After subjecting Nigerian banks to stringent stress-tests, Afrinvest, Africa’s leading investment research firm, has reported four banks as dominant in the Nigerian financial market. The banks according to the report released over the weekend said the four banks control between 40.6 and 45.9 per cent of the industry while the remaining 20 banks control between 54.1 and 59.4 of the market.
The breakdown according to the report shows that in terms of total loans the banks control 40.6% in shareholders’ fund, 45.9% in total assets, 40.6% in total loans and 42.5% in total deposits. According to the Afrinvest ‘‘they also dominated market volume. Measured by gross revenues, our analysis reveals precisely the same alignment, with the same four banks between them accounting for 42.0% of estimated industry revenues.’’
The report revealed that several banks were content to focus on niche business within specialized markets like trade and import finance, large-ticket structured finance, middle-market wholesale trading, capital markets, and real estate financing. In some instances, the analysts observed that some other banks were limited from achieving any degree of operating scale by internal challenges arising either from legacy merger issues, or missed capital raising opportunities during the boom cycle.
Overall, Afrinvest said, “there were rich pickings to be had both as large scale operator seeking market dominance and as a niche operator focusing on specific client markets. Indeed, we note that significant market volatility in 2008/2009 may have created disadvantages to scale, as larger banks may have been insufficiently nimble to react to a fast changing market environment.”
On risk exposure, Afrinvest report stated that ‘‘patterns across banks differ (depending on specific active markets), we did witness a broad enough scope of change in market direction to ensure that all operators will be faced with some degree of exposure to challenging risk positions over the next 12 months.’’
In conclusion, Afrinvest Researchers noted that the on-going global financial crisis with its attendant implications for sub-Saharan Africa has helped set-up what will be the first major test for Nigeria’s recently consolidated and recapitalized banking sector. And Nigerian banks (fresh off three major cycles of successive capital raising and consolidation) are significantly better poised to weather the storms than they would have been without these industry-defining changes.
Nonetheless, rapid growth and easy access to domestic and international capital markets have fueled an expansionary period in risk asset creation that will now be tested under the most severe of market conditions.
Afrinvest Ltd is a London-based independent investment bank. Its focus is exclusively the African markets and it has become the leading provider of African securities to the European investment community in emerging markets. It was created in 1995 identifying a gap in the emerging markets to provide specialized research and investment advice for London-based institutions interested in the African markets. Afrinvest provides all the execution services for international institutional clients seeking to deal in African securities.
