NIGERIA’S BANKING INDUSTRY

Abii-Ndoh, Godwin Tunmise

CONTENTS

Industry Outlook

SWOT Analysis

Growth Drivers and Influencing Factors

Player Positions

Porter’s Five Forces

Products and Services

Economic Features

Industry Overview

INDUSTRY OVERVIEW

Commercial Banks

Merchant Banks

Micro-finance Banks

Non-interest Bank

Primary Mortgage Banks

The African Banking Corporation and First Bank of Nigeria(which was

formerly known as the Bank of British West Africa (BBWA) were established.

Between 1892 and 1894

The indigenous banking boom of

the 1930's and 1940's

The first banking

ordinance in 1952

Lyones Commission and Central

Bank introduced in

1959

First era of consolidation

between 1959-1969 as a result of

bank failures owing to illiquidity.

Currently, there are:

ECONOMIC FEATURES

760000000045%

940000000055%

Nigerian Population with Bank Accounts

Banked PopulationNon-banked Population 2010 2011 2012 2013 2014

-

5,000,000,000,000.00

10,000,000,000,000.00

15,000,000,000,000.00

20,000,000,000,000.00

25,000,000,000,000.00

Commercial Bank Deposits (NGN)

Demand Deposits Time and Savings DepositsForeign Currency Deposits Government Deposits

Commercial banks own N27.5trn in total assets, and N22.3trn in total deposits as at 31st Dec, 2014

EPPAN estimates that only 76 million Nigerians have bank accounts

2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

60%

70%

Key Financial Ratios

Loans to Deposits Ratio Liquidity Ratio

Zenith Bank and GTBank’s post tax profits grew 4.3% and 10% respectively at the end of 2014 to

N99.45bn and N98.69bn, from N95.31bn and N90.02bn in 2013

Others

Portfolio Management

Tenored Deposits

FX Forward Contracts

PRODUCTS AND SERVICES

International Trade Finance

Visible Transactions

Letters of Credit

Form M

Custom Duties Collection

Invisible Transactions

Bills for Collection

Confirmed and Unconfirmed LC

Shipping Documents Endorsements

Short and Long Term Finance

Overdraft

Time/Term Loans

Bankers Acceptances

Loans, Bonds and Guarantees

Leases

PORTER’S FIVE FORCESRivalry among CompetitorsHigh number of players, low

switching costs, undifferentiated services

Bargaining Power of Buyers Large number of players, low

switching costs, undifferentiated services, full information about the

market

Threat of New EntrantsRegulation, distribution

considerations, market growth, brand identity

Threat of SubstitutesVery high, new substitutes include credit unions and

investment houses

Bargaining Power of Suppliers

Few alternatives, CBN rules and regulations, suppliers

are not concentrated, forward integration

PLAYER POSITIONS (2014)Bank Earnings Total

AssetsCustomer Deposits

Profits before Tax

ROA MRK Share (Assets)

MRK Share (deposits)

FirstBank N410.6bn N4,131.6bn N2,989.7bn N94.4bn 2.05% 15% 13.5%Zenith N403.3bn N3,755.2bn N2,537.3bn N119.7 2.74% 13.9% 11.2%UBA N290bn N2,762.5bn N2,169.6bn N56.2bn 1.64% 10.2% 9.9%GTBank N278.5bn N2,335.8bn N1,618.2bn N116.4bn 4.2% 8.4% 7.2%Access N245.1bn N2,104.3bn N1,454.4bn N52bn 2% 7.6% 6.7%

Tier 1 Banks

Bank Earnings Total Assets

Customer Deposits

Profits before Tax

ROA MRK Share (Assets)

MRK Share (deposits)

Diamond N208.4bn N1,933.1bn N1,493.1bn N28.1bn 1.3% 6.9% 6.7%

Ecobank N221.3bn N1,772.9bn N1,251bn N28.7bn 1.4% 6.5% 5.8%

Skye N136.7bn N1,421.1bn N952.3bn N10.4bn 1% 5.1% 4%

Fidelity N132.4bn N1,187bn N820bn N15.5bn 1.2% 4.4% 3.6%

FCMB N148.6bn N1,169.4bn N733.8bn N23.9bn 1.9% 4% 3.1%

Tier 2 Banks

PLAYER POSITIONS (2014)

Earnings Total Assets Customer Deposits0

2000

4000

6000

8000

10000

12000

14000

16000

Tier 1 vs Tier 2 Commercial Banks (Nbillion)

Tier 1 banks Tier 2 Banks (Top 5)

Market Share (Deposits)

Tier 1 banks

Tier 2 Banks (Top 5)

Others

Market Share (Assets)

Tier 1 banks

Tier 2 Banks (Top 5)

Others

The total Industry Herfindahl-Hirschman Index (HHI) at the end of 2014 was estimated to be 786.66 and 750.91 for assets and deposits respectively. This points to a fairly

competitive industry.

GROWTH DRIVERS AND INFLUENCING FACTORS

Widening Bank’s Lending Scope

Increased Customer Trust

Weak Financial Infrastructure

Sound Ethical Banking Practices

High Operating Costs

Legal Reforms and Improved Regulatory Framework

Security

Bank Consolidation

Stable Macroeconomic Environment

Robust Economic Growth

Effective Regulation and Supervision

Efficient Risk Management Practices

Technological Advancement

Influencing

Factors

Growth Drivers

SWOT ANALYSIS

WeaknessesInadequate deposit mobilisation efforts, high level of non-performing assets, high level of

financial exclusion, inadequate risk management practices, weak corporate

governance, poor and inadequate infrastructure, poor attitudes of employees

StrengthsImproved regulatory guidance, growth is relatively high

when compared to other emerging markets especially in Africa, increased access to mobile banking, growing

levels of confidence in the industry, healthy competition among banks

ThreatsThreat of instability of the financial system, liquidity

problems (TSA), bank failure, exchange rate volatility, interest

rate risks

OpportunitiesGlobalisation and access to foreign

financial markets, low levels of financial inclusion means more markets to tap

from, increased access to and use of new technologies

INDUSTRY OUTLOOKNigeria’s capital importation has reduced year on year from $2.67159bn to $2.66636bn

in 2015’s Q2 and is likely to continue to do so given the economy’s troubles. This is poised to continue to adversely affect the economy’s banking industry

Nigerian banks’ strong dependence on the domestic economy may prove detrimental given the economy’s recent sluggish state

Tier 1 capital ratios could fall below 15 per cent for banks at the end of 2015

Though already falling, regulatory capital adequacy ratios are likely to fall further due to lower earnings, weaker

asset quality and a limited ability to raise capital.

Fitch estimates that the industry’s non-performing loans will rise above the central bank informal cap of 5% but

below 10% of total sector loans by the end of2015

THANK YOU!