Zenith Bank, one of Nigeria’s Tier 1 lenders, is the latest addition to financial holding companies, after obtaining the central bank’s approval for its Zenith HoldCo in March.

Such a move helps banks diversify their portfolio and earnings while protecting their core banking operations, according to an industry analyst.

With this move, Zenith joins the league of First Bank of Nigeria, which adopted the name FBN Holdings; First City Monument Bank, now known as FCMB Group; and Stanbic IBTC Bank, now known as Stanbic IBTC Holdings, which were the first Nigerian lenders to adopt the holding company structure.

The moves align with a guideline issued by the Central Bank of Nigeria (CBN) in 2014 after it canceled universal banking licenses due to abuse by lenders. The CBN gave banks two options: remain in the core banking business or go into financial holding services.

The guideline states, “A financial holding company is nonoperating where it exists solely to carry out investment in approved subsidiaries without engaging in the day-to-day management of same.”

“That diversification is an advantage to the parent company,” says an official at one of the three banks that obtained the license first but was not authorized to speak to the press. “It helps you to diversify your portfolio into different financial services areas that give you the bottom line at the end of the day.”

He knows of a lender that ran into trouble due to exposure to the power, oil and gas sectors that created nonperforming loans beyond permissible levels, noting that the banking group kept paying its dividends throughout the period.

The option of shifting to a holding company is a positive development for the banking industry, he explained, noting the advantage is that the parent company can coordinate and manage all the units.

“If you are into one line of business and there is a problem in that sector, it will affect you for that particular year. But when you have various types of financial services, if one is not doing well, it may be affected by macroeconomic factors; others could be doing well.”

Bola Ahmed Tinubu, the choice of the ruling All Progressives Congress, was declared the winner of Nigeria’s presidential election on February 25. That climaxed a political journey that includes a Senate seat and two terms as governor of Lagos State, Nigeria’s richest.

Now he faces two battles: a legal challenge to his victory and the arduous task of rebuilding an economy in tatters. Issues requiring urgent attention include 37% unemployment, an inefficient power sector, high public debt, and a gasoline subsidy that gobbles up much of government spending.

“Tinubu should come to this position with a very good economic team that has a clear understanding of the issues, from both theoretical and practical points of view,” recommends Muda Yusuf, an economist who runs the Lagos-based Center for Promotion of Private Enterprise. “If we can have that kind of team, then we can have hope of quality economic policies.”

The outgoing administration of Muhammadu Buhari launched a development plan, Agenda 2050, to transform Nigeria into an upper middle-income economy by that date. The new administration, which comes into office on May 29, is pledged to implement Agenda 2050. To do so, Yusuf says it must embark on critical reforms.

“Number one is our foreign currency exchange policy,” he says. Nigeria cannot run a successful economy with an official rate of 460.98 naira to the dollar (as of March 23) and rates as high as 745 naira on the black or parallel market.

Tinubu must also appoint the best people to head critical economic institutions and ministries, Yusuf says, including the Central Bank of Nigeria, the Ministry of Finance, Budget, and National Planning, and key investment promotion institutions.

During his campaign, Tinubu said he will replicate at the national level the “magic” that transformed the economy of Lagos State. But he first must overcome lawsuits filed by two rival presidential candidates. Peter Obi of the Labour Party and Atiku Abubakar of the People’s Democratic Party have both faulted Tinubu’s victory and are asking the courts to nullify it, with each claiming the win. 

Efforts by the Central Bank of Nigeria (CBN) to withdraw old notes and drive citizens towards digital forms of payment has led to a cash crunch and social discontent, and now threatens the country’s macroeconomic stability. The Central Bank initially mandated the return of old 1,000-, 500- and 200-naira paper notes by January 31, but did not issue enough new notes to match the turn-ins, and was forced to postpone the deadline after protests broke out.

“It’s like doing a medical procedure without anesthesia,” says Dr. Austin Nweze, who teaches economics at Lagos Business School, Pan-Atlantic University. “That’s what they have done to Nigerians.”

The central bank had said previously that about 83% of the money in circulation was outside the banking system. Officials say the effort is meant to promote price stability, financial inclusion and a cashless economy, while curbing money-laundering. Others believe it was intended to curb vote buying in the election on February 25, and that the central bank is restricting the release of the new notes until after voting closes.

The scarcity of both the new and old naira currency notes sparked frustration and protests by angry bank customers who could not access their money. Commerce stalled. People in rural areas resorted to barter. Frustrated customers attacked banks, torching their buildings and other facilities, including ATMs.

The protests forced the CBN to backtrack, allowing the N200 note to go back into circulation until April 10. However, President Muhammadu Buhari subsequently announced the N500 and N1,000 notes have ceased to be legal tender.

Now, the failed note-swap has put the overall economy at risk and the prolonged cash squeeze could lead to stagnation. “The cash scarcity associated with the currency redesign policy will likely motivate a slowdown in economic growth,” comments an analysis by the think tank Nigerian Economic Summit Group. “Many productive activities have been halted due to the inability to access cash.”

All these happened before a presidential election scheduled for February 25. “After the elections, we will know whether the policy was politically motivated or not,” says Nweze. He predicts the economy may continue “in this doldrum” until May 29, when a new government is expected to assume office.

Despite receiving promises for a $3 billion bailout from the International Monetary Fund in 2023, in late December Ghana suspended debt payments on instruments including Eurobonds, commercial term loans and most bilateral debt. Even while announcing the IMF facility, officials noted that “additional emergency measures are necessary to prevent a further deterioration in the economic, financial, and social situation in Ghana.”

Ghana entered into talks with the IMF in July for funding to help it address a balance of payments deficit that rose to about $2.5 billion in June, and a debt-to-GDP ratio now over 100%. Ghana proposed a debt restructuring that some analysts called a “take it or leave it” offer to holders of its domestic bonds.

In the Domestic Debt Exchange, announced by Finance Minister Ken Ofori-Atta in December, the government said existing bonds would be replaced by a set of four new bonds maturing in 2027, 2029, 2032 and 2037. Holders of the new bonds will receive zero coupons in 2023, 5% in 2024, and 10% in 2025 until maturity, regardless of former coupons.

On the eurobond market, Ghana faces tough obligations. It has $500 million maturing in 2025, while $1 billion is due in 2026, and $2 billion in 2027. “Indeed, debt servicing is now absorbing more than half of total government revenues and almost 70% of tax revenue, while our total public debt stock, including that of state-owned enterprises and all, exceeds 100% of our GDP,” Ofori-Atta said. “As it stands, our financial resources, including the Bank of Ghana’s international reserves, are limited and need to be preserved at this critical juncture”

The drain on the government purse forced it to embark on a cost-cutting binge. To shore up revenue, the government decided to raise the value-added tax by 2.5 percentage points to 15%, and announced a hiring freeze of public workers in 2023.

Indeed, consumers have felt the effects. Inflation in the country rose to a 21-year high in November, climbing to 50.3%, from 40.4% in October.