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The goliaths of Nigerian banking are getting bigger, fatter, and more prosperous than the small ones in profitability, revenue, and total assets as customer centric innovation helps tunnel assets into giants such as Zenith Bank.
This underscores the widening gap between the haves and have nots that adds impetus in favor of the argument for another round of business combination.
The nation’s top five bank-Zenith Bank, Access Bank, United Bank for Africa (UBA), Guaranty Trust Holding Company (GTCO), and FirstBank of Nigeria Holdings (FBNH) have a combined profit after tax (PAT) of N264.03 billion as at March 2023, according to MoneyCentral Intelligence.
That compares with the N73.82 billion cumulative PAT of Tier lender- First City Monument Bank (FCMB), Wema Bank, and Unity Bank’s net income stood at N72.82 billion.
The total assets of the big ones stood at N15.35 trillion, and that compared with the N5.09 trillion combined asset base of Tier 2 lenders.
One of the reasons for the widening gap is that Nigeria’s big banks have disciplined capital management as strong earnings growth support organic capital accretion, while asset quality improvements added impetus to balance sheet.
Their deposit base continues to trend upwards, which reinforces their funding base as rich retail franchises provide stable core deposit base.
“The bigger a bank, the more it is able to leverage economies of scale in achieving cost and operational efficiency, including ability to attract the best talent at the right price, all things being equal. For instance, bigger Tier-1 banks are able to deepen their retail penetration faster than the smaller tier-2 peers, thus giving the big banks greater access to low-cost finds, which is critical to protecting interest margins in a volatile market, where wholesale funds can be so pricey,’’ said Abiola Rasaq, Former Economist and Head Investor Relations at United Bank for Africa (UBA) Plc.
“Interestingly, there are also the confidence and network effects in favour of the big banks, as more and more customers, across the entire segments of the market feel more comfortable doing business with the big banks, given real or ephemeral perception of relative safety and capacity. So, these factors continue to help tier-1 banks grow in nominal terms faster than their smaller peers, both in terms of assets and profit,” said Rasaq.
There has been improvement of asset quality of the goliath lenders which uses an excellent risk management strategy that makes them much less susceptible to macroeconomic headwinds.
The big ones have benefited from juicy yields due an aggressive monetary policy by the central bank as they have enough cash to invest in government treasury when yields are high, and this adds impetus to net interest income.
Nigeria’s central bank governor announced a seventh consecutive interest rate increase to 18.5% as the country grapples with severe inflation.
The Nigeria 10 year government bond has a 14.335% yield, according to data from World Government Bonds.
It is interesting to note that the big lenders collectively generated N529.69 billion in net interest income in the first three months of 2023; and that compares with the N150.15 billion cumulative net interest income of the Tier 2 lenders.
In the last 1o years, the big lenders have been investing in the latest technology to bolster electronic banking and they are reaping the fruit of such capital outlays as there has been a surge in electronic banking revenue.They’ve been able to make banking easy for Digitally savvy, middle-aged and young affluent individuals through easy to use mobile application, but they face intense competition from fintech firms that are sprawling like mushrooms.
Between 2014 and 2019, Nigeria’s bustling fintech scene raised more than $600 million in funding, attracting 25 percent ($122 million) of the $491.6 million raised by African tech startups in 2019 alone—second only to Kenya, which attracted $149 million.
“Beyond the M & A effect of Access Bank, the concentration ratio of the industry continues to rise over the past decade, with the top-tier banks controlling more market share,” summed Rasaq.