Big banks are dominating the Nigerian banking space, controlling as much as 70 per cent of its market share. The big lenders also have most of the bad loans in the industry.
These and more facts are contained in the 2017 Nigerian Banking Sector Report, “Nigeria Reopens for Business”, which was released at the weekend in Lagos. The report will be launched by Central Bank of Nigeria (CBN) Governor Godwin Emefiele at the London Stock Exchange (LSE) on Friday.
The CBN classifies lenders into three groups: large or big banks, those with assets greater than or equal to N1 trillion; medium banks with assets greater than or equal to N500 billion but less than N1 trillion and small banks with assets of less than N500 billion.
The report, prepared by Afrinvest West Africa, an independent investment banking firm, shows that naira’s depreciation affected all the banks and the oil and gas/ power sectors. It observed a continued widening of the gap between the Tier-1 and the Tier-2 banks due to naira devaluation and foreign exchange (forex) crisis.
“Once upon a time, Tier-1 banks accounted for about 60 to 65 per cent of the market share of the banking sector. In the universe of 14 banks we covered in this report, we have seen that percentage rise to over 70 per cent. Tier-1 banks have continued to grow, often at the expense of the Tier-2 banks,” Ike Chioke, Managing Director, Afrinvest West Africa told financial journalists in Lagos.
On whether the Tier-1 banks will eventually swallow the Tier-2 banks and push them out of the market, he said: “No. There must be specialisation for everybody. The banking industry is growing and we have seen double-digit growth over all. It’s just that the Tier-1 banks are growing faster. So, it could be a Tier-2 bank that may see its business double. There will be areas of specialisation. There are certain transactions that go to Tier-2 banks because they are more specialised in that area and get decision making faster. So, you will always find space for each of the banks”.
Chioke spoke of how banks that extended foreign currency loans to the power sector and oil and gas sector had their problems magnified by devaluation of the naira.
He said that some of the Tier-1 banks with more foreign currency deposits that were risk assets benefited from the devaluation and, therefore, were booking forex gains. “The likes of Guaranty Trust Bank, Zenith Bank, United Bank for Africa and Access Bank belong to that group,” Chioke said.
He went on: “You might also recall that some of the members of the Monetary Policy Committee of the Central Bank of Nigeria have observed that some of the Tier-2 banks might be challenged. While one may say that the system itself is sound, but if we have multiple Tier-2 banks that are challenged, and if all of them were to go down at the same time, you could have a pack of a systemically important bank.”
The forex crisis, he noted, created problems in the power sector because a lot of people had borrowed money in foreign currency to build gas pipelines, gas processing systems to deliver power to the power stations and now the power stations cannot pay for that. That, he said, led to massive bad loans.
Chioke said some of these bottlenecks had been resolved. The positive profit momentum, which most of the banks registered, has given them some buffer to get away with some of the ailing problems mentioned, according to him.
About Article Author