At the launch of Proshare of Proshare Impact Report on Nigeria’s banking sector titled: ‘Reassessing Tier 1 Banks – The Class of 2023,’ in Lagos Panelists who spoke said that Nigerian banks need fresh capital injection to stay afloat. Speakers at the launch spoke on the topic: “Banks are Dead, Banking is Reborn: Bridging Regulatory Compliance, Changing Business Models and Rising Expectations.”
Speaking at the panel session, Mr Johnson Chukwu, the Group Chief Executive Officer, Cowry Asset Management Limited, said banks would likely embark on a new recapitalisation drive due to regulatory capital pressure and increase in transaction cost. He said, “Nigeria banks have a complying need beyond increasing their liabilities and to also increase their operating capital because of the shift in exchange rate”. He said banks need to shore up their operating capital to fund big businesses.
Chukwu said the return investors make from investing in banks was another factor that would comply banks to embark on new recapitalisation drive to retain investors and make more money. He said that banks generate higher return even in a difficult environment when compared with other investment class.
“If you look at the Nigerian capital market performance as of Oct. 12, the All-Share Index had gained 30.93 per cent, the banking sub-sector had gained 60.43 per cent, that’s far higher than the All-Share Index. There is no other investment class that will give more than 60 per cent return like the banks. So, in the interest of investors, it makes more sense for them to give their money to the banks because they have the capacity to read the market, trade and generate better returns even in a difficult environment,” he said.
Also speaking, the Chief Financial Officer, EcoBank Nigeria Ltd., Mrs Ibukun Oyedeji, stressed the need for capital and liquidity for banks to remain in business. Oyedeji said banks must reduce cost through investment in technology to remain in business. She also said that banks must learn how to replicate the Fintech model in order to play actively in that space. Dr Biodun Adedipe, Founder and Chief Consultant at B. Adedipe Associates (BAA Consult), observed that the major problem of Nigeria was the devaluation of the Naira. “Everything changes in the country whenever there’s change in the exchange value of the naira,” Adedipe said. He, however, called on the Central Bank of Nigeria to pay more attention to the exchange rate.
Mr Ayodeji Ebo, the Managing Director, Chief Buisness Officer, Optimus by Afrinvest, said that banks must ensure enhanced risk management to survive the current economic challenges. Ebo also stressed the need for commercial banks to strengthen their models to boost financial inclusion through technology. Meanwhile, the 2023 edition of the Proshare Bank Strength Index (PBSI) showed that Access Bank, Guaranty Trust Company, United Bank for Africa, and Zenith Bank retained their ranking as Tier 1 banks. The report said that Stanbic IBTC and Fidelity Bank dropped from the Tier 1 ranking to Tier 11. “This is according to the methodology deployed by the PBSI, which requires that banks/financial Holdcos over the 50th percentile are ranked as Tier 1, while those below the mark are categorised as Tier II and III, respectively.
“Ecobank Transnational Incorporated joined the Tier 1 ranking for the 2023 PBSI from the Tier II ranking in 2021/2022. In the maiden edition of the “Tier 1 Banking Report” titled The Case for Redefining Tier 1 Banks, the PBSI focused on measures of asset quality, profitability, and liquidity. This has been broadened to cover efficiency ratios, risk management, and digital income to incorporate assets, gross earnings (in absolute terms and on logarithmic scales).
Capital Adequacy Ratio, Loans Feposit Ratio, Cost to Income-Ratio, Cost of Risk, Net Interest Margin, Non-Performing Loans Ratio, Digital Income to Gross Earnings Ratio, and Independent Non-Executive Directors to Board Ratio. Dynamism would be a key feature for surviving business disruptions beyond 2023 Revised,” said the report. The report stated that Nigerian banks must find new ways of holding on to their customers and ensure the creation of uncontested markets, as seen in the rise of banking’s AI-supported fintech services.
“A few banks may encounter difficulties, but many, especially Tier 1 banks, will continue to thrive,” said the report.
The report assessed the full-year 2022 performance of the banks/financial Holdcos and incorporated the half-year 2023 results, considering the timing of the Tier 1 banking report release. It features six sections and highlights the following key areas: H1, 2023 Silicon Valley Bank crisis and impact on global banking, operations of Nigerian banks, revised 2021 PBSI and bank classifications. Also, the financial risk profile of Tier 1 and Tier 2 banks, the rise of tech foundries and digital income in the Nigerian banking industry and the recommendations for regulators.
