Property prices in high-streets around Lagos may be under serious threat as reports have revealed that while some banks have gone back to the drawing board with the intention of increasing the number of staff earlier laid-off 2009, others are contemplating merging of branches as viable options to withstand the challenges of the times. The development, analysts believe is capable of further dropping property prices in major commercial hubs of Lagos.

Reliable information has it that the collapsing of some of the bank branches may not be unconnected with the fact that most of them have become loss centers, as their opening may have been informed less by business considerations but by the bid to create false impression of being among banks with larger number of branches, and hence among the leading players in the industry.

The belief is some quarters is that the banks are shedding weight to make their management more efficient, adding that it is one of the available options of ensuring they deliver on their promises. The slim-fitting is assumed will help to arrange a smooth process of operation while at the same time engender a balanced payment and favourable trade position

There are indications that the woes afflicting the nation's banking industry may go beyond the sack of the bulk of its staff and clampdown on its high-profile debtors to include a drastic reduction in the number of individual bank's branch network thereby having a ripple effect on the real estate sector.

Recently information has it that the Central Bank Nigeria (CBN) have ordered the closure of bank branches considered to be non-performing. If the directives of the CBN are to be carried out to the letter, banks would be faced with the hard decision of closing down some of their off-shore outlets located mostly within the West African sub-region.

 

Financial analysts said yesterday that no fewer than 200 branches of banks would go under following fresh directives from the CBN. Already, the new managers of Oceanic Bank International Plc, one of the batch of six banks to be taken over by CBN, have announced the suspension of work on 180 new branches proposed under the leadership of Dr. (Mrs.) Cecilia Ibru, Oceanic Bank also said it embarking on a merger of branches considered to be closer to each other as part of its cost saving measures.

 

"We have over 180 branches that are currently under construction, we are going to take a look and know what to do. Some we will complete and some we will dispose; we will find a way of disposing of non-existing assets.

"We may consider merging branches that are too close, we will be driven by performance of various branches. If things normalize quickly, those who are rationalized would be the first to come back," the new chief executive officer of Oceanic Bank, Mr. John Aboh, had said at a recent meeting in Lagos.

Castles also reliably gathered that should the banks play along with the demands of CBN on closure of non-performing branches; no fewer than 200 outlets would be shut down before the end of the first quarter of this year.

Inside source in CBN, while defending the apex bank's position have explained that: "it is in the best interest of any troubled bank to close any non-performing branch to avoid unnecessary operational costs on an already sick financial institution."

The source explained that "non-performing branches create the same problem as non-performing loans which happen to be the primary problem of banks in the first instance."

Already, CBN is said to have ordered suspension of construction work at proposed head offices and branches of banks including the gigantic project currently being undertaken by Oceanic Bank International Plc along Ozumba Mbadiwe Street in Victoria Island, Lagos.

There are indications that the reduction in the number of bank branches along major high-streets in Lagos would lead to a glut of properties available in such locations. The effects according to real estate pundits is that should there be more supply in the market than demand as a result of the problem of cash flow within the economy; prices in these locations may see a slump. Others who spoke to CASTLES, however said that this was a 'correction' in the high street prices. The banks in their usual competition had pushed prices up in these streets without any underlying basis other than to be seen to be better than their colleagues. Those who could not buy outright offered rents of ridiculous amounts for as long as ten years. Now normalcy is back, the prices in these areas will also be 'corrected'. Indeed CASTLES in late 2007 had written: For instance, the very quiet Awolowo Road in Ikoyi, a single lane road with residential houses changed in character over this period. For a house that was being sold then for N25m, is now selling for averagely N120m and in fact an office block actually available now sells for N300m. What happened was that Awolowo road suddenly assumed status of the high street and the banks with their determination to open up branches in such high choice locations, began to push prices up. Firstly by renting and then outright sale. It may interest you to know that   Zenith bank alone has three branches on Awolowo road. These factors fueled the price appreciation, of properties on the road, pushing it up by almost 500%. This issue of location also affected streets like Adeniran Ogunsanya, Allen Avenue, Opebi road, Obafemi Awolowo way, Kingsway Road, Akin Adesola, Adeola Odeku, Sanusi Fafunwa, Ajose Adeogun, Adetokumbo Ademola and similar “high” streets. These primarily residential areas turned into commercial areas and pushed the prices of properties up as commercial bodies who were absolutely insistent in being represented in these areas, were ready to a premium to get those properties.

Now that the tide has turned, the landlords who enjoyed this premium should be ready to bear the loss as well.