Nigerian banks have gone global, now what?
By Leonard Lawal
Published in PUNCH : Friday, 8 Aug 2008It was just four years ago this June, when banking in Nigeria was still basically a mom and pop boutique operation, with a maximum “big man” who had leveraged on his close contacts in the corridors of power to secure himself a position as the chairman of the bank’s board. He probably never run a business before; he might as well be a brain surgeon, but he got himself a license to run a bank all the same.
Then we had 89 banks whose combined total assets base were less than the total asset base of South Africa’s Amalgamated Bank of South Africa; but after recapitalisation which saw the 89 banks morphing into 24 through mergers, acquisitions and outright liquidation, Nigerian banks have suddenly gone global. And investors, as usual, are following the money. Many foreign banking behemoths are already circling a couple of Nigerian banks for dinner.
The banking consolidation, one of the 13-point agenda for change in the Nigerian banking policies enunciated by Chukwuma Soludo, a university don and the Central Bank Governor, was brought forth to redress the challenges of low capital base, to solve the recurring problems of distresses, failures and to prep up the banks for global challenges in a post new economy world.
Soludo saw Malaysia and South African central banking as role models, and the last regime bought into this vision.
Largely, it seems to have been successful, if you can cash money from the nearest ATM on a Friday night; its genuine progress, if you still remember where we were prior to this.
Further to the post- consolidation gold rush, Nigerian banks had done more deals than the man on the moon, with BNP Pari bas, Morgan Stanley, Fortis Investment, Bank of China, one of the largest banks in the world and with the healthy ratings by Fitch. But then can she fly?
Their total assets base had gone up by over 1000%; our banks had taken over the West Coast of Africa, from Ghana to Gambia, and some are listed on London Stock Exchange, though some Pollyanna analysts had opined that banking ethics are not one of their strongest points.
I asked Bayode Adeogun, a banker with one of the big five banks (regarding the size of our banks, the numbers keep changing as audits reports of these banks change faster than we can keep up with).
“Nigerian banks have come of age; even those of us who can be considered industry insiders never believed the consolidation can be this successful. We are awash with funds to do mega deals and big ticket transactions, though that in itself had posed bigger challenges,” he said.
To understand the scale of this particular transaction and the new mindset in the Nigerian banking sector which has become extremely bullish and proactive, Nigeria’s population of 140 million people can count on only 15 million people with a bank account, which is just a little over 10 percent of the population. Most of the savings are still being stuffed in old pillow cases. Therefore there is great potential for tremendous growth in the sector.
Nigerian banks growth is also being fueled by runaway oil prices as the Nigerian government oil receipts grow. Hitherto, foreign investment banks had managed our foreign reserves, but Nigerian home-grown banks are doing that now. Our 24 banks are among the highest performing stocks in the world last year.
Early this year in February, Afribank Nigeria Plc, one of the leading financial institutions, earned N11.04bn profit before tax in its third quarter ending December 2007. That’s some 207 per cent increase in profit from the N3.59bn posted the year before. She also earned significant increases in other parameters. She grew by 82 percent from N122.72bn to N223.10bn.
Each and every one of the banks are recording and posting amazing profits, but analysts said that “these figures are intriguing,” as the real sector such as the manufacturing sector and every sector of the economy are posting record losses.
Though the West also had tightened their anti-money laundering operations so that thieving politicians are forced to keep their loot at home under various aliases, the recent sanctions of three of our top banks in the United Kingdom for money laundering related crimes confirmed that old habits do really die hard.
Pre-consolidation Nigerian banks cut their teeth on round tripping (buying up foreign exchange at discounted official prices and selling at premium in black market) during the military era. They have also employed and poached slew of top talents from western financial institutions to executive positions. A leading Nigerian bank recently advertised for Chinese speaking Nigerians as they forged eastward. Analysts who are paid to worry about these things are doing just that. “Can the momentum be sustained?” they asked.
One of the major concerns in the West is that our banks may rush into complex retail banking deals without adequately understanding the fundamentals. Even some analysts question the jumbo profits of the banks against the prevailing Nigerian economic fundamentals. Soludo thinks it’s no big deal. He said, “returns on investment in the banking industry were relatively small, compared to the funds invested in the industry.”
For its size, Nigeria is still largely underbanked; even the symbol of Nigerian banking emergence on global scale like the ATM is still only deployed in Lagos and a few cities. It’s still a novelty.
Other schools of thought claimed that the performances are “a bubble,” especially in more bearish circles; and there are unsubstantiated reports of our banks’ involvement in high-risk margin lending–– meaning lending money to other institutions or individuals for stock market speculations; while they are thought not to be strong enough to withstand external unpredictables like a sharp drop in oil prices or serious political instability.
Whatever, may be you should buy (into) Nigerian banks now; this may be a long rally.
Lawal, an analyst, lives in Lagos.
