Q4 2010
www.businessmonitor.com
nigeria
commercial Banking Report INCLUDES 5-YEAR FORECASTS TO 2014
ISSN 1747-8669 Published by Business Monitor International Ltd.
NIGERIA COMMERCIAL BANKING REPORT Q4 2010 INCLUDING 5-YEAR INDUSTRY FORECASTS BY TO 2014
Part of BMI’s Industry Report & Forecasts Series Published by: Business Monitor International Copy deadline: August 2010
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Nigeria Commercial Banking Report Q4 2010
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Nigeria Commercial Banking Report Q4 2010
CONTENTS Executive Summary ......................................................................................................................................... 5 Table: Levels (NGNbn) .......................................................................................................................................................................................... 5 Table: Levels (US$bn) ........................................................................................................................................................................................... 5 Table: Levels At October 2009 .............................................................................................................................................................................. 5 Table: Annual Growth Rate Projections 2010-2014 (%) ....................................................................................................................................... 5 Table: Ranking Out Of 59 Countries Reviewed In 2010 ........................................................................................................................................ 6 Table: Projected Levels (NGNbn).......................................................................................................................................................................... 6 Table: Projected Levels (US$bn) ........................................................................................................................................................................... 6
SWOT Analysis ................................................................................................................................................. 7 Nigeria Commercial Banking SWOT ..................................................................................................................................................................... 7 Nigeria Political SWOT ......................................................................................................................................................................................... 8 Nigeria Economic SWOT ...................................................................................................................................................................................... 8 Nigeria Business Environment SWOT.................................................................................................................................................................... 9
Business Environment Outlook .................................................................................................................... 10 Commercial Banking Business Environment Ratings .......................................................................................................................................... 10 Table: Nigeria Commercial Banking Business Environment Rating .................................................................................................................... 10 Commercial Banking Business Environment Rating Methodology ...................................................................................................................... 11 Table: Middle East & Africa Commercial Banking Business Environment Ratings ............................................................................................ 12
Global Commercial Banking Outlook........................................................................................................... 13 Africa Banking Sector Outlook ..................................................................................................................... 18 Table: Middle East & African Banks’ Bond Portfolios ........................................................................................................................................ 21 Table: Middle East & Africa Commercial Banking Business Environment Ratings ............................................................................................ 21 Table: Comparison Of Loan/Deposit, Loan/Asset & Loan/GDP Ratios .............................................................................................................. 22 Table: Anticipated Developments In 2010 ........................................................................................................................................................... 22 Table: Comparison Of Total Assets, Client Loans & Client Deposits (US$bn).................................................................................................... 23 Table: Comparison Of Per Capita Deposits, 2010 (US$) .................................................................................................................................... 23 Table: Interbank Rates & Bond Yields ................................................................................................................................................................. 24
Islamic Banking Overview ............................................................................................................................. 25 Nigeria Banking Sector Outlook ................................................................................................................... 30 Economic Outlook .......................................................................................................................................... 33 Tablle: Nigeria Economic Activity, 2007-2014 .................................................................................................................................................... 35
Competitive Landscape ................................................................................................................................. 36 Market Structure ....................................................................................................................................................................................................... 36 Protagonists......................................................................................................................................................................................................... 36 Table: Protagonists In Nigeria’s Commercial Banking Sector ............................................................................................................................ 36 Definition of the Commercial Banking Universe.................................................................................................................................................. 36 List of Banks ........................................................................................................................................................................................................ 37 Table: Deposit Money Banks ............................................................................................................................................................................... 37
Company Profiles ........................................................................................................................................... 38 Citibank Nigeria .................................................................................................................................................................................................. 38 Table: Key Statistics Citibank Nigeria, 2004-2008 (NGNmn) ............................................................................................................................. 39
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Nigeria Commercial Banking Report Q4 2010
Diamond Bank ..................................................................................................................................................................................................... 40 Table: Stock Market Indicators............................................................................................................................................................................ 41 Table: Balance Sheet (NGNmn, unless stated)..................................................................................................................................................... 41 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 41 Table: Key Ratios (%).......................................................................................................................................................................................... 42 FirstBank ............................................................................................................................................................................................................. 43 Table: Stock Market Indicators............................................................................................................................................................................ 44 Table: Balance Sheet (NGNmn, unless stated)..................................................................................................................................................... 44 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 45 Table: Key Ratios (%).......................................................................................................................................................................................... 45 Guaranty Trust Bank ........................................................................................................................................................................................... 46 Table: Stock Market Indicators............................................................................................................................................................................ 47 Table: Balance Sheet (NGNmn, unless stated)..................................................................................................................................................... 47 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 48 Table: Key Ratios (%).......................................................................................................................................................................................... 48 Intercontinental ................................................................................................................................................................................................... 49 Table: Key Statistics For Intercontinental, 2005-2008 (NGNmn) ........................................................................................................................ 50 Stanbic IBTC........................................................................................................................................................................................................ 51 Table: Stock Market Indicators............................................................................................................................................................................ 52 Table: Balance Sheet (NGNmn, unless stated)..................................................................................................................................................... 52 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 53 Table: Key Ratios (%).......................................................................................................................................................................................... 53 Standard Chartered Nigeria ................................................................................................................................................................................ 54 Table: Key Statistics For Standard Chartered Nigeria (NGNmn)........................................................................................................................ 55 Wema Bank .......................................................................................................................................................................................................... 56 Table: Stock Market Indicators............................................................................................................................................................................ 57 Table: Balance Sheet (NGNmn, unless stated)..................................................................................................................................................... 57 Table: Balance Sheet (US$mn, unless stated) ...................................................................................................................................................... 58 Table: Key Ratios (%).......................................................................................................................................................................................... 58 Zenith Bank .......................................................................................................................................................................................................... 59 Tabel: Key Statistics For Zenith Bank, 2004-2008 (NGNmn) .............................................................................................................................. 60
BMI Banking Sector Methodology ................................................................................................................ 61 Commercial Bank Business Environment Rating ...................................................................................................................................................... 62 Table: Commercial Banking Business Environment Indicators And Rationale.................................................................................................... 63 Table: Weighting Of Indicators ........................................................................................................................................................................... 64
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Nigeria Commercial Banking Report Q4 2010
Executive Summary Table: Levels (NGNbn)
Total Assets
Client Loans
Bond Portfolio
Other
Liabilities & Capital
Capital
Client Deposits
Other
October 2008
12,220.2
8,003.1
164.3
4,052.8
12,220.2
2,993.4
7,410.3
1,816.4
October 2009
14,405.0
10,124.4
464.7
3,815.9
14,405.0
1,663.5
8,833.7
3,907.8
18%
27%
183%
-6%
18%
-44%
19%
115%
Total Assets
Client Loans
Bond Portfolio
Other
Liabilities & Capital
Capital
Client Deposits
Other
October 2008
103.8
68.0
1.4
34.4
103.8
25.4
63.0
15.4
October 2009
95.5
67.1
3.1
25.3
95.5
11.0
58.6
25.9
Change, %
-8%
-1%
121%
-27%
-8%
-57%
-7%
68%
Date
Change, %
Source: BMI, CBN, regulators
Table: Levels (US$bn)
Date
Source: BMI, CBN, regulators
Table: Levels At October 2009
Loan/Deposit Ratio
Loan/Asset Ratio
Loan/GDP Ratio
GDP Per Capita, US$
Deposits Per Capita, US$
70.28%
32.14%
1,401
380
Falling
Falling
114.61% Falling
Source: BMI, CBN, regulators
Table: Annual Growth Rate Projections 2010-2014 (%)
Assets
Loans
Deposits
Annual Growth Rate
23
20
22
CAGR
20
18
21
2
3
2
Ranking
Source: BMI, CBN, regulators
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Nigeria Commercial Banking Report Q4 2010
Table: Ranking Out Of 59 Countries Reviewed In 2010
Loan/Deposit Ratio
Loan/Asset Ratio
Loan/GDP Ratio
20
52
Local Currency Loan Growth
Local Currency Deposit Growth
6
5
27 Local Currency Asset Growth 12
Source: BMI, CBN, regulators
Table: Projected Levels (NGNbn)
2007
2008
2009e
2010f
2011f
2012f
2013f
2014f
Total Assets
9,028.37
12,983.16
14,599.57
17,519.48
21,373.77
26,076.00
32,073.48
39,450.37
Client Loans
5,145.52
8,300.87
9,546.00
10,977.90
12,953.92
15,544.71
18,653.65
22,384.38
Client Deposits
5,116.53
8,031.37
9,637.64
11,565.17
14,109.51
17,213.60
21,000.60
25,620.73
e/f = BMI estimate/forecast. Source: BMI, CBN, regulators
Table: Projected Levels (US$bn)
2007
2008
2009e
2010f
2011f
2012f
2013f
2014f
Total Assets
76.51
95.46
97.40
118.37
152.67
193.16
258.66
323.36
Client Loans
43.61
61.04
63.68
74.18
92.53
115.15
150.43
183.48
Client Deposits
43.36
59.05
64.29
78.14
100.78
127.51
169.36
210.01
e/f = BMI estimate/forecast. Source: BMI, CBN, regulators
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Nigeria Commercial Banking Report Q4 2010
SWOT Analysis Nigeria Commercial Banking SWOT
Strengths
Weaknesses
Opportunities
Threats
Large and growing population.
Regional and global macroeconomic outperformer.
Improving regulatory environment.
Ongoing political problems that keep oil production below its full potential.
Connected lending and consequently non-performing loans are a historical weakness.
Corruption remains a problem in government and the private sector.
The central bank is implementing reforms to improve accounting practices and transparency.
The establishment of the Asset Management Corporation by the central bank and the Ministry of Finance should allow banks to clear bad debts and return to lending.
Lending to small and medium-sized businesses, as well as to the agricultural sector is very low, implying much room for growth.
Perceptions of Nigeria were badly damaged by the crisis in 2009 and have yet to fully recover.
Deposit growth is unlikely to pick up at the weaker banks until they have recapitalised.
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Nigeria Commercial Banking Report Q4 2010
Nigeria Political SWOT
Strengths
Weaknesses
Opportunities
Threats
Constitutional limitations on presidential powers, and an unwritten rule whereby the presidency rotates between Muslim and Christian politicians, should prevent abuse of the system.
An active and fairly free media play a key role in the transition to democracy.
Tribal divisions have meant historical disunity among the population.
High levels of corruption – Transparency International ranks Nigeria 130 out of 180 countries surveyed – make policy implementation difficult.
The Christian-Muslim population split (thought to be around 50/50) continues to be a source of tension.
Election tribunals have overturned the results of several state governors in the ruling party, further strengthening the country’s democratic mores.
The corruption record is improving slowly: Nigeria’s score with Transparency International has risen to 2.5 in 2009, from 1.4 in 2003.
The Niger Delta militancy could well resume into the medium term, as the monetary rewards for militancy remain high and a speedy end to the region’s poverty is highly unlikely.
High oil revenues have not yet fed through to the population and 90.8% of Nigerians are living on less than US$2 a day, creating the conditions for civil unrest.
Large oil reserves promise to remain a key economic driver for years to come.
Investor interest is now firmly focused on Africa; and, as a centrally located oil producer with a pro-reform government, Nigeria is well placed to take advantage of this.
Debt has been practically wiped out through the Paris Club debt relief initiative.
The business environment is in dire need of reform, with heavy bureaucracy and high levels of corruption a key obstacle to private sector development.
Hidden unemployment has not improved with GDP growth and remains widespread.
With no heavy debt servicing costs, Nigeria has the capacity to invest heavily in crucial infrastructure.
Planned privatisation deals look set to increase revenues and boost the private sector.
A largely unionised society and ongoing poverty could make further reforms difficult.
Niger Delta militancy could mean oil production remains under capacity, threatening export and fiscal revenues.
Tightening international credit conditions could disrupt the government’s plan to transform the publicly owned petroleum company into a private sector firm.
th
Nigeria Economic SWOT
Strengths
Weaknesses
Opportunities
Threats
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Nigeria Commercial Banking Report Q4 2010
Nigeria Business Environment SWOT
Strengths
Weaknesses
Opportunities
Threats
A large population means an abundant supply of cheap, albeit unskilled, labour and a growing consumer market.
Taxation is relatively low, with VAT just 5%, corporate tax 30% and individual income tax rising progressively to a top rate of 25%.
Corruption is endemic, with Nigeria scoring just 2.5 in Transparency th International’s Corruption Perceptions Index, which places it 130 out of 180 countries worldwide.
Intellectual property protection is very poor.
Physical security, especially for foreign workers, is a significant concern in some regions.
Ongoing banking sector reforms have the potential to create a consolidated and much more efficient financial infrastructure.
There has been some improvement in the corruption effort; and, with a promarket government, this should continue to improve.
Foreign direct investment has brought overseas players into Nigeria, which should help with the spread of international business norms.
Industrial action remains commonplace and can disrupt normal business activity.
Investment in the energy sector has been frozen pending an improved strategy for expanding capacity.
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Nigeria Commercial Banking Report Q4 2010
Business Environment Outlook Commercial Banking Business Environment Ratings Table: Nigeria Commercial Banking Business Environment Rating
Limits of Potential Returns Total assets, 2009
Data
Score, out of 10
Ratings Score, out of 100
US$97.4mn
5
Market Structure 63
Growth in total assets, 2009-2014
7
Growth in client loans, 2009-2014
7
GDP per capita, 2009
US$1,333
3
Tax
3.9
4
GDP volatility
0.2
10
Financial infrastructure
6.5
6
Regulatory framework and development
4.5
5
Regulatory framework and competitive landscape
7.0
7
Moody’s rating for local currency deposits
6.0
6
Long-term financial risk
1.0
1
Long-term external risk
9.7
10
Long-term policy continuity
6.0
6
Legal framework
3.6
4
Bureaucracy
3.4
3
Country Structure 58
Risks to Realisation of Returns
Commercial Banking Business Environment Rating
Market Risk 60
Country Risk 48
59
Source: BMI
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Nigeria Commercial Banking Report Q4 2010
Commercial Banking Business Environment Rating Methodology Since Q108, we have described numerically the banking business environment for each of the countries surveyed by BMI. We do this through our Commercial Banking Business Environment Rating (CBBER), a measure that ensures we capture the latest quantitative information available. It also ensures consistency across all countries and between the inputs to the CBBER and the Insurance Business Environment Rating, which is likewise now a feature of our insurance reports. Like the Business Environment Ratings calculated by BMI for all the other industries on which it reports, the CBBER takes into account the limits of potential returns and the risks to the realisation of those returns. It is weighted 70% to the former and 30% to the latter. The evaluation of the Limits of Potential Returns includes market elements that are specific to the banking industry of the country in question and elements that relate to that country in general. Within the 70% of the CBBER that takes into account the Limits of Potential Returns, the market elements have a 60% weighting and the country elements have a 40% weighting. The evaluation of the Risks to Realisation of Returns also includes banking elements and country elements (specifically, BMI’s assessment of long-term country risk). However, within the 30% of the CBBER that take into account the risks, these elements are weighted 40% and 60%, respectively. Further details on how we calculate the CBBER are provided at the end of this report. In general, though, three aspects need to be borne in mind in interpreting the CBBERs. The first is that the market elements of the Limits of Potential Returns are by far the most heavily weighted of the four elements. They account for 60% of 70% (or 42%) of the overall CBBER. Second, if the market elements are significantly higher than the country elements of the Limits of Potential Returns, it usually implies that the banking sector is (very) large and/or developed relative to the general wealth, stability and financial infrastructure in the country. Conversely, if the market elements are significantly lower than the country elements, it usually means that the banking sector is small and/or underdeveloped relative to the general wealth, stability and financial infrastructure in the country. Third, within the Risks to Realisation of Returns category, the market elements (ie: how regulations affect the development of the sector, how regulations affect competition within it, and Moody’s Investors Service’s ratings for local currency deposits) can be markedly different from BMI’s long-term risk rating.
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Nigeria Commercial Banking Report Q4 2010
Table: Middle East & Africa Commercial Banking Business Environment Ratings
Limits of Potential Returns
Risks to Potential Returns
Overall
Market Structure
Country Structure
Market Risks
Country Risks
Rating
Ranking
Bahrain
60.0
75.0
70.0
82.0
69.4
19
Egypt
63.3
60.0
53.3
62.0
61.0
33
Iran
56.7
52.5
10.0
52.0
49.1
50
Israel
53.3
82.5
83.3
58.0
65.9
27
Jordan
20.0
75.0
53.3
38.0
42.6
51
Kuwait
56.7
90.0
50.0
76.0
68.7
21
Oman
23.3
82.5
60.0
76.0
53.8
42
Qatar
53.3
82.5
50.0
82.0
66.3
26
Saudi Arabia
63.3
85.0
60.0
78.0
71.6
18
UAE
70.0
82.5
63.3
70.0
72.7
15
Kenya
16.7
45.0
53.3
40.0
33.2
58
Nigeria
63.3
57.5
60.0
48.0
58.5
36
South Africa
73.3
77.5
83.3
56.0
72.6
16
Scores out of 100, with 100 the highest. Source: BMI
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Nigeria Commercial Banking Report Q4 2010
Global Commercial Banking Outlook Post-Crisis Era Begins To Take Shape With a number of new regulations being implemented in the US, controversial stress test data released in the EU and emerging market banking sectors showing resilience, the post-crisis era is slowly taking shape. The short-term risks abound and our global macroeconomic forecasts include significant slowdowns in growth in the US and China in H210 and into 2011. This will temper banking sector asset expansion and, combined with tighter regulatory frameworks, we do not expect a return to the lending dynamism of the pre-crisis era. The dynamics for national banking sectors vary, but generally we forecast weaker asset and loan growth in developed markets, in line with our macro view that deleveraging will continue to dominate the economic agenda in Western Europe and the US over the next few years. In contrast, most emerging market banking sectors have withstood the global crisis and should continue to expand in the coming years.
Debt Deleveraging Cycle Underway US – Lending Growth, % change y-o-y
Source: Federal Reserve
US and Eurozone: We continue to anticipate sluggish loan and asset growth in the US and the eurozone’s banking sectors, in line with our macroeconomic view that households are in for a prolonged period of deleveraging. New financial regulations, in particular the signing of the Dodd-Frank financial regulation act by President Obama in July, reinforce our view that the pre-crisis lending boom will not return anytime soon, and help justify our headline forecasts for subdued asset and loan growth. This would be the case even if households and businesses were prepared to borrow, but in our view private sector deleveraging is only in its early stages. While we believe the chances of a new systematic banking
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crisis in the US are low, we also doubt that financial institutions will return to the levels they reached precrisis for the foreseeable future.
Stress Test Methodology Summary
In Europe, the results of the much
EU – Banking Sector Stress Test Key Facts
anticipated EU banking sector stress test came as little surprise, with only seven of 91 examined banks failing to meet the minimum thresholds determined by the Committee of European Banking Supervisors (CEBS). In our view, the main shortcomings of the test is that it failed to measure liquidity risks and exposures to a sovereign default, which indicates that uncertainty risks will continue to force a premium on banks. The test reinforces our view that the
Source: CEBS
eurozone banking sector overall remains relatively healthy and that a systemic crisis is not on the cards. That said, this does not discount the macroeconomic challenges likely to face European banks through to 2012. Further asset contractions and impairments remain our core scenario. Latin America: While the exposure of European banks to the eurozone’s myriad woes has raised concerns that the Latin America’s banking systems could face serious systemic risks over the medium term, we believe that Latin American banking sectors are generally well placed to withstand external shocks emanating from across the Atlantic. While risks to Latin American and Caribbean banking sectors from Europe’s banking problems remain muted, the region is unlikely to be immune from a sustained period of weakness for foreign banks. Despite the importance of local affiliates and deposits to many foreign banks operating in Latin America, a significant worsening of global financing conditions prompted by a spike in European credit spreads would almost certainly weigh on lending growth in the region, particularly if Spanish banks suffer heavily from concerns about Spain’s debt obligations. Domestically owned banks would also suffer from tighter interbank lending, reducing the availability of credit across the sector.
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Nigeria Commercial Banking Report Q4 2010
Clear Separation Latin America – Loan-to-Deposit Ratio, %
Source: BMI, countries’ central banks and regulators
Emerging Europe: We believe that the positive results from the EU’s stress test masks the risks faced by the region’s banks. The test focused on the predominant financial institutions in Western Europe, but we emphasise that their emerging European counterparts are still a major weak link in the chain. With a significant degree of leverage and faced with an elevation in non-performing loans, Central and Eastern European banking sectors remain vulnerable to another potential constriction in global credit conditions. Confronted with rising unemployment and weak corporate profitability, banks remain vulnerable to the elevation in non-performing loans and broader deterioration in asset quality. We hold to our view that domestic demand across the region will be weak over the medium term as the private sector deleverages and unemployment is stubbornly slow to decrease, which will hinder demand for fresh credit.
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Turkey Leaping Forward Emerging Europe – Bank Loans, % change y-o-y
Source: BMI, central banks
Asia: Asia region is mixed in terms of its outlook, as some banking sectors have solid enough fundamentals to support asset and loan growth, while others are set to be restrained by deleveraging. Based on a number of risk metrics, such as assets-to-equity, loan-to-deposit and assets-to-GDP ratios, Indonesia and the Philippines are in the best shape. Their banking systems should facilitate an acceleration in loan growth and profitability in 2010. While Asia’s economic and financial sector fundamentals are among the strongest in the world, the profit growth currently assumed by market valuations seems to be overly optimistic. From an investor’s point of view, the Indonesian banking sector stands out as being very expensive in relation to book value, as does China’s, despite a large decline. We also believe the markets are not giving enough weight to financial crisis risks in Australia and New Zealand, while South Korea is relatively attractive.
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Nigeria Commercial Banking Report Q4 2010
Middle East And North Africa: The regional macroeconomic recovery has
Bottoming, But No Overall Recovery GCC – Average Commercial Banks Deposit &Asset Growth (% change y-o-y)
failed to translate into a revival in bank lending or asset growth within the Gulf Cooperation Council (GCC) so far in 2010, and although we expect overall positive year-on-year expansion, this is more a reflection of a low base than an improvement in appetite for financial services. That said, the prospects for Saudi and Qatari banks are more encouraging than those for banks in Kuwait, Dubai and Bahrain, where there are greater stability issues albeit with no major
Source: GCC central banks, BMI
systemic threats. Outside the GCC, Iran’s banking sector is in particular danger, while Israeli lenders remain at the whim of the global economic recovery - something BMI remains concerned about, particularly as we go in H210. We expect to GCC banks to continue to look to Iraq, Syria, Egypt and Libya for untapped growth potential. Sub-Saharan Africa: The region’s major banking sectors have all come through the global financial crisis and are continuing to rebound from the various difficulties they experienced in 2009. Broadly speaking, past practices stood the region’s banking sectors in good stead, allowing them to weather the storm. Not only did banks have limited exposure to toxic US subprime mortgage assets, they also had relatively weak links with the global financial system and, with the notable exception of Nigerian banks, conservative lending habits dominated. We expect a healthy rebound for all of Sub-Saharan Africa’s major banking sectors in 2010 driven by improving domestic fundamentals. South Africa, Nigeria and Kenya are forecast to experience GDP growth several percentage points higher in 2010 than it was in 2009, which will boost incomes and in turn enable an increase in deposits and greater take-up of banking services.
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Nigeria Commercial Banking Report Q4 2010
Africa Banking Sector Outlook A Fragile Recovery The South African, Nigerian and Kenyan banking sectors survived the storm of 2009 and are making a fragile recovery. Rebounding economic activity and improved liquidity are bolstering growth. This quarter we have chosen Namibia as the case study for our banking sector analysis. Sub-Saharan Africa’s major banking sectors have all survived the global financial crisis and continue to rebound from the various difficulties they experienced in 2009. Broadly speaking, past practices stood the region’s banking sectors in good stead, allowing them to weather the storm. Not only did banks have limited exposure to toxic US subprime mortgage assets, they also had relatively weak links with the global financial system and, with the notable exception of Nigerian banks, conservative lending habits dominated. The most recent available data for the region show that the recovery is accelerating. In Kenya, total banking sector assets expanded by 15.0% year-on-year (y-o-y) in December 2009 from a multi-year low growth rate of 10.0% in April that year. Although aggregate Q110 data has not been published at the time of writing, the individual balance sheets of several Kenyan banks are encouraging. The average y-o-y growth in profits in Q110 for the three banks we have analysed - Kenya Commercial Bank, National Bank of Kenya and the Cooperative Bank of Kenya - was 25.0%. Data for the South African banking sector are also encouraging. Although client loans and deposits continued to decline in y-o-y terms in Q110, the pace of contraction lessened compared with Q409, likely preceding a return to positive territory over the course of 2010. The attractiveness of the sector has been highlighted by HSBC’s interest in Johannesburg-based Nedbank. The picture is less rosy for Nigerian banks. Although profits are recovering, this is mainly the result of lower write-downs compared to previous quarters, while top line earnings are, bar few exceptions, contracting. The main reason for falling revenues is that traditional loans are not being extended, which reduces the amount of interest income being generated. Operating expenses are on the rise and banks continue to take on new deposits, all of which is reducing the final return to shareholders. We expect a healthy rebound for all of Sub-Saharan Africa’s major banking sectors in 2010 and forecast total y-o-y asset growth of 8.0%, 20.0% and 17.0% for South Africa, Nigeria and Kenya respectively (although much of the asset growth in Nigeria will be derived from off-balance sheet items moving onto the balance sheet). This expansion will be driven by improving domestic fundamentals, with all three countries expected to experience GDP growth several percentage points higher in 2010 than in 2009. Our growth forecasts for South Africa, Nigeria and Kenya are 3.0%, 7.5% and 4.2% respectively. This will boost incomes, which will enable an increase in deposits and greater take-up of banking services.
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Country Focus: Namibia Examination of the South African, Nigerian and Kenyan banking sectors provides only a limited insight into the banking industry across Sub-Saharan Africa. The region is extremely diverse and country’s banking sectors vary greatly in terms of the level of development. This being the case, we have selected Namibia as a useful case study for this quarter’s report. Although Namibia’s exposure to the global economic cycle had a marked impact on economic growth in 2009, the same cannot be said of its banking sector. From the data published in the Bank of Namibia (BoN)’s June 2010 economic bulletin and its March financial stability report, we conclude that the country’s banking sector is still relatively insulated from global forces and it has consequently remained one of the most stable in Sub-Saharan Africa. With these factors in mind, we believe it will continue to grow strongly over the coming years, acting as a standard bearer for the region. The only notable problem is the absence of competition. With only four commercial banks and seven deposit-taking institutions, consumers face comparatively high prices for financial services. The majority of the Namibian banking sector’s assets are in the form of traditional loans, which is an encouraging sign insofar as it suggests that banks are fulfilling their basic role as intermediaries of capital. Since March 2007, the ‘claims on other sectors’ component has consistently accounted for about 80% of total assets, with claims on the government, the central bank, and non-residents making up the remainder. That most of bank lending has been directed towards households and businesses is a positive sign: too much borrowing by the government will crowd out supply to the private sector, while too much central bank borrowing would suggest commercial banks lack the confidence to channel money to the real economy.
Funded Through Deposits Namibia – Banking Sector Liabilities (NADmn)
Source: BoN
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Nigeria Commercial Banking Report Q4 2010
As for business lending, banks’ exposure has been fairly evenly diversified between mortgage loans (commercial real estate), overdrafts, ‘other’ loans and instalment credit. Although this breakdown does not reveal much about the concentration of loans to specific sectors - the Achilles’ heel of many African banks’ reporting - tourist and mining companies are likely to be the most important customers. Given the difficulty experienced by these sectors during the downturn, it not surprising to see that the total amount of credit outstanding to businesses contracted during the three months to March 2010. However, we remain generally positive about the prospects for the economy, especially uranium mining, and we do not expect a deeper downturn in credit. The impression from the liabilities side of the balance sheet is also one of stability. The overwhelming majority of banks’ funding still comes in the form of deposits, which are split between retail and corporate clients. Although the BoN does not provide a precise breakdown of funding sources, its March financial stability report did show that customer deposits have been on the rise and intra-bank funding has declined. Intra-bank funding accounts for only a tiny fraction (0.7%) of overall liabilities, which suggests that banks in Namibia are well capitalised enough to stand on their own. Too much lending between banks is often a sign of poor capitalisation or inability to obtain funding from traditional sources such as deposits. Despite the Namibian banking sector’s stability, the fact that there are only four commercial banks – First National Bank of Namibia, Standard Bank of Namibia, Nedbank Namibia and Bank Windhoek – and seven deposit-taking institutions means that competition is very low. The Herfindahl-Hirschman Index, a common measure of industry concentration, registers at 2,690, far higher than the internationally accepted 1,500 benchmark for competitive operating environments. To be fair, the sector is likely to become more competitive as it deepens - the total assets-to-GDP ratio was 61.3% in 2009 - but with an average return on equity well over 20% over the past five years the process still has a long way to come. The impression of an uncompetitive environment is confirmed by the cost-to-income ratios (measured as operating expenses divided by total income) that have consistently been above 50%, which is the common target for efficient banking.
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Nigeria Commercial Banking Report Q4 2010
Table: Middle East & African Banks’ Bond Portfolios
Bond Portfolio, US$bn
Bonds, % total assets
Year-on-Year Growth %
9.5
1.6
50.6
65.7
31.4
34.5
na
na
na
28.6
10.4
12.5
Jordan
6.3
14.0
27.7
Kuwait
10.2
7.3
24.6
Oman
4.7
12.8
82.1
Qatar
13.6
10.6
103.2
Saudi Arabia
41.2
11.3
-26.5
UAE
38.2
9.2
12.0
Kenya
2.9
20.5
12.4
Nigeria*
3.1
3.2
223.3
61.0
15.2
-27.8
Bahrain Egypt Iran Israel
South Africa
na = not available; * = BMI estimate. Source: Central banks, regulators, BMI
Table: Middle East & Africa Commercial Banking Business Environment Ratings
Limits of Potential Returns
Risks to Potential Returns
Overall
Market Structure
Country Structure
Market Risks
Country Risks
Rating
Ranking
Bahrain
60.0
75.0
70.0
82.0
69.4
19
Egypt
63.3
60.0
53.3
62.0
61.0
33
Iran
56.7
52.5
10.0
52.0
49.1
50
Israel
53.3
82.5
83.3
58.0
65.9
27
Jordan
20.0
75.0
53.3
38.0
42.6
51
Kuwait
56.7
90.0
50.0
76.0
68.7
21
Oman
23.3
82.5
60.0
76.0
53.8
42
Qatar
53.3
82.5
50.0
82.0
66.3
26
Saudi Arabia
63.3
85.0
60.0
78.0
71.6
18
UAE
70.0
82.5
63.3
70.0
72.7
15
Kenya
16.7
45.0
53.3
40.0
33.2
58
Nigeria
63.3
57.5
60.0
48.0
58.5
36
South Africa
73.3
77.5
83.3
56.0
72.6
16
Scores out of 100, with 100 the highest. Source: BMI
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Nigeria Commercial Banking Report Q4 2010
Table: Comparison Of Loan/Deposit, Loan/Asset & Loan/GDP Ratios
Loan/Deposit Ratio, %
Rank
Trend
Loan/Asset Ratio, %
Rank
Trend
Loan/GDP Ratio, %
Rank
Trend
105.7
20
Falling
9.1
59
Rising
259.2
3
Rising
Egypt
51.0
58
Falling
37.6
53
Falling
40.0
47
Falling
Iran
95.2
29
Falling
43.8
45
Falling
55.5
38
Rising
Israel
80.1
36
Falling
61.8
22
Falling
83.6
22
Falling
Jordan
68.4
55
Falling
41.7
47
Falling
81.9
21
Falling
Kuwait
96.1
31
Falling
66.9
16
Rising
85.2
28
Rising
Oman
108.2
19
Rising
69.4
8
Rising
39.6
46
Falling
Qatar
109.6
17
Falling
57.8
30
Falling
75.6
33
Rising
81.1
38
Falling
55.6
33
Falling
55.1
43
Rising
103.6
22
Falling
67.0
17
Falling
107.1
14
Falling
Kenya
95.1
28
Rising
68.2
9
Falling
26.6
51
Falling
Nigeria
99.0
27
Falling
65.4
20
Rising
29.5
52
Falling
103.3
23
Falling
76.0
3
Rising
92.9
20
Falling
Bahrain
Saudi Arabia UAE
South Africa
Source: Central banks, regulators, BMI
Table: Anticipated Developments In 2010
Loan/Deposit Ratio, %
Trend
105.7
Falling
4.3
4.0
0.2
Egypt
51.0
Falling
6.3
12.3
-6.1
Iran
93.4
Falling
6.0
10.4
-4.5
Israel
80.9
Rising
11.2
11.9
-0.6
Jordan
66.5
Falling
1.1
2.5
-1.3
Kuwait
88.6
Falling
8.1
17.5
-9.4
Oman
106.2
Falling
1.5
1.9
-0.4
Qatar
107.7
Falling
11.9
12.2
-0.3
79.6
Falling
12.2
20.1
-7.9
101.6
Falling
5.5
10.7
-5.2
Kenya
93.5
Falling
1.4
1.7
-0.3
Nigeria
94.9
Falling
10.5
13.8
-3.4
South Africa
97.6
Falling
7.5
24.8
-17.2
Bahrain
Saudi Arabia UAE
Loan Growth, Deposit Growth, US$bn US$bn Residual, US$bn
Note: Incorporates estimated economic data and projected banking data. Source: Central banks, regulators, BMI
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Nigeria Commercial Banking Report Q4 2010
Table: Comparison Of Total Assets, Client Loans & Client Deposits (US$bn)
2009
2008
Total Assets
Client Loans
Client Deposits
Total Assets
Client Loans
Client Deposits
Bahrain
589.8
53.4
50.5
671.2
53.3
49.9
Egypt
209.5
78.7
154.4
190.5
78.2
139.9
Iran
477.0
208.7
219.3
428.9
194.6
187.2
Israel
274.5
169.7
211.8
261.8
169.4
202.9
Jordan
45.1
18.8
27.5
42.1
18.6
24.7
Kuwait
140.7
94.1
98.0
142.2
92.3
89.8
Oman
36.8
25.5
23.6
35.8
24.0
22.3
Qatar
128.5
74.3
67.8
110.4
66.7
58.4
Saudi Arabia
365.9
203.6
251.1
347.7
204.7
225.9
UAE
413.6
277.1
267.6
396.5
270.6
251.2
Kenya
14.2
9.7
10.2
14.7
10.1
10.2
Nigeria
97.4
63.7
64.3
95.5
61.0
59.1
400.9
304.8
295.1
335.4
245.0
230.1
South Africa
Source: Central banks, regulators, BMI
Table: Comparison Of Per Capita Deposits, 2010 (US$)
GDP Per Capita
Client Deposits Per Capita
Rich 20% Client Deposits Per Capita
Poor 80% Client Deposits Per Capita
36,683
71,444
270,386
16,899
Egypt
2,723
1,006
7,894
493
Iran
5,710
2,907
12,442
778
28,838
23,881
118,093
7,381
Jordan
3,604
3,272
19,683
1,230
Kuwait
48,257
35,705
161,270
10,079
Oman
23,768
9,321
35,114
2,195
Qatar
93,370
57,121
212,132
13,258
Saudi Arabia
17,669
8,303
41,747
2,609
UAE
61,075
60,050
236,463
14,779
922
271
1,161
73
Nigeria
1,654
469
1,975
123
South Africa
7,098
6,289
25,763
1,610
Bahrain
Israel
Kenya
Source: Central banks, regulators, BMI
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Nigeria Commercial Banking Report Q4 2010
Table: Interbank Rates & Bond Yields
3-Month Interbank Rate, % Current Account, % of GDP, 2010f
Budget Balance, % of GDP, 2010f
H110
2009
Bahrain
14.4
3.8
1.25
1.31
Egypt
-1.1
-7.5
6.25
9.25
Iran
4.2
-4.8
na
na
Israel
3.0
-4.2
1.75
1.58
Jordan
-6.7
-5.1
3.20
3.76
Kuwait
35.1
29.3
1.00
1.13
Oman
16.3
7.8
0.23
0.20
Qatar
25.1
12.7
1.01
1.15
Saudi Arabia
16.9
15.9
6.61
7.23
7.2
3.2
2.34
1.89
Kenya
-7.0
-5.9
1.80
6.00
Nigeria
2.2
-3.5
5.96
14.54
-4.1
-6.2
7.50
7.50
UAE
South Africa
f = BMI forecast; na = not available. Note: Incorporates actual financial markets data, estimated economic data and projected banking data. Source: Central banks, regulators, BMI
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Nigeria Commercial Banking Report Q4 2010
Islamic Banking Overview Macro And Financial Environment Still Challenging For Islamic Banks The weak performances of Islamic banks are more a reflection of the global circumstances, and in some cases inexperience, than their compliance with shari’a per se. However, we still contest the view that Islamic banks are intrinsically better off than conventional lenders and note that sukuk issuers still turn to established conventional banks such as HSBC for structuring
Back In The Game
and advisory services.
Global Sukuk Issuance (US$bn) Our view that Islamic banks have not outperformed during the global economic slowdown is well founded, as Q210 profits and loan contraction continue to demonstrate. Sukuk issuance in Asia is picking up but the Gulf market remains very subdued, and Islamic retail lending is stagnant across the globe, although not necessarily more so than in conventional banking sectors. That said, although we have been among the more questioning voices on Islamic
Source: Islamic Finance Information Service, BMI
finance for some time, we do not subscribe to some of the more dramatically negative views of the industry, such as Junaid Bhatti, one of the co-founders of Islamic Bank of Britain (IBB), who told The Times in June that shari’a-compliant banking had been a ‘huge flop’ in the UK. We still see the potential for good growth in the industry, but banks will have to prove that they are just as cost efficient and no more risky than their longer established conventional counterparts. Uninspiring Global Macro Backdrop There has been little improvement in the global banking sector backdrop since our previous update. Global risk sentiment was very volatile in Q210 as the full depth of the European sovereign debt crisis gradually became clear and fears of further asset write-downs and defaults resurfaced. Although the European banking sector stress test in July 2010 was shrugged off by the markets, the methodology was considered less than credible and the whole exercise has not brought much in the way of reassurance. Given this uninspiring backdrop, lending activity is subdued and is set to remain so, perhaps for the rest of 2010. In the Middle East and North Afriaca (MENA) there has been no real recovery in lending
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Nigeria Commercial Banking Report Q4 2010
appetite, while in Asia the risk of severe losses in the Chinese and Australian property markets could lead to a renewed wave of risk aversion and capital hoarding.
Boom Years Over This picture of ongoing risk aversion is equally true, if not
Al-Rajhi Bank – Total Loans (SARmn & % change, y-o-y)
more so, in the Islamic financial sector, and while we do not expect any collapses - most institutions have the advantage of being very well capitalised already or being backed by a government or sovereign wealth fund - profits and loan growth will remain low, often underperforming the market as a whole. Looking at results released from within the Gulf Cooperation Council (GCC) in Q210, the performance of
Source: Al-Rajhi Bank
Islamic banks continues to disappoint, even as some more conventional lenders have started recovery. Abu Dhabi Islamic Bank and Masraf al-Rayan were the exceptions with profit growth of 56% and 65% year-on-year (y-o-y) respectively in Q210. However, Al-Rajhi Bank’s profits rise by just 0.6% y-o-y, while there were contractions for Alinma Bank (-95%), Qatar Islamic Bank (-34%) and Bahrain Islamic Bank (-80%, resulting in a loss of US$18mn). The latter has had such a difficult time that it has resorted to a US$143mn rights issue at a 37% discount. Investment Activity Looking Better In Asia, But Still Handled By The Big Boys As before, where the two major Islamic finance regions are concerned, Asia leads the Middle East, but there are risks in both areas from a second downturn in global economic activity. We also retain our longheld view that Islamic banks are not necessarily better placed than conventional ones following the financial crisis, and as far as the Gulf is concerned Islamic banks appear to be worse off, as profitability remains subdued and loan books continue to stagnate and contract. This quarter, we look at Islamic market activity and then at two case studies of Islamic banks. In terms of investment banking activity, namely the structuring and arranging of sukuk, other products and trading volumes, the recovery has progressed, but not as impressively as that seen in conventional markets. Asia has led the way while activity in the MENA region has largely stagnated. Global sukuk
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Nigeria Commercial Banking Report Q4 2010
issuance reached US$20.4bn in H110, according to the Islamic Finance Information Service, which up by 99% y-o-y growth and equal to 88% of full-year issuance for 2009 (see chart). However, although this increase generally boosts liquidity and asset diversification options for Islamic banks, they are still not getting the fees for arranging these deals. It is non-Islamic banks with Islamic divisions that are leading the charge, such as HSBC, which was the biggest sukuk book runner in the Middle East, and CIMB in Asia. The third was Samba Capital, part of the Saudi Samba Financial Group that is not only shari’a compliant.
Difficult Times
Asia is leading the way, with issues down by 25% y-o-y and no private sector issuance in the
Al-Rajhi Bank – Provisions For Loan Losses (SARmn)
Middle East in the first half of 2010. In Asia, things look a bit more promising and there has even been some interesting cross-market trading. Japanese investment bank Nomura raised US$70mn in July through an oversubscribed commodity murabaha transaction, which targeted wealth in the Middle East and carried a three-year tenor (with participants including ABC Islamic Bank, Islamic Development Bank,
Source: Al-Rajhi Bank
Samba, Sumitomu Mitsui and Ahli United Bank). Nomura also raised US$100mn through a sukuk al-Ijarah, arranged by Kuwait Finance House’s Kuala Lumpur arm. Sumitomo Mitsui is reportedly looking to issue a yen-denominated sukuk in the Japanese market. One of the reasons that Islamic financial institutions have not cooperated more in this way so far is that there is disagreement over shari’a standards, with Gulf regulators generally more conservative and stringent than their Asian counterparts. However, there have been some developments in this regard, including the Cagamas, Malaysia’s largest mortgage holder, structuring its latest sukuk issue, with which it is looking to raise US$1.5bn, to comply with Gulf standards. Duet MENA and Algebra Capital from Dubai have already expressed interest, calling Cagamas’ move to comply with the regulations of the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions ‘a milestone’.
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Nigeria Commercial Banking Report Q4 2010
Another product which should boost the sukuk market is Malaysian financial guarantee insurer Danajamin’s innovative Islamic guarantee (al-Kafalah) for sukuk, with the issue of the first Danajamin guaranteed sukuk programme. While we are not sure whether all of the Gulf regulators will agree that this is entirely shari’a compliant, it will go down well in the current risk averse climate. After the Dubai World crisis, the perception of sukuk as ‘safe haven’ instruments has been damaged, while Kuwait’s International Investment Group said at the end of July that it was unable to pay US$152.5mn to sukuk-holders that demanded immediate repayment after the company defaulted on its US$200mn Islamic bond earlier in 2010. How To Mecca Lot Of Money On the retail side, we look here at two case studies: Al-Rajhi Bank and the Islamic Bank of Britain, both of whose recent performances illustrate our view that shari’a
Serious Setbacks
compliance does not equal low risk.
Islamic Bank of Britain – Total Loans (GBPmn)
For the Saudi Al-Rajhi Bank, one of the world’s largest and longest established Islamic banks, its Q210 results were disappointing, with profits up by just 0.6% y-o-y to SAR1.78bn (US$474mn) in Q210, taking H110 profit down by 1.1% y-o-y according to our calculations. Provisions were not given in the Q2 released results but they may well have risen since Q1, when the bank booked SAR358.9mn. The net profit pre-impairment
Source: IBB
charge reached SAR4.24bn, according to the bank. Al-Rajhi’s loans rose by 5.4% to SAR118mn in Q210, while deposits came in 9.8% higher at SAR135mn, giving a loan-to-deposit ratio of 87.4%. This is in line with trends in the Saudi market as a whole, where loans were up by 2.7% y-o-y in April, and deposits were up by 2.0%, although both are likely to have risen by the end of June, with an overall loan-to-deposit ratio of 86%. Even if al-Rajhi has outperformed the sector as a whole, it still shares its peers’ nervousness in terms of lending, which will feed through to its profitability in 2011 and 2012. As the chart shows, the bank’s rate of loan growth
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Nigeria Commercial Banking Report Q4 2010
slowed sharply in 2009, when loans grew by 3.0%, while deposits rose by 2.1%. That said, recovery has started and al-Rajhi remains very well capitalised. Honey To The IBB The picture for IBB is perhaps more worrying. Junaid Bhatti, one of the co-founders of the bank in 2004, told The Times in July 2010: ‘As we now approach the sixth anniversary of IBB’s launch, I’m sad to have to finally admit that Islamic finance in the UK has been a huge flop. IBB may still be limping on as probably the last bastion of the cause, but it’s difficult to imagine it holding out for much longer.’ These are dramatic words from one of the pioneers of the industry, particularly given the UK’s relatively large Muslim population, but the figures tell a less than inspiring story. IBB raised new capital of GBP7.5mn via a placing of new shares in January 2009 and Sheikh Thani bin Abdulla bin Thani Jasim al-Thani from Qatar increased his personal stake to 30%. However, in its end of 2009 statement, IBB chair Mohsen Moustafa said: ‘While the bank continues to have sufficient capital for its current requirements, the board is in ongoing discussions with its advisors and interested parties regarding the raising of additional capital to support planned future growth. If additional capital is not raised, the bank will need to scale back its growth plans and operations during 2010 in order to ensure that regulatory capital requirements continue to be achieved.’ Looking at the chart showing the bank’s loan book, there appear to be some serious problems with the business model: total loans fell by 18.4% in 2008 and by a further 43% in 2009. Islamic banking analyst Mushtak Parker, writing in Arab News, noted some shortcomings: the decision to base IBB some distance from London’s financial centre, in Birmingham; the slowness to get involved with home finance; a low capital base; and an ‘inadequate product profile’. In this context, we do not believe IBB’s performance is telling of the Islamic banking market in the UK as a whole – although, as a retail experiment, it has not done the industry many favours, given its high profile. If it were to go under, then it could diminish confidence among depositors, borrowers and investors. Its performance so far backs up our view that Islamic banks are not intrinsically better off than their conventional counterparts. However, to end on a more optimistic note, a more experienced player could well come in, perhaps from the Gulf or Asia, acquiring the bank cheaply and repairing some of the damage. At this stage, all the UK’s advantages in the Islamic financial sector, such as its large Muslim population and forward thinking approach to levelling the playing field in terms of tax and regulation for Islamic lenders, will come back into play.
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Nigeria Commercial Banking Report Q4 2010
Nigeria Banking Sector Outlook Profits Return, Problems Remain Although the profitability of Nigerian banks is making an impressive recovery, the absence of top line growth is a clear sign of malaise. In the absence of more traditional intermediation, banks’ margins will come under increasing pressure – to the detriment of shareholders and the economy at large. As Nigerian banks begin publishing results for the first half of 2010, the problems plaguing the sector are becoming ever more obvious. Although profits are recovering, this is mainly the result of lower writedowns compared to previous quarters, while top line earnings are contracting, with few exceptions. The main reason for falling revenues is that traditional loans are not being extended, which reduces the amount of interest income being generated. Operating expenses are on the rise and banks continue to take on new deposits, all of which is reducing the final return to shareholders. Although some major banks have not released H110 results at the time of writing, the impression gleaned from the results that are available is fairly consistent. Looking first at the balance sheet, the most salient trend among the banks we examined - UBA, FirstBank, Zenith Bank and Diamond Bank - was the modest growth in assets, driven primarily by investment securities and other, unidentified assets. While loans to customers were marginally higher than in the previous six-month period, there was a simultaneous contraction in ‘dues from other banks’, which raises the question of whether assets are simply being reclassified by banks. Whatever the case, it is clear that traditional intermediation is not growing at a pace that is adequate to support the economy.
Missing The Top Line Selected Banks’ Gross Earnings, NGNmn
Source: Banks’ H110 statements; * = Q210 statement
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Nigeria Commercial Banking Report Q4 2010
The story from the liabilities side of the balance sheet is largely unchanged. Total claims on banks are growing at a healthy rate, driven (somewhat surprisingly) by customer deposits. This is unusual since the typical deposit rates have been 8-10 percentage points below the rate of headline inflation, but it may simply reflect the absence of any alternative outlets for investment. there is also likely to be a certain amount of deposits that banks will generate regardless of the interest rate environment, so long as there are no fears about their solvency. So in this sense, the rise of deposits could actually be considered a positive sign.
Loans Stagnant, Deposits Growing Banking Sector Loan-to-Deposit Ratio
Source: IMF IFS, BMI The upshot of rising liabilities and stagnating loan growth - the traditional source of interest income, which is a major share of gross earnings - is lower returns for shareholders in Nigerian banks. To be fair, profitability has made an impressive comeback since H109 in the majority of cases, but this is largely because banks are no longer taking big write-downs. Once business returns to normal and non-performing loans are cleansed from the system profit growth will come much less easily. By way of example, return on equity (ROE) was 5.4% for FirstBank and 2.3% for UBA, which are underwhelming performances compared with the many other banks in Sub-Saharan Africa that offer ROE of 15-20%.
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Nigeria Commercial Banking Report Q4 2010
Tempered Enthusiasm NGSE Banking Index
Source: Nigerian Stock Exchange, BMI The solution to this problem is for banks to start making more loans to the ‘real economy’, which is the ultimate goal of the Central Bank of Nigeria (CBN)’s reforms and the single most important issue on which governor Sanusi Lamido Sanusi has staked his reputation. In addition to the Asset Management Corporation of Nigeria (AMCON), the vehicle that will be used to remove toxic assets from banks’ balance sheets, the CBN under Sanusi has set up the Bank of Industry (BOI) scheme to channel loans into manufacturing, small business and the aviation sector. As much as these initiatives are moves in the right direction, they will not be able to resolve fears about the state of the economy or banks’ inability to assess the creditworthiness of prospective clients. In our view, these factors are real obstacles to unlocking the Nigerian banking sector’s long-term potential. AMCON and the BOI are important but they are only small steps along the way.
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Nigeria Commercial Banking Report Q4 2010
Economic Outlook Putting Together The Growth Puzzle Although the mood on the ground in Lagos continues to be one of economic uncertainty, we maintain our headline real GDP growth forecast of 7.5% for 2010. This view is based on expectations that agriculture and general commerce will be the primary drivers of economic expansion; if issues in the banking and petroleum sectors are resolved, actual growth could conceivably rise to the double digits in the years thereafter. One of the major challenges in assessing Nigeria’s growth outlook is reconciling ‘on the ground’ views with the trends observed in headline figures. At few points has this dilemma been more apparent than in 2009: in spite of collapsing oil prices, declining petroleum sector output, a severe banking crisis and a forced exchange rate devaluation, Nigeria notched up headline growth of 6.9%. Much as this was part of a trend of macroeconomic outperformance across Sub-Saharan Africa, Nigeria’s perceived dependence on oil was initially thought to make it more vulnerable than it proved to be. One has only to look to Angola for an example of an economy where growth fell from the double digits in 2008 to nearly zero in the following year. With the worst of the global economic crisis now passed and some of Nigeria’s more idiosyncratic problems moving towards resolution, the same challenge has arisen. On one hand, the impression gleaned from BMI’s March trip to Lagos highlights some key concerns: banks are still reluctant to engage in traditional lending, concerns over corporate creditworthiness persist, some important pieces of legislation are hanging in the balance and there are growing concerns about the extent of government involvement in the economy. Amid this general climate of uncertainty, however, Nigerian equities seem to have been decisively re-awakened and private sector activity continues apace. Evidence of positive sentiment can be seen both in the trajectory of the benchmark Nigerian Stock Exchange All Share Index (NGSE) and in actual trading volumes, which are sharply off the lows of NGN200-250mn experienced during much of 2009. In order to reconcile these divergent impressions of the economy, we take a look at some of the major challenges facing Nigeria over the coming months and how we expect these to play into our headline real GDP growth forecast of 7.5%. Funding The AMC One of the most obvious challenges facing the Nigerian economy over the coming months will be gaining approval for the proposed Asset Management Corporation (AMC). The first step of this process, passage in the House of Representatives, has already been achieved. What remains to be done is bringing the corporation to an operational stage, which will require substantial amounts of both human and financial
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Nigeria Commercial Banking Report Q4 2010
capital. While we are with the market in believing that the AMC will eventually reach this stage, a major concern is how much it will end up costing. According to local news reports claiming to have seen the legislation, the AMC would be endowed with a capital base of NGN10.0bn (US$66.7mn), funded jointly by the Central Bank of Nigeria (CBN) and the Ministry of Finance. CBN Governor Lamido Sanusi later confirmed that the central bank had set aside a further NGN50.0bn (US$333.3mn) with a view to eventually raising NGN500bn (US$3.33bn) from both public and private sources. Assuming the entire cost of the AMC was absorbed in one year, this would amount to 1.6% of GDP, thereby taking the projected budget deficit in 2010 from 4.0% to 5.6% of national output. Although these figures look benign, we think the CBN is likely to be understating the actual cost of the AMC. Working with our core assumptions on the size of banking sector assets - we estimate total loans to have reached NGN8,451bn by the end of 2009 - we think a more realistic projection for the cost of the AMC is somewhere between NGN1,500-1,800bn (US$10.0-12.0bn). This figure is based on a ratio of non-performing loans to total loans of 23% and a recovery rate on those assets of 30-40%. However, even if the cost of the AMC comes in at the higher end of these estimates, the long-term macroeconomic implications are far from being dire. Indeed, NGN1,800bn still only represents 5.2% of forecast GDP in 2010 - a relatively modest sum when compared with the experiences of many other emerging markets that suffered banking crises throughout the 1980s and 1990s. Government: An Unwelcome Partner? Whatever the eventual cost of the AMC, many observers have seen its establishment as part of a trend of growing government involvement in the economy. Support for this argument can also be read in the greatly expanded budget for 2010, the government’s increasingly active role in directing credit to the power sector and the authorities’ existing interest in agriculture. Indeed, at the time of writing, the CBN was preparing to hold a special monetary policy committee meeting to determine how it would disburse NGN500mn in concessional lending to the power industry via the state-owned Bank of Industry. The main question arising from the government’s growing visibility in the economic sphere is the degree to which it is becoming the largest - or even the only - driver of growth. Where we stand on this question is simple: we acknowledge that the government is becoming a more active partner, and certainly a more visible one, but we do not think that growth is dependent on its involvement. In the case of agriculture, for example, the government’s much-discussed Agricultural Credit Guaranty Scheme (ACGS) has typically only disbursed around NGN300-500mn (US$2.0-3.3mn) per month - a very small sum for an industry that has historically accounted for around 40% of nominal GDP.
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Although its share in the banking sector is admittedly much larger, we are not convinced that banks have played a pivotal role in Nigeria’s real growth story over the past several years. Working with official statistics, we see that finance and insurance have not accounted for more than 5% of nominal GDP since 2000. Real growth of the sector, meanwhile, has been lagging that of agriculture by a significant margin. This is not to say a healthy and vibrant banking sector is not important to the functioning of an economy, but the structure and maturity of Nigeria’s economy is such that the real sources of growth are elsewhere, at least for the time being. New Vectors Of Growth Over the longer term, we do expect a rebalancing of the economy in favour of services, and a healthy banking sector will play a key role in this transition. Likewise, reforms under way in the telecommunications and petroleum sectors are also important steps in bringing the Nigerian economy up the value chain. So while a forecast for 7.5% real GDP growth in 2010 may already make Nigeria an outperformer, its actual growth potential is likely to be in the double digits.
Tablle: Nigeria Economic Activity, 2007-2014
2007
2008
2009e
2010f
2011f
2012f
2013f
2014f
22,848.9
26,999.7
30,569.5
33,483.0
37,273.7
41,212.8
45,272.2
49,400.4
185.6
227.1
201.1
230.9
271.1
311.0
356.5
401.6
6.5
5.9
6.9
7.5
7.3
7.6
7.1
7.5
1,208
1,536
1,333
1,499
1,724
1,939
2,179
2,407
143.9
147.8
150.9
154.1
157.2
160.4
163.6
166.9
Industrial production 4 index, % y-o-y, ave
-0.2
-3.5
-1.1
3.8
4.7
4.5
4.2
6.1
Unemployment, % of 5 labour force, eop
14.6
14.6
17.3
15.5
15.8
16.2
15.8
14.6
Nominal GDP, NGNbn Nominal GDP, US$bn Real GDP growth, % 2 change y-o-y GDP per capita, US$ Population, mn
3
2
1 1
1
2
e/f = BMI estimate/forecast. Source: Nigerian National Statistics Bureau/CBN, Nigerian National Statistics 3 4 5 Bureau/CBN/BMI, IMF, IMF IFS, Nigerian National Statistics Bureau
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Competitive Landscape Market Structure Protagonists Table: Protagonists In Nigeria’s Commercial Banking Sector
Central bank: Central Bank of Nigeria (CBN) www.cenbank.org The mandate of the central bank was established in 1958 and started operations in July 1959. The CBN issues notes and coins and is mandated to: maintain Nigeria’s external reserves; conduct monetary policy; manage the payment system; act as banker to government; regulate the banking system; and act as banker to the banks. The CBN has also performed major development functions in important areas of the economy such as the financial, agricultural and industrial sectors. Principal banking regulator: Central Bank of Nigeria (CBN) www.cenbank.org In addition to its other functions, the CBN is the regulator of the banking system. Banking trade association: Chartered Institute of Bankers of Nigeria (CIBN) www.cibng.org The CIBN, established in 1963, is a self-regulating body that promotes banking and finance education, ethics and professionalism that meets global best practice standards.
Definition of the Commercial Banking Universe The Central Bank of Nigeria identifies 24 deposit money banks in the country, which we consider to make up the universe of commercial banks in the country.
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Nigeria Commercial Banking Report Q4 2010
List of Banks Table: Deposit Money Banks
Access Bank Nigeria Afribank Nigeria Citibank Nigeria Diamond Bank Nigeria Ecobank Nigeria Equitorial Trust Bank Fidelity Bank FirstBank of Nigeria First City Monument Bank First Inland Bank Guaranty Trust Bank Intercontinental Bank Oceanic Bank International Nigeria Platinum Habib Bank Skye Bank Spring Bank Stanbic IBTC Bank Standard Chartered Bank Nigeria Sterling Bank Union Bank of Nigeria United Bank for Africa Unity Bank Wema Bank Zenith Bank
Source: CBN
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Nigeria Commercial Banking Report Q4 2010
Company Profiles Citibank Nigeria
As a subsidiary of Citigroup, Citibank Nigeria is able to leverage off the scale and global network of its parent company.
One of the smallest loan loss provisions out of the banks investigated in the AugustSeptember 2009 audit.
Citibank Nigeria essentially operates as a corporate bank, it has little branch network or personal banking business.
By Citigroup standards, it is a small operation with total assets of just over US$1bn.
Opportunities
Nigeria is regarded as an easier country in which to do business for the multinational companies that form the key client base for Citibank. Assuming the financial problems in the country can be overcome, or at least mitigated, then Citibank can look at increasing business from multinationals operating in Nigeria.
Threats
In the event that the political and economic difficulties are not resolved, Nigeria could remain a backwater with little potential business growth for Citibank.
Company Overview
Citibank has had a presence in Nigeria since 1984. In 2008, the subsidiary that operated under
Strengths
Weaknesses
the name Nigeria International Bank was renamed Citibank Nigeria to fully align with Citigroup’s global brand and identity. The bank offers a range of services, including global transaction , sales and trading, corporate finance and investment banking services to corporate and commercial customers, financial institutions (including other banks) and the public sector. In August 2008, Citibank launched its direct custody and clearing (DCC) services in Nigeria, the rd
53 (and largest) market on its proprietary network. The DCC business facilitates business transactions for clients and investors looking to do business in Nigeria. In August 2009, the CBN concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, First Bank of Nigeria, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September 2009. As a result of the audit, all banks investigated were ordered to give loan loss provision figures. Citi’s loan loss provisions stood at NGN320mn at the end of September 2009, one of the smallest among all the audited banks. In November 2009, Citibank Nigeria looked to increase its corporate social responsibility by developing its grassroots for the local community. For Citigroup’s annual Global Community Day, hundreds of volunteers from the company organised donation drives and charitable events across Nigeria. The bank operates from its headquarters on Victoria Island, Lagos. Key personnel include: Citibank Nigeria CEO Emeka Emuwa, chief operating officer/executive director Funmi Ade-Ajayi and head of commercial banking Emeka Okonkwo. Citibank has a small network in Nigeria of 13 branches and about 300 employees. In early 2010, Citibank Nigeria was named
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Nigeria Commercial Banking Report Q4 2010
Nigeria’s Best Bank for Risk Management and Best Overall Bank for Cash Management by Global Finance magazine. A new scheme has been launched by Citibank Nigeria in 2010 to reward entrepreneurs of small businesses as part of the company’s commitment to the development of the microfinance sector in Nigeria. The programme aims to focus on local micro-entrepreneurs that are helping to improve the economic fortunes of their communities, resulting in potential opportunities to bring in capital. Cash prizes will be given to the winners. Company Data
Website: www.citigroup.com/citi/global/nga.htm
Status: Private sector bank, subsidiary of Citigroup
Table: Key Statistics Citibank Nigeria, 2004-2008 (NGNmn)
2004
2005
2006
2007
2008
Total Assets
66,247
86,979
111,381
135,879
157,527
Loans & Mortgages
17,494
28,886
36,520
43,044
58,710
Total Deposits
42,067
44,969
61,062
79,134
97,635
Total Shareholder Equity
12,337
28,120
33,813
35,032
37,694
Source: Citibank Nigeria 2008 annual report
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Nigeria Commercial Banking Report Q4 2010
Diamond Bank Strengths
As well as its listing on the Nigerian Stock Exchange, Diamond Bank is listed on the London Stock Exchange’s professional securities market. The bank has shown itself capable of meeting London’s listing requirements and can therefore expect to have better access to capital and lower investor risk than most other African banks.
Weaknesses
Diamond Bank is relatively small, with total assets at the end of 2008 of NGN625bn (US$4.2bn) and 2,889 staff.
In November 2009, Diamond Bank announced that its pre-tax profit had shrunk by 91.5% since May 2009.
Opportunities
A well established and recognised regional brand supported by its branch network.
Threats
Despite being well run, Diamond Bank remains a small, developing market bank.
Company Overview
Diamond Bank began as a private limited liability company in 1991 after being incorporated in December 1990. In February 2001, it became a universal bank. In January 2005, following a successful private placement share offer that raised the bank’s equity base, Diamond Bank became a public limited company. In May 2005, the bank was listed on the Nigerian Stock Exchange. By January 2008, Diamond Bank’s global depositary receipts were listed on the professional securities market of the London Stock Exchange, making it the first bank in Africa to do so. Diamond Bank has a network of 132 branches in Nigeria. It has won several awards, including Most Improved Bank of the Year and Best Bank in Mergers & Acquisition from the This Day newspaper. Most recently, it won African Leadership Magazine’s African Bank of the Year award 2009. In June 2009, the government gave Diamond Bank the right to perform the functions of a primary dealer market maker in government bonds. According to the bank, bond markets play an vital role in mobilising capital investments that are crucial for economic growth in Nigeria. An efficient bond market will help economic development and reduce the risk of financial crises. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, First Bank of Nigeria, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit started in September. As a result of the audit, all banks investigated were ordered to give loan loss provision figures at the end of September 2009. In September 2009, shareholders in Diamond Bank approved capital raising of NGN200bn (US$1.3bn) and in December 2009 the bank issued NGN3bn to help microbusinesses and SMEs. The assistance scheme is intended to prompt entrepreneurs into the habit of saving, therby increasing the growth and development of the sector. Earlier in 2009, the bank sponsored seminars and events to help SMEs excel in their businesses.
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Nigeria Commercial Banking Report Q4 2010
Company Data
Website: www.diamondbank.com
Status: Private sector bank, listed on the Nigerian Stock Exchange
Table: Stock Market Indicators
2005
2006
2007
2008
Sept 2009
Market Capitalisation, NGNmn
8,382.2
56,798.9
181,606.3
107,985.3
128,829.7
Market Capitalisation, US$mn
64.3
441.0
1,540.3
773.0
852.3
Share Price, NGN
7.1
6.8
17.6
7.5
8.9
Share Price, US$
0.1
0.1
0.1
0.1
0.1
-2.4
182.6
-64.2
10.3
2004
US$ Share Price, % change (eop) Change, % (2009 only) Shares Outstanding, mn
19.3 1,189.7
6,682.7
8,364.0
10,339.9
14,475.3
Source: Bloomberg, Diamond Bank
Table: Balance Sheet (NGNmn, unless stated)
2004
2005
2006
2007
2008
Total Assets
73,040.0
131,341.3
227,833.2
320,950.2
625,669.6
Loans & Mortgages
20,780.2
42,751.1
80,560.5
100,971.7
240,448.8
Total Deposits
46,886.6
80,402.7
148,562.8
217,737.4
419,707.6
6,842.6
20,835.9
35,204.0
53,254.0
117,255.8
0.52
0.37
0.54
0.67
1.08
2004
2005
2006
2007
2008
Total Assets
545.7
989.0
1,775.4
2,518.2
5,307.0
Loans & Mortgages
155.2
321.9
627.8
792.2
2,039.5
Total Deposits
350.3
605.4
1,157.7
1,708.4
3,560.0
Total Shareholder Equity
50.8
156.9
274.3
417.8
994.6
Earnings Per Share, US$
0.00
0.00
0.00
0.01
0.01
Total Shareholder Equity Earnings Per Share, NGN Source: Bloomberg, Diamond Bank
Table: Balance Sheet (US$mn, unless stated)
Source: Bloomberg, Diamond Bank
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Table: Key Ratios (%)
2004
2005
2006
2007
2008
Return On Assets
1.3
2.5
2.2
2.1
2.7
Return On Equity
15.1
18.3
14.2
13.1
15.1
Loan/Deposit Ratio
46.2
55.2
56.6
Loan/Asset Ratio
29.7
33.8
36.9
Equity/Asset Ratio
9.2
15.8
15.4
16.4
18.6
Source: Bloomberg, Diamond Bank
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Nigeria Commercial Banking Report Q4 2010
FirstBank
Large by the standards of Nigerian domestic banks.
Long-established and relatively strong.
Gross earnings for the bank increased by 40% y-o-y from NGN155.7bn in 2008 to NGN218.3bn in 2009.
Total assets increased by 32% y-o-y from NGN1.53bn to NGN2bn.
Weaknesses
Small for a commercial bank by global standards.
Opportunities
FirstBank has a well established and recognised regional brand supported by a network of over 450 branches.
Threats
Despite being well run, FirstBank remains a small, developing market bank.
Company Overview
FirstBank, then called Bank of British West Africa, was incorporated as a limited liability company
Strengths
in 1894 by shipping magnate Sir Alfred Jones, with its head office in Liverpool, UK. There were several name changes as the organisation developed, with the name FirstBank of Nigeria adopted in 1991. With a network of over 450 branches, the bank has the largest branch network in the Nigerian banking industry in Nigeria. FirstBank’s services include capital market operations, insurance brokerage, currency exchange, private equity/venture capital, pension fund management, registrarship, trusteeship, mortgages and microfinance. In 2002, FirstBank established a wholly owned banking subsidiary in the UK, regulated by the Financial Services Authority. It was the first Nigerian bank to own a full bank in the UK. FBN Bank (UK) ‘has exploited the UK base further than any other bank’, according to The Banker magazine. In 2007, FBN Bank (UK) obtained authorisation to set up a Paris office as a marketing base to serve Francophone West Africa. FirstBank also has a representative office in South Africa and is making progress to establish offices in Asia. In 2007, the bank’s NGN100bn hybrid offer marked a key milestone by testing the depth and sophistication of the local market. The hybrid offer, locally known as ‘the big one’, was oversubscribed by 753%. In 2007, the bank established a global custody business. A key element of the bank’s strategy is its continued focus on retail banking/consumer financing, gradually shifting towards a diversified high yield portfolio by targeting the relatively under-banked consumer market. The market opportunities are evident in the fact that consumer spending, which is a major driver of domestic demand in developing economies, still constitutes a lower percentage of GDP in Nigeria. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, FirstBank, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September.
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FirstBank was the first Nigerian bank to have a presence in the UK with its offices in London. The company also has settlements in Paris and Johannesburg. The group has 39 business development offices focused on solid customer relationship management across all aspects of the company. In December 2009, FirstBank launched a bank subsidiary to support small businesses, FBN Microfinance Bank, as part of its commitment to helping Nigerians, especially those on low incomes, achieve economic growth and a better standard of living. Company Data
Website: www.firstbanknigeria.com
Status: Private sector bank, listed on the Nigerian Stock Exchange
Table: Stock Market Indicators
2004
2005
2006
2007
2008
Sept 2009
Market Capitalisation, NGNmn
59,957.4
137,190.6
347,051.7
546,393.3
524,847.4
454,527.7
Market Capitalisation, US$mn
450.3
1,052.3
2,694.5
4,634.4
3,757.0
3,007.1
Share Price, NGN
5.6
9.4
19.7
30.7
18.1
15.7
Share Price, US$
0.0
0.1
0.2
0.3
0.1
0.1
28.8
73.1
111.9
70.1
-50.2
-20.0
US$ Share Price, % change (eop) Change, % (2009 only) Shares Outstanding, mn
-13.4 13,944.2
16,815.1
41,594.1
20,797.0
29,006.2
Source: FirstBank, Bloomberg
Table: Balance Sheet (NGNmn, unless stated)
Total Assets Loans & Mortgages Total Deposits Total Shareholder Equity Earnings Per Share , NGN
2004
2005
2006
2007
2008
384,211.0
470,839.0
616,824.0
884,604.0
1,527,542.0
83,500.0
123,739.0
179,004.0
220,497.0
469,670.0
255,491.0
332,196.0
448,915.0
598,177.0
700,197.0
42,311.0
49,805.0
64,277.0
83,383.0
355,634.0
0.83
0.78
0.37
0.88
1.83
Source: FirstBank, Bloomberg
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Nigeria Commercial Banking Report Q4 2010
Table: Balance Sheet (US$mn, unless stated)
2004
2005
2006
2007
2008
2,870.5
3,542.8
4,813.3
6,913.7
13,048.7
623.8
931.1
1,396.8
1,723.3
4,012.0
1,908.8
2,499.6
3,503.0
4,675.1
5,981.3
Total Shareholder Equity
316.1
374.8
501.6
651.7
3,037.9
Earnings Per Share, US$
0.01
0.01
0.00
0.01
0.01
2004
2005
2006
2007
2008
Return On Assets
2.9
3.1
2.8
2.4
3.0
Return On Equity
33.9
28.9
27.3
24.9
16.6
Loan/Deposit Ratio
49.4
48.7
38.0
68.5
Loan/Asset Ratio
32.8
34.3
25.7
31.4
Equity/Asset Ratio
10.8
10.3
10.4
9.4
23.3
19.4
19.7
23.4
42.3
Total Assets Loans & Mortgages Total Deposits
Source: FirstBank, Bloomberg
Table: Key Ratios (%)
Total Risk Based Capital Ratio Tier 1 Capital Ratio
21.5
Source: FirstBank, Bloomberg
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Nigeria Commercial Banking Report Q4 2010
Guaranty Trust Bank
As well as its listing on the Nigerian Stock Exchange, GTB also has gross depository receipts listed on the London Stock Exchange. The bank has shown itself as bale to meet London listing requirements, so can expect to have better access to capital and lower investor risk than most other African banks.
Q309 gross earnings rose by 72% y-o-y to NGN114.5bn from NGN66.53bn.
Net profits rose by 34% y-o-y in 2009.
GTB is relatively small, with total assets at the end of 2008 of NGN736bn (US$5.0bn).
GTB’s pre-tax profit for Q309 fell by 22% y-o-y to NGN20.38bn.
The approximate pre-tax profit for 2009 is close to NGN30bn, which is below GTB’s target.
AT the end of FY08, GTB’s non-performing loans ratio stood at 1.8%, but by Q309 NPLs were up to 3.7%.
Opportunities
Well established and recognised regional brand supported by a network of over 150 branches.
Threats
Despite being well run, GTB remains a small, developing market bank.
Company Overview
Guaranty Trust Bank (GTB) was incorporated in July 1990 as a private limited liability company
Strengths
Weaknesses
wholly owned by Nigerian individuals and institutions. It was licensed as a commercial bank in August 1990 and started operations in 1991. In September 1996, GTB became a publicly quoted company on the Nigerian Stock Exchange. It was awarded the President’s Merit award that year, and four times since. The bank was also runner up for the quoted company of the year award in 2005. In February 2002, the bank obtained a universal banking licence and was appointed as a settlement bank by the central bank in 2003. GTB established a UK subsidiary in March 2008. GTB UK is authorised by the British Financial Services Authority to operate as a full commercial bank, offering corporate and retail banking services, in the UK. Based in London, GTB UK is the group’s first operation in Europe. The company will focus on business where there are already established links between Nigeria and the other countries where GTB operates, including Gambia, Sierra Leone and the UK. The subsidiary will provide banking services such as receiving deposits and writing mortgages for commercial and retail customers and intermediaries. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, FirstBank, United Bank for Africa, GTB and Sterling Bank) had passed the audit. The remaining banks’ audit began in September 2009. GTB has over 6,000 employees, over 150 branches and more than 230 ATMS across Nigeria. It also also runs GTB On Wheels, which provides mobile branches. The bank has a presence in Ghana, Gambia, Sierra Leone and Liberia.
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In January 2010, an analyst at Bank of America said: ‘We see Guaranty Trust Bank as the best in class bank within Nigeria that provides exposure to upside surprises to the oil and macroeconomic story.’ This came after FirstRand of South Africa said it will be starting a new division in Nigeria. Nigeria is regarded as a hot spot for interest from foreign banks due to the vast amount of potential in financial services. With a population of over 150 million and only about 10 million owning bank accounts, there appears to be a large gap in the market for international investors. Euromoney magazine awarded GTB the Best Bank in Nigeria award 2009. The bank was praised for its measures to widen its client base, developing in areas with inadequate banking facilities, and for adopting International Financial Reporting Standards before their competitors. GTB’s net profit also rose by 34%. Company Data
Website: www.gtbplc.com
Status: Private sector bank, listed on the Nigerian Stock Exchange
Table: Stock Market Indicators
2004
2005
2006
2007
2008
Sept 2009
Market Capitalisation, NGNmn
59,957.4
137,190.6
347,051.7
546,393.3
524,847.4
454,527.7
Market Capitalisation, US$mn
450.3
1,052.3
2,694.5
4,634.4
3,757.0
3,007.1
Share Price, NGN
5.6
9.4
19.7
30.7
18.1
15.7
Share Price, US$
0.0
0.1
0.2
0.3
0.1
0.1
28.8
73.1
111.9
70.1
-50.2
-20.0
US$ Share Price, % change (eop) Change, % (2009 only) Shares Outstanding, mn
-13.4 13,944.2
16,815.1
41,594.1
20,797.0
29,006.2
Source: GTB, Bloomberg
Table: Balance Sheet (NGNmn, unless stated)
Total Assets Loans & Mortgages Total Deposits Total Shareholder Equity Earnings Per Share, NGN
2004
2005
2006
2007
2008
384,211.0
470,839.0
616,824.0
884,604.0
1,527,542.0
83,500.0
123,739.0
179,004.0
220,497.0
469,670.0
255,491.0
332,196.0
448,915.0
598,177.0
700,197.0
42,311.0
49,805.0
64,277.0
83,383.0
355,634.0
0.83
0.78
0.37
0.88
1.83
Source: GTB, Bloomberg
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Nigeria Commercial Banking Report Q4 2010
Table: Balance Sheet (US$mn, unless stated)
2004
2005
2006
2007
2008
2,870.5
3,542.8
4,813.3
6,913.7
13,048.7
623.8
931.1
1,396.8
1,723.3
4,012.0
1,908.8
2,499.6
3,503.0
4,675.1
5,981.3
Total Shareholder Equity
316.1
374.8
501.6
651.7
3,037.9
Earnings Per Share, US$
0.01
0.01
0.00
0.01
0.01
2004
2005
2006
2007
2008
Return On Assets
2.9
3.1
2.8
2.4
3.0
Return On Equity
33.9
28.9
27.3
24.9
16.6
Loan/Deposit Ratio
49.4
48.7
38.0
68.5
Loan/Asset Ratio
32.8
34.3
25.7
31.4
Equity/Asset Ratio
10.8
10.3
10.4
9.4
23.3
19.4
19.7
23.4
42.3
Total Assets Loans & Mortgages Total Deposits
Source: GTB, Bloomberg
Table: Key Ratios (%)
Total Risk Based Capital Ratio Tier 1 Capital Ratio
21.5
Source: GTB, Bloomberg
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Nigeria Commercial Banking Report Q4 2010
Intercontinental
One of Nigeria’s larger banks, albeit small by world standards, with total assets of US$9.4bn.
Listed on the Nigerian Stock Exchange.
Depends on local capital raisings to support any growth plans.
Intercontinental reported a pre-tax loss of NGN447.45 (US$3bn) for the first three quarters of 2009.
Opportunities
Well established and recognised regional brand supported by a network branches.
Threats
Intercontinental remains a small player by global standards.
Governance concerns have returned to the fore.
Strengths
Weaknesses
Company Overview
Intercontinental Bank was established in 1989 Nigerian Intercontinental Merchant Bank. It started business with paid-up ordinary share capital of NGN12mn. Its first subsidiary, an investment company called Intercontinental Securities Limited (Intersec) was established in the same year. The bank took its current name in 1999. In 1993, the bank acquired a substantial equity stake in the largest discount firm in Nigeria, Associated Discount House Ltd (ADHL). In 1996, the bank acquired a majority equity stake in a commercial bank, Equity Bank, to enhance its commercial operations. It also acquired a controlling equity stake in one of the biggest insurance companies in Nigeria, West African Provincial Company (WAPIC). In 2002, Intercontinental became a publicly quoted company on the Nigerian Stock Exchange. An IPO of 283,995,000 ordinary shares was fully subscribed. In 2004, a further public offer for 2.75mn ordinary shares was oversubscribed, reaffirming investors’ confidence in the bank. Intercontinental merged with Equity, Gateway and Global banks in October 2005. Intercontinental has a technical partnership with BNP Paribas, one of the 10 largest banks in the world, for the management of Nigeria’s foreign reserves. The partnership is also to fuel its drive to be a strong player in global banking by cooperating in areas of trade finance, asset management and product innovation. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, FirstBank, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September. In December 2009, Intercontinental sacked approximately 1,500 of their 5,000 employees (roughly five people per branch) due to the economic crisis. In January 2010, the bank said it may re-employ some of the workers once the financial situation has improved.
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Nigeria Commercial Banking Report Q4 2010
Company Data
Website: www.intercontinentalbankplc.com
Status: Private sector bank, listed on the Nigerian Stock Exchange
Table: Key Statistics For Intercontinental, 2005-2008 (NGNmn)
Total Assets Loans & Mortgages Total Deposits Total Shareholder Equity
2005
2006
2007
2008
204
369
705
1,392
74
161
263
450
134
252
468
1,078
36
55
159
200
Source: Intercontinental Bank
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Nigeria Commercial Banking Report Q4 2010
Stanbic IBTC Strengths
As part of the Standard Bank Group, Stanbic IBTC has access to the resources of a parent company with an impressive knowledge of African commercial environments and a strong capital position.
Weaknesses
Significantly smaller than some of its Nigerian competitors.
Stanbic’s pre-tax profit for the first three quarters of 2009 fell to NGN5.1bn, down by 63% y-o-y. Gross earnings also fell, from NGN47.1bn to NGN42.8bn.
Leverage off the links to Standard Bank Group.
Well established branch network in Nigeria.
Threats
Depending on economic conditions in Nigeria, the bank’s relevance to the parent company could wane.
Company Overview
Stanbic IBTC is the result of Standard Bank Group merging its Nigerian operation, Stanbic Bank
Opportunities
Nigeria, with IBTC Chartered Bank. Standard Bank, which has a controlling stake of 50.7% in Stanbic IBTC, has been in business for 148 years and is Africa’s largest banking group in terms of assets and earnings. It operates a range of banking and related financial services in 17 African countries and 16 countries outside Africa, with an emerging markets focus. Stanbic IBTC has 60 branches in Nigeria with over 1,500 employees, which is small compared to the other banking corporations in the country. The merger, by way of the first ever tender offer in Nigeria and US$525mn in foreign direct investment (the largest in Nigerian financial history), led to the formation of Stanbic IBTC, which became part of the Standard Bank Group. The merger was completed in September 2007. Stanbic IBTC is listed on the Nigerian Stock Exchange. Through its wholly owned stockbroking and asset management subsidiary, IBTC Asset Management, Stanbic IBTC has several mutual funds, including the IBTC Nigerian Equity Fund, which is Nigeria’s largest mutual fund with a net asset value in excess of NGN25bn by December 2007. It is the only bank that has a direct pension fund administrator subsidiary, the market leading IBTC Pension Managers Ltd (IPML). The corporate and investment banking divisions offer products in global markets, project and structured finance, equities trading, corporate finance, global custody and a range of transaction and electronic banking solutions. Stanbic IBTC plays a significant role in some of the largest capital markets deals in Africa. It was involved with Standard Bank London and Afrinvest as lead arrangers of the US$350mn Eurobond issue for Guaranty Trust Bank in January 2007. With its parent company, it put together the largest telecommunications deal ever in Africa: a US$2bn syndicated loan for MTN Nigeria in October 2007. Traditionally strong as a corporate and investment bank, Stanbic IBTC aims to strengthen its position in this sector and will increasingly play a significant role in the personal and business banking retail environment. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank
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governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, First Bank of Nigeria, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September. The economic difficulties caused Stanbic IBTC’s net earnings for Q309 to decline to NGN3.7bn, compared to NGN10.6bn in Q308. This was due to a 32% increase in operating expenses and higher impairment charges following the CBN’s audit. In January 2010, Stanbic IBTC said it was ready to work with the Nasarawa state government and other corporate organisations in efforts to improve infrastructure development and socioeconomic growth. The Stanbic IBTC regional manager said: ‘The bank will encourage entrepreneurship and support small scale businesses to create more employment opportunities.’ Company Data
Website: www.ibtc.com
Status: Private sector bank, listed on the Nigerian Stock Exchange, partly owned subsidiary of South Africa’s Standard Bank Group
Table: Stock Market Indicators
2005
2006
2007
2008
Sept 2009
Market Capitalisation, NGNmn
85,003.3
239,817.9
136,250.0
85,750.0
Market Capitalisation, US$mn
660.0
2,034.1
975.3
567.3
Share Price, NGN
4.6
7.1
19.9
10.9
6.9
Share Price, US$
0.0
0.1
0.2
0.1
0.0
56.2
208.2
-53.8
-41.8
US$ Share Price, % change (eop) Change, % (2009 only) Shares Outstanding, mn
-37.1 12,057.2
13,750.0
Source: Stanbic IBTC, Bloomberg
Table: Balance Sheet (NGNmn, unless stated)
2006
2007
113,225.8
150,870.0
Loans & Mortgages
48,274.5
57,782.1
Total Deposits
55,492.3
77,483.1
Total Shareholder Equity
35,241.2
41,379.3
0.56
0.47
Total Assets
Earnings Per Share, NGN
Source: Stanbic IBTC, Bloomberg
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Table: Balance Sheet (US$mn, unless stated)
2006
2007
Total Assets
883.5
1,179.1
Loans & Mortgages
376.7
451.6
Total Deposits
433.0
605.6
Total Shareholder Equity
275.0
323.4
Earnings Per Share, US$
0.00
0.00
2006
2007
Source: Stanbic IBTC, Bloomberg
Table: Key Ratios (%)
Return On Assets
4.3
Return On Equity
15.0
Loan/Deposit Ratio
101.5
85.3
Loan/Asset Ratio
49.8
43.8
Equity/Asset Ratio
31.0
27.3
Source: Stanbic IBTC, Bloomberg
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Nigeria Commercial Banking Report Q4 2010
Standard Chartered Nigeria
As a subsidiary of the Standard Chartered group, Standard Chartered Nigeria is able to leverage off the scale and strength of its parent company and its long standing connections in Africa.
Investment in branches in Nigeria helped improve Standard Chartered Nigeria’s performance in 2008, with income up by US$15mn, 58%, and liability growth of 41%.
Weaknesses
Operates essentially as a corporate bank, with only a small branch network and little personal banking business.
Opportunities
Nigeria is regarded as an easier country in which to do business for the multinational companies that form the key client base for Standard Chartered. Assuming the financial problems in Nigeria can be overcome, or at least mitigated, the group can look to increase business from multinationals operating in Nigeria, especially those with British connections.
The bank expected a record profit in 2009. In July, Standard Chartered completed the acquisition of First Africa Group, a pan-African mergers and acquisitions advisory firm, to provide finance services to all international clients in African transitions.
In 2010, Standard Chartered intends to extend its wholesale banking division across many parts of Africa and is also looking to recruit some high profile appointments.
Threats
In the event that the political and economic difficulties are not resolved then Nigeria could be a backwater with little potential business growth for Standard Chartered.
Company Overview
Standard Chartered Nigeria is a subsidiary of Standard Chartered, the British banking group with
Strengths
a strong franchise and presence across global emerging markets. In its 2008 annual report, Standard Chartered said operating income from Africa rose by 14% y-oy, ‘driven by increased sales of treasury products to wholesale banking customers’. Nigeria was its biggest market in Africa again, with operating income increasing by 30% y-o-y. The number of branches in Nigeria increased from 12 to 18, the number of ATMs increased to 25 and online banking was launched. In 2008, Standard Chartered Nigeria increased its corporate client base, winning sole banking mandates from British American Tobacco Nigeria and Guinness Nigeria. Standard Chartered structured a US$5mn loan for Nigerian microfinance institution Lift Above Poverty Organization (LAPO). In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, central bank governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, First Bank of Nigeria, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September.
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Company Data
Website: www.standardchartered.com/ng/en
Status: Private sector bank, part of the Standard Chartered group
Table: Key Statistics For Standard Chartered Nigeria (NGNmn)
2006
2007
Total Assets
89,140
130,450
Loans & Mortgages
29,408
35,740
Total Deposits
37,542
47,113
Total Shareholder Equity
32,359
33,239
Source: Standard Chartered Nigeria financial statements
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Nigeria Commercial Banking Report Q4 2010
Wema Bank
Long established and publicly listed bank.
A ‘grass roots’ retail bank.
By its own description, Wema is only ‘adequately capitalised’.
Small, with total assets of just over US$1bn.
Wema reported a pre-tax loss of NGN29.43bn in the six months to September 2009, down from NGN1.41bn profit a year earlier.
Reduced their staff strength by 500 workers.
Opportunities
Wema has a well established and recognised brand supported by a network of 110 branches.
Threats
Extreme volatility in its balance sheet is dangerous for any bank, more so for a small one.
Wema is a small, emerging market bank.
Strengths
Weaknesses
Company Overview
Wema Bank was incorporated in 1945 as a private limited liability company and started business operations as a commercial bank that year. The bank was converted to a public limited liability company in April 1987 and listed on the Nigerian Stock Exchange in January 1990. In February 2001, the CBN granted a universal banking licence to the bank, allowing it to perform a range of financial services. Wema is ‘adequately capitalised’, with shareholders’ funds in excess of NGN25bn and an asset base of NGN165bn. Odu’a Investment Company holds a 10% equity stake in the bank, while private individual investors and members of staff own the remaining 90%. Wema’s head office is in Wema Towers, Lagos. It is one of the largest banking institutions in Nigeria and a leading financial services provider, with a network of 110 branches in all regions of the country, including the Federal Capital Territory. Wema is one of the longest surviving domestic banks in Nigeria. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, CBN governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, FirstBank of Nigeria, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September. As part of the aftermath of the audit, all banks were to declare their loan loss provisions. Wema’s loan loss provisions in September 2009 came to NGN33.4bn. In October 2009, the CBN said that it would provide Wema and three other banks with NGN300bn as they were at risk of a liquidity crisis. The government has since announced that it may acquire shares in these ‘rescued’ institutions if the banks fail to recapitalise. In December 2009, Wema said that it had gone from a pre-tax profit of NGN1.41bn in Q2-Q308 to a pre-tax loss of NGN29.43bn for the same period in 2009. Wema’s Q309 results for show that gross earnings increased by 82% to NGN23.683bn. However, the increase was not reflected in
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the net result because of additional provisions of NGN36bn. Towards the end of 2009, Wema reduced its workforce by 500 employees following the reforms in the banking sector and mass redundancies across the industry. The CBN have refuted any involvement in the sackings and has urged the banks to honour agreements with their workers. Company Data
Website: www.wemabank.com
Status: Private sector bank, listed on the Nigerian Stock Exchange
Table: Stock Market Indicators
2004
2005
2006
2007
2008
Sept 2009
Market Capitalisation, NGNmn
6,121.9
11,634.8
30,752.2
144,150.7
145,561.5
11,408.6
Market Capitalisation, US$mn
46.0
89.2
238.8
1,222.7
1,042.0
75.5
Share Price, NGN
3.7
3.7
3.2
15.0
14.3
1.1
Share Price, US$
0.0
0.0
0.0
0.1
0.1
0.0
27.7
2.1
-13.4
412.2
-19.6
-92.8
US$ Share Price, % change (eop) Change, % (2009 only) Shares Outstanding, mn
-92.2 4,354.3
9,348.4
9,923.0
10,186.3
Source: Wema Bank, Bloomberg
Table: Balance Sheet (NGNmn, unless stated)
2004
2005
2006
2007
Total Assets
71,423.8
97,909.1
120,109.1
165,081.5
Loans & Mortgages
36,607.2
46,183.1
53,702.8
68,796.7
Total Deposits
55,071.9
61,284.5
85,605.3
125,476.0
8,040.3
24,258.9
20,540.0
25,182.7
0.22
0.09
-0.67
0.25
Total Shareholder Equity Earnings Per Share, NGN
Source: Wema Bank, Bloomberg
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Table: Balance Sheet (US$mn, unless stated)
2004
2005
2006
2007
Total Assets
533.6
736.7
937.3
1,290.2
Loans & Mortgages
273.5
347.5
419.1
537.7
Total Deposits
411.4
461.1
668.0
980.7
Total Shareholder Equity
60.1
182.5
160.3
196.8
Earnings Per Share, US$
0.00
0.00
-0.01
0.00
2004
2005
2006
2007
Return On Assets
1.5
1.0
-6.1
1.8
Return On Equity
12.7
5.2
-29.5
11.2
Loan/Deposit Ratio
75.8
88.9
62.7
54.8
Loan/Asset Ratio
58.5
55.7
44.7
41.7
Equity/Asset Ratio
11.3
24.8
17.1
15.3
Source: Wema Bank, Bloomberg
Table: Key Ratios (%)
Source: Wema Bank, Bloomberg
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Nigeria Commercial Banking Report Q4 2010
Zenith Bank
Relatively large by the standards for domestic Nigerian banks, with total assets of US$11.4bn.
Connections and offices across Africa, including a new branch in the Gambia, and the UK.
Small for a commercial bank by global standards.
Q409 pre-tax profits were dented by the loan loss provisions.
Opportunities
Zenith has a well established and recognised regional brand supported by an existing network of more than 400 branches and business offices.
Threats
Zenith remains a small emerging market bank in a volatile economy.
Company Overview
Zenith Bank is one of the biggest and most profitable banks in Nigeria and the third largest in
Strengths
Weaknesses
terms of assets. The bank was established in 1990 and started operations as a commercial bank in July that year. It became a public limited company in June 2004 and was listed on the Nigerian Stock Exchange in October 2004 following a successful IPO. The bank has a shareholder base of over 1mn, which is an indication of the strength of its brand. It has over 400 branches and business offices. Its head office is based at Victoria Island, Lagos. Zenith is present in all the state capitals, the Federal Capital Territory, major towns and metropolitan centres of Nigeria. It’s expansion is not limited to Nigeria. Zenith became the first Nigerian bank in 25 years to be licensed by the British Financial Services Authority to start banking operations with Zenith Bank (UK) in April 2007. It is also present through subsidiaries in Ghana, Sierra Leone and a representative office in Johannesburg, South Africa. Zenith moved the end of its financial year from June to September, so its 2008 annual report covers a period of 15 months up until September 30 2008. Consistent investment and deployment in ICT is a strategic imperative to give the bank a competitive advantage. Zenith Bank said in November 2008 that it had ‘reaffirmed its leadership position in the banking industry, with its 2008 audited result showing shareholders funds of NGN346.6bn, a 198% rise from NGN116.4bn recorded in the previous year’. Nigerian ratings agency Agusto & Co rated Zenith Bank AAA for the ninth consecutive year in 2008. It said: ‘The bank is a financial institution of impeccable financial condition and overwhelming capacity to meet obligations as and when they fall due.’ Fitch gave Zenith a national rating of AA-. Zenith was named Best Global Bank in Africa 2009 by the African Banker magazine. In August 2008, the bank was named the Best Bank in Nigeria by Euromoney magazine. In August 2009, the central bank concluded an initial audit of 10 Nigerian banks. The results were worse than many feared, with five banks (Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank) deemed to be on the edge of failure. In response to the findings, CBN governor Sanusi fired the CEOs of these banks and injected NGN420bn in the form of Tier 2 capital, to be repaid by an unspecified date. Sanusi also said some of Nigeria’s biggest banks (Diamond Bank, FirstBank, United Bank for Africa, Guaranty Trust Bank and Sterling Bank) had passed the audit. The remaining banks’ audit began in September.
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Nigeria Commercial Banking Report Q4 2010
As part of the aftermath of the audit, all banks were to declare their loan loss provisions. Zenith’s loan loss provisions following the audit in August 2009 were at NGN26.14bn. Due to high provisioning for margin loans, Zenith reported a 50% drop in its net profit for the first three quarters of 2009. In June 2008, Zenith’s total loans stood at NGN470bn, whereas by June 2009 they had risen to NGN680bn. Despite the difficult economic conditions, Zenith continued to grow. In Q409, gross earnings rose by 19.42% to NGN166.63bn. Q409 pre-tax profits were dented by loan loss provisions. In January 2010, Zenith opened its first branch in the Gambia, bringing the total number of commercial banks in the country to 14. Zenith continues to increase its client base across Africa. The the bank said: ‘We hope to expand our business through the establishment of key subsidiaries for the provision of non-bank financial services to accentuate the service offerings and experience of our customers, whilst continually enhancing our processes and systems platforms to deliver new capabilities and improve operational efficiencies and achieve economies of scale.’ Company Data
Website: www.zenithbank.com
Status: Private sector bank, listed on the Nigerian Stock Exchange
Tabel: Key Statistics For Zenith Bank, 2004-2008 (NGNmn)
Total Assets Loans & Mortgages Total Deposits Total Shareholders’ Equity
2004
2005
2006
2007
2008
193,321
332,885
610,768
883,941
1,680,302
53,391
122,494
199,708
218,305
413,731
131,095
233,413
392,894
568,012
1,161,476
1,548
21,224
72,346
73,870
338,484
Source: Zenith Bank
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Nigeria Commercial Banking Report Q4 2010
BMI Banking Sector Methodology BMI’s Commercial Banking Forecast Report series is closely integrated with our analysis of country risk, macroeconomic trends and financial markets. As such, the reports draw heavily on our extensive economic data set, which includes up to 550 indicators per country, as well as our in depth view of each local market. We collate our commercial banking databank from official sources (including central banks and regulators) wherever possible, and only fall back on secondary sources where all attempts to secure primary data have failed. Company data is sourced, in the first instance, from company reports, with central bank, regulator or trade association data only used as a backup. All of the risk ratings and forecasts within this report are a result of BMI’s own proprietary research and do not in any circumstances include consensus or third party numbers. How Our Data Set Is Structured The reports focus on total assets, client loans and client deposits. Total assets are analogous to the combined balance sheet assets of all commercial banks in a particular country. They do not incorporate the balance sheet of the central bank of the country in question. Client loans are loans to non-bank clients. They include loans to public sector and state-owned enterprises. However, they generally do not include loans to governments, government (or nongovernment) bonds held or loans to central banks. Client deposits are deposits from the non-bank public. They generally include deposits from public sector and state-owned enterprises. However, they only include government deposits if these are significant. We take into account capital items and bond portfolios. The former include shareholders funds, and subordinated debt that may be counted as capital. The latter includes government and non-government bonds. In quantifying the collective balance sheets of a particular country, we assume that three equations hold true:
Total assets = total liabilities and capital;
Total assets = client loans + bond portfolio + other assets;
Total liabilities and capital = capital items + client deposits + other liabilities.
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In terms of the equations, other assets and other liabilities are balancing items that ensure equations two and three can be reconciled with equation one. In practice, other assets and other liabilities are analogous to inter-bank transactions. In some cases, such transactions are generally with foreign banks. In most countries for which we have compiled figures, building societies/thrifts are an insignificant part of the banking landscape, and we do not include them in our figures. The US is the main exception to this. In some cases, total assets and client loans include significant amounts that are owned or that have been lent to customers in another country. In some cases, client deposits include significant amounts that have been deposited by residents of another country. Such cross-border business is particularly important in major financial centres such as Singapore and Hong Kong, the richer OECD countries and certain countries in Central and Eastern Europe.
Commercial Bank Business Environment Rating In producing our Commercial Banking Business Environment Rating, our approach has been threefold. First, we have explicitly aimed to assess the market attractiveness and risks to the predictable realisation of profits in each state, thereby capturing the operational dangers facing companies operating in this industry globally. Second, we have, where possible, identified objective indicators that serve as proxies for issues/trends within the industry to ensure consistent evaluate across states. Finally, we have used BMI’s proprietary Country Risk Ratings in a nuanced manner to ensure that the ratings accurately capture broader issues that are relevant to the industry and which may either limit market attractiveness or imperil future returns. Overall, the ratings system, which integrates with all the other industry Business Environment Ratings covered by BMI, offers an industry-leading insight into the prospects/risks for companies across the globe. Conceptually, the ratings system divides into two distinct areas:
Limits of potential returns: Evaluation of industry’s size and growth potential in each state, and also broader industry/state characteristics that may inhibit its development.
Risks to realisation of returns: Evaluation of industry-specific dangers and those emanating from the state’s political/economic profile that call into question the likelihood of anticipated returns being realised over the assessed time period.
In constructing these ratings, the following indicators have been used. Almost all indicators are objectively based.
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Nigeria Commercial Banking Report Q4 2010
Table: Commercial Banking Business Environment Indicators And Rationale
Limits of Potential Returns
Rationale
Banking market structure Estimated total assets, end 2008
Indication of overall sector attractiveness. Large markets are considered more attractive than small ones
Estimated growth in total assets, 20082013
Indication of growth potential. The greater the likely absolute growth in total assets, the higher the score
Estimated growth in client loans, 20082013
Indication of the scope for expansion in profits through intermediation
Country structure GDP per capita
A proxy for wealth. High-income states receive better scores than lowincome states
Active population
Those aged 16-64 in each state, as a % of total population. A high proportion suggests that the market is comparatively more attractive
Corporate tax
A measure of the general fiscal drag on profits
GDP volatility
Standard deviation of growth over seven-year economic cycle. A proxy for economic stability
Risks to Realisation of Returns Banking market risks Regulatory framework and industry development
Subjective evaluation of de facto/de jure regulations on overall development of the banking sector
Regulatory framework and competitive environment
Subjective evaluation of the impact of the regulatory environment on the competitive landscape
Country Risk from BMI’s Country Risk Ratings Short-term financial risk
Rating from CRR, evaluating currency volatility
Policy continuity
Rating from CRR, evaluating the risk of a sharp change in the broad direction of government policy
Legal framework
Rating from CRR, to denote strength of legal institutions in each state. Security of investment can be a key risk in some emerging markets
Bureaucracy
Rating from CRR to denote ease of conducting business in the state
Source: BMI
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Nigeria Commercial Banking Report Q4 2010
Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all subcomponents equal weight. Consequently, the following weights have been adopted.
Table: Weighting Of Indicators
Component Limits of potential returns, of which:
Weighting, % 70, of which
– Banking market structure
60
– Country structure
40
Risks to realisation of returns, of which:
30, of which
– Banking market risks
40
– Country risk
60
Source: BMI
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