Since the 2008/2009 global financial crisis, the biggest banks, often termed “too big to fail”, have taken steps to shore up capital buffers. Some have raised additional capital to almost 3x the pre-crisis level and as a result, are in a healthier position to withstand any major shocks to the financial system. Further to this, regulators across the world have ensured that banks create recovery and resolution plans in the event of a possible crisis, which further supports the current resilience of the banks. Also, the progress that has been made by banks is shown in the perception of performance across the industry as expectations of growth continue to mount.
As banks have continued to grow in size through strategic M& As as well as the adoption of new banking models, the industry has continued to expand. In terms of assets, the top 11 banks had a total asset base which grew at a CAGR of 5.2% to settle at US$31.1tn, up from US$21.8tn in 2010. As at 2010, the US banks – Fannie Mae (14.8%), Freddie Mac (10.4%), Barclays (10.4%) and JPMorgan (9.7%) – cumulatively made up 45.2% of industry total assets – the most from any country. However, by 2017, the Chinese banks took over, accounting for the larger proportion (43.8%).
Given the different developments in the global financial markets, regulators across the banking industry have adopted various models to limit risk as well as ensure that the interests of customers are protected. As such, one of the most prominent banking models adopted by operators is the Universal Banking Model which has been faced with arguments over time.
On the domestic front, the performance of the banking industry is largely determined by the conditions in the broader economy, analysis of the general business environment in Nigeria becomes pertinent. Following a slump in global oil prices which spanned from H2:2014 to Q1:2017, the Nigerian economy, which is largely dependent on oil revenue, slid into recession for the first time in 25 years. However, over the past three years, the resilience of the banking industry has been largely reflected in the fact that despite the weaker economic performance, the banks were able to sustain positive earnings growth notwithstanding cost pressures which weighed on profitability.
The banking industry is classified under the Finance and Insurance segment of the services sector of Nigeria’s GDP. As global economies were recovering from the financial market crisis of 2008/2009, the Nigerian Financial Institutions subsector remained on the downtrend, falling 31.5% between 2010 and 2011 – from N1.6tn to N1.1tn, before recording growth in 2012 (+29.4%), 2013 (+8.9%), 2014 (+8.3%) and 2015 (+7.4%). Likewise, the contribution of the sector to GDP fell sharply from 3.0% in 2010 to 2.0% in 2011 before improving to 2.6% by 2017. Over the 8 years, the average contribution of the sector to GDP settled at 2.5%.
The Central Bank of Nigeria remains the apex financial regulator of operations across the financial system. The banking industry has continued to evolve, especially with the global integration across the financial services sector as well as technological advancements which have spurred the creation of innovative products. Furthermore, the continued drive towards increasing financial inclusion has also contributed positively to the growth of the sector over the years. This report discussed the Nigerian Banking space under the following categories: Commercial, Microfinance, Merchant, Mortgage and Specialised banking.
The broad outlook on the Nigerian Banking industry, across various segments, remains largely positive based on the rising population. This has necessitated a focus on the retail market and the adoption of technology to boost financial inclusion. Consequently, the report highlighted several factors which we believe will shape the performance of the industry going forward.
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