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Nigeria: Step up, New guys

By Tolu Ogunlesi
Posted on Wednesday, 23 September 2015 14:56

To every generation its struggle. Nigeria’s current and emerging banking leaders are facing a different set of challenges to those of their predecessors.

“Leadership for the new generation will turn on who can best adapt to the changing global environment – leveraging globalisation, technology and corporate governance,” says Opeyemi Agbaje, chief executive of Lagos-based consultancy RTC Advisory Services.

The corporate governance aspect will be critical, Agbaje says. “The banks of today cannot be run the way they used to run.”

He argues that the Nigerian bankers of tomorrow will be those who can position themselves as financiers the world can trust to run a credible institution.

It is up to today’s and tomorrow’s bankers to exploit the dynamics of rapidly changing technology and to navigate the macroeconomic headwinds and tightening regulation driven by local and global realities.

Added to this will be the challenge of growing the banks’ global footprints. Size will continue to matter where the Nigerian banking industry is concerned.

Nigeria might be Africa’s largest economy today, after displacing South Africa with its 2014 rebasing of gross domestic product data, but you cannot tell by looking at its banks.

The combined assets of its five leading banks are only about a fifth of the five leaders in South Africa; their combined market capitalisation is roughly an eighth.

There is plenty of room for ambitious bankers seeking to close this gap.

More women wanted

One thing many watchers would like to see change in the club of bank leaders is the gender balance.

Banking in Nigeria is – and always has been– an almost exclusively boys’ club. Currently, only two of the country’s 24 banks are run by women.

In 2012, central bank governor Lamido Sanusi asked banks to ensure that women take up 40% of their management positions and 30% of their board seats.

One person to watch out for is Yewande Sadiku, 43, the chief executive at Stanbic IBTC Capital, the financial advisory and capital markets arm of Stanbic IBTC.

Waiting on the sidelines is a fifth generation of Nigerian bankers: the ones who will run banks five or 10 years from now.

Traditionally, Nigeria’s bank executives have come from commercial banking backgrounds, but the fifth generation is likely to buck that trend, with leaders whose careers will have been spent primarily in investment banking and private equity – and, possibly, outlying fields like mobile banking and consumer lending start-ups.

Folahanmi Fagbule is one of them. In 2009, after a 19-month stint as head of research at securities firm Afrinvest, he joined the Africa Finance Corporation, where he is now vice-president for investments. Chijioke Dozie, 36, is another example.

In 2008, Dozie, along with his brother Ngozi, founded Kaizen Venture Partners, a private-equity firm that focuses on acquiring heavily indebted businesses from banks and then turning them around.

In 2012, he launched One Credit as a financial services institution providing short-term consumer loans.

US-based electronics payments company Net1 acquired a 25% stake in One Credit in June.

“If [One Credit] get the consumer credit business right, they could be bigger than some conventional Nigerian banks,” says one Nigerian private-equity specialist.

What kind of institutions will these new leaders find? For the preceding generation of bankers, the preoccupation was starting from scratch – taking advantage of the liberalisation of the industry by military leader Ibrahim Babangida in the late 1980s and early 1990s.

In 1985, there were 40 banks in Nigeria; by 1990, there were 107. These old timers led their banks through a wave of failures in the early to mid-1990s, followed by an unprecedented period of banking consolidation in 2004 and 2005.

Nigeria’s 89 banks rearranged themselves into 25 after Central Bank of Nigeria governor Charles Soludo’s reforms.

Several mergers and acquisitions happened, pulling in $3bn, an estimated $500m of which was foreign investment.

Lessons from 2009

But corporate governance did not improve at the same pace: the consolidation emboldened the new mega-banks to increase their appetite for risk substantially.

In the following three years, the total loan values grew more than threefold, compared to a twofold increase in the five years preceding it.

The ensuing bubble, marked by rampant margin lending and a toxic assets crisis, brought the industry to its knees in 2009.

So did this cause a ‘change of culture’ in Nigerian bankers, similar to that which Bank of England governor Mark Carney has called for in the UK? Perhaps. Certainly, this is when Nigerian bankers started to assimilate ideas of risk management.

Lamido Sanusi, replacing Soludo, announced that nine of Nigeria’s 24 banks were in distress.

He sacked their management, poured in $6bn of bailout money and pushed for the creation of the Asset Management Company of Nigeria to absorb more than 12,000 non-performing loans worth more than $35bn.

Sanusi’s intervention ensured no banks failed and no depositors lost their funds. It also triggered another round of acquisitions by local and foreign players.

Atlas Mara, the investment group co-founded in 2013 by former Barclays chief executive Bob Diamond and entrepreneur Ashish Thakkar, now owns 29% of Union Bank of Nigeria.

RTC’s Agbaje envisions that in the near future more Nigerian banks will be sold to foreign partners, following in the wake of Atedo Peterside, a third–generation banker who in 2007 sold a controlling stake in IBTC Chartered to South Africa’s Standard Bank to form Stanbic IBTC Bank. Look at interesting site with a lot of information

Sceptics say the post-Sanusi corporate governance adjustment has been cosmetic and ask if another meltdown is on the way.

Globally, oil producers like Nigeria have been hard hit by the tumble in the price of oil from a 2014 high of $110.

Earlier this year the government’s foreign reserves fell to their lowest level in a decade, prompting the central bank to impose restrictions on foreign currency trading.

In 2014, the banking index of the Nigerian Stock Exchange was its worst-performing sector, and that trend could continue.

Earlier this year, Fitch’s issuing of a stable rating for 10 of Nigeria’s lenders was premised upon the “ability or willingness of the Nigerian authorities to provide support”.

The ratings agency also projected that the banks’ bad loan burden will breach the central bank’s suggested limit of 5% of total loan exposure this year.

But against this backdrop are those who advocate long-term optimism. Andrew Lapping, portfolio manager of Allan Gray Africa Equity Fund, says Nigeria’s banking stocks are currently undervalued.

“In the near term, the Nigerian banking industry will face tough times. [But] if you’re looking at a five-year investment horizon, now’s the time to buy,” he says.

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