The past five years have been a time of change for the nation’s banks, but not all of it has been for the good.
In a recent report on the sector, analysts at Ecobank Research, part of the pan-African banking group, say strategies being pursued by banks in the country are no longer sustainable.
They said the banks must find a new growth story to boost thin lending margins and match the return on equity of their regional peers, Financial Times reported.
It has not all been bad, however.
Key consolidation took place in 2005-2006 and – after the 2009 financial crisis – banks have got better at generating deposits.
But, thanks to the crisis, they have been highly averse to risk and largely stayed away from lending to retail customers, who now make up an average of less than 10 per cent at the five banks studied.
The banks studied are Access Bank, First Bank of Nigeria, Guaranty Trust Bank, United Bank for Africa and Zenith Bank.
Ecobank says they make up 52 per cent of Nigeria’s banking industry in asset terms and are “very representative of the sector and its trends”.
Indeed, the report argues, banks in smaller economies with lower lending capabilities such as neighbouring Ghana or Kenya in the east are generating higher returns on shareholder equity, especially in Kenya with its more balanced ratio of wholesale to retail banking and fairly sophisticated systems. Banks in Ghana and Kenya delivered 33 per cent and 25 per cent ROE respectively at the end of Q3 2013, outperforming Nigeria’s 22 per cent.
There are other problems, too. The lack of national identity cards in Nigeria, Africa’s most populous nation of about 170m people, has created chaos for the sector, while a poor credit referencing system weighs down on progress.
But it is the over-dependence on wholesale banking that is constraining profitability at the nation’s banks the most, says the Head, Banking Research, Ecobank Group, George Bodo.
“One of the factors holding Nigerian banks back from the retail banking sector is their tendency to be risk averse,” he told Financial Times BEYONDBRICS.
Source: Punch
