Nigerian tier-two lenders may need an aggressive pursuit for market niche to remain competitive in the nation’s banking industry as large lenders continue to take bigger market share by assets, analysts have projected.
With the proposed merger and acquisition deal between Access Bank and Diamond Bank aimed at creating Nigeria and Africa’s largest retail bank by customers, Nigeria’s banking industry will be amplified and five largest banks will have more than 60 percent market share by assets, according to Fitch Ratings, a global credit rating agency.
This leaves the remaining 40 percent market share largely dominated by tier-two lenders, putting pressure on the financial institutions to seek for untapped opportunities in the industry to leverage and create a robust corporate strategy.
“In having that strategy, a good technology platform is very important,” said Ibrahim Tajudeen, Head of Research, Chapel Hill Denham.
The consolidation of Access and Diamond Bank is viewed to widen the margin between large banks and those in the tier-two category. Analysts say only strategic objectives of individual mid-tier lenders would determine their market presence and competiveness in the long run.
Large banks typically have higher ratings than small ones as they tend to have stronger financial profiles and more resilient business models, according to Fitch Ratings.
“The industry is becoming more competitive and everyone has to understand what they are doing and find a better way,” said Ayodele Akinwunmi, Head of Research, FSDH Merchant Bank. “The big ones are encroaching into the smaller ones.”
Some of the mid-tier lenders leverage their social media prowess to reach out to young and upwardly mobile population, while some others see opportunities in technology-driven Small and Medium Scale Enterprises (SMEs), entertainment, fashion, agriculture and even in certain geographical locations.
In fact, some lenders leverage Islamic banking, also known as no-interest banking, to have a portion of the market to them.
However, as the need to remain competitive heightens, some banks are already shifting from the current market segment that they focus on in tune with the present market demands over increasing potentials in these industries.
“Technology is also changing the game and a lot of companies are beginning to react positively to this,” Ayodele said.
“So everybody is realigning their strategies and operations to ensure that they change with the time and take advantage of opportunities in the market segment that they have.”
The tier-two imitated exposure to the retail segment of the market makes a technology platform a good option “because what they will generate in terms of net interest margin will be materially tiny relative to tier-one banks,” Tajudeen explained.
The Access Bank and Diamond Bank merger, likely to be completed in June, is expected to have 29 million customers and 15 percent of the Nigerian banking industry assets.
Oluwasegun Olakoyenikan & Bunmi Bailey
