Eight years since the banking consolidation in the country that streamlined the number of banks from78 to currently 23 and a stable macroeconomic environment, Nigeria’s significance in the African investment space has increased, a development that has created an appetite of international investors for the nation’s debt and equity instruments particularly for its sovereign papers.
Worthy of this development is increased investments in States such as Lagos, Ogun, Kogi, Edo, Anambra, etc. to mention a few.
In an interview with BusinessDay, Funmi Agusto, managing director, IBFC Alliance, disclosed that investment initiatives by companies in various states would ensure job opportunities for a teeming youthful population just as recent rebased Gross Domestic Product (GDP) reveal enormous potentials of sectors like telecommunications, entertainment contribution to GDP as Nigeria looks to diversify its economy away from the monolithic product-crude oil.
“Qatar National Bank invested $225 million in Ecobank Transnational Incorporated, further upping its stake by 11 percent, Aliko Dangote is building up manufacturing with $9 billion refinery, Unilever renewed its investment drive with a $150 million plant in Nigeria, and Nestle opened its new $80 million factory recently which is significant economic activities in the country,” Agusto noted.
Agusto continued: “SAB Miller opened a brewery at Onitsha Anambra state worth $100 million investment. This year, SAB Miller also invested $110 million to triple its Onitsha brewery facility. Also, Dangote cement invested $1 billion in its plant at Ibese, Ogun State and $2.5 billion plant at Obajana, Kogi State, making it the largest cement plant in sub-Saharan Africa. These investments and many more investment drives in the country have further opened up the numerous
potentials that abound in the country,” Agusto explained.
With the banking industry remaining a key driver of these investments, Agusto disclosed that better regulation and cost of equity consideration will lead to better risk management practices and moderate cost of risk.
While the underserved customer segments, emerging economic sectors such as telecommunications, entertainment, etc. fees and commissions remain major drivers of the industry’s revenue, Agusto maintained that balance sheet growth prospects looks promising as banks need equity capital to maximise growth opportunities. He noted that that improved return on equity (ROE) levels will ease ability to raise equity
capital.
On the major upside risks, Agusto noted that “Better use of technology will improve banking penetration at lower costs, better FDI inflows, reduced regulatory headwinds on profits and when power sector begins to yield results, it will lead to lower operating costs.”
The chief executive explained that key metrics for tracking institutional performance includes ROE that is sufficiently competitive to attract equity capital, customer service that ensures low customer attrition and sustained customer growth.
Other parameters, Agusto identified that measures institutional performance include balance sheet size per branch, total income per branch, business volumes executed via alternative channels, market share information, market share of resources versus of result and return on assets (ROA), ROE versus competitors.
Following industry projections that the total assets in the banking industry would grow between 15 to 17 percent from 2014 to 2018 (from N27.46 trillion to N44. 77 trillion), according to an IBFC Alliance report titled ‘The Nigerian Banking Industry; A strategic outlook’, improved acceptance of information communications technology (ICT) infrastructure will lower costs of incremental banking penetration.
“Economic growth will drive customer growth. Important revenue drivers will see corporate seeking to expand capacity to meet the demands of economic growth, consumers and small and medium enterprise (SME) businesses. Lower inflation regime is supportive of economic and loan growth. Assets Management of Nigeria (AMCON) charge may lead to a major drag on profitability which is negative for covering cost of capital,” the report stated.
As the Nigerian banking industry increases its penetration, the questions from stakeholders remains will it be able to deliver better ROA compared to similar frontier markers that are further up the penetration curve and what role can technology play in this.
For Agusto “As banking penetration inevitably moves up from the current level of 30 percent, what level of incremental operation expense per unit of balance sheet increase will be required and what will be the trend of ROE. What performance metrics are more useful to a long-term investor in a Nigerian bank and what economic indices should be tracked?”
Alexander Chiejina
