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Nigeria Commercial Banking Report Q3 2007, new business publication announcement from Report Buyer
Report Buyer the online destination for business intelligence for major industry sectors, has added a new report called “Nigeria Commercial Banking Report Q3 2007”
By: Jonna Dagliden
There have continued to be fuel shortages in Nigeria and, if not resolved, this could drive up prices and dampen what is an otherwise positive economic outlook. The NNPC announced in late June that there was no end in sight. The NNPC said that there was no immediate solution to the problem - a result of the country's refineries operating well below capacity - and that the system might not get back to normal until August. This could cause inflation to spike, undermining the progress Nigeria has made to reduce consumer price inflation (CPI) from 30% year-on-year (y-o-y) in August 2005, to a very manageable 4.2% in April 2007. However, we imagine this would remain a spike, rather than a sustained uptick in price pressures.
We have revised up our global assumptions for oil prices, and now expect Nigeria's Bonny Light crude to reach an average of US$63.30 per barrel (bbl) this year, compared with US$61.70/bbl. However, we are leaving our real GDP growth forecasts unchanged, in spite of this small amendment, predicting 5.7% for 2007, and 6.0% for 2008.
The Commercial Banking Sector As at the end of 2006, total assets, loans and deposits amounted to US$49.4bn, US$19.9bn and US$18.6bn, respectively. By all three measures, Nigeria has a very underdeveloped banking system. This is despite the country's enormous wealth in natural resources.
While deposits were rising well in our previous report, the latest figures for Nigeria's banking system shows a drop in deposits of 6.1% in local-currency terms, indicating a crisis of confidence among consumers and business. However, growth rates for loans and total assets, in local-currency terms, have continued to grow strongly and are among the highest in the world. Nigeria ranks 6th and 15th for loans and assets respectively, among the 59 countries we surveyed. The total per-capita deposits are tiny and have dropped to US$140, to become the lowest of all the countries surveyed.
According to BMI's latest measure Nigeria's business environment rating remains very low. However the new Yar'Adua government looks set to continue to gradually reform and improve the economic and financial climate. One reform the government could build on is the banking-sector consolidation which took place in 2005. Although this initiative was very successful, and has rightly increased investor confidence in the country's financial system, there is still work to be done. In its latest review, the IMF has urged the authorities to put in place a stronger banking supervision department and ensure good quality monetary data.
Nigeria Commercial Banking Report Q3 2007 Business Monitor International Ltd Page 11 Since independence from the UK in 1960, development of the country's banking system and overall economy has been undermined by endemic corruption, inadequate infrastructure, political instability, corruption and generally poor macroeconomic management.
However, since the 1999 adoption of a new constitution, which achieved the peaceful transition from military dictatorship to civilian rule of law, the government has been facing the twin challenge of reforming the largely petroleum-based economy and institutionalising corruption-free democratic governance. While all current indications are that it is meeting these challenges successfully, its progress is slow.
UBA Global Markets, a subsidiary of United Bank for Africa, recently carried out a review of the Nigerian banking industry. Its conclusions were that the low level of banking patronage is attributable to the low level of financial intermediation in the country. This is mirrored by the ratio of broad money to GDP, which stood at 18.75% in 2006. According to UBA Global Markets, 'Out of the estimated 130mn Nigerians, the population with a bank account is still below 10%'.
We believe that the Nigerian economy will recover from the difficulties it has faced so far in 2007, to achieve greater robustness by year-end. Not only do we expect non-energy sector growth to continue robustly, but with election-time government spending and a bounce back in oil production, we should see a good performance all-round. Government spending will remain a key driver of growth.
Our core view of Nigeria is an overwhelmingly positive one. Notwithstanding some political problems in the Niger Delta, it is one of the most exciting stories in Africa, with a greatly improved debt profile, the world's seventh-largest oil reserves, strong investment opportunities, a government which is prudent but keen to promote growth and, above all, huge potential for development. Against this backdrop, we see investor confidence and a growing consumer class continuing to drive growth, and we are forecasting a very good year by the end of 2007. The oil sector should bounce back from 2006's (real) contraction, and the election-time spending will also be a key driver of growth. We are forecasting 5.7% real GDP expansion for 2007 (after a relatively meagre 4.3% in what should have been the boom year, 2006), rising to 6.0% in 2008 and slipping to 4.6% in 2009, and 3.5% in 2010, and then rising to end the forecast period at 6.0%.
Moderate Medium-Term Growth For Commercial Banking Sector One of the most significant changes in the banking system in recent times has been the consolidation of the industry. Since 2004, the number of banks operating in Nigeria has declined from 89, to 25, following the review of the minimum capital requirement for banks operating in Nigeria from NGN2bn to NGN25bn. The result of this rationalisation and consolidation has been a significant improvement in the depth and capacity of the sector. The total size of Nigeria's 25 banks is equivalent to the size of the top two banks in South Africa (in 2003, the total size of Nigeria's then 89 banks only equalled the size of the fourth-largest bank in South Africa). While there was no bank in Nigeria that qualified among the top 1,000 banks in the world in 2003, about 17 had made the list by the end of 2006.
The latest merger approval came in April 2007, with the approval of the merger of IBTC Chartered Bank and Stanbic Bank Nigeria; and the subsequent tender offer by Standard Bank of South Africa through which it will purchase additional shares in IBTC. The deal, which is awaiting final approval from the capital market authorities, will be the first market-driven consolidation since the commencement of bank consolidation in Nigeria in 2004. Standard Bank is the largest bank in Africa and its operations in Nigeria were hitherto limited to a 100% shareholding in Stanbic Bank. Following the conclusion of the merger, the enlarged IBTC will retain its brand name and will operate as a Nigerian bank which will remain quoted on The Nigerian Stock Exchange. It will, however, become a member of the Standard Bank Group and will have shareholders' funds in excess of NGN60bn.
It can be expected that the underdeveloped state of Nigeria's banking system will improve at a modest pace, in line with ongoing political and institutional reform at the national level. This is especially the case if the central bank's plans for recapitalisation and consolidation of the banking sector are successful.
However, it should be noted that at this stage we are predicting only a steady improvement over the medium term. Nigeria is politically fragile, with long-standing ethnic and religious tensions, which must ultimately be diffused in order for a solid foundation for economic growth to develop.
“Nigeria Commercial Banking Report Q3 2007” is available from Report Buyer. For more information go to: http://www.reportbuyer.com/
Piribo Product ID: BMI00497
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