Tuesday, 16 April 2013

Mid-Sized Banks in Survival Moves as Big Banks Consolidate Positions

140413F.Zenith-bank.jpg - 140413F.Zenith-bank.jpg
The resolution of the 2009 banking crisis has opened a new phase in the Nigerian banking industry. While 60 percent of the total industry assets are being held by the five biggest banking institutions, which are First Bank, GTBank, Zenith, UBA and Access Bank, other small-sized banks are banking on efficiency of their operations and customer loyalty to make a difference, reports Festus Akanbi

Apart from First Bank Nigeria Plc and United Bank for Africa Plc, two of the front runners yet to release their 2012 results, other big players in the industry have confirmed their leadership positions through their stellar performance. According to the Banker Magazine, although the nation’s banks can be said to have put the issue of distress behind them, the stratification, which manifested shortly after the 2005 banking sector consolidation, appeared to deepening. This is because only five out of the existing banks are handling the greater chunk of the industry assets.
In a report last week, the magazine noted that the Nigerian banking sector has become highly concentrated over the past 10 years, with the biggest five lenders now dominating market share.

The Banker Magazine attributed the new financial position of the big five banks to the two rounds of consolidation in 2005 and 2009. The processes were said to have created lenders with bigger balance sheets and, according to the magazine, the changes have resulted in a more concentrated banking sector. The top five lenders in the country, a group comprising Access Bank, First Bank, Guaranty Trust Bank, United Bank for Africa and Zenith, own about 60% of overall assets.
The trend, according to analysts, showed that the Nigerian banks are going in the direction of the South Africa Banking industry where, the four largest banks have an 85% market share with the prediction that some of the fringe players in the industry will struggle to survive, and several of them will be taken over by bigger rivals in the next few years.
CBN Worried
Central Bank of Nigeria Governor Sanusi Lamido Sanusi, however, expressed worry over the dominance of a few niche banks while other small lenders grapple with a little sphere of influence left behind.
“I’m concerned about the concentration of the banks at the upper end because very large institutions tend to lend to large multinational corporations and invest in government securities,” the CBN governor said. “They don’t have time for the middle, which is where economic growth happens and jobs are created. I don’t think we’re looking for any more institutions that would be too big to fail.”
No Cause for Alarm
However, the fear that smaller banks may be intimidated out of business by the bigger banks has been dismissed by market watchers who insist that the bulk of today’s banks will be around for a lot longer. They pointed out that far from being in distress as they were during the crisis. Nigeria’s mid-tier and small banks for the most part now have capital adequacy ratios of 15% or more, well above the minimum requirement of 10%. And regulators are in little mood to encourage the creation of many more big lenders.
Some bank chiefs are also optimistic on the possibility of growing organically in a manner that will make them give the bigger five a run for their money. Those in this group are concentrating in organic growth rather than plunging their institutions in another wave of acquisition.

 One of such optimists is Managing Director, Ecobank Nigeria, Mr. Jibril Aku. He said the bank is not looking at another acquisition, even though it has set itself the tough task of being one of Nigeria’s biggest three lenders within a few years. “We can do it organically,” says Mr. Aku. “We think it can be achieved through aggressive deposit mobilisation and investment in instruments such as treasury bills. We’ll also push our loan book.”
Ecobank Nigeria bought Oceanic, a rival, in 2011 in a deal that saw it move from being a small player to the sixth biggest in the country by assets.
Analysts say the readiness of banks to grow organically is based in large part on the country being a long way from saturated as a financial market. “Nigeria is highly underpenetrated,” says Ronak Gadhia, an analyst at securities house Exotix. “There’s a lot of scope for growth.”

Big Opportunity for Banks
The Banker Magazine quoted Managing Partner, Chapel Hill Denham, Mr. Bolaji Balogun, as saying that an indication of the potential number of bankable people is given by the fact that there are almost 110 million mobile phone accounts in the country.
“If you assume that a mobile phone is banking channel and even if you net out the duplication (as many Nigerians have more than one phone), it suggests there is still a big opportunity for banks to take on more customers,” he said.
“There are potentially another 30 or 40 million bank accounts. Somebody’s got to take that business.”
THISDAY recently reported the renewed enthusiasm of banks to mobilise deposits in the wake of the new pressure from stakeholders to raise the bar of profitability. This obviously explained why banks are focusing heavily on luring more low-cost deposits from unbanked Nigerians as well as existing customers. This is because doing so is crucial for their plans to expand their loan books and grow organically.
Targeting Low-Cost Deposits
According to the Managing Director, Diamond Bank, Alex Otti, innovative methods of capturing more low-cost deposits is one of the reasons why Diamond Bank has one of the highest net interest margins in the country. “Our balance sheet is driven largely by an impressive growth in customer deposits, which are our lifeblood,” he told the Banker Magazine.
But is the Nigerian economy feeling the impact of the rising profile of the big banks? Analysts arguedthat even when banks manage to build a hefty deposit base, they still need to go about putting it to use. This explains why consumer products are no longer in the top list of some of these big banks.
Other mid-sized institutions have managed to create niches in various market segments. Stanbic IBTC Bank, a subsidiary of South Africa’s Standard Bank, has been focusing on secured personal loans such as mortgages and car loans, which few other lenders offer. Its’ chief executive, Yinka Sanni, was quoted by the Banker Magazine as saying that this is a key part of the bank’s attempt to tap Nigeria’s middle class, especially people in formal employment.
Going International
Mid-tier banks could even consider expanding abroad, as all of the big five have recently done. Among those that are locally owned, Diamond Bank, which operates in Benin Republic, is the only one to have a banking licence elsewhere in Africa. Were more to expand into neighbouring countries, they might be able to capitalise on rising trade within the region.
Togo-based Ecobank, which operates in 33 African countries, says its presence across the continent is a key selling point with Nigerian corporate customers. According to Aku, Ecobank is increasingly facilitating oil trading between Nigeria and other West African countries in which it has a licence, such as Senegal, Ghana and Côte d’Ivoire.
Nigeria’s mid-sized banks are confident they can continue to thrive. “While size is important – and we are not losing sight of that – the quality and the efficiency of the balance sheet is more important,” says Otti of Diamond Bank. “Any advantage through scale can be lost to inefficiency. Competing against bigger banks is not and never will be difficult for us.”
Given Diamond Bank’s success in building its retail market share, something, which has seen its profitability ratios rise to among the highest levels in the country, a few analysts disagree. “There’s clearly a lot of scope for growth in Nigeria,” says Mr. Gadhia of Exotix. “It’s just a question of whether the banks will be innovative enough and willing to lend outside their comfort zones.”
Source: ThisDayLive

No comments:

Post a Comment