Competition among Nigeria’s biggest banks will become even fiercer in the coming few years thanks to the creation of two new top-tier lenders in the wake of the country’s financial crisis. But the head of First Bank, the largest lender in Nigeria, is undaunted by the emergence of these rivals. 

Nigeria’s banking sector is barely recognisable from what it was three years ago. Then, the country’s 24 lenders were in the midst of a crash that led to 10 of them being rescued by the government and the rest having to offload billions of dollars of non-performing loans to a state-owned bad bank.

The crisis has now largely been resolved. Banks are once again well-capitalised and most are making healthy underlying profits. But the full effects of that period, which forced many of the rescued lenders to put themselves up for sale, are still to be felt.

Perhaps the biggest shake-up will occur in the industry’s top tier. Before, the largest banks by assets – First Bank, Zenith, United Bank for Africa and Guaranty Trust Bank – were known as ‘the big four’. That group has now become ‘the big six’, thanks to the arrival of Access Bank and Ecobank, who bought two of the failed lenders last year.

These six, each with assets of more than $10bn, are likely to dominate Nigerian banking in the foreseeable future. The group’s enlargement is also going to see competition within it upped considerably.

Size matters

Bisi Onasanya, chief executive of First Bank, which has maintained its status as Nigeria’s biggest lender by assets, is not intimidated, however. He even believes his institution can continue increasing its market share. “We’ve always had a strategy of being the clear leader,” he tells The Banker. “Size matters. Between 2010 and 2011 we extended the gap in terms of balance sheet size between First Bank and the number two lender. We have an internal limit of being 25% bigger than the number two bank. And we were very close to achieving that in 2011.”

Still, he is not being complacent, particularly when it comes to the retail sector, which is likely to see cut-throat competition as lenders seek to win business from Nigeria’s large unbanked population and its rapidly rising middle class. As such, First Bank is adding more than 100 branches this year to its already large network of about 650.

Mr Onasanya says there is still a clear link between the number of branches a bank has and its deposit base, even at a time when mobile and agency banking – whereby lenders use outlets such as corner shops to sell services in areas where they have no branches – are becoming more widespread. “Agency banking has its limits,” he says. “We haven’t reached the stage whereby those outlets are able to offer all banking services. So while we are watering down the size of our branches as a cost-saving measure, we’re increasing the number that we have because if you want to attract core banking customers, you’ve got to be able to give people access to [formal delivery channels].

The crisis emanated from poor corporate governance and weak boards. The central bank hasn’t just resolved the crisis, it’s put up a structure to make sure we don’t go back to that era

Bisi Onasanya

“With the consolidation, we expect competition to increase. But we’ve got to lose customers first for the competitors to gain. We want to make sure that our customers don’t have any reason whatsoever to walk away and move to another bank. That’s the whole essence of the transformation we’re doing.”

No local acquisitions

Nigeria’s banking sector could experience further consolidation in the near future. Three banks nationalised in the wake of the crisis are likely to be privatised in the next two years. Local as well as foreign lenders will be among the bidders. But Mr Onasanya says First Bank will not be one of them. Rather than acquisitions at home, many of which he insists fail at the point of integration, he is focusing on “accelerated organic growth”.

He is confident that this strategy will soon see First Bank achieving returns on equity of 25%. In 2011, it achieved a figure of about 18%. “That’s an improvement from 2010, but still below our internal target of 20% to 25%,” he says. “Until I achieve 25%, I will not rest.”

If several Nigerian banks start making such returns before too long, some analysts might fear the return of a bubble. But Mr Onasanya thinks lenders have learnt their lessons and that the worst excesses of the crisis, such as fraud, rampant margin lending and dire risk management, will not make a comeback. He adds that the measures taken by authorities, including arresting executives at some of the failed banks, will prevent similar practices in future. “There’s no doubt the worst is over,” he says. “The crisis emanated from poor corporate governance and weak boards. The central bank hasn’t just resolved the crisis, it’s put up a structure to make sure we don’t go back to that era.

“The mere fact that we’ve seen bankers prosecuted, and prosecuted successfully, for corruption should serve as a deterrent to any banking executive thinking of going down that line.”

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