HoldCo is an abbreviation for Holding Company. A holding company is a business entity that owns enough shares in other companies and largely influences its decisions and operations.
It holds a strong membership interest in other companies. A holding company does not manufacture or sell any product or service, rather they sell stocks or other assets in companies.
In the Nigerian banking system today, HoldCo is becoming the norm, as more banks are transitioning from core banking into a financial holding company.
It is important to note that HoldCos are not entirely new in the country, as the likes of First Bank, UBA Group, First City Monument Bank and Stanbic IBTC have been operating a HoldCo business model for years.
This is sequel to the CBN directive of 2011, pushing banks to give up their non-banking structure into a HoldCo.
This year alone, three commercial banks, namely; Guaranty Trust Bank, Access Bank and Sterling Bank have made moves to secure regulatory approvals for their holding company structure.
For instance, early this year, the CEO of GT Bank, Segun Agbaje revealed that the bank will be adopting a HoldCo business model.
According to Agbaje, the rationale behind the company’s decision to adopt this structure is to boost profitability, while conforming with trends in the Nigerian banking and financial services sector.
He added that Nigerian banks whose main focus is core banking have only been able to grow their profit by 5 -7%; a position that is not sustainable enough.
He further stated that the bank intends to have insurance, asset management, and pension fund administration as subsidiaries.
Agbaje is optimistic that adopting a diversified business model will enable Guaranty Trust Bank to gain higher market competitiveness.
In a similar development, the board of directors of Access Bank in a press release recently sent to the Nigerian Stock Exchange, disclosed that it has obtained the CBN’s Approval-in-Principle to switch into a financial holding company.
According to the issued statement, the HoldCo will strategically position the bank in regional trade finance and other cross-border banking services, while leveraging its presence in key global trade corridors in the UAE, the UK, India, and Lebanon.
In a nutshell, Access Bank is restructuring into a holding company to foster market expansion and catalyse growth.
In a statement also made available to the Nigerian Stock Exchange, the CEO of Sterling Bank, Abubakar Suleiman recently disclosed that the bank has also obtained the CBN’s Approval-in-Principle to restructure into a financial holding company status.
He believes that the business model will facilitate customer’s access to loans and other credit facilities, boost investment opportunities, and strengthen the company’s corporate governance practice.
Finally, adopting a HoldCo structure allows banks to diversify into other profitable business operations that are not solely banking, but financial in nature, including pension fund administration, asset management, insurance, stock broking, and many more