Nigerian banks battle for pan-African dominance

By:
Dominic O’Neill
Published on:

GT Bank targets east Africa acquisition; Standard Bank reaffirms Africa focus.

UBA chief executive Phillips Oduoza
UBA chief executive Phillips Oduoza
New central bank regulations and difficulties in operating outside the domestic environment are not stopping Nigerian banks laying out plans for new pan-African growth.

Up to now, UBA has been the most noted of Nigerian banks for its pan-African business. Between 2008 and 2011, UBA brought the number of African countries in which it operates from two to 19, according to chief executive Phillips Oduoza.

Although the rest of Africa today accounts for only about a quarter of UBA’s assets and revenues and 13% of its profits, the bank hopes that figure will rise to about 50% as the new operations begin to yield higher returns.

Last year, Nigeria’s central bank imposed tighter rules on funding international subsidiaries, part of a wider push to stabilize the sector after a 2009 banking crisis. That will make it harder for others to replicate UBA’s spread, says Oduoza.

Nevertheless, Segun Agbaje, CEO of GT Bank, says his bank is expanding outside west Africa, where it already operates in six countries. In 2013, he hopes to do a small east Africa acquisition for a new sub-regional operation, based in Kenya.

After east Africa – where Agbaje hopes to cover Kenya, Rwanda, Tanzania and Uganda – GT’s next step will be Mozambique, Cameroon and ideally Angola, and perhaps new francophone Africa operations, although probably after 2016.

Strong foundation

“We aim to be a regional bank with a strong foundation in Nigeria,” says Agbaje. He points particularly to opportunity in Nigeria’s fellow oil-producing economies as energy companies based in Nigeria expand elsewhere on the continent.

Agbaje says GT “shouldn’t be in a country because it’s a nice thing to do”. Rather, it is part of his aim to be one of Africa’s top-three most profitable banks by 2016; he says his proportion of profit outside Nigeria will at least double to 10% by then.

In reaching the top three, Agbaje acknowledges that the banks to beat are from South Africa. South African banks still make the vast majority of their profits at home. But Standard Bank in particular has refocused its expansion on the rest of Africa.

Standard Bank’s CEO of the past 13 years, Jacko Maree, announced plans to retire last month. Yet he said 2012 results vindicated his post-crisis strategy of scaling up in the rest of Africa and scaling down in London as well as other emerging markets.

Research from Citi says higher revenues from Africa come with a cost of still low return on equity. But Standard Bank has grown its network from four to 178 branches in Nigeria since 2007 and has an enviable Angolan presence.

This year, Nedbank, the smallest of the top tier of South African banks, expects to exercise a right to convert a $285 million loan into equity in Ecobank, the pan-African lender based in Togo with 32 African country operations.

First Rand, South Africa’s second-biggest bank, has also looked at commercial bank acquisitions in the rest of Africa in recent years. The group’s investment bank, Rand Merchant Bank, launched a 22-person, Lagos-based Nigerian business in February to cover west Africa.

Still, Nigeria is soon expected to overtake South Africa as Africa’s biggest economy, and other Nigerian banks have regional ambitions too. Access Bank, for example, expects its proportion of profit from international operations, mostly in the rest of Africa, to at least triple to 15% by 2017.

Aigboje Aig-Imoukhuede, Access’s CEO, says his bank’s acquisition of fellow Nigerian lender Intercontinental last year has brought it into the top 10 in Ghana, which he reckons will contribute around 10% of group profit by 2017.

Aig-Imoukhuede says the bank is scaling up in other African countries, although like other Nigerian banks, Access’s international acquisitions have had some less positive outcomes especially in Côte d’Ivoire.

Distraction

GT Bank and UBA have similarly struggled to make money in west Africa’s second largest economy. And in general, Oduoza concedes that expansion elsewhere in Africa has been a distraction from Nigeria, where UBA has lost its pre-crisis position as biggest bank by assets.

With all his African operations except three profitable, Oduoza says his cost-to-income ratio declined from 78% in 2011 to 61% in 2012. He says he has brought key corporate-focused bankers back to Nigeria, such as Emeke Iweriebor, who now heads UBA’s Lagos operation.

“In the expansion mode a lot of attention focused on the new offices, on integration, so deposit and risk-asset creation slowed down in Lagos,” he says. Even now, however, he says the bank continues to build up its operations in such countries as Cameroon.