What HoldCo Model Means to GTBank, Shareholders

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the HoldCo structure, the banking industry operates within the universal banking model, which guidelines, the apex bank repealed.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,…