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Banking in Nigeria

September 13, 2010

The economic past of the UK in Nigeria is a long one. After the 13 November 1884 to 26 February 1885 Berlin conference, the Union Jack flag unfurled alongside British traders into Nigeria. With pressure from traders like Sir George Taubman Goldie, British commercial and political interests were extended and consolidated in Africa’s second largest economy. This foray bequeathed Nigeria with over a century old banking industry. By 1894 the British Bank of West Africa was the first commercial bank in the country.

Since then the banking landscape has changed significantly. Today, Standard Chartered, the London based bank, is increasing its limited footprint. In July 2009 the bank acquired First Africa Group Holdings Limited, a leading pan-African M&A advisory firm, in order to strengthen its corporate advisory business and “to provide M&A and leveraged finance services to its international clients in African-related transactions.”

As at 2008, an estimated three-quarter of the bank’s earnings in Africa were from wholesale banking. Late January 2010, Dangote Group, Nigeria’s leading conglomerate, refinanced its debt to 10 local banks via a $350 million loan from StanChart. Standard Chartered is looking to grow organically rather than through acquisitions in Nigeria ‘on the back of an increased push into wealth management.’ (Dangote Cement is set for a $14 billion merger with Benue Cement)

Corporate banking in Nigeria is fiercely competitive – a battle between locals and multinational banks.  A strong franchise is an advantage for attracting both talent and clients. PIMCO, the world’s biggest bond manager, contends that there is appetite for African sovereign bonds. However at a premium, following Dubai and Greece experience. Nigeria’s credit quality, pro-growth policies, fiscal prudence and a relatively sound financial system matter. A wave of corporate bond issues is expected this year. Most will be counting on the success of the country’s planned $500 million Eurobond.

GT Bank’s 2009 N50 billon corporate bond offering attracted only N13.6bn. Afrinvest Research reckons the 13% coupon rate was unrealistic. “Coupons within the 15-16% bracket would be a more realistic valuation of the risk premium required by investors.”

That said, following CBN’s invasive bailout of nine banks and the sack of their CEOs in 2009, foreign banks now have the opportunity to part-own any of the rescued banks. According to UK Trade & Investment, untapped banking segments like microfinance, private equity and venture capital, insurance, fund management and Islamic banking are also promising for British companies. A bank like HSBC, may look into deploying its Islamic banking experience in Nigeria. Sanusi Lamido, the new CBN governor, plans to make Islamic finance a significant aspect of the country’s financial landscape. Come October, Nigeria banks will enter a new scenery.

Other promising sub-sectors include outsourcing of cash movement and security, payroll management, credit card supports etc. Given the mistrust among Nigerian banks about sharing services, a credible and competent party can offer these services as an external provider.

Yet for all the promise it holds, a deeper and diversified financial system will peril without skilled people — Nigeria’s real asset. Banking on credit without bridging inequality (a la Brazil) via filling the education gap (focusing on cognitive skills like maths, science and reading) will be tricky.

Jobs plus a wider and deeper social safety net (a la Chile) will blunt the sharp edges of socio-economic and political instability.  A jobless economic growth is no ones cup of tea. A well-trained and healthy Nigerian workforce is our common interest.

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