De-marketing threatens financial sector stability

The banking industry has had two major spells of de-marketing, namely in 2006 and 2008. On both occasions, the CBN had to issue circulars to warn industry operators to desist from such unethical practice or risk severe sanctions.
A banking sector expert, Abiodun Stephens, explained that competition is a critical driver of performance and innovation in the banking industry, and encouraged the adoption of innovation as companies evolve and new ideas flourish in the marketplace.
According to him, de-marketing, which is a term used to describe competitors trying to pull down one another, is not good for any industry. “Unfortunately, this strategy is gradually resurfacing in the banking sector as damaging text messages and e-mails were recently sent round alleging that some banks were distressed. In fact, the text message had warned customers to withdraw their deposits from certain banks, saying the financial institutions were having liquidity problems,” he said.
Stephens said the same situation was experienced at the height of the fierce competition that took place towards the banking consolidation exercise between 2005 and 2006. The practice of de-marketing then was so widespread and threatening that it became a subject of a hot exchange in one of the Bankers’ Committee meeting in 2006.
 
Return of de-marketing
Recent developments showed a re-emergence of de-marketing tactics in the banking industry since July 2016 when the CBN announced the resignation of the board of Skye Bank, and the appointment of a new one. Prior to the announcement, the social media was awash with rumours that the bank was distressed, and that the CBN had taken over the bank.
Although the CBN Governor, Mr. Godwin Emefiele, while announcing the board changes at Skye Bank emphatically stated that neither the bank nor any other commercial bank in the country was distressed, to some, the announcement by the regulator was a confirmation of the rumours making the rounds.
Unfortunately, the de-marketing assault was not limited to Skye Bank, as some operators and members of the public decided to exploit the situation to spread concocted falsehood and damaging information about other banks in their bid to destroy competition in the industry and kill firms perceived as threat. Some of these assaults were directed at Heritage Bank, a fast-rising bank. According to the 2015 financial statement of Heritage Bank released in April, this year, the bank recorded gross earnings of N24.2 billion and posted a profit after tax of N1.1 billion. This was made possible via customers’ deposit of N312 billion, while the bank also gave out N175 billion loans during the year. Also, in March the CBN appointed Heritage Bank as partner for the pilot phase for its N3 billion Youth Entrepreneurship Development Programme.
Yet, there were a lot of de-marketing assaults on the bank to convey a wrong impression about its financial status. The de-marketers of Heritage Bank have sought to undermine it with two sets of malicious falsehood.
The perpetrators sought to undermine the image of the bank with a political coloura-tion. The main cause of this wave of de-marketing on Heritage Bank could be the threat it posed since its entrance into the league of Tier-2 banks in the country.
While the industry was still grappling with the fact of its emergence in the industry, Heritage Bank made a daring bid for the former Enterprise Bank. In addition to wining the bid, the bank made the payment for the acquisition in record time, while the management successfully integrated the two banks without any crisis or rancour.
 
Health of the banks
The CBN has also reiterated that no bank in the country was in distress, just as it reassured banks’ customers that their deposits are safe. The acting Director, Corporate Communications, CBN, Mr. Isaac Okorafor, said the attention of the Central Bank was drawn to the malicious rumours and unfounded speculations that some banks in the country might have gone or be going into distress.
To this end, the CBN restated “in the strongest terms that these rumours and speculations are untrue and do not reflect the actual health of the individual banks and, indeed, the entire banking industry.”
It, pointed out that no bank in the industry was in distress. “Therefore, the CBN would like to request the public to ignore speculations or rumours to the contrary as they could only be the handiwork of mischief makers, who do not mean well for the Nigerian banking system and its economy. As the regulator of the industry, the CBN hereby reassures the banking and general public that their deposits remain safe in any Nigerian bank. There is, therefore, no need for panic withdrawals from any bank.
“Going by both the CBN’s examination reports as well as analysis from market watchers, International Credit Rating Agencies and Development Finance Institutions, the Nigerian banking industry remains strong in spite of the global economic challenges emanating from the collapse of global commodity prices. We, therefore, urge the banking public to remain calm and go about their normal businesses without panic. It is important that we do not create problems when none exists,” it added.
There is need for the central bank to take urgent step to arrest harmful marketing strategy because of its likely negative consequence on the industry.
“The CBN wishes to state, and emphatically so, that it has not liquidated Skye Bank or any other deposit money bank for that matter. The bank also wishes to reiterate its earlier assurance that Skye Bank is not in distress and remains a healthy bank in the Nigerian banking system. Indeed, the health of the Nigerian banking system remains strong, all banks in Nigeria are safe and depositors have no cause to fear over their deposits,” a further statement from the apex bank said.
CBN tackles de-marketing
Realising the danger of the practice on the health of the industry and the need to decisively combat it, the CBN had issued a circular dated April, 2006, signed by then Director of Banking Supervision, Ignatious Imala.
The banking sector regulator had then stated: “When the banking industry had 89 banks, some of the weak institutions made efforts to de-market others by circulating false distress lists and negative information all in the name of competition. They were then warned at the Bankers Committee, followed by CBN clarification to the public.
“With the emergence of 25 strong banks, post consolidation and the existing large terrain for all to professionally and profitably do normal banking business for the growth of the economy, such practice is not only unacceptable, but condemnable.
“Information reaching the CBN indicates that the unethical and unprofessional practice of spreading false stories to de-market other banks has again started to emerge in the system. This shows that that the industry still harbours some operators/officers who still conduct themselves unprofessionally.”
Thus, the CBN hereby warned the staff of all banks to desist forthwith from this condemnable and unethical practice, while bank CEOs were advised to also address all their staffs to heed the warning.
However, in 2008 when the banking sector regulator noticed that unethical practice had resurfaced in the industry again, it issued another circular on the subject, saying that “this development, which constitutes a threat to the safety and soundness of the banking system, is unprofessional, unethical and unacceptable”.
“Banks and their members of staff are by this circular reminded that the responsibility for ensuring the safety and soundness of the banking system is a collective one for all stakeholders. Banks are, therefore, advised to caution their members staff on this practice as henceforth, any staff member of a bank found to be involved in such an act will be summarily dismissed and blacklisted.
“Also, if another member of staff of the same bank is involved in such a practice, the institution will face severe sanctions including, but not limited to a monetary fine of N10 million. Appropriate channel will be opened by the CBN for the report of such unwholesome practice by banks’ customers and the general public,” it had added.
Most recent de-marketing assault had been against some Tier 2 banks, namely Skye Bank, Heritage Bank, among others.
Despite its 2015 financial statements, which indicated profit of N1.1 billion, Gross Earnings of N24 billion and total assets of N483.4 billion, Heritage bank  as distressed, and next in line for regulatory action.
In July, the CBN in partnership with Heritage Bank commenced the pilot phase of the N3 billion Youth Entrepreneurship Development Programme (YEDP). Out of over 20 banks in the country, the apex bank appointed Heritage Bank for the pilot phase of this project, which involves disbursement of loans to 1, 500 youths.
Also, the African Import Export Bank (Afrexim) invested $150 million in Heritage Bank. The investment is designed to support the growth of the bank. That Heritage Bank is considered for such partnership and investment from the regulatory body and a regional development bank indicate that Heritage Bank is financially healthy contrary to the claims of the de-marketers.
The investment is designed to support the growth of the bank. That Heritage Bank is considered for such partnership and investment from the regulatory body and a regional development bank indicate that Heritage Bank is financially healthy contrary to the claims of the de-marketers.
Assuring customers on the stability of his bank, the Group Managing Director/Chief Executive Officer of Skye Bank Plc, Tokunbo Abiru, affirmed the CBN’s statement that his bank remains healthy and strong.
Abiru who spoke recently after taking over from his predecessor, Timothy Oguntayo, said the lender’s fundamentals remain strong, and virile, assuring customers and other stakeholders of the safety of their funds and investments.
The new Skye Bank boss said his team would leverage on the bank’s reputable information technology platform to make the lender not just a frontline retail and commercial bank, but an industry leader.
Abiru, who outlined his vision for the bank, said his team would harness the expertise and skills of the bank’s employees and the reconstituted board to take the lender to new heights. He noted that as a systematically Important Bank (SIB), the lender occupies a sensitive role in the financial life of Nigerians and West Africa.