Zenith Bank Received Approval to Become a Holding Company
On Friday, March 3, 2023, Zenith Bank, one of Nigeria’s most prominent banks, received approval in principle from the Central Bank of Nigeria to become a holding company.
In a statement signed by its secretary, Michael Otu, the bank said that with the new move, it would have a banking group with subsidiaries in the financial services industry.
Per the statement, Jim Ovia will serve as the new chairman of Zenith HoldCo and continue as Zenith Bank chairman until the new company becomes operational.
The statement partly reads:
“Furthermore, the CBN approved Mr. Jim Ovia as the Chairman of Zenith Holdco Plc (in formation) and for Mr. Jim Ovia to continue as the Chairman of Zenith Bank until the commencement of Zenith Holdco.
With its intended transformation into a holding financial institution, Zenith Bank will seek to acquire and control other companies under its new structure.
A holding company is created to buy and own the shares of other companies and then control them. According to Investopedia, a holding company owns the assets of other companies but rarely participates actively in the day-to-day running of the businesses of its subsidiaries.
It is sometimes called an umbrella company or a parent company.
A holding company owns a controlling interest in other companies called subsidiaries.
The parent corporation can control the subsidiary’s policies and oversee management decisions but doesn’t run its day-to-day operations.
Holding companies are protected from losses accrued by subsidiaries—so if a subsidiary goes bankrupt, its creditors can’t go after the holding company.
Upsides of a holding company
Holding firms enjoy the advantage of protection from losses.
In the event of bankruptcy by any subsidiary, the holding firm only experiences a capital loss and decline in net worth but cannot be sued by creditors.
Companies might structure themselves as parent companies while forming subsidiaries for each brand line.
The downsides of a holding company include difficulty in finding an accurate view of the entire financial health of the holding company, thereby creating opaqueness in the process.
Unethical directors can hide financial losses by moving debt among subsidiaries.
Holding firms can be exploitative by forcing subsidiaries to appoint handpicked directors or coercing them to buy products from each other at a higher-than-market price.
A holding firm can ask a subsidiary to lay off staff or loot its acquisitions or assets.
With the new move, Zenith Bank joins the list of growing financial holding companies in Nigeria.
Other holding companies are Access Holdings Plc, FBN Holdings Plc, FCMB Group Plc, FSHD Holding Company, GTB Holding Company, and Stanbic IBTC Holdings Plc.