Nigerian banks are expanding their reach across the continent through a series of acquisitions of smaller banks, in a drive to dominate the African financial landscape, writes
No Nigerian money deposit bank is ranked among the top in Africa in 2022. Despite the country having the largest economy and market, Zenith Bank, which is its leading lender, was ranked 12th in the continent last year, using its 2021 capital base size of $2.75bn, according to The Bank. Despite growing its assets to N12.29tn at the end of the 2022 financial year, Zenith Bank still lags behind other African banks.
In 2022, South African banks held leadership positions in the continent’s financial landscape. Standard Bank Group, with a capital size of $11.73bn in 2021, along with FirstRand ($10.46bn) and Absa Group ($8.24bn), occupied the top three spots.
Aside from Access Bank with a $2.26bn capital base, GTCO ($1.71bn) was ranked 18th on the list of the top 20 African banks.
Meanwhile, the heavy devaluation of the Nigerian currency has impacted the ranking of the local lenders in the continental rating. The local currency was devalued by 93.41 per cent to $/N381.00 in 2021 from $/N196.99 in 2015. Under the President, Maj. Gen. Muhammadu Buhari-led administration, naira has been devalued by 133.96 per cent to $/N460.87 on May 5, 2023.
A former President of the Chartered Institute of Bankers of Nigeria and current Dean, Postgraduate Studies, Caleb University, Lagos, Prof. Segun Ajibola claimed it was not surprising that Nigerian banks were not rated among the top 10 in Africa.
He explained, “It is the value of the naira. The banks are ranked in dollar terms. So, if you look at the fall in the value of the naira vis-à-vis the dollar in the last 10 years, even though our banks are growing in size in terms of the local currency, which is naira. They are expanding on all fronts in terms of their financial statements, number of branches, customers, profitability, etc. But when you look at the depreciation of the naira, the rate of the depreciation of the naira outweighs the rate of growth. So, that is why it appears Nigerian banks are not listed among the top 10. Until they are able to defend the value of the naira and the big banks around can grow faster than the rate of depreciation of the naira, the scenario will continue.”
Nigerian Banks’ ratings were affected by the currency conversion, according to the CEO of BIC Consultancy Service Ltd, Dr Boniface Chizea.
“The exchange rate worked against Nigerian banks. When this government came on board the exchange rate was less than $/200. The depreciation of the naira is exceptional.
“The exchange rate is very significant because the rating agencies have to bring it to a common currency. I do not think there is any country in Africa that had not witnessed the devaluation of its currency. The difference is the rate of depreciation. The Ghanaian currency depreciated more than that of Nigeria. That is the strongest indicator for the Nigerian ranking below 10th top in the continent.”
Furthermore, an economist and faculty member at the Lagos Business School, Prof. Adi Bongo, attributed the poor rating of Nigerian banks on the continental stage to their lack of innovation and specialisations.
“There are so many business opportunities and areas you will not find our banks covering. They are not business-enhancing or supportive. They are not competitive at the international level. They are only agencies of government institutions,” he argued.
According to him, the banks only take advantage of public sector money, the Central Bank of Nigeria funds and the foreign exchange market.
“The performance of Nigerian banks is at variance with the performance of the economy. Even when we were in recession in 2006 and during COVID-19, our banks were making stupendous profits.”
He wondered how the banks which play intermediary roles in the economy were making double-digit profits when the economy was on its knees.
Nigerian banks, unimpressed with their position in Africa’s banking space, have ramped up their acquisition drive in Africa in order to capture more markets. The acquisition of Union Bank of Nigeria’s UK subsidiary by Fidelity Bank received regulatory approval last week. According to the bank, it plans to expand to five African countries.
The Managing Director of Fidelity Bank, Nneka Onyeali-Ikpe, told Bloomberg, “The strategy is for us to move footprint outside Nigeria and be able to compete favourably with our peers. In the next three years, we should be able to be in six countries by doing at least two every year.”
Access Bank Holdings said that it was planning to delve into 26 countries in the next three years from the 16 it currently operates in. It noted that the expansion would enable it to better manage risks and diversify earnings.
Last week, the group got the nod of the Central Bank of Angola, Banco Nacional de Angola for the acquisition of a majority equity stake in Finibanco Angola S.A., having earlier gotten the approval of the Central Bank of Nigeria.
In his comment on the latest acquisition, the Group Chief Executive Officer, Access Holdings, Dr Herbert Wigwe, said, “We are pleased to be well-positioned to join the select league of banks providing high value financial services to high-growth businesses and the rising consumer sector in Angola.
“The bank brings a lot of value-add and expertise that will act as a positive catalyst to foster greater innovation and promote the deepening of the financial sector in Angola while complementing our strategic growth objectives in the broader SADC region.”
Prior to the acquisition, Access Bank had acquired Transnational Bank (Kenya) Plc and Cavmont Bank Limited as well as African Banking Corporation (Mozambique), S.A. in Zambia and Mozambique.
FSDH Merchant Bank’s Head of Research and Strategy, Ayodele Akinwunmi, told that Nigerian banks wanted to take advantage of opportunities in these countries.
“These banks want to go to where their customers are doing business, to be able to service them more. For instance, Dangote is in many African countries. When a bank is banking Dangote, to service Dangote very well, it is expected to open banking offices in the countries where Dangote is doing business. When my clients are opening businesses in other countries, particularly to drive intra-African trade, it makes sense for me to open branches in those African countries, to enable me to take a better share of the company’s businesses,” he remarked.
According to Prof. Ajibola, the renewed push by Nigerian banks to expand to other countries is a strategic move, noting that they are positioning themselves to leverage the African Continental Free Trade Agreement.
He further enunciated, “Nigeria has the largest economy and it has been the major driver of regional operations, in terms of ECOWAS or African Union. Nigeria is also a major stakeholder in the African Development Bank and other initiatives.
“Also, the African Continental Free Trade Agreement, which is expected to deepen regional and economic relations, the banks are positioning themselves to take advantages of all these. It is believed that if Africa works out according to plan, the volume of trade with Africa and among African countries will go up astronomically. So, the presence of Nigerian banks which have the resources, both human and materials to trade will other countries in the continent, the opportunities will be there to drive those initiatives to help grow the trade relationship and partnering within the African continent.”
AfCFTA was conceived by member countries of the African Union in 2012, but worked started on it in 2019 after 24 Member States deposited their Instruments of Ratification.
The AU described it, “The AfCFTA is the world’s largest free trade area bringing together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs). The overall mandate of the AfCFTA is to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 tn. The AfCFTA is one of the flagship projects of Agenda 2063: The Africa We Want, the African Union’s long-term development strategy for transforming the continent into a global powerhouse.”
The World Bank projected that the AfCFTA will increase Africa’s income by $450bn by 2035 and increase intra-African exports by more than 81 per cent.
The UN Economic Commission for Africa claimed that “this single market trade agreement will enable the African economy to reach the $29tn mark by 2050.
Meanwhile, Prof. Ajibola cautioned local banks to be disciplined and ethical by abiding by the rules of the countries they were expanding to.
Also, Dr Chizea noted that the banks had to be careful in their acquisition drive, because it was possible to acquire a bank that will not add value to them.
“They have to acquire banks that are healthy. To acquire a bank is wonderful. It should be encouraged. And that is what Nigerian banks should be doing. We have the largest economy by Gross Domestic Product in the continent,” he stated.
Prof Bongo noted that this was not the first time Nigerian banks were making inroads into other African countries.
“Almost all top Nigerian banks had international branches some years back. Later, they started to scale back and closed the branches because they were not making money. They were not making profits, but losing money. Some of them were forced to close those branches,” he explained.