Are you interested in owning a bank? Do you want to know what it takes to start your own bank? Have you ever felt so unsatisfied with your bank before? Or you need a sample bank business plan template? If YES, then i advice you read on
If you have found yourself disgusted about how things are run in your bank, then you might fall into the category of some folks who wish they could own a bank. It is good to point out from the beginning that starting a bank is not an option for you if you do not have the patience to go through all the conditions set by the Central bank of your country.
Now what is a bank?
A bank is a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. A bank is the connection between customers that have capital deficits and customers with capital surpluses.
Due to their influence within a financial system and the economy, banks are highly regulated in most countries. Most banks operate under a system known as fractional reserve banking where they hold only a small reserve of the funds deposited and lend out the rest for profit. They are generally subject to minimum capital requirements which are based on an international set of capital standards, known as the Basel Accords.
Years ago, Mayer Amschel Rothschild said “Give me control of a nation’s finance and I don’t care who make the rules.” Another famous entrepreneur said “If you want to be rich and powerful, own a bank.” I strongly believe these two statements are truthful.
Now many people might say owning a bank is beyond their widest dream. However, I want to state that it is not impossible to own or control a bank. You just have to envision it, and work towards it. To prove to you that owning is not impossible, I will give references of individuals who have started a bank from scratch and built their banks into world class standard.
In the early 80s and 90s, Old national banks such as First Bank, Union Bank, Afribank and UBA held sway in Nigeria. Back then, doing business with the banks was slow and cumbersome; plus the banks lacked innovative drive. However, the system changed when a few technology driven young individuals stepped in and revolutionized the banking industry. Today, these individuals are self made.
- Jim Ovia – Zenith Bank
- Pascal Dozie – Diamond Bank
- Tony Elumelu – defunct Standard Trust Bank (was merged with United Bank of Africa)
- Fola Adeola – Guaranty Trust Bank
- Ladi Balogun – FCMB (First City Monument Bank)
- Mike Adenuga – Equatorial Trust Bank
Even though the banking sector seems saturated in Nigeria, I believe there is still room for improvement and profit taking for that innovative and daring individual. The opportunity is even now accessible, given the fact that the banking sector has now been categorized into:
- International Bank – GTBank, Zenith Bank, UBA, First Bank
- National Bank – Unity Bank, Sterling Bank
- Regional Bank – Wema bank
- Microfinance Banks
Now there are two ways to own or control a bank. The first way to do it is to buy a controlling stake in an already existing bank; whether a publicly quoted bank or a privately owned bank.
However, this might prove very expensive and challenging as you may be up against other shareholders; who will fight tooth and nail to defeat your purpose. The second option is to start your own bank from scratch and build it your way.
Well, this article will be focused on starting your own bank from scratch and I will be using the banking system in Nigeria as reference point. However, this does not mean the ideas shared cannot be replicated in your own country; whether USA, U.K, Canada, Ghana, Kenya, etc.
Why You Should Start your Own Bank
Just like every other business, owning a bank can be a profitable venture if the marketing and operations are run efficiently. Once your bank begins to enjoy customer goodwill, you are made. Now aside the profit rewards, there’s one untold benefit of owning a bank.
You, the bank owner gains access to a steady supply of cash that you can channel into your own personal businesses (though you have to follow some legal procedures). What leverage is better than using other people’s money to finance your projects?
You bet that the hurdles you would be subjected to cross aren’t few – this is so because the banking industry must be well regulated so that people can feel safe to keep their monies with them. Now let’s drive the point home! Anybody that has the money, meets the laid down conditions and is free from financial frauds can acquire the license to start a bank. Don’t forget you don’t need all the monies in the world to start a bank.
As a matter of fact there are different conditions for starting different categories of banks. For instance the condition for starting a commercial bank is different from the conditions of starting a micro finance bank. So also the conditions and requirements for starting a community bank are different from the conditions and requirements of starting a Micro finance bank.
If you are convinced that you want to start your own bank, then the following steps might definitely steer you in the right direction.
Starting a Bank – Sample Business Plan Template
1. First understand the financial services sector
The financial services sector is quite a complicated one and the reason is because it is a knowledge-driven industry. You need a high financial IQ to understand the modus operandi of the banking industry and financial services sector at large. To operate in the banking sector, you must have a first-hand idea of how the financial services industry works. You must know and understand the various indexes, terminologies and principles of banking.
2. Gain some banking experience
To successfully start a bank, you need broad experience; so as to be able to tackle the challenges of the banking sector. And you definitely cannot gain such experience by reading a book; you gain it by being practically involved in the industry.
Take for instance, Mayer Amschel Rothschild started as a small scale money lender. Jim Ovia, Fola Adeola, Tony Elumelu and Ladi Balogun were once employees of various banks before they resigned to start their own bank. It should also be noted that these Nigerian entrepreneurs / bankers possess various educational degree and are members of the Chartered Institute of Bankers of Nigeria.
However, I want to stress the point that you don’t need to hold educational degrees to own a bank. You don’t even need to have experience. But you must definitely have business sense and possess the ability to spot talented high skilled individuals. You can employ or bring on board someone with the needed skills and make that person a front man; while you run things from behind the scene.
3. Decide On the Type of Bank You Want To Start
As earlier stated there are various categories of banks available to you to choose from. There is the commercial bank, micro finance bank, and community bank. These banks have different requirements for obtaining license. So before you make up your mind to start a bank, know exactly what you want and then go for it.
It is also important to note that you can chose a niche for your bank based on the area of need you intend servicing. You could choose to start an investment bank, retail bank, business bank, mortgage bank, private or corporate banking.
This is a very important step you need to take in order to avoid disaster when you commence operation. Due to the huge capital required to set up a bank, mistakes must be reduced to the barest minimum. A feasibility study will help you determine the flaws in the banking sector and how you can leverage such flaws to create a competitive advantage.
Most importantly, your feasibility research must be customer-oriented or market focused; as you will be fighting to grab some market share from the existing banks.
5. Obtain and Study the Procedures for Application
No doubt starting a bank has loads of requirements that you must meet before you can be granted a license to operate. So therefore, you are expected to approach the central bank of your country to obtain the procedures needed before you can qualify to open a bank and also the registration form.
The fact that these procedures varies from one country to another does not mean that they aren’t similar in the larger scheme of things. The idea of the conditions and requirements is to make it air-tight for fraudulent people to start a bank.
You should be able to prove that people can trust you with their cash that is why the financial requirement for starting a bank is not the kind of money that any investor might just raise without stress. The capital base for starting a bank varies from countries to countries but over and above, it is in the range of millions of dollars.
So you are expected to know the capital base required for starting a bank in your country, and then get partners to invest in your bank by selling equities to them.
When you are looking for partners, make sure you guide against recruiting partners with questionable wealth so as to avoid tarnishing the image of your bank. In case you don’t know, before any serious business person chooses a bank to do business with, they make it a point of duty to look through the management and board of directors t o ensure that they are not going to be dealing with people with questionable characters.
7. Obtain Your License
Haven fulfilled all the expected conditions; the next step is to approach the Central Bank of your country to obtain your license. It might take you a while before you are granted the license to operate a banking institution. This is so because they would definitely carry out their due diligence to be sure that they are dealing with someone the public can trust.
8. Register Your Bank
If you have obtained your license, the next thing to do is to go ahead and register your bank. When you go to the Corporate Affairs Commission of your country to register your bank, you would definitely be required to present the license you obtained from the Central Bank and all other needed documents.
You are expected to get a facility that can easily be accessed by the general public. So when searching for facilities to lease you must make sure you chose a location that is close to major road or market where people won’t have to stress themselves to get to you.
You should also ensure that the facility you are leasing is well secured and meets all safety standards. It is also advisable to establish your bank in an unbanked community if you want to avoid competitions and if you are ready to face some of the challenges common with such locations.
What keeps the banking industry growing is the innovation and products they have to offer. Starting and running a bank requires aggressive marketing. Little wonder those in the marketing unit in the banking industry are the type of employees that are easily promoted when they meet and surpass their targets.
So to stay afloat in the banking industry, you must be ready to spend good cash in advertising and promoting your bank. Your marketing and advertising departments must come out with new innovations and products that can catch the attention of your potential clients.
Because of the sensitive nature of the banking industry, the body regulating and monitoring banking operations are always on their toe. So you must do all you can to keep your records clean and free from any trace of financial misappropriation and fraud to avoid your license from been revoked.
If you follow the steps stated above, and you get the right people to work with, then you might be able to build your bank from the foundation and get it to a level where it would be well accepted by the general public and you can be sure to start making profits.