How Not To Bail Failing Banks.

Polaris bank has been sold. The buyer paid N50 billion and will repay another N1.3 trillion over 25 years: “As part of its intervention, the CBN injected consideration bonds with a face value of N898 billion into Polaris Bank through AMCON. The fund, which was injected to save the bank from collapse and to enable its recovery and stability, has a future value of N1.305 trillion that will be repaid by the bank’s new owners in 25 years.”

The most valued bank in Nigeria (Zenith Bank) is worth N634.209 billion (GTBank* is worth N543.005 billion). This is a really intriguing deal for a 3rd-tier banking institution considering that the landscape is changing rapidly. GTBank* has lost more than N400 billion of its value in the last few years. In other words, these companies are losing their moats due to the avalanche which fintechs are bringing. I wish Polaris Bank good luck on this 25-year commitment!

Next time, AMCON/CBN, do not bail out any bank. What you need to do is: secure 100% of depositors funds and allow other stronger banks to buy pieces of anything of value in that bank. Simply, at the end, the bank ceases to exist in any way because it has failed, but NO DEPOSITOR will lose money. If we follow that playbook, Nigeria will not be wasting money.

And I repeat – do not be bailing out failing banks. I expect more than 40% of current traditional banks to leave the scene by 2035 in Nigeria as technology reshapes the ecosystem. So, we need to have a clear policy on how to manage that transition.

Prof Ndubuisi wrote on Facebook