Reforms make banking industry stronger

As a result of initiatives led by the Central Bank of Nigeria, the country’s banks are more fully engaged with the domestic economy. The Nigerian banking industry has been significantly improved by better governance of financial corporations and improved regulatory oversight, and while Nigeria has fewer banks than it did five years ago, those remaining banks are larger and more consolidated. Lessons have been learned: as Jibril Aku, Managing Director of Ecobank Nigeria puts it: “I think we have learned our lesson, one of the lessons being to pay more attention to governance standards. When a sector is booming, there is a tendency to expose yourself to greater risks, so when there is a contraction, you develop a portfolio challenge.”

The reforms introduced by the Central Bank are aimed at sustaining the country’s economy over a long term period and acting as an engine for growth and development throughout the nation. Managing Director for Skye Bank, Kehinde Durosinmi–Etti sees no reason why the recent changes should not lead to many countries throughout the continent of Africa viewing Nigeria as a banking capital, stating: “Nigeria has the potential to become the major financial services hub in Sub-Saharan Africa. There are natural factors that support our ability to develop into a vibrant financial sector hub. We have the largest market in the sub-region and the deepest outside of South Africa. In addition, we have a range of products and services tailored to meet the dynamic needs of the populace as well as the necessary infrastructure that will support and drive this position.”

Ratings are improving too. Zenith Bank is one of three financial organisations in Nigeria that Standard & Poor’s recently rated as ‘positive,’ revising its previous rating outlook from ‘stable.’ Zenith Bank is one of the largest and most capitalised companies on the Nigerian Stock Exchange. Its shareholder base of over 700,000 is an indication of the strength and wide acceptance that the Zenith brand enjoys. Group Managing Director of Zenith Bank, Godwin Emefiele, when recently asked why Nigeria could become a major financial services hub for Sub-Saharan Africa, said: “First by sheer size of the market, I think Nigeria stands out as a country that should be a hub. Besides, the financial system in Nigeria has grown so much as a result of the recapitalisation of banks that started in 2004, when Nigerian banks were expected to keep a minimum of 25 billion Naira as core capital. Today we see Nigerian banks, like Zenith Bank, with a core capital of almost 390 billion Naira, which is almost $2.8 billion dollars.”

Established in 1894 when incorporated in Liverpool as the Bank for British West Africa, First Bank pre-dates all other banks in Nigeria by several decades. First Bank still stands as the country’s flagship financial services company as well as its main lender. Over the past century it and other banks have seen positive and negative events in Nigeria, from huge economic growth and improved banking regulations, to occasional political instability and the recent international downturn, yet has always emerged stronger than before. Similarly, Guaranty Trust Bank has benefited from a strong Nigerian economy and the decisions which have enabled many organisations to survive the recession intact. Managing Director Segun Agbaje claims that “The strongest Nigerian banks have come out from the crisis unscathed. It was because we had one thing that a lot of banks outside did not have and that was that we had just raised capital in 2007-2008. Also profitability was well equipped whereby we would not even eat into the capital.”

Following the recent financial crisis a number of bailouts and mergers took place throughout the Nigerian economy, resulting in fewer, but stronger banks. First Bank, Zenith Bank and Guaranty Trust were all positively reviewed by Standard & Poor’s, and the ratings agency claimed the new outlook reflected each bank’s standalone credit profiles and outlook on the sovereign.

Managing Director for Skye Bank, Kehinde Durosinmi–Etti is confident that the efforts of the Central Bank will lead to Nigeria becoming a financial centre, saying: “Following the initiative of the CBN, banks are encouraged, to lend to three critical sectors of the economy: agriculture, infrastructure and power. We will support the growth of Ggse strategic sectors. Our contribution as a bank is to support the government in repositioning these sectors for optimal effectiveness. With the level of capital in the bank, we are adequately positioned to support these initiatives.”