The Managing Director, Sterling Bank Plc, Yemi Adeola, has said that the number of local banks in the country could shrink further in the New Year through mergers and acquisition.
Adeola who spoke in Lagos, Thursday, said that the envisaged mergers and acquisition could be attributed to the shock created in the banks’ assets and balance sheet sizes in the face of declining oil prices and the increasing level of non-performing loans.
Though Adeola did not disclose the likely banks, he nonetheless said that already, there are moves suggesting that trend, with two international banks discussing with local lenders on possible acquisition.
The sterling Bank CEO admits that the year has been a challenging one for the economy and the banking sector, adding that banks are now finding creative ways to wriggle out of these challenges, which he said is being exacerbated by tough regulatory environment.
Adeola said the Nigerian banking industry was the most regulated sector in the country thereby affecting banks’ performance. “To say that everything will be rosy in 2016 will be deceiving ourselves.
“I think if the opportunities arise for banks to pursue further consolidation, we could see two or three. I also know that one or two international banks are interested in pursuing acquisitions in Nigeria and they are indeed having discussions already.
“So, you could see a combination of one or two international banks taking over one or two Nigerian banks or merging with them. And nothing also stops two or three Nigerian banks having merger discussions in 2016,” he said.
In the unfolding scenario, Adeola assured that Sterling Bank would not be caught napping, stressing that the bank is ready for either a merger or an acquisition, provided such arrangement would add value to stakeholders.
“For us at Sterling Bank, we are always open to mergers or acquisitions. We are open to anything that can give us scale. Whether it is a merger or acquisition, we are open, but the synergy must be there. We must see the benefits clearly. Any merger must be one that ensures stakeholders will benefit more; otherwise it will not be worthwhile,” he said.
Despite the harsh operating environment, however, Adeola said the Sterling Bank have every cause to remain optimistic in 2016. “We are determined to keep the momentum going. We first started a merger of five banks, and all the consultants predicted that all the entities will struggle for the next 10 years.
“It was challenging but we got out of it. Experience has shown globally, that mergers don’t work, especially when you are merging five institutions.”
Adeola said Sterling Bank did first merger in 2006 and ran as a bank from day one, despite the fact that five banks came together.
“In 2011, we did another merger with Equitorial Trust Bank (ETB), and that was done in record time and you will never see cultural differences. We are one bank, and it means we have perfected the act of acquisitions. Could there be an opportunity to pursue an acquisition again, we will try,” he said.
Speaking on the state of the economy, Adeola said that since it’s almost certain that the oil price could also come further down, government, he said, should introduce a more efficient tax system, blocking of revenue leakages and focus on areas neglected in the past to provide the needed buffer for the economy.
Adeola said the foreign exchange challenge remained a tough one for banks and the economy.
“You can only spend what you have and if our reserves are at $29.4 billion as at December 15, that can barely fund four to five months of import. The options are usually two: to adopt capital control and focus on key sectors. In other words, you determine where you want the forex to go to in order to curb wastages,” he said.
Adeola said that Nigeria cannot sustain capital controls for so long.
Though he said he reasoned that the government does not want the forex to be used for speculative purposes, but he said that remains a double edged sword.
“If you adopt capital controls, investors are reluctant to come in, because if they bring their money in at N200 to dollar, they will not be able to know what rate when they are going. So, you shut your door to new money coming in. The other option, is let the naira find its true value. The question is what is the true value for the naira?”
The right thing to do, according to him, is find the true value of the naira and devalue it from there.
“Some will suggest the street value, while others will suggest the Central Bank of Nigeria rate. But it is also not the true value.
“The true value of the naira is between the CBN rate and the parallel market rate. But there are ways we can find the true value of the naira and devalue to that extent. If people are sure, they are getting true value for their dollars, then the dollars will come down,” he said.
Adeola said Sterling Bank continued to survive in spite of such tough regulations because it plays by the rules. “We do not flout regulations. We keep strictly to regulations. We will continue to face challenges that come our way with maturity.”
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