Sterling Bank has got the Central Bank of Nigeria (CBN)’s approval to move from stand-alone commercial bank to a holding company (holdco).The Nation reported that the bank is on the verge of obtaining the final approval to convert to a holding company.
According to the report, Sterling Bank, in accordance with banking regime requirement, has divested from its non-bank subsidiaries. The regime requires banks with non-bank subsidiaries to divest or adopt holdco structure.
Explaining the structure, Sterling Bank CEO, Abubakar Suleiman said the bank’s desire to operate as a holding company was driven by its plan to spin off its non-interest banking window which became operational in January 2014 into an autonomous entity.
He explained that the holdco structure enables the non-interest bank and other non-core businesses achieve greater results based on focused management of the distinct businesses while there would be improved efficiency resulting from the consolidation of key functions such as compliance, risk management and other support functions, yielding improved prospects for individual business growth.
Abubakar said Sterling Bank believes the proposed structure incorporates efficiencies around operations and financing efforts that will support the individual businesses in reaching full potential through increased portfolio diversification and improved efficiency among others.
He further explained that the group would also benefit from enhanced corporate governance, which serves to promote a consistent culture across the group and quality of service to customers, thereby facilitating sustainability of earnings.
Suleiman added that the holdco structure would also facilitate better access to capital by leveraging the consolidated financial strength of the group which would have been otherwise difficult for each individual subsidiary company.
“Going into the holding company structure, our desire is to entrench our business model premised on social capitalism where we believe that private sector capital and market-based tools will offer the best types of solutions to Nigeria’s most pressing social and environmental challenges. The holding company gives us the structure to explore our business model further,” he said.
Suleiman explained that the holding company is designed to operate on three major premises of specialization, partnership and digitization.
He said while the conventional bank will focus on building skills and using technology to provide solutions in the areas that are critical to development in the country including health, education, agriculture, renewable energy, transportation (HEART), the non-interest bank will focus on building partnerships that connect individuals and businesses leveraging technology to create business optimization while solving for individual daily financial need.
“The overall business will focus on social impact, corporate responsibility and religious compliance in its dealings. Our digitization drive will create an enabling environment for both financial institutions to grow while providing services and support to build efficiencies in different ecosystems. The execution of our plans is fully dependent on our interwoven operating model of agility, specialization and digitization,” he said.
Recent changes by the CBN, including the downward review of their charges for account maintenance on deposit money, have impacted the revenue generation of some Nigerian banks.
Sterling Bank is among the banks affected badly by the impact of the apex bank’s decision. Compared to its revenue in Q2 2019 (N4.1bn), the bank lost nearly half of its revenue (N2.4b) in the Q2 of 2020. For the first half of 2020, Sterling Bank made N5.4 billion in profit, below what it made (N5.7bn) in the same period in 2019.
However, the bank also went above the benchmark to record a loan to deposit ratio of 68.2% in Q2 of 2020, and met capital and liquidity requirements at 15.2% and 33.5% respectively.
The strains of COVID-19 pandemic took a toll on the financial industry, plummeting gains and prospects. But Sterling Bank’s Tier-2 improved its income by 9.6% between Q1 and Q2 despite the challenges. However, high interest rates became an obstacle that cannot be overlooked.
Naira Metrics reported that Sterling’s proportion of interest expense to interest income is at 40.9%, which provides insight that the Tier-2 bank failed to generate sufficient cheap deposits and borrowings to run the bank’s business with.
These developments of losses, including the need for digitization, emphasized the need for diversification for Sterling, and going ‘holdco’ which has been in the pipeline was hastened.