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Access Bank, UBA, GTB… the Nigerian banks making inroads in Africa

By Aurélie M'Bida
Posted on Friday, 11 June 2021 13:23

An Access Bank branch in Kigali, Rwanda. © Vincent Fournier/JAMG

Nigerian banks are faced with low growth and a punitive cash reserve ratio of 27.5% at home. They are betting on the African Free Trade Zone to expand elsewhere on the continent. However, the profitability of their subsidiaries outside Nigeria is relatively average. Are they falling into an expansionary trap?

A pastoral setting, an elegantly laid table, well-dressed guests, all smiling…

There was not a cloud in the sky at the beginning of May when Herbert Wigwe, the head of Nigeria’s leading banking group, was received in Gaborone by his counterpart Kgotso Bannalotlhe, the CEO of BancABC Botswana.

In mid-April, the Nigerian giant Access Bank – with revenues of N516bn in 2020 (€1bn) – took out its chequebook to acquire, via ABC Holdings, the 78% stake held by UK bank Atlas Mara in the African Banking Corporation of Botswana Limited (BancABC Botswana). The cash amount represents about 1.13 times the book value of the bank, according to the seller, which is estimated at more than BWP1bn (about €90m) euros, at the end of 2019.

This is less than half of the $200m (€177m euros) that Access paid to purchase Diamond Bank in 2019. Observers of the Lagos market agree that it should not ruffle the balance sheet of Access Bank and will give access to a target market.

BancABC Botswana had risen to fifth place in total assets in the domestic market as of 31 December 2019, behind local subsidiaries of Standard Chartered, Stanbic Bank, Absa (formerly Barclays Botswana) and First National Bank of Botswana.

Organic growth “in the DNA” of Access Bank

This operation is a new brick in the Access Bank Group castle, whose ambition is “to become the most respected African bank in the world”. Since 2019, and the acquisition of Diamond Bank, the group has consolidated its status as a tier-one bank in Nigeria, even becoming the largest banking player on the continent in terms of customers (31 million).

Aside from Nigeria, the bank is now present in eight countries on the continent (Gambia, Ghana, Kenya, Mozambique, DRC, Rwanda, Sierra Leone and Zambia) and has a subsidiary in the United Kingdom and representative offices in China, the United Arab Emirates, Lebanon and India.

“Organic growth has been in Access Bank’s DNA from the beginning,” says Adesoji Solanke, an analyst at Renaissance Capital. “After Herbert Wigwe and Aigboje Aig-Imoukhuede took over in 2002, there was the acquisition of Marina Bank and Capital Bank in 2005, then Intercontinental Bank seven years later.”

The pace of acquisitions has been accelerating in recent months.

In addition to the breakthrough in Botswana, the group finalised the takeover of BancABC Mozambique (Atlas Mara) – by its local subsidiary in Mozambique – in late May, after an agreement was signed in September 2020. Earlier, in March 2020, the Nigerian group made its first foray into the South African market with a significant $60m stake in the 70-year-old Grobank.

Before that, in January, the Lagos-based giant finalised a deal with Namibia’s Cavmont Bank to acquire its subsidiary in Zambia. A few weeks later, Access completed the acquisition of the Kenyan Transnational Bank, bringing the number of Nigerian banks in Kenya to three, alongside United Bank of Africa (UBA) and Guaranty Trust Bank (GT Bank).

The expansionist ambitions of Nigeria’s largest banking group, which had total assets of N8.7trn (€17.2bn) in 2020, do not stop there.

In January, Moody’s says Access Bank identified eight new countries as potential markets: Côte d’Ivoire, Senegal, Egypt, Morocco, Algeria, Ethiopia, Angola and Namibia. “We believe the bank’s international expansion will support its strategy to become an aggregator of cross-border transactions across, from and to the African continent, including international payments and remittances, trade finance transactions and correspondent banking,” the rating agency said.

Some time later, Herbert Wigwe clarified this strategy in an interview at the Africa Financial Industry Summit (organised by Jeune Afrique Media Group, which owns The Africa Report). “We are also interested in Cameroon and Guinea. So we are making progress in sub-Saharan Africa while seeking to understand the Sahel better. Egypt is an important market that we want to better understand before we decide to enter,” he said.

In this regard, Nigeria is banking on the the African Continental Free Trade Area (AfCFTA). “This agreement is seen as a real gas pedal of expansion decisions for transactional banking and payments from digital platforms, like the ambitions of Access Bank. But there is still a long way to go,” says Yoann Lhonneur, associate director of Devlhon Consulting.

Yinka Adeoti, of Global Credit Ratings Nigeria, however tempers this optimism. “Although we expect this expansion to improve the diversification and stability of the bank’s revenues, it could also increase its risk profile (especially operational and regulatory risks) in the medium term,” the analyst says.

(Too) volatile market

In any case, Access Bank is not going it alone in its conquest of new markets in Africa. Specialists consider Nigeria to be ‘a mega market’, however, the Nigerian banks’ appetite for the continent is not waning. The logic may not be new but the current situation reinforces it.

Even if the pace and pattern of continental expansion by different Nigerian banks varies, moving into other African markets allows for diversification of assets and balances profitability against results in Nigeria. This argument is even more important in a difficult operating environment, such as the current coronavirus pandemic and exposure to oil price volatility.

The oil shock of 2008 and the crash that shook the banking sector at the beginning of the previous decade led another Nigerian banking group, United Bank for Africa (UBA), to move to other countries. As a reminder, between 2008 and 2011 alone, the network of the group founded by Tony Elumelu grew from eight to 19 African subsidiaries, followed by a phase of consolidation and organic growth, with only one new location since, in Mali, in 2019.

Today, the revenue share of UBA’s African business outside Nigeria represents more than 37% of the N620bn (€1.2bn) in revenues that the group achieved at the end of 2020 – against 60% for the Nigerian business. However, the contribution to profits (of N113bn) is slightly higher for the rest of the continent, with a ratio of 52% against less than 45% for Nigeria. A sign that the mission of Oliver Alawuba – the Africa CEO appointed in January 2020 – to develop UBA on the continent, is on track.

UBA, GTB, Access… in the process of transformation

But this performance should be analysed with caution.

Indeed, as Adesoji Solanke points out, if we look at the return on equity (ROE) of the main Nigerian banks exposed to the continent, we see that the profitability of activities outside the country is relatively average. Analysts have, for example, noted 15.7% for Access Bank’s non-Nigerian business (15.3% in Nigeria) and 17.5% (up from about 14%) for UBA in the first half of 2020. “Yet Nigerian banks have a limited footprint in Africa, except in Ghana, which is the engine of their expansion. These groups are often too small in their other markets of exposure.”

Ghana and Sierra Leone are traditionally mentioned as the preferred locations for Nigerian banks in West Africa; however, in East Africa, Kenya, Rwanda and Tanzania should also be mentioned. It should be noted that Nigeria’s Zenith Bank is also established in The Gambia, GT Bank in Côte d’Ivoire while First Bank of Nigeria (FBN) has a subsidiary in Senegal. Only Access Bank, finally, seems to be getting out of the classic pattern adopted by its compatriots, through breakthroughs in southern Africa and its ambitions in North Africa.

Access Bank’s speed and methodology, however, remain in line with other Nigerian players: Herbert Wigwe is transforming Access Bank into a consolidated group around a holding company, something Tony Elumelu did before him and Segun Agbaje initiated at GT Bank.

In December 2020, GT Bank got the green light from the Central Bank (CBN) and the Securities and Exchange Commission to restructure itself into a financial holding company. The process involves an agreement between the bank and its shareholders and should result in the creation of new regional entities: GT Bank Nigeria, GT Bank East Africa and GT Bank West Africa. Segun Agbaje is expected to take over the reins of the holding company, while the name of the future CEO of GT Bank Nigeria should be revealed in the coming weeks.

After an initial cancellation of its universal banking license in 2011 by the CBN, Nigeria’s fifth largest bank – in terms of total assets – is reviewing its strategy and wants to focus on its core business: banking. It has therefore sold its insurance subsidiaries to focus on payments, asset management and pensions.

The backdrop is the changing competitive landscape and the slowdown in the growth of traditional banking business, which has led GT Bank and its associates to rethink their strategy and operating models. As a result, GT Bank averaged 8% pre-tax profit growth between 2018 and 2019, compared to an average of nearly 30% during 2016-2017.

Punitive regulatory environment

In addition, the CBN’s recent monetary policies, which have put downward pressure on banks’ net interest margins, have also played into these transformations. This Nigerian regulatory climate is a major factor in the decision to go elsewhere, as the local banking market is very punitive. For example, the central bank imposes a high cash reserve ratio on credit institutions, which is currently set at 27.5% – that is, more than a quarter of bank deposits that cannot be mobilised.

The country’s financial institutions also point to the gradual reduction of the commission base applicable to their operations, also at the initiative of the CBN – which had not responded to our questions at the time of publishing of this article.

This context has also contributed in pushing Nigerian banks to seek profit outside their comfort zone. We should expect this trend to continue, including consolidations in the pan-African markets, since, as Moody’s notes, the outlook for the Nigerian banking system remains negative due to the Covid-19 crisis…

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