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Market awaits entrance of more Merchant Banks

By on January 6, 2015

Activities in the merchant banking segment of the financial market are expected to increase as the market anticipates the entrance of more players in the sub-sector this year.
This is expected to support corporate and trade financing in the country.

Presently, there are two licenced merchant banks in the country – FSDH Merchant Bank Limited and Rand Merchant Bank. However, while Kakawa Discount House Limited, which had been granted an approval-in-principle by the Central Bank of Nigeria (CBN) is expected to commence operation early this year,  Afrinvest West Africa Limited is promoting a new vehicle to be called Afrinvest Merchant Bank.

THISDAY also gathered that some other firms had also applied for licences to set up merchant banks and are currently awaiting the central bank’s approval.

The CBN had introduced modified licensing rules for banks as part of reforms after the financial crisis in 2009 brought the industry to the verge of collapse. Under the rules, the CBN requires merchant banks to maintain a minimum paid-up share capital of N5 billion.

Merchant banks are also expected to comply with all prudential guidelines and regulations issued by the CBN on the required level of capital adequacy, liquidity and cash reserve, observe all applicable corporate governance standards as may be prescribed by the CBN and other financial service sector regulatory authorities in Nigeria.

Global Credit Ratings (GCR) had in a report noted that: “Nigerian discount houses are currently winding down operations and transforming into merchant banks. This is inevitable, however, following the liquidation of half of the players in the sector, and the resultant low prospects in the market.”

Also, Afrinvest stated that “in the Merchant Banking space, early entrants have the opportunity to capture a larger market share, visibly distinguishing themselves from the subsequent entrants.”

Traditional merchant banks primarily perform international financing activities such as foreign corporate investing, foreign real estate investment, trade finance and international transaction facilitation. Some of the activities that a pure merchant bank is involved in may include issuing letters of credit, transferring funds internationally, trade consulting and co-investment in projects involving trade of one form or another.

Known as “accepting and issuing houses” in the United Kingdom and “investment banks” in the United States,  modern merchant banks offer a wide range of activities, including issue management, portfolio management, credit syndication, acceptance credit, counsel on mergers and acquisitions, insurance, among others. Of these two classes of merchant banks, the US variant initiates loans and then sells them to investors.

 

[ThisDay]