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Friday, March 31, 2023

Widening Gap Between Banks Signals Mergers in Play

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The divide between the haves and have-nots among Nigerian banks is widening, a harbinger of another consolidation as the big players with strong capital position could acquire small and mid-sized lenders.

The corporate inequality is becoming conspicuous as the Tier 1 lenders (Guaranty Trust Bank, Zenith Bank, Access Bank, United Bank for Africa, and FirstBank Holdings) collectively realised N204.92 billion as at March 2021.

That compares with the N33.74 billion collectively realised by small and mid-sized lenders (Fidelity Bank, First City Monument Bank, Union Bank, Unity Bank, and Wema Bank).

Similarly, the big lenders combined total asset of N35.55 trillion as at March 2021 is 3.18 times asset bases of Tier 2 lenders, according to data gathered by MoneyCentral.

The small players are unable to weather the asset quality deteriorating storm brought on by the precipitous crash in crude oil price mid-2014 that stoked severe dollar scarcity and tipped the country into its first recession in 2016.

Those at the bottom of the pyramid are also grappling with huge impairment on loans as the coronavirus pandemic that disrupted business activities across the globe and forced the government to impose a lockdown policy hindered many customers from meeting their obligation.

It is worthy to note that the gap between the Tier 1 banks and the Tier 2 lenders may continue to widen as the new rules by the regulator is pressuring industry earnings.

While the big players are engaging in big ticket deals, the small ones are scaling back because they do not have the capital to pursue interest yielding assets.

Two Nigerian banks have issued five-year senior unsecured bonds on the Eurobond market in recent months. In November 2020, First Bank of Nigeria (B-/Negative) issued $350 million with a coupon of 8.625%. In February 2021, Ecobank Nigeria (B-/Stable) issued $300 million with a 7.125 percent coupon – the lowest for a five-year issuance by a Nigerian bank since 2013.

A few weeks ago, there were rumours that Zenith Bank and Access Bank were among the list of financial institutions from Africa and the Middle East to indicate interest in the acquisition of Union Bank and other African assets of Atlas Mara Group, a Pan-African banking group.

In 2019, Access Bank acquired mid-sized lender Diamond Bank Plc to become the largest lender by total asset.

In 2009, former central bank governor Sanusi Lamido Sani rescued 10 banks and spent $1.80 trillion to salvage banks that nearly went bust due to rising non perfuming loans and bad managers.

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