2 Electronic Banking Equity Express In Nigeria example essay topic

ECONOMIC RESEARCH PROJECT ON EQUITY BANK OF NIGERIA LIMITED Economics for Business Module Project Prepared By: Olu chi EzemStudent Number: 841614 Date: April 20, 2005 Course: MBA-BE-050310-01 Economic Research Project on Equity Bank of Nigeria Limited Contents 1. Objectives 42. Introduction 63. Chapter 1: The Company and The Product 71.1 Background 71.2 Structure 81.3 Directors' Interest 81.4 Financials 91.4. 1 Balance Sheet 91.4. 2 Profit and Loss Account 101.4.

3 Performance Ratios 101.5 Products and Services 111.6 Treasury and Financial Services 111.6. 1 Commercial Deposits 111.6. 2 Electronic Banking 124. Chapter 2: Industrial Context and Competition 152.1 The Nigerian Business Environment 152.2 The Banking Industry 162.3 The Players 172.4 Result of consolidation 172.5 Competition 185. Chapter 3: My Company: Labour, Capital and Government - 203.1 Labour 203.2 Capital 223.3 Government 226. Chapter 4: The Macroeconomic Context of Doing Business -- 24 Figure 1: Nigeria: Crude Oil Prices 24 Figure 2: Nigeria: External Reserves 25 Figure 3: Nigeria: Inflation Rates 26 Figure 4: Nigeria: Exchange Rates 277.

Chapter 5: Some Strategic Lessons 295.1 Threats 295.2 Opportunities 305.3 Weaknesses 315.4 Strengths 325.5 Strategic issues and conclusion 338. Appendix 1: Five year financial summary of Equity Bank 35 9. Appendix 2: Tows Analysis of Equity Bank of Nigeria Ltd -- -- 3610. Appendix 3: Documentary References 37 OBJECTIVES " Economics for Business" is an MBA module that has been packaged in such a way that a student would be able to apply the economic concepts learned to actual business situations. In line with the above, this project has been designed to show the application of some of the economic concepts learned to the company I presently work for - EQUITY BANK OF NIGERIA LIMITED". Chapter 1: The Company & The Product" describes the bank and the products and services it deal with.

A brief historical perspective and its organizational structure are presented in addition to a description of the location of its physical facilities. Emphasis was laid on the features of the financial products / services ; their uniqueness and usefulness where not overlooked. Next is a description of the banking industry in which Equity Bank operates. In this chapter, "Industrial Context & Competition", an overview of the industry was analyzed; its present outlook and future possibilities. The challenges ahead of it and the competition it faces due to changing technology were also considered. An in depth analysis of the effect of labour and government in the life of the company was discussed in "Chapter 3: My Company, Labour, Capital and Government".

The labour mix required in the company was compared against the existing pool of labour. Issues relating to the implementing of new technology and its impact to the labour force in the company and to the nation as a whole were analyzed. Chapter 3 also gives insight to the importance of capital, its costs and availability to the "health" of your company. Government's role in the business was discussed and the extent of intervention through its regulations was considered. Chapter 4 borders on "The Macroeconomic Context of Doing Business" and points out the economic well being of Nigeria and its effect on the revenue of Equity Bank. A major discuss was on the effect of interest rate, exchange rate and availability of money to the business of the bank.

Finally, a TOWS analysis was carried out in "Chapter 5: Some Strategic Lessons". The threats and opportunities facing the bank were considered vis-'a-vis its strengths and weaknesses. At the end of the research, the strategic processes that Equity bank needs to take were discussed. INTRODUCTION The three largest Banks - First Bank, Union Bank and United Bank for Africa- currently operation in Nigeria (referred to as first generation banks) started operations during the colonial period.

The British Bank for West Africa (now called First Bank) was incorporated in 1894; the Colonial Bank, acquired by Barclays and now known as Union Bank started operations in 1917. United Bank for Africa, then known as the British and French Bank started off in 1949. These were originally wholly owned by foreigners but the Federal Government bought majority share in them in the 1970's. The establishment of Afribank, formerly Banque Internationale Pour L'Afrique Occidental (BIO) followed. Later on in the 1970's commercial banks and a number of merchant banks were established by the state governments in conjunction with the federal government and some private investors.

Government was the majority shareholder. During the 1980's more banks were set up by state governments but this time Nigerian private investors were majority owners. As at 1992, there were 66 commercial banks and 54 merchant banks in operation in Nigeria. Today there exist over 100 banks in Nigeria in three categories: Commercial, Merchant, Industrial and Development banks.

Equity Bank of Nigeria Limited is one of the commercial banks in the country. ' Chapter 1: The Company & The Product'1.1 Background Equity Bank of Nigeria Limited ("EBN", "Equity" or "the Bank") has been in existence for 16 years. It was incorporated in Nigeria as a Private Limited Company in December 1988 and started operation in January 1989 as Meridien Equity of Nigeria Limited an affiliate of Meridien International Bank Limited (MIBL). In May 25, 1995 it changed its name to what it bears now after the parent company MIBL was liquidated.

In 1996, Intercontinental Bank PLC (IBP), one of the big banks in Nigeria became a major shareholder in EBN, owning 64.55% of the paid-up capital of the bank. The bank has an authorized share capital of 4 billion naira and paid capital of 2.4 billion naira as at October 21, 2004. Equity has its head office located at 107/113, Broad Street, Lagos, Nigeria. Altogether, it has 40 branches that are strategically located in major cities such as Kano, Abuja, Onitsha, Aba, A papa, Port Harcourt, Calabar and commercial centres in Nigeria to cater for the growing customer base. The branches are located in areas that are major business activities such as near seaports, international markets, corporate environments and government establishments. In addition to these branches, there are also cash centres.

These are usually off shoots from some of the bank branches but are smaller; only the deposition of cash is done here. These branches are divided into regions being managed by regional managers. There are 3 regional offices in Lagos, 2 in the eastern region of the country, one each in the western region, northern region and Abuja area. The Bank intends to open more branches by the end of 2005. The Bank's foreign correspondents are Deutsche Bank, New York and United Bank for Africa, New York. 3 Directors' Interest: The Interests of the Directors in the issued share capital of Equity Bank of Nigeria are as follows: Name No. of Shares held Mr. Isyaku Umar -Mr. Raymond C. Obie ri -Mr. Erasmus B.O. Aking bola -Mr. H.U.F. Eneha -Chief Chris Al abi -Mr. Tim Mena kaya 20,810,887 Mr. J.S.P.C. Nwo kolo 149,116,782 Mr. Mohammed B. Kiri 52,875,698 Mr. Akin Ajay i (MD / CEO) 19,198,788 Mr. Amos Dan gana 22,521,650 Mr. Clitus Ok oro (Executive Director) 12,000,000 A Board of eleven Directors steer the bank's business and ensure that policies are consistently adhered to.

They also make decisions concerning staff welfare and general organization of the bank. Furthermore, apart from the Board of Directors, there exists a Senior Management team which oversees the day-to-day activities of the bank and is responsible to the Board of Directors. 1.4 Financials 1.4. 2 PROFIT AND LOSS ACCOUNT for the year ended 31 December 20032003 2002 N'000 N'000 Net operating income 3,833,187 2,508,469 (Provision) /write-back for loan losses (473,755) 7,450 Operating expenses (2,733,764) (2,290,888) Profit before taxation 625,668 235,031 Taxation (89,774) (107,069) Profit after taxation 535,894 127,962 Transfer to statutory reserve (160,768) (38,389) Transfer to investment in Small and Medium scale industries reserve (62,567) (23,503) Proposed dividend (205,158) -Transfer to revenue reserve 107,401 66, 0701.4.

3 PERFORMANCE RATIOS 2003 2002% %Gross Loans and Advances (Nm) 11,356 6,302 Classified Loans (Nm) 2,615 2,305% of Classified Loans 23 36.6 Equity / Total Assets 9.6 12.8 Fixed Assets / Equity 61 65.8 Return on Equity 23.8 6.6 Earnings per share (kobo) 52 13 Dividend per share (kobo) 20 -The bank's equity increased by 17.3 per cent in 2003 to N 2,262 million from N 1,928 million in 2002 while the growth of the shareholders' funds was not as great as the growth in the value of total assets of the bank which grew from N 15,042 cent in 2003 from 65.8 per cent in the previous year, the bank was not yet able to compete favourably with its peers in the industry that achieved a 43.2 per cent permanent asset-equity ratio. The total loans and advances were N 11,356 billion while classified loans came to N 2,615 billion in 2003. In 2002, total loans and advances were N 6,302 billion while classified loans came to N 2,305 billion. Operating income increased from N 2.5 billion in 2002 to N 3.8 billion in 2003 which represents an increase of 52%.

Its profit before tax grew to N 626 million in 2003 from N 235 million in 2002 showing a 166.4 per cent growth. In addition, profit after tax also increased by 320.3 per cent to N 538 million from N 128 million. The total liabilities of the bank increased by 63.25% from N 13.11 billion in 2002 to N 21.41 billion in 2003. The deposit of the bank increased to N 16,545 billion in 2003 from N 11,473 billion in 2002.

Its earnings per share increased from 13 to 52.1. 5 Products and Services Equity Bank of Nigeria Limited offers a wide range of commercial banking services to corporate, government and individual clients on an on-line real-time basis in all its branches, all of which are linked to the Central Processing System. These services include: 1.6 Treasury and Financial Services 1.6. 1 Commercial Deposits Equity -CAN (Equity Capital Appreciation Notes) This is a unique product designed by Equity Bank of Nigeria Limited to specifically protect money-wealth from the value -eroding effect of inflation. It is an excellent product for investors who desire high yield on their investments without compromising value and safety. With a minimum deposit of 250,000 (Two Hundred and Fifty Thousand Naira) and a minimum tenor of 90 days an investor can be sure of a high yield on his investment.

Insurance cover up to N 1 million is provided in case of accidental death, while investors can borrow, with their investment serving as collateral. Interest is paid at maturity of the investment. Equity -PAC (Equity Prestige Account for Children) Equity- Pac is specially packaged to provide stronger backup for children's education. It is a high interest yield product for investors who would like to save toward the education of their children or wards. It is a savings account whereby you are allowed to make cheque lodgments. Parents can open this account on behalf of their children and hold it in trust for them until they are of age.

It is flexible and offers a lot more benefits that will make life easier for the parents of account holders. With an initial deposit and daily balance of N 5,000 (Five Thousand Naira), the account holder is entitled to free Mangers' Cheque or Bank Draft for the payment of the child's school fees. He could receive quarterly statement of account and allowed to make third party withdrawal. This is unique because third party withdrawals are not usually allowed on savings accounts. The interest rate is from 6-10% per annum and additional 1% interest is payable on account balances not below N 200,000 (Two Hundred Thousand Naira) for 90 days.

Loans could be granted to account holders for school fees if they have collateral e.g. shares, treasury bills Equity -CLO (Equity Consumer Leasing Option) This is a special product tailored to assist customs in the acquisition of their desired assets when they may not have the required cash outlay. Such items include Electronics, Household Alliances, Generators and Automobiles e. t. c. It is offered at convenient and attractive repayment terms for periods of between six months and twenty-four months to accommodate the cash-flow profile of customers. Equity Gold Account Equity Gold Account is a Current Account, which offers profitable cash flow management, flexibility and convenience to the investor.

Equity Gold Account is a rare combination of time and value. In Nigeria, it is banking practice to charge Commission on Turnover (COT) on a current account. Hence, this product has been differentiated to compete with rival banks. One of the major benefits is that it is COT free and attracts good interest rate. It comes with a free cheque book and free ATM card. The opening balance should not be less than N 200,000.00 and a minimum daily balance of N 200,000 should be maintained to get the benefits. 1.6.

2 Electronic Banking Equity Express (ATM) In Nigeria, Equity Bank is one of the few banks which offer services that enable customers do their banking transactions on 24 hours-a-day basis using Automated Teller Machines (ATM's). It makes for convenient banking services at leisure, even during weekends and public holidays. You can withdraw as much as N 20,000 (Twenty Thousand Naira) in crisp Naira notes daily. The bank has deployed a new ATM technology and has installed this new equipment in 6 locations. Apart from features of a standard ATM which include access to cash drawings from off-bank sites at all times, the equipment enables a customer to check account balance, print statement e. t. c. The ATM's are situated in choice locations such as the Iko yi Club; the Domestic Terminal of the Mur tala Mohammed International Airport, Ikea; Shell Residential Area, Port Harcourt; the National Assembly complex, Abuja; and Equity Bank branches in Broad Street and Victoria Island, Lagos.

Efforts are already in progress by the bank towards acquiring and deploying a larger number of ATM's to choice locations all over the country; this is expected to bring our banking service close to the door-step of the banking public. Equity Mobile Bank Account Equity Mobile Bank Account is the product of a combined effort by the GSM Service Providers (MTN and Eco net) and Equity Bank of Nigeria Limited which is designed to enable customers utilize their mobile handsets to carry out certain banking services at Equity Bank. Using this service, Equity Bank customers do not have to go to their branch for Account enquiries and other transaction details; this they can obtain through their mobile phone. They can also obtain account details, extract mini statements, request for full account statements, obtain mini-statement of uncleared transaction items, request for full statement of uncleared transaction items, know Cheque status, stop a cheque or cheque's, order for cheque books, confirm cheque issued, effect transfer between accounts, pay bills, mail their account officer e. tc.

In addition, Equity Mobile Bank Account offers distinct service to customers by enabling them to purchase their GSM mobile recharge units on-line from the bank, obtain a history of their mobile recharge cards purchases, and to change their PIN (Personal Identification Numbers). Internet Banking This facility enables our customers obtain account information, request for account statements, apply for Letters of Credit (LCs), view details of un presented cheque's, apply for bank drafts and effect stop payment orders. Customers can also recharge their mobile phones and are also enabled to perform internal transfers, wire transfers and automatic transfers. Conclusion The most unique product that differentiates Equity Bank from others in the industry is the use of internet technology in its banking process. With the introduction of the ATM, Mobile Bank Account and Internet Banking, more customers are patronizing the bank. The change to the use of this technology enables the bank to have an advantage over its competitors especially with the location of an ATM machine at the local airport.

Presently, banks are not located at the airport; hence it is convenient for most to get enough money for ticket or taxi fare on their arrival or departure from the airport. A unique product indeed. Chapter 2: Industrial Context and Competition 2.1 THE NIGERIAN BUSINESS ENVIRONMENT The Commonwealth Business Council (CBC) in Dec 03, 2003 declared the business environment of Nigeria as one of the most difficult worldwide. According to the CBC business environment survey 2002/2003, the respondents have emphasized on Nigeria's business environment which is negative at the moment. In May 29, 1999 the first democratically elected government in 15 years came to power. Prior to that time, "there was widespread corruption, abuse of human rights, economic mismanagement and political repression.

It was a climate in which tremendous capital flight took place while industrial production was at its lowest ebb". Although the administration is trying to revamp the economy, yet the environment is one where major utilities are supplied by inefficient government monopolies; an example is the supply of electric power, which is very erratic, as a result most businesses incur huge expenses making production costs very high. The exchange rate is highly volatile and the Nigerian Naira is very unstable, not to mention the low purchasing power of most individuals. Revenues are lost on a daily basis due to the large non-taxable informal sector.

Corruption is another factor that has infiltrated into the economy and exists in the "high places" thus making it difficult for well-intentioned policies to be implemented. The government has been working hard to provide enabling environment for foreign investment. One of the measures it adopted was to pass into law the Corruption and Allied Offences Act. This is to 'clean up' the system as it where because corruption slows down the growth of an economy. It also undermines the confidence people have in the government. In 2000, there was also the implementation of the anti-corruption bill, all in the bid to create a safe business environment for foreign investors.

There are poor infrastructures such as roads, water, and electricity and until recently communication. Most of the roads are not maintained but filled with potholes. Electricity is epileptic; most companies turn to using generators which increases the cost. Furthermore, in order to enhance economic recovery, the government has called for a private sector-economy, which will take place through privatization and other investment opportunities. The government has made its target the banking and insurance services and solid minerals. 2.2 THE BANKING INDUSTRY The inconsistent legislation's in the country are one of the major threats to the Banking sector.

On July 6, 2004, the governor of Central Bank of Nigeria (CBN), Charles Soludo gave a directive to banks to increase their capital base from N 2 billion to N 25 billion or have their banking licenses withdrawn after December 31, 2005. This was coming less than six months of being appointed the CBN governor. Mr Soludo is forcing the weak and fragmented industry to consolidate; this he believes will "result in a stronger banking system that plays a more active role in economic development" [3]. It has not been very easy as most banks are owned by the influential individuals in the country. Most of us are watching to see how it turns out. To fail would mean that the reforms proposed by the government would not be seen to the end and failure on the part of CBN to achieve this will make it lose its reputation.

Since very few banks have such capital base, he suggested mergers and acquisitions as a strategy to surmount the challenge within the 18-month time frame. This means that banks will have to integrate their activities and operations, a process that will continue over a long period of time. In line with this, Equity Bank of Nigeria Limited recently signed a Memorandum of Understanding (MOU) with three other local banks; Intercontinental Bank Plc, Gateway Bank Plc and Global Bank Plc to form the Intercontinental Bank Group. Thus, its status has been elevated as one of Nigeria's leading banks.

The post consolidation Intercontinental Bank Group is expected to have one of the largest online network and capital base. The Intercontinental boss said after the successful conclusion of the expansion programme by all the individual member banks, 'we shall integrate our total strength to roll out a banking institution large enough to alter the structure of competition in the industry'. "Although, the four banks had operated separately, they have in the last eight years shared an intricately interwoven ownership structure, identical business models and group operational synergy". 2.3 THE PLAYERS Most of the banks despite their sizes have expensive headquarters, heavy investment in software and hardware, high fixed costs and operating expenses, and many branches in commercial centers. Also, most banks have a high turnover of board and management staff, which, is not in the interest of the banking public. All these lead to high average costs for the industry.

Thus, the cost of intermediation, that is, the spread between deposit and lending rates is so high that most small firms and businesses find it difficult to survive as they do not have access to loans. According to Mr. Soludo", Nigerian banking system is fragile and very marginal relative to its potential and in comparison to other countries - even in Africa", . Moreover, he also indicated that public sector funds would be withdrawn from the banks in phases, which started in July 2004. In addition, the Federal Government of Nigeria through the CBN is making efforts to reduce lending and inflation rate to ensure that the manufacturing sector of the economy becomes enviable. Hence, CBN has reduced Minimum Rediscount Rate from 15 per cent to 13 per cent. The MRR is the nominal rate in the market upon which other rates including interest rates are predicated.

It is the rate at which the Central Bank lends to banks and banks are expected to lend to no more than four per cent above this. Although, some manufacturers and bankers say it is a good policy in the right direction, the banking industry and Equity Bank in particular will find itself in stiffer competition and price war. Usually, one finds customers asking for higher rate on their deposits and demanding concession on the interest rate on loans. With this reduction by CBN, the bank will be forced to review the interest paid on deposit. A lot of convincing and explanation will need to be made to the customers, as they will find it difficult to understand why there should be a reduction in their interest instead of an increment. Also, the measure will bring about a thinning out of profit margins for the bank.

2.4 RESULT OF CONSOLIDATION Prior to this time, the banks have been apathetic towards small savers, particularly at the grass-root level. This has resulted in few people saving money and high bank lending rates because the banks do not have cheap and stable funds to use. Consequently, after the consolidation, banks will face the essential roles meant for them, which is, mobilizing savings and inculcating banking habits at the household and micro enterprise levels. The financial system will be sound, stable and efficient. Depositors' money will be safe and most sectors of the economy will be developed.

Nigerian banks will be able to compete with the African regional and global financial systems. There will come to be the emergence of regional and specialized banks. Community banks will be strengthened to cater for poor, small customers. More jobs will be created because the banks will be lending to the productive sectors of the economy. The Central Bank of Nigeria has set up a technical assistance team that includes both Nigerian and foreign experts, that will offer free consulting services. The CBN is ready to pick up some of the direct costs and also structure incentives for the banks.

Consolidation will improve transparency and accountability in the banking sector. In 2003, there were 1036 cases of fraud in the banking sector partly because it is expensive to effectively supervise and police so many banks, many of which are desperate to survive and are engaging in sharp practices. 2.5 COMPETITION For the 89 banks in the industry, life is full of competition especially in the use of technology. Some telecommunication and information technologies which are presently being used in the banking industry in Nigeria are telephone, facsimile, wireless radiophone, Very Small Aperture Terminal (VSAT) and computer systems.

Most banks also have LANs (Local Area Network) in most of their branches. Another technological change is the evolution of the ATM industry in Nigeria. Equity bank has adopted the use of this facility and is using it as a competitive advantage over others in the industry. Most banks are yet to use this technology to the full. The future thus, looks bright for this product. For most people today, "proximity to the bank is no longer the issue: safety and the level of service, with regard to quality, speed and efficiency has become the major imperative".

The banks have realized that new technologies have to be adopted in banking operations if there would be success. Customers are now curious about banks that are online, real-time. But the truth is that most banks that claim this usually have system downtime and customer ends up getting frustrated. To solve this problem, most banks now adopt the use of appropriate VSAT technology. Studies have shown that IT has positive effects on the bank's productivity, cashier's work, bank patronage, bank services delivery. It is possible now for customers to withdraw money from any branch without having to carry much cash about.

Equity bank recently upgraded its software from Phoenix to Equinox thereby reducing its system downtime. They are also online real-time and thus has braced up for competition. The card market is still a very fertile ground in the country and if time is not taken will become increasingly competitive. Only about 3 banks have attempted to venture into the field of trying to provide credit cards such as MasterCard and Visa. If Equity gets in at this stage, it will be able to get an excellent market share before it becomes saturated. With new entrants the competition looks set to intensify.

Chapter 3: My Company: Labor, Capital and Government 3.1 LABOUR Equity Bank operates in an industry that is one of the highest employers of labour in the country. It is an equal opportunity employer and does not consider the gender; you find both men and women represented in an almost equal number. The workforce is made up of mostly Nigerians from different parts of the country. When compared to the civil service, it pays high wage rate and thus its supply of labour is high. It is not unusual to find more than 1,000 persons turn up for interview for about 10-20 vacancies. Although this is due to the high unemployment rate in the country but a leading factor is the high wage rate that is offered.

Graduates from all disciplines are given the opportunity to participate in employment interviews. Moreover, despite the low wage rate obtainable in most sectors, the non-wage benefits offered by Equity Bank like its competitors are numerous. Working for a bank in the country; people perceive you as a rich person because in addition to your salaries, you get holiday allowances and as you grow up the ladder, you have access to mortgage loans, paid holidays e. t. c. Mobility of labour in the bank and the industry in general is very high due to the competition in the sector; people are able and always willing to move within the industry. With the introduction of online banking as a result of technological improvement, fewer people are now needed to work in departments such as Operation and Treasury. These required a lot of paper work and record keeping in the past but things have changed as emails and faxes have replaced memos and other write-ups that would have been done before a transaction is consummated.

Instead, more individuals are employed as relationship people because of the marketing focus of the bank. To grow and make profit, it has been evident that the objective should be to maintain and grow the customer base. Thus, incentives such as productivity bonuses and profit-sharing have formed part of wage paid to an employee. Technology has also affected the pool of labour the bank can draw from in the sense that the labour force is untrained. Most graduates do not have the skills required by the bank except for the theories studied in school. Hence, the bank usually spends money training fresh graduates.

Furthermore, the labour force is also underemployed. Every year, thousands of graduates get into the labour market and cannot find suitable jobs to do. In most instances, some banks have employed graduates and sometimes holders of masters degree as casual workers or utilizing them in capacities were they tend to be underutilized. Technological changes in my opinion have brought about labour surpluses in the national pool of labour which the company draws from. I do not foresee labour shortages because the universities are still churning out graduates into the market. The Nigeria Labour Congress and National Union of Banks, Insurance and Financial Institutions Employees (NUBIFE) planned to picket banks for employing graduates as casual workers.

In March 2004, Equity Bank together with 96 other banks and financial institutions went to the Federal High Court in Lagos to restrain the Nigeria Labour Congress (NLC) from going ahead with the picketing of the banks over the of labour and the ban of unionism in the banks. "The court struck out the motion, following an application by counsel to the banks, that since the NLC, the National Union of Banks, Insurance and Financial Institutions Employees (NUBIFE) and management of the banks have reached an agreement, they would want to withdraw the motion, pending further discussion on the matter". This shows that the actions of the Union could cause a devastating effect on the bank if proper action is not taken. Staffs are trained by consultants or in-house training would be organized in the training school as the need may be to make sure that everyone adjusts to the changes in technology. New innovations are brought to the fore and ways of implementation mapped out for affected business unit. At present, even in the future; the labour force is required to be abreast with technological changes.

In the country today, before you are employed, the company will want to find out if you are computer literate. Although one might not have learnt that in school; but one is expected to improve's / he skills himself so as to have an edge over others in the labour market. 3.2 CAPITAL Presently, the head office accommodation where Equity Bank occupies is growing inadequate. Efforts are being made to build another head office on a plot of land in Victoria Island, one of the choice areas in Nigeria. Although, it will cost a huge sum of money; but it will be proper to have a befitting accommodation considering the competitive nature of the industry. Equity Bank's fixed assets make up about 5% of its total assets.

These fixed assets include land and buildings, motor vehicles, furniture, fixtures and equipment and computer equipment. All these aid in the day to day running of the business. There is increased demand for such assets when there are new branches to set up. That notwithstanding, there is sufficient availability of capital to enable the implementation of strategic goals of the company. The price of capital does not directly affect the price of services we produce because in the industry there is a limit to the charges you can impose on a customer. Most of the pricing are set by the regulatory authorities except for some variations.

Payment for the capital employed is financed by the bank itself. Most times it buys assets such as land or vehicle on lease. 3.3 GOVERNMENT The government intervenes sometimes in the operations of bank through the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance Corporation (NDI C); bodies that regulate policies in the industry. Principal regulations relate to capital, classification of loans, provisioning, cash reserve and liquidity. The banking industry has been undergoing a process to remove weak banks from the industry. As part of the process, the CBN increased the minimum paid up capital to 25 billion naira from 2 billion.

The deadline for meeting this requirement is 31st December, 2005 and as at now, the major players in the industry have met this requirement. Those who cannot meet it single handed, are encouraged to merge or package themselves for acquisition. In addition, the Federal Government of Nigeria through the CBN in an effort to ensure that the manufacturing sector of the economy becomes enviable is working towards reducing lending and inflation rate. The government in order to stabilize economic growth would intervene in business activities. If the economy is sluggish but stable, government intervention could make the economy grow faster by adjusting its monetary and fiscal policies. The government too is concerned about activities that will bring about change in the macro economy unlike the companies that will do things that will only translate into profit for the business even if it is at the detriment of the economy.

Government intervention in the banking sector has made my company more competitive as it tries to meet up with the policies. Chapter 4: The Macroeconomic Context of Doing Business According to a USAID report, "Nigeria may be the most challenging and important development country in the world. It is by far the world's most populous extremely poor country - but is its sixth -largest oil exporter. It has the smallest manufacturing sector of any large economy in the world, and the greatest concentration of export and government revenue dependence on a natural resource commodity" [1]. Statism has been a hindrance to economic growth in the country.

Statism is a situation where the government is the manager of the economy and where governmental authorities are given the power over economic activities such as employment, finance and product delivery. Until the announcement of the privatization and liberalization policies, the government owned all the major industries and directed the investment of resources. Furthermore, it experiences what the USAID report refers to as "Dutch disease". That is, the dominance of a particular commodity exports in an economy to the detriment of the development of other sectors. As at 2001, oil represents 42.4% of the GDP -Gross Domestic Product- in Nigeria. It is not different today.

See figure 1 below. NIGERIA: CRUDE OIL PRICES (1998-2004) Figure 1. (c) 'Biodun Adedipe, Ph. D April 2005 The Nigerian business environment is not an enabling one as discussed above. In addition, Nigeria has a poor commercial legal, regulatory, and judicial environment. The government administrative and registration services are very inefficient.

The legal tradition and basic contract law is solid, however, laws governing bankruptcy, secured transactions, land titling are not "sufficiently supportive of the bank credit system or trade credit". The judicial system is inadequate even when laws are adequate. The un sustainability and instability of macroeconomic policy poses an obstacle to the economic development of Nigeria. Presently, Nigeria owes huge sums in foreign debts and this means that excessive borrowing can only be addressed by inflation. The government tends to overspend and despite the increase in oil prices, it does not save. See figure 2 and 3 below.

Thus the country is constantly going through periods of inflation and high interest rates because of government's debt purchases. The variability in oil prices and government spending tends to cause disequilibrium in the balance of payments. NIGERIA: EXTERNAL RESERVES (US$'BL) Figure 2. (c) 'Biodun Adedipe, Ph. D April 2005 NIGERIA: INFLATION RATES Figure 3. (c) 'Biodun Adedipe, Ph. D April 2005 The economy as discussed above has been inflationary and affected the revenue generated by the bank. Producers are not encouraged to borrow money from the bank as interest rates are high and funds are short-termed due to the instability of the economy. In 2002, the interest rate was as high as 25%.

Hence, with fewer producers patronizing the bank, the bank's revenue would fall. It is not in all instances that government national policy positively affects the business of my company. In recent times, the importation of some goods into Nigeria has been banned and the policy has affected my bank negatively. First, credit facility in terms of overdraft is an avenue the bank uses to make money and most businesses it avails money to, are in importation. The result is a decline in the number of customers and low revenue. Second, the bank also losses the float it would have enjoined if the customers were operating their accounts.

The government policy on the reduction of Minimum Rediscount Rate (MRR) to 13% has also affected the bank negatively in terms of its profit generation. As a result, the interest rates are lower than what it used to be. Yet it is possible for government policy to affect the business positively. A lot of businesses are affected by the cost of borrowing funds from banks, it also holds true for my company whose business is banking. The availability of money in the form of cash or other assets determines the volume of business the bank will undertake. To meet its obligation, it borrows from other banks (through inter- bank) or the Central Bank.

The interest rate charged by Central Bank will determine how much it would charge its customers too when giving them credit or taking their deposits for safe keeping. At the national level, the business of banking is very competitive and Equity bank is doing well in that respect. To compete favourably, it has to match what its competitors offer in terms of interest rates and service. Equity bank has at least three banks overseas that it uses for its foreign transactions. Usually customers who establish Letters of Credit or who buy foreign exchange and maintain domiciliary accounts are affected by exchange rates. The exchange rate is not always stable but affected sometimes by the international environment.

See figure 4 below. The bank makes money by selling foreign currency at a margin to consumers. If the rate appreciates and it has bought money at a lower rate, then it will make profit by selling it at the new rate. If the opposite is the case, then it would probably make a loss. Hence, the staffs in the foreign exchange department are always on the watch on how the rate fluctuates. NIGERIA: EXCHANGE RATES (N / US$) Figure 4. (c) 'Biodun Adedipe, Ph. D April 2005 It could be seen from the chart above that during the period from 2001 to about the late 2002, the margin between the official rate of dollars and the parallel market was very high.

The acceptable gap or premium in the country is 5% otherwise, a lot of people will be encouraged to do round tripping that is, buying dollars from the Central Bank and selling it in the parallel market; making profits not tied to any real transaction in the economy. This was the situation in 2001 and 2002 in which most banks also engaged in. Banks during this time declared enormous profits until some were sanctioned and made to pay huge fines. The system was then brought back to its normal position. It could be noticed too that the exchange rate has been stable for awhile because the Central Bank has set it at 133 naira per dollar and has made a provision of 3% within which it should fluctuate. Businesses are operating in a more stable environment and the incessant increase in the prices of goods imported is minimal.

Chapter 5: Some Strategic Lessons Equity bank is a bank that has potentials for growth despite its shortcomings. The project thus far, have been able to present a picture of Equity Bank, its background, products, financial's, and its operation in the competitive environment and how it is affected by macro economic concepts. Below is a TOWS analysis explaining Equity Bank. 5.1 THREATS: The inconsistent legislation's in the country are major threats to the Bank especially so is the 25 billion capitalization of commercial banks; a directive given by the Central Bank of Nigeria. This means that Equity bank is on the verge of losing its identity because it would not be able to generate such huge funds. With a shareholders fund of 2.3 billion, it faces the problem of inadequate capitalization, 25 billion is a very tall order.

It stands the risk of being acquired and losing its corporate entity and key personnel. Presently, it relies on inter bank funding and thus is vulnerable to liquidity shock in the event of collapse of money market. Thus, the status of Equity Bank will indirectly be elevated to be one of Nigeria's leading banks. With the reduction of Minimum Rediscount Rate from 15 per cent to 13 per cent by the Central Bank, Equity will not be able to make as much margin as it used to when it grants loan to individuals or companies. More so, the industry is in a stiffer competition and price war. The bigger banks are able to lend at a cheaper rate because of the cheaper funds they enjoy but Equity does not enjoy this "economies of scale".

Consequently, its pricing will always be a little higher than the average thereby making it difficult to maintain customers. High volume of Non-Performing Loans (NPL) is another threat to Equity Bank. A financial columnist, Fol akemi Kayodeojo referring to Equity's NPL in 2003 wrote, it was "so large that it overshot the entire volume of the resources of the owners of the bank by 15.6 per cent... this means that the bank's total equity could be eaten up if classified loans were written off during the year". These Npl erodes shareholders funds while large provisions are made for them at the end of each financial year.

The focus on the management of NPL creates a negative impact by slowing credit growth and thus adding more friction to economic activity. 5.2 OPPORTUNITIES: With the N 25 billion capitalization's, it is expected to introduce sound management practice and the credit structure will be stronger. The bank will be able to support business sectors like maritime, aviation, education, agriculture e. t. c. which have been overlooked in the past years. Equity Bank has also seized the opportunity of its alliance to Intercontinental Bank to raise more capital for the bank.

In October 2004 to February 2005, their was a campaign on getting individuals and corporate bodies to invest in the bank by buying its shares through Private Placement as the bank is not quoted on the stock exchange. So far the bank has raised additional funds of N 3.1 billion to augment what its capital base. It is trying to present itself as a "good bride" to Intercontinental Bank Plc. Equity's working capital will be enhanced after the merger and this implies that the bank will have the opportunity to play at the top; that is, being able to finance the big blue chip companies and multinationals. Emphasis will be on the Telecommunications and Energy sectors of the economy.

Equity Bank has the opportunity to establish offshore branches in the West African coast and in virgin areas of the country: such areas as Ghana, Gambia and north eastern and northwestern sides of Nigeria. If it opens new branches in these areas, an increased market share will be realized and customer base grown to achieve more profit. To ensure efficiency and promote market confidence, the Bank could boost its capital base by converting to a Public Limited Liability Company thus, being listed on the Nigerian Stock Exchange. Equity will also benefit by setting up a vibrant debt recovery department bearing in mind that any recovered debt will go straight to the balance sheet as profit. It could partner with other banks to blacklist debtors as this will reduce the amount of provision for doubtful debts.

5.3 WEAKNESSES: In comparison to other banks, Equity Bank of Nigeria Limited is a small sized bank. A bank such as Zenith Bank Plc has a capital base of N 36 billion, this is a far cry from Equity's 2.3 billion. With such a capital base, it cannot finance big organizations in the energy, maritime and aviation industries where it has the opportunity to make huge profits. The public does not have confidence in smaller banks because in the past, some banks have become distressed and could no longer meet their financial obligations to their customers. The public is afraid that there is the tendency that banks with a small capital base would also tow the line of the distressed ones sooner than expected.

Since its operations are restricted to cities perceived as business centres, the rural areas are neglected. Operating in the rural areas would create float for the bank and there would be idle funds to cushion the credits it gives out. The cost of setting up a branch in the rural area is low; micro credit could be advanced to the farmers and small traders to help boost the economy of the country as a whole. A major weakness also is the lack of aggression at the top management level.

Decisions are not taken quickly in order to win the customer. In a very competitive industry, the bank stands to lose its customers. Those at the top should be quick to step forward when they are called to assist win a customer over. 5.4 STRENGTHS Equity Bank has 40 branches that are linked by an online network and serves the interest of the growing customer base. Customers could be attended to wherever they go no matter where their accounts are domiciled. Its greatest strength lies in the electronic banking products it has developed.

Being in a competitive environment, it has differentiated its products so as to gain a competitive advantage over its competitors. It has been rated as a leader in the Electronic banking segment of the market. Yet it keeps rolling out more of these custom-made products to the doors of customers. The bank has a good corporate image and is socially responsible. It supports humanitarian projects and some worthy projects in the country. During 2003 financial year, it made donations total ling 4.7 million naira to schools, charities and sports organizations.

Bayer o University Endowment Fund and Igbinedion University Endowment Fund both received the sum of N 1 million naira each. Moreover, to compete favourably the bank recently acquired a robust IT banking software "Equinox". Equinox is one of the best banking application packages being used in the banking system in Nigeria. The processing speed is very fast and it rarely experiences down time. The bank maintains a good relationship management and does not take it kindly when a customer closes or stops running his account due to the fault of a staff. An account officer is assigned to each account opened in the bank so that customers' complaints would be readily resolved.

The account officers will know as soon as possible what the needs of customers are and immediately pass the information on to the appropriate customer care units in the bank. Staffs are trained to be courteous and sensitive to the feelings of the customer at all times. Another of its strength lies in the investment it makes in human resource development. Equity bank provides functional and qualitative training for its staffs. 5.4 STRATEGIC ISSUES AND CONCLUSION Equity Bank in less than one year will integrate with three others into becoming a bigger bank - Intercontinental Group. Hence a strategic issue facing the Bank is the merger decision with Intercontinental Bank.

It has almost concluded arrangement for the merger as it proposes to take off by July 1, 2005. In five years, I see the Intercontinental Bank Group being among the first 10 banks in the country and a leader in electronic banking. Equity Bank will be able to impact its expertise in e-banking to the group. With the banks network, more people will be reached with the products. To assist the bank grow, I will have to improve on my present skills and achieve the optimum level of my capacity.

My relationship management skills and my analytical skills will have to come to the fore. The bank has reposed a lot of confidence in me, thus, I will have to carry on with my assigned job to make sure the merger transition is a smooth one. It behoves on me to sensitive the customers and make them believe in the bank. I have to develop more stringent measures when analyzing credit with the intention of booking a good one. It will be noticed that one of the problems the bank has is the high number of non-performing loans; so efforts have to be made to recover some of the old ones and avoid new booking bad ones. Another issue to be dealt with is the quality of service offered to customers.

There is slow response from management when it comes to decision making. The top management of Equity Bank is not proactive compared to others in the industry. The competition in the industry is such that one needs to be on his toes at every point in time and be ready to make decisions lest your competitor will acquire the customer. In comparison to industry average, staff welfare and training should be looked into so as to forestall high turnover of staff. There should be salary review following the incentive offered by other banks in the industry. This will increase the morale of staff and increase their productivity which in turn will increase profit for the bank.

Existing staff should be trained to handle their jobs more efficiently and effectively. Equity Bank needs to expand its branch network as soon as possible otherwise, its stands the risk of losing its present customers to the bigger banks. Increasing number of branches will mean recruiting more staff and increased profit due to increased market share. These issues when tackled will bring about a significant improvement in the key success factors of the Bank and place among the market leaders in the country.

Inconsistent legislation's by the government through the Central Bank hamper growth. Reduction in Minimum Rediscount Rate by CBN has led to a reduction of lending rate and thus reduced income for the bank. High volume of non-performing loans could erode shareholders fund if provision is made for all of them. The rate of staff turnover because of uncertainty of the consolidation exercise with Intercontinental Bank is making the bank lose some good hands. With inadequate capitalization of 2.3 billion naira vis-'a-vis 25 billion requirement, it stands the risk of being acquired by another bank which will lead to loss of its corporate entity.

Opportunities The merger with Intercontinental Bank will place the bank among the top 10 in the country and enhance its capital base. Setting up a debt recovery department will be in its interest as any debt recovered will automatically be declared as profit. It has the opportunity to convert to a Public Limited Liability Company so as to raise more funds and promote market confidence. Weaknesses Lack of aggression at the top management level. Due to the competition, decisions need to be quickly made and bureaucracy removed. With a deposit base of about 2.3 billion naira, it is difficult to open new branches and compete favourably with banks that have about 39 billion naira Strengths Has a good corporate image and is socially responsible.

Supports humanitarian projects. It prides itself with good relationship management. All its 40 branches linked by an online network. For the satisfaction and convenience of the customer.

Its electronic banking system puts it at an advantage over other banks. Has good investment in human capital. Provides functional and qualitative staff training APPENDIX: 3

Bibliography

1] Equity Bank of Nigeria Limited "Annual reports and Accounts 2003" [2] web Financial Standard, July 19, 2004 [4] static.
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html~~ [7] web web web web us aid. gov / ng /... /. pdf [12] Macroeconomic Review / Industry Analysis: Seminar on Basic Credit Analysis- Equity Bank of Nigeria Ltd. Biodun Adedipe Ph. D, April 2005.