Access Bank Plc Transforms To 'Holdco': What It Means

One of Nigeria’s emerging financial giants, with a visible presence in more than 10 countries on the African continent and the world, took a significant step in its quest to evolve into a holding company and build a bigger brand that will see it extend its operational grip in many areas of its financial asset portfolio.

In a move to transform the company’s structure into a "Holdco", the bank held its court-ordered meeting at its 14/15, Prince Alaba Abiodun Oniru Road, Victoria Island, Lagos, Lagos State, Nigeria with some board members, some selected representatives of its shareholders’ group, representatives of the financial market regulatory agencies, and partners and associates in attendance.

The Chairman of Access Bank Group, Dr. (Mrs.) Ajoritsedere Awosika, who addressed the public, said: "In September 2010, the CBN issued regulations on the scope of banking activities and auxiliary matters.

"No. 3, 2010 with effect from November 15, 2010 deregulation which repeals the universal banking guidelines. This was done to promote a sound financial system in Nigeria by limiting the exposure of banking to higher operating risk and reducing the propensity to put depository and shareholder funds into risky non-banking businesses."

She went further to state the types of banks permitted to embark on banking businesses in Nigeria.

"Commercial banks, merchant banks, and specialized banks, which also include non-interest banks, microfinance banks, development banks, and mortgage banks."

The board is of the view that adopting the holding company-holdco structure will be advantageous for the bank.

"It will facilitate the business structure of the banking group and expand its services into under-penetrated regions in Nigeria, Africa, and beyond."

And this will enable Access to diversify its business portfolios into new areas within the financial services industry that are permissible by the CBN Holdco regulation. "

"The Holdco structure will fence each business from the risk of the other by preventing the business performance of one business from affecting the business performance and evaluation of the other."

"Accordingly, under the Holdco structure, the assets of the bank are re-fenced from the non-banking businesses", she concluded.

It is important to understand what "Holdco" means.

A "Holdco" is a company that holds controlling assets in some companies. It maintains oversight control over the management of its invested companies.

A "Holdco" does not involve itself in the daily operations of its companies.

In essence, a "Holdco" is an umbrella company that protects and shields companies under its control. A good example of a "Holdco" is the First Bank of Nigeria Holding Company (FBNH) and Guaranty Trust Holding Company (GTCO).

What are the benefits attached to becoming a "Holdco"?

1. Facilitation of growth and expansion in banking across Africa. It allows the company to extend its operational tentacles to banking business opportunities anywhere in the world, thereby increasing its profit and global presence.

2. Better positioning to deal with emerging competition. Fintech and payment service banks, for example, In the face of greater competitive challenges brought about by the introduction of financial technological firms (Fintech), it is imperative that the bank restructure its operations to enable it to compete more effectively with these companies so as not to lose its relevance in the banking space.

3. More focused regulatory oversight of the various arms of the group. One of the key advantages of a "Holdco" is the ability to concentrate on oversight functions. This change will enable the financial institution to focus and develop its oversight function better.

4. Re-fencing each business from the risk of the others means preventing the business performance of one business from affecting the others. As a stand-alone business, each business will be able to focus on its core value of contributing meaningfully to the bottom line of the "Holdco." There is no interference from one subsidiary to the other subsidiary.

5. facilitating a consolidated financial strength of the group, which will improve access to and ability to raise capital with benefits including lower transaction costs, amongst others.

6. expediting capital and liquidity and providing flexibility to accommodate leverage with minimal risk to the regulatory ratio.

7. Unbundling the bank from the oversight functions and risk responsibilities of managing the subsidiaries will ensure the bank is solely focused on its core operations.

8. opportunity to increase shareholders’ return on investment and provide creditors with the chance to secure better returns on their borrowed funds.