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Nigeria banks’ results belie equity enthusiasm

Banks heading for profit decline in 2013; Stock market continues strong performance

Third-quarter results confirm that Nigerian banks are having an unspectacular year in comparison with 2012. Net profit for the first nine months of 2013 was down 20% at Access Bank, one of the country’s biggest lenders. Other lenders, such as Skye Bank, Union Bank, and Unity Bank, posted similarly disappointing performances.

Even investor favourite GT Bank posted rise in pre-tax profit of only 7% for the nine months, compared with a 48% rise during the same period last year. Standard Bank’s Nigerian business, Stanbic IBTC, was among those that managed to buck the trend, more than doubling profit.


"Nigerian banks are under pressure and on average profitability will decline this year," says Ronak Gadhia, Africa equity analyst at frontier-market investment banking boutique Exotix. Ecobank analyst George Bodo is also expecting a further fall in banks’ profit in the fourth quarter, according to Reuters.

This is despite strong performance in the equity market, as global investor enthusiasm for frontier markets grows. Nigeria’s all-share index continued its rise this autumn. Year to date it was up by around a third at the end of November, higher than average for frontier markets, and compared with a 7% fall at MSCI’s emerging market index.

It is little wonder Exotix itself is hiring. Last month Ali Khalpey joined as head of equities from Renaissance Capital, where he was head of African equities. The firm also named Kato Mukuru, previously at Citi, head of equity research; Sruti Patel head of sales, from Standard Bank; and James Busch head of trading, from Renaissance Capital.

Perverse incentives

Gadhia and other analysts give several reasons for the results, including higher levies to the state bad bank and central bank regulations, which hiked cash reserve ratios for public sector deposits from 12% to 50% in July to counter what was called banks’ "perverse incentive structure" in recycling government deposits in government securities.

The central bank, noted at the time a build-up in banks’ excess liquidity, but still sluggish private-sector credit growth. It further highlighted risks to the exchange rate, and what it called a "loose fiscal stance" during 2013 – coupled with the danger of a drop in government revenues from oil, due in part to oil theft and shale-oil developments.

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