What HoldCo Model Means to GTBank, Shareholders

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Segun Agbaje

Following the approval-in-principle Guaranty Trust Bank secured recently from the Central Bank of Nigeria to run its operation using the holding company model, the bank appeared set to exploit the opportunities derivable from the arrangement and deliver better returns to its shareholders. Kunle Aderinokun reports

Recently, a number of banks approached the Central Bank of Nigeria (CBN), requesting approval to model their operations in line with the holding company (HoldCo) structure. This has been the trend in the Nigerian banking sector, lately. Are the banks just following the dictate of the economy in pursuing the HoldCo model or is it a design to increase their shareholders’ value?

Actually, the HoldCo model is not alien to the Nigerian banking sector; it dates back to 2010, when the CBN under the leadership of the former Governor, Sanusi Lamido Sanusi, in its wisdom, initiated a reform to put the banking system on a sustainable path, following the world financial crisis. Before the advent of the HoldCo structure, the banking industry operates within the universal banking model, which guidelines, the apex bank repealed.

Under the HoldCo model, banks or banking groups are allowed to retain their non-core banking businesses, accommodating them and they evolve into a non-operating HoldCo structure. In the new structure, a non-operating HoldCo is expected to hold equity investment in banks and non-core banking businesses in a subsidiary arrangement.

Following introduction of the HoldCo model, the CBN gave banks the option of either bringing all their non-core banking businesses under a parent company in the new arrangement or divesting from such businesses and face their core banking businesses.

While some of the banks took the first option, a few others decided to sell off their non-core banking businesses. One of such banks that settled for the second option was GTBank. But recently, it decided to have a recourse to the model because it believes the competitive landscape is now ripe.

Following its application, the CBN gave the bank an approval-in-principle to commence the formal process of reorganising its bank into a HoldCo structure. It conveyed the cheery news to its shareholders in a notice to the Nigerian Stock Exchange, which was signed by its Company Secretary, Erhi Obebeduo.

The reorganisation is expected to be implemented by means of a scheme of arrangement between the bank and its shareholders pursuant to the companies and Allied Matters Act, adding that it has also obtained the ‘no-objection” from the Securities and Exchange Commission with respect to the proposed scheme.

Speaking recently on the HoldCo structure, GTBank’s Managing Director, Mr. Segun Agbaje, noted that the competitive landscape as it were for the non-core banking businesses didn’t warrant the bank retaining the subsidiaries and pushing it into adopting the HoldCo model.

“We got our universal banking license in 2001. For many of you, if you are an SLS fan, or you’re not an SLS fan, you will remember that when the financial crisis happened, universal banking license was cancelled and the central bank decided that you either stay as a bank, or you went into a holding company structure.

“At the time, because the competitive landscape was very different from what it is today, we decided that we were going to focus on our banking business, and it was the right decision for us then. Because we went from number seven in profit to number one; some years, we’ve been number two, but basically, we’ve been number one most of the years,” he explained.

Pointing out that while it was the right decision to take at that time, Agbaje, however, added that, the competitive landscape today has necessitated diversifying the banking earnings, hence, the decision to go the HoldCo way. “When you look at what is happening to banking, or you look at what I’ve been describing to you, and the people who are basically looking to take banking income, it is time to diversify our earnings. The only way you can legally diversify your earnings in Nigeria today is going into a holding company structure, because as a pure bank, you cannot do more than banking.”

According to CBN, the HoldCo arrangement seeks to ring-fence depositors’ funds from risks inherent in non-core banking businesses.

The apex bank noted in the HoldCo guideline that, financial holding company shall be a source of financial strength to the subsidiaries. In serving as a source of financial strength to its subsidiaries, a financial holding company shall maintain financial flexibility and capital raising capabilities for supporting its subsidiaries. It shall also stand ready to use available resources to augment capital funds of its subsidiaries in periods of financial stress or adversity. This GTBank now says it is prepared to leverage, having been adjudged the most profitable bank as well as the most capitalised bank in the country.

Poised to take advantage of opportunities inherent in the HoldCo arrangement, GTBank has therefore looked at some sectors that “create great synergies for it to create great opportunities.”

According to Agbaje, in new scheme of things, the bank proposes to diversify into payment service banking (PSB), asset management business and pension fund administration (PFA). This, he says, is without any distraction to its core banking business. It envisages to go greenfield with the PSB while seeking to acquire an asset management company and a PFA. Nevertheless, if acquiring these companies are expensive, the bank has the option of going Greenfield with them. And for now, is not looking the way of insurance business, even though it is not foreclosing the idea of operating the business in the future.

“We looked at some sectors, which we think today create great synergies for us and create great opportunities.

The first one is payments. We love the payment landscape, you can see what is happening with FinTechs, we think we should compete with the FinTechs, we think we should grow the business, and that it is definitely a business for the future. And so it’s a place we would like to play to diversify the earnings base of the bank.

“We like asset management. The reason we like asset management is that it complements our business, we’ve grown a very good retail business today. Sometimes when people want a higher yield, then we lose that money to institutions like StanbicIBTC Asset Managers. But, we will create our own asset management company so that when the retail money looking for yield leaves us, it goes to someone that is in our ecosystem, and we consolidated P and L. A system where you can do payments, you can do asset management, once you come into your bank ecosystem is what we’re beginning to build.

“We like PFA business, the PFA business is continuing to grow. And essentially what we’re trying to do is do as much as we can for the customer base that we have. And we think that this is a good place to start, and that this will diversify our earnings base and create value. The go to market plan for this is very simple. I’ve started to tell you about the first one, which is the diversifying to what we think of complementary businesses and services, payments, asset management, and PFA for today, there might be other businesses, the people like the one I always hear about is insurance. But I think that if we’re going to be dominant in the businesses that we’ve picked, it’s better we focus and we stop with those. And then maybe one day down the road if we’re very successful with everything else, we can look at insurance. We’re also going to face our core banking business we’re never going to let that drop because Guaranty Trust Bank Nigeria continues to be the mother ship for us, and apart from our corporate business which is very strong, which will continue to hold, we will make sure that we continue to deepen our retail and SME business,” the chief executive explained.

Looking forward, GTBank’s expectation is to add significant values to shareholders of the holding company within the next five years.