Six banks to control 75% market share in long term

Based on the last year’s financials of banks’ performances, it is getting clearer the likely industry leaders in the long term. Various analysis of the reports showed that about 6 banks controlled 62.8 percent of the industry assets for the 2014 financial year ended December 31.

Although the analysts believe that the development is dynamic given different niches being adopted by banks to beat competition and remain relevant in the economy, majority opinions favour First Bank Nigeria Holdings (FBNH) plc, Zenith Bank international plc, United Bank for Africa (UBA) plc, Guarantee Trust Bank (GTB) plc, Access Bank plc and Diamond Bank plc with about 75 percent market share as leaders in the long term.

Specifically, these six banks accounted for 62.8 percent of the total assets of the banking sector in full year 2014 and have strong growth potentials, according to Tajudeen Ibrahim, Research Group, and his team of analysts at Chapel Hill Denham Securities Limited said.

The analysts believe the long term growth outlook of the Nigerian banking sector is strong, even though they are less optimistic on short term growth. In the long term, they see the gap between tier 1 banks and tier 2 banks increasing in terms of market share, but believe Diamond is potentially a tier 1 bank. The bank has demonstrated the ability to organically transform to a tier 1 in the past 5 years, growing total assets at a CAGR of 34.3 percent to N1.93tn vs. the industry CAGR of 12.2 percent between 2010 and 2014. Notably, GTB was a tier 1 bank in 2010 with a market share of 6.7 percent, based on total assets, while Diamond’s market share stood at 7.0 percent as at 2014.

Diamond recorded the highest market share gain of 0.8 percent in the banking sector in 2014 while UBA witnessed the worst market share loss (-0.8%). Among the tier 1 banks, only Zenith (+0.7%) and Access (+0.1%) gained market share in 2014 as UBA (-0.8%), GTB (-0.5%) and FBNH (-0.1%) lost market share. However, the Nigerian banking sector report released by Chapel Hill Denham Securities Limited highlight that between 2010 and 2014, FBNH, Zenith, UBA, and GTB maintained their positions as the top 4 banks, in that order. Their combined market share of total assets rose to 48.1 percent in 2014 from 40.3 percent in 2010, underpinned by Zenith, which saw the highest market share gain of 2.7 percent over the period. In the long term, the Nigerian banking sector is expected to be dominated by 6 banks that will likely control up to 75.0 percent of total assets.  FBNH, Zenith, UBA, and GTB are likely to remain the sector leaders given the current and projected sizes of their balance sheet and capital levels. These banks are also well positioned to improve their operational efficiency and lead sector profitability. However, we think FBNH will have to improve its current capital level for improved competitiveness and profitability.

Access and Diamond have the strongest prospect of complementing the aforementioned 4 banks to make the 6 banks we believe will control c.75.0 percent of the market in the long term. Notably, FBNH, Zenith, UBA, GTB, Access and Diamond had a combined market share of 62.8 percent as at FY-14.

“We, however, think both Access and Diamond may have to grow inorganically to make the top 6 as we see further consolidation among the tier 2 and tier 3 banks in the long term. We note that both banks recently raised capital to strengthen their competitiveness and address capital adequacy requirement”, the analysts said.

Skye is the next likely candidate after Diamond, having benefitted from the acquisition of Mainstreet Bank, based on the consolidated balance sheet of both banks as at FY-14. Skye’s FY-14 profitability would have been enhanced if the IFRS reporting standard had permitted the consolidation of the profit and loss alongside the balance sheet of both banks on the acquisition date, 31 December 2014. Notably, Mainstreet Bank would have contributed N31.80bn to Skye’s interest income and N6.40bn to profit after tax.

HOPE MOSES-ASHIKE