Investment banking might not be as popular as it used to be but it remains a crucial part of the financial system, especially in Nigeria. Just like commercial banks serve their own designated function that is depositing and lending funds, investment banks play a critical role in the economy of Nigeria. This article is about the history of investment banking in Nigeria. Here you will find what investment banking is about and how this sector of banking has developed in Nigeria.
Read on below:
Functions of investment banks in Nigeria
- Investment banks act as intermediaries between security issuers and investors.
- Investment banks arrange for mergers and acquisition of companies when such consolidations become necessary by listing shares of companies for sale
- Investment banks facilitate bond sales for the federal government
- Investment banks help organizations, corporations and government in raising financial capital, by acting as the client’s agent
- Investment banks also act as asset managers
- Investment banks engage in market and equity research for higher returns on investments
- Investment banks act as financial advisors for private corporations and governments on investments and transactions
Investment banks are the major participants in the financial market, they act as intermediaries between the companies that want to sell shares, and the investors or buyers of financial securities. Investment banks earn their income through advisory fees and commissions on transactions made for the government and other organizations or companies. Investment banks basically operate in capital markets, both in Nigeria and internationally. That is why upon the collapse of the capital market and after the 2008 economic meltdown, investment banks were the ones most affected. After the crisis, investment banks became less lucrative as it used to be. However, it still remains the best form of banking with its huge capital investments and returns.
History of Investment banking
Before the advent of investment banking in Nigeria, there was another form of banking called merchant banking which had been around in Nigeria for a longer period of time. There is not much difference between merchant banking and investment banking. As you have seen earlier with the functions of investment banks, merchant banks also provide funds and advisory services to organizations. Merchant banks were originally set up to finance traders that is merchants. However, with the later incoming of investment banks, the scope would later expand with time.
From 1980 to mid-nineties, merchant banks were popular in Nigeria. Activities of merchant banks were limited to assisting corporations and governments in raising capital. They also were involved in conducting a few mergers and acquisition activities.
In the early eighties, Michael Subomi Balogun, a lawyer-turned-veteran banker, started First City Merchant Bank. The bank, alongside others like NAL Merchant Bank, later become the leading provider of merchant banking services in Nigeria.
In 2000, when universal banking policy was implemented by the Central Bank of Nigeria, First City Merchant bank obtained universal banking license and rebranded to First City Monument Bank. This rebranding also came with it becoming primarily a commercial bank, although still retaining merchant/investment banking operations. This is because the Universal banking license allows a bank to engage in all forms of banking under a single license.
In 1989, a young man called Peterside Atedo who was born in Rivers state- had come back from the United Kingdom where he had studied Economics at the City University, London and the London School of Economics and Political Science. He had been exposed to how investment banking is done abroad. When he came, he saw that investment banking in Nigeria was still primitive and realized it could be a fertile opportunity for business. He set up a company he named Investment Banking and Trust Company (IBTC). This was also around the time licenses were issued to new commercial banks such as:
Zenith Bank founded by Jim Ovia
Intercontinental Bank founded by Erastus Akingbola
Guaranty Trust Bank founded by Fola Adeola
Commerce Bank founded by Femi Adekanye
These banks were set up by equally young Nigerians who had worked in other banks and decided to establish their own banks. Atedo decided to be different and hence, looked the way of investment banking.
He began with a small office in Marina. Atedo gathered a couple of other young professionals and started what would later become the leading investment banking institution in Nigeria. The watchword of the Investment Banking and Trust Company (IBTC) was integrity and professionalism. By the end of the 20th century. the company had grown to become the reference point of modern investment banking in Nigeria. Its activities included merger and acquisition activities for corporations and governments in raising capital and for other restructuring exercises.
Banking Reform of 2004 and its effect on investment banking in Nigeria
The banking reform of 2004 by the Central bank of Nigeria focused on bank consolidation through the mechanism of merger and acquisition. This resulted in the rebasing of commercial banks from ₦2 billion to ₦25 billion which meant banks needed to have that amount before going on with operations. The existing commercial banks were 89 at the time, it then reduced to 25. In 2003, Investment Banking and Trust Company (IBTC) was listed on the Nigerian Stock Exchange. The consolidation policy at the time saw the company merge with Chartered bank, a commercial bank. The enlarged IBTC-Chartered Bank was later acquired by Standard Bank of South Africa and was rebranded as StanbicIBTC.
Today, the list of Investment Banks in Nigeria includes:
- Access Bank
- Associated Investment Trust Microfinance Bank Limited
- Bank of Industry
- Bank PHB
- Bauchi Investment Corporation Limited
- Central Bank of Nigeria
- Diamond Bank
- Equitorial Trust Bank
- Federal Mortgage Bank of Nigeria
- Fidelity Bank
- First Bank of Nigeria QUEST ASSET MANAGEMENT
- FIRST CITY MONUMENT BANK PLC
- Guaranty Trust Bank
- Intercontinental Bank
- Mainstreet Corporate Banking
- Oceanic Bank
- Savannah Bank
- Skye Bank
- Société Générale Bank of Nigeria
- Spring Bank
- Stanbic IBTC Bank PLC
- Standard Chartered Bank
- Sterling Bank
- Union Bank of Nigeria
- United Bank for Africa
- Unity Bank
- Urban Development Bank of Nigeria
- Wema Bank
- Zenith Bank