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Zenith, 4 others may acquire banks whose MCR is squeezed by failing naira

According to the Central Bank of Nigeria (CBN) standard, Minimum Capital Rate (MCR) of 15% remains the pivot on which customers and regulators confidence of any commercial bank rests.

However, when MCR drops beyond certain level, say 10; vide erosion by sustained depreciation of naira, and pressure from non-performing loans (NPLs), plus lull in the economy, the scenario may send vibes capable of forcing weaker banks to scamper for reliable merger and acquisition for safety.

Observers say the sustained depreciation of naira against the United States dollar at the parallel market now at N500 from N498 last week, has resulted to anxiety amongst some banks whose MCR worth is eroding away, Business Hilights can authoritatively report.

Just as industry pundits say the scarcity of the greenback was far from being over, analysts say fears are emerging on deposit money banks whose MCR may be under serious threats of erosion fueled by the steady depreciation of naira and NPLs.

But the recent rating of five Nigerian banks including Zenith, GTB, FBN, Access and UBA by the Banker magazine of the Financial Times and Brand Finance, London as among top 500 global banks means that even in the face of massive erosion of consolidated MCR, they are strong and may be a saving ground for banks whose MCR is under threat.

It would be recalled that since 2015, the apex bank had segregated banks into regional and national lenders, with respective capital bases of N10 billion ($50 million) and N25 billion ($125million), leaving the MCR at 15 per cent. This was in 2015 when exchange rate was about N135.

Today the exchange rate had gone up to N305 (official), with the erosion of naira value by forex scarcity driven by government policy, it is clear that the value of the capital base of banks has dropped meaning that their MCR may be in the negative swing now. The implication of this according to watchers is simply acute stress which means a lot.

Bu a statement issued by the country representative of The Banker magazine, Mr. Kunle Ogedengbe, recently saying FirstBank led four other Nigerian banks in the latest global ranking, it means also that they are the strongest banks in the face of naira value erosion and even NPLs crisis.

With a $301 million brand value, FirstBank ranked 357, followed by GTBank, which was ranked 395 with a brand value of $258 million. Zenith Bank was ranked 414 with a brand value of $247 million, Access Bank was in 476th place with a brand value of $182 million while UBA with a brand value of $172 million ranked 487 in the world.

Explaining the methodology for the ranking, the editor of The Banker, Brian Caplen said: “Brand Finance employs a discounted cashflow technique to discount estimated future royalties at an appropriate rate to arrive at a net present value of a bank’s trademark and associated intellectual property – its brand value.”

Caplen stressed that the process involved five steps of obtaining brand-specific financial and revenue data; modeling the market to identify market demand and the position of individual banks in the context of all other market competitors; establishing the royalty rate for each bank; calculating the discounted rate specific to each bank, taking account of its size, geographical presence, reputation, gearing and brand rating; and discounting future royalty stream (explicit forecast and perpetuity periods) to a net present value – the brand value.

He said the approach was used for two reasons: “It is favoured by the tax authorities and the courts because it calculates brand value by reference to documented third-party transactions and it can be done based on publicly available financial information.”

Globally, deputy editor of the magazine, Joy Macknight said the Industrial and Commercial Bank of China was number one with a brand value of $47.832 billion followed by Wells Fargo of the United States with a brand value of $41.618 million.

The top ten banking brands in the world were shared by four countries, China and the U.S. with four each while the United Kingdom and Spain got one each.

Other eight banks in the top ten were China Construction Bank, JP Morgan Chase & Co., Bank of China, Bank of America, Agricultural Bank of China, Citibank (USA), HSBC (UK), and Satander (Spain).

Besides, among top 50 countries in the world, only four African countries made the list. These are South Africa (26), Nigeria (42), Egypt (46) and Morocco (47).

Whereas FirstBank was the only Nigerian bank in the top 10 banking brands in Africa along with nine others banks from South Africa, Egypt and Morocco, other four banks rated high in the survey have shown strength in the face of naira depreciation.

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