Bamidele Ajayi, a businessman living in Lagos, has bank accounts with three different home grown Nigerian banks. He moved to his recent banks from other Nigerian banks, but has never considered banking with a foreign brand such as Standard Chartered.
“I don’t know why, I just prefer Nigerian banks,” said Ajayi, 44, in an interview with BusinessDay outside of a Diamond Bank branch in Festac Town, a Lagos suburb.
“I believe that if I have any problem with my money, they will resolve it for me, since I have banked with them for a long time.”
As the Federal Government struggles with its buy Nigerian campaign, one area it can rest easy is in theupfinancial services sector, where Nigerians mostly patronise the domestic bank brands who dominate the market.
This comes as a lot of foreign banks have expressed interest of recent in the Nigerian financial services space, with various players keen on entering the market.
The new entrants to the market would, however, have a difficult time dislodging entrenched players analysts say, although increased competition may affect some of the established banks’ bottom lines.
“We believe that leading banks have stable business position in Nigeria and new entrants would have limited impact on top tier Nigerian banks,” said Samira Mensah, associate director, Financial Institutions ratings at Standard & Poor’s, in an email response to questions.
“The nationalised banks are fairly small and we consider that they would not provide game changing attributes to existing players, but could be good entry points for foreign banks,” said Mensah.
The six tier-one banks (First Bank, ETI, Zenith Bank, UBA, Access Bank and GTBank) account for 68 percent of the industry total assets of N21.3 trillion ($136 billion) as at December 2012.
The Asset Management Corporation of Nigeria (AMCON) has 3 bridged banks for sale which may attract foreign buyers, while Robert Diamonds Atlas Mara Co-Nvest Ltd has announced his intention to acquire a number of African financials probably starting off in Nigeria.
A number of South African banks have also expressed their intention to enter the Nigerian retail banking market.
Standard Bank, South Africa’s largest bank, already has a presence in the country through its local unit called Stanbic IBTC, while First Rand pulled out of negotiations to acquire Sterling Bank in 2012 after a deal could not be reached although it was granted a Nigerian merchant banking licence in 2012.
Rand Merchant Bank, the local unit of First Rand, would build scale and critical mass in its merchant banking platform “before it ventures into retail in a couple of years,” it’s CEO, Michael Larbie, told BusinessDay last week, in an interview.
The prize for foreign players eyeing the Nigerian financial services space lies in the demographics, growing incomes and low financial inclusion.
The nation of 170 million people – the largest population in Africa – has seen its economy expand more than six-folds since 2000 to $261 billion at year end 2012, making it the second largest in Africa.
GDP growth averaged 8.3 percent per annum in that time period, while GDP per head rose to $1,587 in 2012 from $378 twelve years earlier.
However, 46.3 percent or 39.2 million adult Nigerians do not have access to financial services, according to the central bank.
Nigerians that do own bank accounts often prefer the local or indigenous banks that they have grown used to, which usually have more branch networks across the country than foreign banks.Regulatory changes that could slow earnings growth in 2014, higher capital requirements, and increasing pressure on costs and margins also mean banks are bracing themselves for a tougher, more competitive market.
This will limit newer banks’ ability to compete with existing players for some of the unbanked said Meristem research analyst, Olukayode Omosebi, who expects established banks to aggressively defend their market share.
“The impact of the new entrant into the sector will mean heightened competition for deposits. The banks with large balance sheet can easily expand their local franchise to generate cheap deposit and create more risk assets. So for the new entrants, it will be a bit challenging.”