Unhealthy Competition and Financial System Stability

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Regulators must take steps to halt the unethical practice of de-marketing which is detrimental to the growth of the banking sector, writes Obinna Chima

The situation in the economy and the desire for a larger share of the market is making some operators in the banking sector to take steps to lure customers into institutions through any means.
The move has in recent times resulted in de-marketing of competitors in the industry, all in the quest to woo customers.

Indeed, competition is a critical driver of performance and innovation in the banking industry. It benefits everyone by enabling customers to choose from an array of excellent products at affordable prices. Competition also encourages the adoption of innovation as companies evolve and new ideas flourish in the marketplace.

But de-marketing, which is a term used to describe competitors trying to pull down one another is not good for any industry. Unfortunately, this strategy is gradually resurfacing in the banking sector as damaging text messages and e-mails were recently sent round alleging that some banks were distressed. In fact, the text message had warned customers to withdraw their deposits from certain banks, saying the financial institutions were having liquidity problems.

The same situation was experienced at the height of the fierce competition that took place towards the banking consolidation exercise between 2005 and 2006. The practice of de-marketing then was so widespread and threatening that it became a subject of a hot exchange in one of the Bankers Committee meeting in 2006.

Realising the danger of the practice to the health of the industry and the need to decisively combat it, the CBN had issued a circular dated April 2012, 2006. The circular was signed by the Director of Banking Supervision, CBN, Mr. Ignatius Imala.

Then, the banking sector regulator had stated: “When the banking industry had 89 banks, some of the weak institutions made efforts to de-market others by circulating false distress lists and negative information all in the name of competition. They were then warned at the Bankers Committee followed by CBN clarification to the public.

“With the emergence of 25 strong banks, post consolidation and the existing large terrain for all to professionally and profitably do normal banking business for the growth of the economy, such practice is not only unacceptable but condemnable.

“Information reaching the CBN indicates that the unethical and unprofessional practice of spreading false stories to de-market other banks has again started to emerge in the system. This shows that that the industry still harbours some operators/officers who still conduct themselves unprofessionally.”

Thus, the CBN hereby warned the staff of all banks to desist forthwith from this condemnable and unethical practice, while bank CEOs were advised to also address all their staffs to heed the warning.
However, in 2008 when the banking sector regulator noticed that unethical practice had resurfaced in the industry again, it issued another circular on the subject, saying that the “this development, which constitutes a threat to the safety and soundness of the banking system, is unprofessional, unethical and unacceptable.”

“Banks and their staff are by this circular reminded that the responsibility for ensuring the safety and soundness of the banking system is a collective one for all stakeholders. Banks are therefore advised to caution their staff on this practice as henceforth, any staff of a bank found to be involved in such an act will be summarily dismissed and blacklisted.

“Also, if another staff of the same bank is involved in such a practice, the institution will face severe sanctions including but not limited to a monetary fine of N10 million. Appropriate channel will be opened by the CBN for the report of such unwholesome practice by banks’ customers and the general public,” it had added.
This warning succeeded in purging the industry of cases of de-marketing however only for another six years.

Return of De-marketing
Recent developments show a re-emergence of de-marketing tactics in the banking industry since July 2016 when the CBN announced the resignation of the board of Skye Bank, and the appointment of a new one.
But prior to the announcement, the social media was awash with rumours that the bank was distressed, and that the CBN had taken over the bank.

Even though the CBN Governor, Mr. Godwin Emefiele while announcing the board changes at Skye Bank emphatically stated that the bank and no other commercial bank in the country was distressed, to some, the announcement by the regulator was a confirmation of the rumours making the rounds.

Unfortunately, the de-marketing assault was not limited to Skye Bank as some operators and members of the public decided to exploit the situation to spread concocted false and damaging information against other banks in their bid destroy competition in the industry and kill firms perceived as threat. Some of these assaults were also directed at Heritage Bank, also, a fast-rising bank. According to the 2015 financial statement of Heritage Bank released April this year; the bank recorded gross earnings of N24.2 billion and posted a profit after tax of N1.1 billion. This was made possible via customers of deposit of N312 billion while the banks also gave out N175 billion loans during the year. Also, in March the CBN appointed Heritage Bank as partner for the pilot phase for its N3billion Youth Entrepreneurship Development Programme.

Yet there were also barrage of de-marketing assaults against the bank to convey wrong impression about its financial status. The de-marketers of Heritage Bank have sought to undermine it with two set of maliciously false information.

First, they sought to undermine the image of the bank with a political colouration, by labelling it a bank owned by the embattled Senate President, Dr. Bukola Saraki. “Heritage Bank is a Saraki bank”, they claimed. Yet, even at inception in 2013, Saraki’s family had less than 10 per cent in Heritage Bank. But now the ownership is more diluted due to additional capital from new investors.

In addition, some of the de-marketers sought to tie the bank to the former chairman of Skye Bank, Mr. Tunde Ayeni. They claimed that Ayeni is a majority shareholder, that he borrowed so much money from the bank, as a result of which the CBN will soon ‘take over’ the bank as it did Skye Bank.

The main cause of this wave of de-marketing on Heritage Bank could be the threat it poses since its entrance into the league of tier 2 banks in the country. While the industry was still grappling with the fact of its emergence in the industry, Heritage Bank made a daring bid for the former Enterprise Bank. In addition to wining the bid, the bank made the payment for the acquisition in record time, while the management successfully integrated the two banks without any crisis or rancour.

Health of Banks
The CBN has also reiterated that no bank in the country is in distress, just as it reassured bank customers that their deposits are safe.
The acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said the attention of the central bank was drawn to the malicious rumours and unfounded speculations that some banks in the country might have gone or be going into distress.
To this end, the CBN restated: “In the strongest terms that these rumours and speculations are untrue and do not reflect the actual health of the individual banks and, indeed, the entire banking industry.”

It, however, pointed out that no bank in the industry is in distress.
“Therefore, the CBN would like to request the public to ignore speculations or rumours to the contrary as they could only be the handiwork of mischief makers who do not mean well for the Nigerian banking system and its economy. As the regulator of the industry, the CBN hereby reassures the banking and general public that their deposits remain safe in any Nigerian bank. There is therefore no need for panic withdrawals from any bank.

“Going by both the CBN’s Examination Reports as well as analysis from market watchers, International Credit Rating Agencies, and Development Finance Institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices. We therefore urge the banking public to remain calm and go about their normal businesses without panic. It is important that we do not create problems when none exists,” it added.

Therefore, there is need for the central bank to take urgent step to arrest harmful marketing strategy because of its likely negative consequence on the industry.