West Africa: Potential Remains Untapped

The West African banking sector appears to have stagnated over the past year, although those closer to the scene will say it has actually been sanitised. Just 20 financial services companies from the region are listed in our African Top 100, down from 24.

As last year, only six West African banks have a capital base in excess of $1bn. Zenith Bank retains top spot with a tiny fall in value to just under $2.4bn, while the next seven rankings are unchanged. Again as last year, there are 15 Nigerian banks in our survey of the West African Top 25 banks. Ghana takes four of the remaining 10 positions, with two from Senegal and one each for Gabon, Côte d’Ivoire, Mali and Togo.

BGFI of Gabon is the only Central African bank to make our table, with both CCEI Bank of Equatorial Guinea and Banque International du Cameroun dropping out of the list.

The Nigerian banking industry has stabilised since the 2008–09 economic crisis and failure of nine of its banks. Despite strong economic growth, however, the country’s financial services companies have yet to play a full role in the recovery. Many have invested heavily in high-yielding government bonds rather than domestic businesses. Government borrowing was 56.5% higher in the first half of this year than in the same period last year but a combination of stricter lending criteria and high interest rates have cut many potential customers out of the system. Abuja is unlikely to be able to sustain such borrowing in the medium term.

Timidity stunts growth

Razia Khan, the head of Africa research at Standard Chartered Bank, said: “Eventually banks are going to have to take real economy risks to drive up returns. I can’t imagine that regulators will continue to license the operation of banks without there being evidence of some lending to the real sector.”

In addition, most private sector leading is concentrated in the hands of a small number of big corporations rather than new business start-ups in the small and medium-sized enterprise (SME) sector.

Arising out of the 2009 bank failures, the Central Bank of Nigeria has introduced a new regulation that requires banks to separate their capital market activities from their business and retail banking operations.

As a result, many banks are restructuring their businesses, so that their various activities can be kept under a single corporate umbrella within new holding companies.

First Bank of Nigeria, for instance, is bundling its asset management and capital market operations into a new firm, FBC Holdings Plc, which will be delisted from the Nigerian Stock Exchange. In addition, a state-owned ‘bad bank’, Amcon, has been created to take on the non-performing loans of Nigeria’s 19 lending institutions.

The credit ratings agencies continue to monitor the situation in Nigeria closely. In late July, Fitch said that Nigerian banks continued to face challenges and suffered from low levels of core capital. However, Nigerian agency Agusto & Co subsequently increased its rating on the sector from Bbb to Bb with a stable outlook, based on improved capital ratios and the bank’s ability to meet their obligations. Agusto & Co, explained: “With sale of troubled loans worth over N1.5 trillion ($9.5bn) to Amcon during the year, banks were able to free up their balance sheets and focus more on creating risk assets.” The company calculated that there was a total of N328bn ($2.1bn) in non-performing loans in the country, equivalent to 4.8% of total lending. This compares with a figure of 16% in 2010.

However, earnings increased during the first half of this year. Access Bank recorded a pre-tax profit of N30.07bn ($190.50m) for the first six months of 2012, a 143% increase on the same period last year. United Bank for Africa and First Bank doubled their pre-tax profits over the same period, while Diamond Bank recorded a fourfold increase.

The International Finance Corporation of the World Bank has announced that it will buy convertible loans totalling $70m from Diamond Bank to support the company’s capital base. The chief investment officer at the IFC, Marcos Brujis, said: “The investment provides a unique opportunity to support Diamond Bank’s expansion into key economic sectors that have relatively low banking penetration.”