Nigeria banking: spreading their wings

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Expansion beyond their domestic market highlights the ambition of Nigeria’s banks, but their success will be hampered without African cohesion.

Nollywood-R-envelope
Nollywood actors perform a scene at night while filming October 1, a police thriller 

The rebasing of the  Nigerian economy has firmly put the west African country at the forefront of the African growth story, far outpacing South Africa as the continent’s largest economy.

The country’s changing structure highlights the growing importance of the service sector, away from the emphasis on agriculture and oil and gas.

Telecommunications, Nollywood – the second largest film industry in the world in terms of output – and the burgeoning music industry are driving the country’s growth. As is banking.

Home grown, well-established and well-managed banks have pulled themselves out of the banking crisis that required a hefty $3.8 billion bailout of the sector in 2009, followed by consolidation and regulatory reform. Now the banks are setting new African standards. Following their success at home, Nigerian banks are focusing on regional expansion.

Guaranty Trust Bank, Nigeria’s largest lender, is the latest to join in, having acquired a majority stake in east African player Fina Bank. This has given GTBank a ready-made client base and footprint in Kenya, Rwanda and Uganda. The next target markets could be Angola, Mozambique or Tanzania.

Nigerian heavyweight UBA has also expanded rapidly throughout the continent. From operations in just two countries in 2008, it now boasts a presence in 19. Access Bank, one of Nigeria’s fastest growing banks, has been aggressively expanding throughout Africa since 2007 and is considering listing on the London Stock Exchange.

Nigerian regulators have come a long way in smartening
up their act and have turned the banking sector from one
in free-fall into one of the strongest on the continent


Part of Nigeria’s success is that in 2010, in response to the banking crisis, Nigeria’s central bank developed a framework for cross-border supervision, whereby Nigerian banks were to be treated the same as other countries’ local banks, and this has aided their development abroad. Even though expansion had begun before this time, the new regulation has helped. Nigerian regulators have come a long way in smartening up their act and have turned the banking sector from one in free-fall into one of the strongest on the continent.

Nigerian banks are beginning to compete with international rivals across the continent – especially following the retrenchment of international players in recent years. While the continent remains very under-banked, Nigeria’s drive into new countries offers huge potential, if managed correctly.

Hidden costs

Nigerian banks boast of the commitments they are making abroad – the earnings potential and the capital support this will offer back home. However in many cases, real profit is yet to be recorded. And despite the best efforts of Nigerian policy makers, cross-border regulations still remain uncoordinated, leading to hidden costs for Nigerian banks.

Linguistic divisions can often lead to problems and, according to some analysts, banks are yet to pick up on regional differences and patterns, which could further sabotage their development.

The Nigerian central bank has made huge strides to support the banking sector, but the lack of cross-border coordination could threaten this. A cohesive, pan-African policy would go a long way to helping to fix the problem.