With five banks out of the 26 banks in the country controlling nearly 70 per cent of banking activities, analysts at Afrinvest West Africa have called for mergers in the industry that would see more bigger banks emerge as they project that a 15 per cent growth for the banking industry in 2022.
According to Afrinvest’s 2021 Nigerian Banking Sector Report titled “Resilience Amidst Endemic and Pandemic Constraints” tier one banks, are Access Bank, Zenith Bank, GT Bank, First Bank, United Bank for Africa presently control approximately 70 percent of banking activities.
Deputy Managing Director, Afrinvest West Africa Limited, Victor Ndukauba, speaking on the banking sector and its outlook at the launch of the report said “the banking sector saw a dip in 2018, obviously following a cut back by banks, who are trying to contain the operation from the effect of the recession of 2016, that sort of spilled over into 2017. But otherwise, it has been growth consistently.
“Tier one banks accounting for a sizable portion of the total assets. From what we estimate for year 2021, we think includes that nearly N25 trillion loans, up 24 per cent on last year’s numbers, and we expect a further 10.3 per cent growth into 2022.
“Also, the total industry deposits, we can see that we’ve gone from N17.8 trillion in 2016 and expect to close 2021 at N46 trillion and with a projection of 8.4 per cent growth will take us to about N50 trillion by the end of 2022. Again, consistent with the other two metrics, you see that the tier one banks continue to control a significant portion of the industry, business and you know, balance sheet.”
“So, I guess what has to be said clearly is that there is some value to consolidation and scale clearly, because when we look at shareholders funds, which is essentially the value that has been created by these banks for shareholders over time, you can see that again, tier one banks continue to be the dominant force here nearly 70 per cent of the industry in value creation.”
On the accruing debt of the country, Ndukauba said the current rate at which the federal government is borrowing is not sustainable and that the spike at which the federal government is borrowing has tripled in five years since the beginning of this administration.
“Revenues have underperformed by these 30 per cent, the income from oil and gas has worsen, at 44 per cent, non-oil income is up slightly at four and a half percent, while independent revenues up 10 per cent and government owned enterprises down nearly 62 per cent. So on the revenue side, clearly, there is a challenge. We’re not tracking what was planned or expected.
“So, in order to keep up with the significant ramp up in spending, the government has had to obviously do a lot more in terms of borrowings, as well as something here that is captured as ways and means which is effectively the central bank providing liquidity in the form of lending or just a stopgap measure to help plug water the shortfalls.
“What we can see clearly is that we have a rising debt situation. So aggregate debt N16.8 trillion as of 2016, but between then, and now we’re almost at three times that level, with a total of nearly N48 trillion.”
Noting that the debt servicing ratio which also grew from 45 per cent in 2016 to 83 per cent, he said “we have gone from what is the debt service ratio of about 45 per cent in 2016, to 77 per cent based on our estimates for 2021. Those numbers are higher in 2020 at nearly 83 per cent. So what it means is that for every Naira or revenue you’re spending nearly at 80k to service debt. Clearly that is not sustainable.
Partner & Chief Economist, PwC Nigeria, Andrew S. Nevin while noting that the Nigerian economy is stable and he foresees sustained growth in his keynote address, said “I have never been more optimistic about Nigeria in the 13 years that I’ve been here than I am today. Despite the fact that every one of us is well aware of all of the challenges in the country in the last two or three years, I’m optimistic and confronted by incredible things going around the country that aren’t necessarily seen by the official statistics.”
Also speaking at the event, The chief executive officer, Centre for the promotion of Private Enterprise (CPPE), Dr Muda Yusuf noted that manufacturers are still constrained by access to foreign exchange.
He said, “The bigger issue of manufacturers as well as investors of the real economy is the FX issue because even for some manufacturers who had access to the CBN facility, they could not access FX to utilize the facility and so it is affecting everything.
Secondly the issue is the illiquidity of the foreign exchange market. I do not think it has ever been so bad as even reputable companies access the NAFEX window and get maybe 20 per cent or even less of your demand. Then the uncertainty that is around investments is making our indices drown and so there’s a whole lot of distortions.”