets to charity. The greatest beneficiary happens to be the Bill and Melinda Gates Foundation. Incidentally, the chairman of the Foundation, Bill Gates, is richer than Buffett who made the donation. Here, our own billionaires fight to discredit one another.

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Nigerian Banks Operating in Challenging Climate

The climate in which Nigerian banks are operating must be really challenging.  Imaging the other day, it was widely rumoured that Nigerian banks are distressed. One begins to wonder the fate of depositors of the banks that would be affected.

Just as I was contemplating the next line of action, I got this report that one of the banks precisely Intercontinental Bank would be opening 25 new branches next month and with additional 45 branches on stream, the bank equally is rolling out drums to celebrate its 20^th year anniversary.

These activities negate all known distress signals, my contemplation is settled, I think I can rest, Intercontinental Bank surely must be solid.

The Central Bank of Nigeria may be correct then with their statement about Intercontinental Bank and the Banking Industry in general. 

• "Intercontinental Bank Plc remains healthy and has been meeting her obligations to her customers; 
• the bank has been participating actively at the foreign exchange Retail Dutch Auction (RDAS), where it bids regularly on behalf of her customers who require foreign exchange for their transactions; and  
• the Central Bank of Nigeria has not received any adverse report from her correspondent and/or other foreign banks of any default or unprofessional conducts."
• Nigerian Banks are safe and strong.

ISSUES IN DE-MARKETING IN THE NIGERIA BANKING INDUSTRY

 

• Banks contest for top position i.e. No1 bank in Nigeria, the most capitalised bank, the first in this and that. All these resulted in cut throat competition to be in league of No1 bank or the top tier. The industry has been stratified into top 5 banks, top 10 banks and others. 

• Battle for top 5 appears to be hottest where you have the likes of Firstbank Union bank, United Bank for Africa, Intercontinental Bank, Zenith, Oceanic bank and GTBank have been in this rat race since after consolidation. This has been the breeding ground of high profile de-marketing. 

• The top 10 banks were up coming and fast driving banks, playing in another hot platform for de-marketing. Those in this category includes BankPHB, Diamond Bank, Access, Afribank, Fidelity, FCMB, Ecobank and a few others. This group posses two driving spirits (I.)Pull down any of the seven earlier mentioned and displaced them in the big boys category. (ii.) to distinguish themselves as having arrived and create impression that they are equally big and a force to reckon with or at least on a class of its own different from the others in category 3. 

• The scenarios is the battle for key accounts, where the market size has become for blue chip borrowers and large cash cow accounts have narrowed considerably to few public sector entities and government with equally fewer private or corporate accounts. Clash of banks jostling to take positions breed fierce acrimony, a veritable ground to breed de-marketing. 

• There is also the suspicion that old generation banks are not comfortable with the speed of rise of some new generation banks and with the threat of dethroning them from their traditional positions they have to be checkmated. 

• Finally, and what precipitated the latest de-marketing could be connected with year-end antics of banks, the behaviour of banks in the time past has always been to help one another in the interbank deposit market, with a view to boosting their deposit figures for balance sheet reporting. Thus bank A would agree with another set of banks to take internal deposits to beef up, its books such that after bank A’s year-end, the bank would take position to give corresponding treatment to the others during their own year end. Thus the banks have staggered there year end, between February and December (Its Only January that does not have a bank’s financial year –end). This unholy alliance had made CBN to roll out plans for a uniform year end mid last year, but this was vehemently frustrated by some banks, forcing CBN to abandon the plan. 

• However, with the need to sanitise, strengthen and straighten out things in the banking industry CBN and the Bankers Committee had to agree to a uniform year-end early in March 2009, to be effective Dec2009, this development formally broke the unholy alliance forcing every bank to be on its own for the purpose of year end..

• Again the banks are back to the trenches employing all forms of tactics to meet there year-end target. This circumstance was worsened because most of the banks have their year-end between March and July; almost over 70% of the banks belong to this category, making the competition stiffer. Thus de-marketing option appears inevitable, especially for some that are desperate to retain their status.

DIARY OF DE-MARKETING BANKS

1. De-marketing was popular during the days of fledging banking industry, over-crowded with 91players most of which were weak. It was then assuming that it was due to their fragile capital base which was then between N500million and N1billion depending on whether it was commercial or merchant bank.

 

2. Banking consolidation of 2004 brought strength to the industry with minimum capital base of N25billion. Today, each of the top six banks First Bank, Union Bank, UBA, Intercontinental, Zenith and Oceanic  bank has over N200billion has capital base. There asset base are also that large at over N1trillion each.

 

3.   With this size and strength one would have expected the industry to be more matured and disciplined. However, De-marketing re-surfaced in 2006

4.   To check the trend, the CBN had issued a circular in 2006, against the spreading of false rumours among the operators.

5.   According to the circular reference BSD/08/2006, the CBN warned against what it called, “the unethical and unprofessional practice of de-marketing colleagues/other banks in the industry by spreading rumours.”

6. In 2008, another round of de-marketing began towards the fourth quarter. This time around the targets were mainly amongst the top 10 banks.

 

7. Again CBN intervened, summoning the banks CEOs admonishing them while securing their commitment not to resort to unethical practices in competition.

 

8. Also, The Chartered Institute of Bankers of Nigeria (CIBN) mobilised the bank CEOs to address the issue, and sanctions were spelt out for offenders for the first time against any bank or bank staff engaged in de-marketing.

 

9. Sanctions ranged from, N10million fine to outright dismissal of stall and the blacklisting of offending banks.

 

10. Again this did not deter the banks as the faceless, perpetrations resurfaced early this year with much more vicious strategy.

CBN REACTS TO DE-MARKETING

 The CBN has denied the allegations that the banks are the verge of collapse as a result of the global financial crisis all over the world Prof. Chukwuma Soludo gave the assurance that banks are strong enough to withstand the economic downturn; he however added that CBN has adopted some measures to ensure that the banks remain virile.

Soludo said, "the banks remain the key pillar of hope for this economy especially at this time of global financial crisis, and it is our collective job to keep the banks alive, all the rumours, text messages, unfounded insinuations all forms of de-marketing, undermines the stability of the system. I understand that some people even within the banks in other to get businesses are also trying to de-market other banks by saying ‘oh this bank, oh that bank’. I am telling the public to clearly ignore any such, when you hear any bank staff telling you about another bank, please report such a person if you can to the CBN and we will be able to deal with such a staff of any bank decisively, the only reason why they do that is just to take business’’.

‘‘That is the reason, the reason why the staff of another bank would be telling you "oh that bank has exposure to the capital market, and so what? The banks have been lending in the past and some of the loans may have not been performing in the past and the banks make provision for them even when they didn’t have much capital. The good news this time around is that they have got the capital that could easily absorb such provisioning if they need to make it’’.