There indications that the punitive regulatory environment and coronavirus induced headwinds could widen the inequality between the Tier 1 lenders and the small /midsized Nigerian banks in terms of profitability and asset size.
The Tier 1 lenders have wide pool of funds they are able to deploy into risky assets to generate returns. Also, they are able to attract cheaper deposit and a relatively manageable operating leverage.
On the other hand, Tier 2 lenders have to conserve the cash that they have and build capital buffers as they are reeling from rising non-performing loans (NPLs) and huge operating leverage.
Analysis by MoneyCentral shows Guaranty Trust Bank Plc, the largest lender by market capitalization in Africa’s largest economy, has average return on equity (ROAE) of 26.0 percent as at June 2020.
That compares with the ROAE of the largest Tier 2 lenders: FCMB (9.40 percent); Fidelity (12.90 percent); Union Bank, (8.40 percent); Sterling (8.72 percent), and Wema, (5.42 percent).
Unity Bank has a negative ROE of 0.742 percent as its net income for the period under review was not enough to wipe out negative shareholders’ fund of N278.24 billion.
There are also wide disparities in asset and absolute profit.
The combined total assets of the five Tier 1 lenders (GTBank, FBN Holdings, United Bank for Africa, Zenith Bank, Access Bank) stood at N31.41 trillion as at June 2020.
On the other hand, the largest Tier 2 lenders have a combined total asset of N14.28 trillion as at June 2020.
“Post Covid-19 it will take time for the gap to shrink given the punitive regulatory and macroeconomic headwinds that they operate in,” said Gbolahan Ologunro, equity research analyst at CSL Stockbrokers Limited.
Indeed, the Tier 1 lenders are more buoyant as they are doing big tick deals and expanding their footprint across Africa.
Nigeria’s Access Bank Plc earlier this year bought Transnational Bank Ltd and has announced plans to expand in the South African market. KCB Group Plc completed the takeover of National Bank of Kenya Ltd. last year. It had taken over Diamond Bank some two years, making it the largest lender by total asset.
Nigeria’s Guaranty Trust Bank Plc, the West African nation’s biggest lender by market capitalization, also operates in Kenya, having acquired Fina Bank Group in 2014.