NIGERIA. The great financial fightback. Facts & figures

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1 monday, 30 July NIGERIA See this report at worldfolio.co.uk This supplement was produced by GLOBUS VISION The great financial fightback Reforms to the country s banking system have already increased accountability and transparency, and promise to fuel further growth in one of Africa s largest economies Nigeria has been under no illusions about the need to get its economy and financial system back on track, following the domestic crises of , and the more recent worldwide downturn. Much progress has already been made since President Goodluck Jonathan embarked on a series of reforms aimed at the modernisation of the banking sector, the diversification of the economy and the redistribution of the country s oil revenues. If implemented successfully, these changes could help the country join the ranks of the world s largest economies. Enthused by President Jonathan s commitment to reform, last year Ngozi Okonjo-Iweala left her position as Managing Director of the World Bank to become Nigeria s Coordinating Minister for the Economy and Minister of Finance. Bringing valuable experience from one of the world s most important development institutions, she recently said that in transforming Nigeria, We have to show policy consistency in all kinds of ways. It builds trust in the economy, it builds a resilience, and that helps enormously. She then added: Nigeria has to make some fundamental changes, it has to really diversify its economy. The time is now because investors are interested in the country. While GDP growth has been buoyant for the last decade averaging 5.4% between 2000 and 2010 and rising to more than 7% in 2011 higher rates are needed to further reduce poverty levels. Moreover, two financial crises in the past decade as well as corruption, poor transport infrastructure and unreliable supply of electricity had tarnished Nigeria s reputation abroad. Despite this, Nigeria remains Africa s third-most popular destination for foreign direct investment, as its arsenal of natural resources, including abundant oil reserves, invariably serves as a magnet for investors. A FRESH START Despite the recessions and stock market crash, Nigeria s financial sector has been one of the largest benefactors to the economy. As such, the state has aimed to strengthen it, and more importantly, make it more transparent. Since the first crisis of 2004, the sector s landscape has undergone massive changes: from 89 banks in 2004, the number plummeted to just 24 by 2005, after the Central Bank (CBN) raised the minimum capital requirements twelvefold. This led to the banks zealously raising capital on the Nigerian Stock Exchange (NSE), which in turn led to oversubscribed sales and a spiralling trend in margin lending. This situation came to a head in 2008, when the index plunged nearly 46%, driving Nigeria into its second crisis, which was then compounded by the global financial downturn. The Central Bank responded by appointing a new Governor the noted economist and Islamic scholar Lamido Sanusi who immediately cracked down on fraud, share price manipulation and other crimes against corporate governance. He also put a cap at 10% on margin Finance Minister Ngozi Okonjo-Iweala Governor of the Central Bank of Nigeria, Lamido Sanusi lending, created a new regime for bank licenses and established an asset management corporation, AMCON, to buy non-performing loans from banks. Of the lessons we learned during the recession, a core issue was corporate governance and the failure of risk management practices, says Godwin Emefiele, Managing Director of Zenith Bank, one of the largest banks on the NSE. STRONGER THAN EVER The two-year long reform programme came to a close on September 30, 2011, which was the deadline for all previously rescued banks to recapitalise (often in the form of mergers) or face nationalisation. The result is a reconsolidated, transparent and stronger-than-ever banking sector that will ultimately benefit Nigeria s overall socio-economic health. As Nigerian Ambassador to Germany Abdu Usman Abubakar says, If you look at the financial sector reform, it requires us to translate the numbers into sustainable wealth and job creation. We are not just talking about figures. We are talking about how it all translates into the real economy, and how it improves people s lives by offering them more opportunities for revenue and employment. Jibril Aku, Managing Director of Ecobank Nigeria (the second-largest bank by branch network, since its acquisition of Oceanic Bank last year) praises the CBN and the creation of AMCOM, highlighting that the latter immediately helps resolve the portfolio challenges of the banks so they can resume their business and lend to the sector. He adds that the banking system itself is footing the bill of the rescue efforts rather than the state and that this is one of the first industry resolutions; we crafted our own resolutions. This helped restore confidence and even in the challenged banks, there was no erosion of customer base. The Jonathan administration reforms go beyond banking and into countrywide project financing through the newly created Sovereign Wealth Fund. Initially created with $1 billion from the country s Excess Crude Account, the fund is a three-pronged state-owned investment tool that will be stocked with the oil revenues accrued at prices higher than a pre-established benchmark oil price. The largest portion of the fund will be put towards the development of much-needed infrastructure, while the other two parts are savings for future generations, and an economic stabilisation fund to defend the economy against commodity price shocks and economic recessions. Yet another infusion of money to fix ailing infrastructure will come from subsidies that heretofore went towards fuel. The removal of petroleum subsidies frees up billions of nairas that can now be spent on rail and road projects, hydro stations, water, IT and refineries. Nevertheless, Finance Minister Okonjo-Iweala, a strong proponent of tight fiscal policy, is pushing for prudent use of these and other monies to avoid the corruption and economic imbalances that have marred previous infrastructure projects. Facts & figures l Population million (July 2012 estimate) l Area 923,768 square kilometres (32nd biggest in world) l Nominal GDP $244.2 billion (2011 estimate) l Real GDP at factor cost growth 7.4% (2011 estimate) l GDP per capita (PPP) $2,600 (2011 estimate) l GDP composition by sector Agriculture: 35.4% Industry: 33.6% Services: 31% (2011 estimate) l Trade balance $38.27 billion (2011 estimate) l Current account balance $15.61 billion (2011 estimate) l Total international reserves billion (2011 actual) l Gini index (distribution of family income) 48.8 (2010) l Public debt 17.6% of GDP (2011 estimate) l Central Bank discount rate 4.25% (2010 estimate) l Commercial bank prime lending rate 16% (2011 estimate) l Market value of publicly traded shares $50.88 billion (year end 2010) Sources: CIA World Fact Book and Economist Intelligence Unit

2 2 NIGERIA monday, 30 July 2012 Women set to become the heart and soul of Nigeria The banking system has plans to eradicate gender inequality and female poverty More than 90% of Nigeria s poor are women. In a far-seeing, governmentled initiative, development institutions are being encouraged to examine cooperative lending with commercial banks by which they guarantee each other. This policy is already strengthening weaker segments of society. And, at its last meeting, The Bankers Committee established a forum on Women s Economic Empowerment with the objective of developing a framework that would enhance women s leadership opportunities, and promote a genderinclusive workplace and society. Explains Mr Lamido Sanusi, Governor of the Central Bank of Nigeria (CBN): More banks will now pursue policies that are equal on a gender basis. Economic equality is one thing, but in an underdeveloped economy, we have gender and economic inequality. We have to address how the financial and banking system views this. The CBN whose successful policies with regard to eliminating bank toxicity without burdening taxpayers are being examined, forensically, by a very envious Europe is also in the process of establishing a fund that will allow businesses owned and controlled by women to borrow at single-digit interest rates. One of Nigeria s most inspirational women, Ms Evelyn Oputu, is playing a key role in pursuing gender equality through her pivotal roles as MD and CEO of the the Bank of Industry (BOI), Nigeria s oldest Development Finance Bank. At inception in 1964, the bank s share capital was a mere $6 million. Current share capital is N250 billion ($1.5 billion). The cumulative Soon, women will play a greater role in determining the country s future value of fresh loans and investments rose by 53,4% from N0.31 billion to N billion between 2001 and More tellingly, cumulative jobs created have exceeded 1,250,000. She proudly stated that the bank had, in the last 10 years of its operations, approved 1,435 loans amounting to investment totaling N billion: This, she says, has had considerable developmental impact on the Nigerian economy. A further inspiration to Nigerian women, Faith Tuedor-Matthews, is at the helm of another of the country s well-known financial institutions Mainstreet Bank which operates 217 branches nationwide and has shareholders funds in excess of N55 billion. It is important not to just target women, but to support and empower their development as well. Nigerian women are hard-working, industrious and committed, and I believe they need more support I would like to see more women in leadership positions in the banking industry, but not just at the top. Presently there are four female CEOs, but I would like to see more at the Board and senior levels. Ms Tuedor-Matthews concurs that the Government itself has set the tone for this. If you look at the number of women in key positions, it has risen significantly in this administration. These are women who were accomplished in their previous callings, before they were appointed to serve in government. Our President has set the tone in this regard. The private sector should follow suit. Half of the talent in any country are the women, so how then can the country move forward if half of this talent is not carried along? FDI and micro-finance to transform Nigeria Greater access to finance is set to help SMEs get off the ground Evelyn Oputu, Managing Director of Bank of Industry Nigeria is an industrial diamond in the rough. It has a wealth of natural resources and no dearth of willpower, yet what it lacks to date is the infrastructure and means to transform the industrial sector The Central Bank along with microfinance and development institutions such as the Bank of Industry (BOI), are increasing the number of relevant financial instruments and facilitating their access to a wider public in an effort to further industrialise Nigeria. Evelyn Oputu, Managing Director of BOI, says, Nigeria has all it takes to become an industrial hub. In terms of our natural resource base whether it is land, water, population or level of education everything that is necessary to revolutionise the country exists here. The next thing we need to do is get policymakers in position to actually translate all of these resources into the final products that we need. Thankfully, we have the right people in place, and I believe we have already passed the threshold because the policy changes have already started. We can see it happening at the moment. She goes on to say that what is still missing is greater technology and knowledge, which have the power to move Nigeria ahead by leaps and bounds. We are looking to tap into it, to be able to fast-track and bypass the traditional processes of development. The knowledge industry changes the whole process, she says. ICT is already in use in certain areas, such as in agriculture. Thanks to mobile technology, farmers can access input products by phone, for example, yet this is only the tip of the potential iceberg. I cannot even begin to imagine how Nigeria would be transformed with the kind of knowledge industry the Germans have, claims Mrs Oputu. One of the most important things institutions like BOI are doing is creating an enabling environment and making funding available for small and medium enterprises (SMEs) heretofore a largely unbanked segment through commercial banks so that they and the SMEs can form a working relationship without the unnecessarily exposed risk assets. That way [the banks] could learn about the business volumes that could come from SMEs, explains Mrs Oputu. Now the commercial banks have a better understanding. They also know that for the entire market structure to fit together, we also have to support the SMEs. Soon, the efforts of development financing institutions will be complemented by the government s micro-finance development fund, which will be established this year. According to CBN Governor Sanusi, the fund is designed to provide funding and refinancing opportunities. Many of [the people in rural areas] have the funding, but they do not have the ability to lend or access financial institutions. This fund will greatly help the agricultural sector to take off and become a more value added industry. The time for exporting the raw commodity is over, says Mrs Oputu. She highlights both agriculture and infrastructure as huge opportunities for investors. We keep looking for foreign investors who will put big companies in the centre of the entire process, with SMEs feeding them raw materials and small cooperatives feeding the SMEs. This is the model we want, she explains. We are looking for these foreign investors who will add value in terms of quality assurance and transfer of technology. The latter is of utmost importance, she stresses, adding: We really do not need nor do we want handouts. We want to be given the tools and the technology and learn how to do it for ourselves. Having skilled workers is also a priority for the CBN, who has set up three entrepreneurship centres, which in turn are linked to microfinance institutions. Applicants who successfully pass a highly selective process, are trained in entrepreneurship skills and given access to financing. We set all of this up in advance, so he has the skills, the finance and a network, explains Mr Sanusi. GLOBUS VISION Albert Buildings, 49 Queen Victoria Street London EC4N 4SA, Tel: 44 (0) globus@globusvision.com, ProjeCt team: Juan Carlos Jover, Irama Vega Fabricio Domínguez, Niall O Maonaigh

3 monday, 30 July 2012 NIGERIA 3 Removing obstacles to help banks move on AMCON has played a key role in stabilising the financial sector. Now it is helping to revive the industry and getting the banks to start lending again Nigeria s banking crisis is over and a substantial recovery in the sector s earnings can be anticipated. That is according to Mustafa Chike-Obi, Managing Director and Chief Executive Officer of the Asset Management Corporation of Nigeria (AMCON). In a recent speech in Lagos, he declared: Nigerian banks are now the healthiest banks in the world in terms of asset quality and capital. Mr Chike-Obi added: We should wait until after the second quarter of this year before passing judgment I will not tell you that nothing surprising can come up but the banking crisis of is over. Established in 2010, AMCON has been a key player in the stabilizing and revitalizing of Nigeria s financial system. Tasked with cleaning up the banks balance sheets following a multibillion-dollar rescue of eight failing institutions, it has absorbed their non-performing loans, exchanging them for government-backed bonds. AMCON is the largest domestic issuer of bonds, with assets of about N5 trillion ($30.6 billion), making it the largest institutional holder of Nigerian bank stocks. By buying up the bad loans that were crippling the banks, the corporation has enabled them to continue doing business and making new loans to facilitate the running of the economy. Kingsley Moghalu, Deputy Governor, Financial System Stability, at the Central Bank of Nigeria (CBN), said recently that by relying on AMCON and contributions made by the banks themselves through a banking stabilization fund, Nigeria is the only country where the resolution of the banking crisis has been carried out without using taxpayers money. AMCON plans to refinance its N1.7 trillion three-year bond with maturities of between seven and 10 years when the debt expires next year. The bonds to be refinanced include those issued for the purchase of non-performing loans, as well as those issued for cash. Analysts say the move will boost banks liquidity and test the depth of the domestic bond market. The CBN is targeting a non-performing loans ratio of 5 per cent across the industry, after AMCON bought up the banks existing bad loans, compared to previous levels of 50 per cent. AMCON took on approximately 9,000 non-performing loans and is actively engaged in recovering them through debt restructuring and chasing those unwilling to pay. It aims to resolve all outstanding debts within two years. The corporation is also responsible for the sale of Nigeria s three new nationalised banks, which were established when Afribank, Bank PHB and Spring Bank were bought by AMCON. The failing banks, which had been losing between N2 billion-n3 billion per month, had their assets and some liabilities transferred to newly incorporated bridge banks temporary banks organised by the regulators (CBN & NDIC) to administer the deposits and liabilities of failed banks namely, Mainstreet Bank, Keystone Bank and Enterprise Bank respectively. The three bridge banks acquired their nationalised status after AMCON s purchase last year. AMCON injected N679 billion into the bridge banks to meet the central bank s minimum capital base requirement of N25 billion and the minimum capital adequacy ratio of 15 per cent. All three banks are now profitable institutions. AMCON s boss has pledged that the sale process will be highly transparent, so that Nigerians consider it has been handled fairly. Mr Chike-Obi says it is essential for AMCON to secure the most advantageous deals. We are not a charity organisation; we want the best returns on investment. As a first step to finding buyers, AMCON has been selecting financial advisers to assess the banks worth. We want experts to look at these banks, value them and tell us what they think we should do with them in order to create maximum value for AM- CON, says Mr Chike-Obi. At the same time, the best interests of the financial sector have to be considered. We must make sure that whoever takes over these banks, ultimately, is fit and proper to run a bank. We must know where their money is coming from and we must know that the management is going to be sound. So, those are the three things that we want to consider. So, until we get there, we are not in the position to seriously look at any investor interest. Mr Chike-Obi says all options are open: Nothing is off the table. One option would be to list shares of the three banks on the Nigerian Stock Exchange, giving the Nigerian public the opportunity to invest in them. There have already been more than 20 expressions of interest in the banks, although Mr Chike-Obi says it is too early to consider them. We will get a better feel of who is interested when the process starts. He believes there are plenty of opportunities in Nigeria s banking sector for those with the know-how, the capital and the fortitude to invest. The best measure that people use for latent banking potential in a country is the ratio of bank assets to GDP. In Nigeria the extension of credit to the economy is below 50 per cent; whereas in Nigerian banks are now the healthiest banks in the world in terms of asset quality and capital Mustafa Chike-Obi Managing Director and CEO of the Asset Management Corporation of Nigeria, AMCON Egypt it is 100 per cent; in South Africa it is about 135 per cent and in India it is approximately 90 per cent, he says. We believe that Nigeria s credit extension to GDP should be around 120 per cent in the next decade. If you follow that logic, even if GDP only grows by 7 per cent yearly in Nigeria, banking assets should grow by 25 per cent per year in order for us to get there. Therefore we believe there are growth opportunities for banking in Nigeria. There is very little retail banking or consumer banking in the country; most banking is corporate. When you add consumer banking, retail banking and mortgage banking together, you find that credit in the banks will grow and bank assets will grow 25 to 30 per cent yearly for the next decade, says Mr Chike-Obi. He says AMCON, the Central Bank and the fiscal authorities are working hard to ensure that the environment is healthy for banking assets to grow at such a rate. All over the world banks overstretch themselves. They get into trouble or something happens and they have to retrench. Then they are reluctant to start lending again. Banks have to challenge themselves to get out there and look for good loans so they can start lending again, he says. They should not be too traumatised by the events of the past five years. Looking ahead, he says that in five years time there will be fewer, but much larger and more profitable banks. AMCON itself is expected to reach its maximum size this year and to decline as it achieves what it is designed to do and becomes a smaller part of the Nigerian economy. Its target is to bring the percentage of non-performing loans down to 5 per cent. My view is that the sooner AMCON reduces in size, the better it will be for the country, the financial system and the economy in general, says Mr Chike-Obi. I would like AMCON to consist of 25 employees just managing individual assets and the bond repayments. On the trail of bad debts AMCON is making good progress in reducing the level of non-performing loans Debtors who have failed to meet their obligations to the banks are now finding themselves being pursued by Asset Management Corporation of Nigeria, AMCON. Lamido Sanusi, Governor of the Central Bank of Nigeria (CBN) has praised AMCON for what it has achieved so far in its campaign to reduce non-performing loans. Since 2011, the non-performing loans situation has improved significantly, he says. The target is for it to be at an average of 5 per cent and that is where we are close to. Liquidity and capital adequacy ratio has also increased across the sector. The achievements recorded by AMCON are so far laudable. The corporation has recovered N600 billion ($3.67 billion) from the bad debts it bought from the banks last year. By the end of this year it hopes to recover N1 trillion. We are very satisfied with the progress so far, but we have set a very ambitious target for this year in terms of debt recovery, says Mustafa Chike-Obi, AMCON s Managing Director and CEO. We hope to meet the targets we have laid out. AMCON takes a sympathetic approach to debtors it considers honest but who have found themselves in difficulties through circumstances beyond their control. They have their obligations restructured. However, businesses that no longer make sense are liquidated and merged with viable businesses, while those who simply refuse to pay are pursued aggressively. Luckily most of our borrowers are constructive; they continue to approach us in order to restructure or repay, says Mr Chike- Obi. Many such restructured loans are now performing. He admits he expects recovering loans to get more difficult as the corporation seeks to tackle hardcore non-payers. The Asset Management Corporation of Nigeria, AMCON, has already recovered N600 billion ($3.67 billion) from the bad debts it bought from banks last year and it is aiming to raise this to N1 trillion by the end of 2012 Most of our borrowers are constructive; they continue to approach us in order to restructure or repay. Many such restructured loans are now performing. We are recovering at a rate of over 100 per cent of our purchase price. The easier loans get restructured first. We are recovering at a rate of over 100 per cent of our purchase price, but as time goes by we will have to deal with the more difficult loans, the ones people choose to go to court for. AMCON has extensive recovery powers and we hope they will be sufficient for the difficult recovery issues we have to deal with. Lawyers and recovery agents are being employed to pursue its debtors across the country. As an example, AMCON recently obtained a court order to take over the Delta Steel Company, in Delta State, from India-based Global Infrastructural Holdings, for failing to settle a N30 billion syndicated loan that it obtained from five banks. The corporation also has extensive legal backing to go after assets abroad and will declare some borrowers insolvent in the event that they are unable to pay off the loans.

4 4 NIGERIA monday, 30 July 2012 Reforms make banking industry stronger After changes to its financial systems, Nigeria has the potential to become a major financial services hub for all of Sub-Saharan Africa First by sheer size of the market, I think Nigeria stands out as a country that should be a hub. Besides, the financial system in Nigeria has grown so much as a result of the recapitalisation of banks that started in Godwin Emefiele, Group Managing Director of Zenith Bank As a result of initiatives led by the Central Bank of Nigeria, the country s banks are more fully engaged with the domestic economy. The Nigerian banking industry has been significantly improved by better governance of financial corporations and improved regulatory oversight, and while Nigeria has fewer banks than it did five years ago, those remaining banks are larger and more consolidated. Lessons have been learned: as Jibril Aku, Managing Director of Ecobank Nigeria puts it: I think we have learned our lesson, one of the lessons being to pay more attention to governance standards. When a sector is booming, there is a tendency to expose yourself to greater risks, so when there is a contraction, you develop a portfolio challenge. The reforms introduced by the Central Bank are aimed at sustaining the country s economy over a long term period and acting as an engine for growth and development throughout the nation. Managing Director for Skye Bank, Kehinde Durosinmi Etti sees no reason why the recent changes should not lead to many countries throughout the continent of Africa viewing Nigeria as a banking capital, stating: Nigeria has the potential to become the major financial services hub in Sub- Saharan Africa. There are natural factors that support our ability to develop into a vibrant financial sector hub. We have the largest market in the sub-region and the deepest outside of South Africa. In addition, we have a range of products and services tailored to meet the dynamic needs of the populace as well as the necessary infrastructure that will support and drive this position. Ratings are improving too. Zenith Bank is one of three financial organisations in Nigeria that Standard & Poor s recently rated as positive, revising its previous rating outlook from stable. Zenith Bank is one of the largest and most capitalised companies on the Nigerian Stock Exchange. Its shareholder base of over 700,000 is an indication of the strength and wide acceptance that the Zenith brand enjoys. Group Managing Director of Zenith Bank, Godwin Emefiele, when recently asked why Nigeria could become a major financial services hub for Sub-Saharan Africa, said: First by sheer size of the market, I think Nigeria stands out as a country that should be a hub. Besides, the financial system in Nigeria has grown so much as a result of the recapitalisation of banks that started in 2004, when Nigerian banks were expected to keep a minimum of 25 billion Naira as core capital. Today we see Nigerian banks, like Zenith Bank, with a core capital of almost 390 billion Naira, which is almost $2.8 billion dollars. Established in 1894 when incorporated in Liverpool as the Bank for British West Africa, First Bank pre-dates all other banks in Nigeria by several decades. First Bank still stands as the country s flagship financial services company as well as its main lender. Over the past century it and other banks have seen positive and negative events in Nigeria, from huge economic growth and improved banking regulations, to occasional political instability and the recent international downturn, yet has always emerged stronger than before. Similarly, Guaranty Trust Bank has benefited from a strong Nigerian economy and the decisions which have enabled many organisations to survive the recession intact. Managing Director Olusegun Agbaje claims that The strongest Nigerian banks have come out from the crisis unscathed. It was because we had one thing that a lot of banks outside did not have and that was that we had just raised capital in Also profitability was well equipped whereby we would not even eat into the capital. Following the recent financial crisis a number of bailouts and mergers took place throughout the Nigerian economy, resulting in fewer, but stronger banks. First Bank, Zenith Bank and Guaranty Trust were all positively reviewed by Standard & Poor s, and the ratings agency claimed the new outlook reflected each bank s standalone credit profiles and outlook on the sovereign. Managing Director for Skye Bank, Kehinde Durosinmi Etti is confident that the efforts of the Central Bank will lead to Nigeria becoming a financial centre, saying: Following the initiative of the CBN, banks are encouraged, to lend to three critical sectors of the economy: agriculture, infrastructure and power. We will support the growth of Ggse strategic sectors. Our contribution as a bank is to support the government in repositioning these sectors for optimal effectiveness. With the level of capital in the bank, we are adequately positioned to support these initiatives. From strength to strength Nigerian banks are growing stronger and looking to expand further Since the consolidation of Nigeria s banking system some of Africa s largest and most dynamic banks are now based in the country, with a few banks expanding across the region and beyond. While in the past many African financial institutions were vague about their assets and debts, new transparency laws laid out by the Central Bank of Nigeria ensure that details of the country s economic system as a whole are disclosed and free for all to see. Nigeria remains one of the best banking systems in sub-saharan Africa in terms of transparency and corporate governance. Many things that are being spoken about today never used to be out in the open. Banks and companies are now disclosing and opening up their books for people to see what is happening in these institutions. I think that if you compare Nigeria to some other countries in Sub-Saharan Africa, we have come out very strong, says Godwin Emefiele, Group Managing Director of Zenith Bank. Over the past few years Zenith Bank has become one of the country s top financial institutions through a mixture of dynamism, innovation, firm leadership and clear business insight. With its strong brand recognition and strategically distributed branch network, Zenith Bank has maintained a healthy share of the Nigerian market after the recent financial difficulties experienced worldwide. As you know the world economic recession began in late 2007 through 2008 and No doubt this had a trickledown effect on the Nigerian economy. Of the lessons we learned during the recession, a core issue was corporate governance and the failure of risk management practices. We learnt from this experience and as a result a stress test was introduced around mid-2009 by the Governor of the Central Bank, Lamido Sanusi. Most of our 24 banks passed this stress test; Zenith was actually one of the ones that came out very strong, thanks to our strong liquidity and capital adequacy ratio as well as a low non-performing loans ratio, says Mr Emefiele, discussing the effect of the financial crisis on Zenith Bank. The main lesson is that we saw a failure of corporate governance and risk management practices and, I am sure that Zenith, just like every other bank, has learnt from this experience and put structures in place to ensure that this does not happen again. The strength and growth of Nigeria s financial system is a result of the recapitalisation of the country. Today, banks such as Zenith have capital of almost $3 billion one of the The newfound strength and growth of Nigeria s financial system can be attributed to the recent recapitalisation process largest in West Africa and the fifth or sixth largest in the whole continent. Despite a sharp decline in market values all over the world last year, Nigeria experienced just a 16.3 per cent decrease compared to China s 22.8 per cent, India s 22.6 per cent and Egypt s 48.9 per cent. Analysts and market operators are already predicting a growth for 2012 of as much as 14 per cent. This growth will help the likes of Guaranty Trust Bank to continue its work as one of the leading lenders in Nigeria. We have to continue to work hard. We need to change, re-tool and adapt to continue excelling in our performance, says Olusegun Agbaje, Managing Director of Guaranty Trust Bank. Mr Agbaje also predicts further expansion for Nigerian banks in the future. You must look outside Nigeria as well because, while Nigeria is important and we must continue to fight and maintain market share in the country, we must not allow ourselves to forget that there are countries outside and they will also present opportunities. So, we will look at those but in whatever dreams and vision we have, we will stay Africa-focused. The improvement and growth of all major financial institutions in Nigeria is something that each bank sees as a priority. A lot has been done in the financial sector and I can say that the Central Bank of Nigeria has put a great deal of effort over the We believe that the banking sector has the opportunity to grow at about 20%-30% annually. Kehinde Durosinmi-Etti, Group Managing Director of Skye Bank past two years to deal with the problems and challenges of the industry. With these reforms, the banking industry is back on track and moving forward in a very positive direction, says Kehinde Durosinmi-Etti, Group Managing Director of Skye Bank, who envisions huge growth for Nigeria s banks over the coming years. The reforms in the financial sector are geared towards providing financing and enabling opportunities in key sectors of the economy. We believe that the banking sector has the opportunity to grow at about 20%-30% annually.

5 monday, 30 July 2012 NIGERIA 5

6 6 NIGERIA monday, 30 July 2012 Hi-tech playing its part Across Nigeria major banks are improving existing facilities and embracing new technologies in order to maintain a modern, online banking system for the digital age Leaner and stronger banks The mergers and acquisitions of have created a smaller roster of larger and stronger lenders The use of online banking websites, ATMs and digital transfers is set to increase dramatically across Nigeria over the coming decade as the Central Bank introduces cashless banking initiatives to bring Nigerian financial institutions up to date with international standards. These innovations will enable the Nigerian workforce, many of which remain unbanked, to embrace a simpler, more straightforward approach to personal finances which has the potential of eradicating a substantial amount of unnecessary poverty still experienced due to lack of available financial advice or lending. At present Zenith Bank boasts the largest number of credit and account cards among its customers as well as the highest number of point of sale terminals across the country. This technology allows Zenith customers to pay digitally at retail checkouts and tills, reducing their reliance on cash, and increasing their control over personal spending. This focus on technology is something that Zenith Bank innovated and is now a standard model across Nigeria. Since the inception of Zenith Bank we have taken our people and our We want to let people do business the way it is done in other parts of the world, so you do not have to carry large amounts of cash. Godwin Emefiele, Group Managing Director of Zenith Bank technology very seriously. Because of this, we have developed a lot of innovative products. Zenith was the first bank in Nigeria to adopt technology. In terms of online real time services, Zenith Bank stands tall. Internet banking started in Nigeria through Zenith Bank back in the early 1990s, says Godwin Emefiele, Group Managing Director of Zenith Bank. We want to let people do business the way it is done in other parts of the Zenith Bank was the first to introduce internet banking in Nigeria, and continues to innovate with technology world, so you do not have to carry large amounts of cash. I think people in Nigeria should begin to do business with the aid of electronic cards and channels. People do not necessarily have to visit a bank after opening an account and getting a credit card. The aim of a cashless country was set out by the Central Bank of Nigeria and has been embraced by every major bank. Guaranty Trust Bank has also been an innovator when it comes to new products and digital solutions. The institution now boasts an E-branch, a system for drive-through banking, and the new Guaranty Trust Bank On Wheels, a fully mobile banking branch. Guaranty Trust was also the first company to issue a specifically Naira denominated MasterCard, reducing the costs of international banking for many of its customers. A large amount of young Nigerians, especially university students, are becoming accustomed to shopping online and digital payments, and Nigerian banks are keeping up with these demands by offering wireless banking through laptops and mobile phones. The last time I heard the Minister of Communications Technology speak she was talking about the importance of creating clouds in universities so people have more Wi-Fi access through their phones and thus are able to reach a much larger population. Through targeting young people and university students, one thing that is clear to me is the greater Wi-Fi access they have, the better it will be for all concerned within the banking and telecommunications sector, said Olusegun Agbaje, the Managing Director of Guaranty Trust Bank. These clouds of Wi-Fi above all the universities is great news for us because when I think of internet banking I do not think of PCs anymore, I think of Wi-Fi and so forth. I have started to think more in terms of mobile phones rather than laptops. It is not just the existing customers and the younger generations that will benefit from these new technologies, as they are also aimed at attracting the large population of Nigerians who remain without bank accounts. It is estimated that only 43% of working Nigerians currently use a bank account, which leaves a huge proportion unbanked and exclusively using cash. The cashless initiative set up by the Central Bank of Nigeria aims to help these people embrace digital transactions by making the transition as simple as possible. Each major bank in Nigeria is keen to attract the un-banked. Mobile payment and online banking are two areas that are expected to attract working Nigerians without bank accounts, especially those in rural areas with no access to bank branches. Mr Emefiele is confident that these initiatives are the way forward for the Nigerian economy, stating: Zenith Bank recently received final approval for mobile payment, which is something that the Central Bank and the financial industry hope will help bring in the un-banked. So Zenith Bank has just put all the necessary facilities in place. We believe that this will allow between 60%-70% of the underbanked population to be financially included in the system. For some banks and investors, the 2011 Nigerian financial shake-up may have posed a threat to the comfortable status quo. To others, it signalled a definite downfall. To some, however, the rearranging, the mergers and acquisitions, and nationalisation process represented a huge opportunity. Those banks whose corporate governance had been good and financial figures solid, were well positioned to take advantage of the turmoil and come out ahead. Such was the case of Ecobank Transnational Inc (ETI), a Togo-based multinational group with a growing and sound business in Nigeria, who in the last quarter of 2011 took over one of Nigeria s troubled banks Oceanic Bank International Plc. When shareholders first heard of the board s decision to acquire Oceanic Bank after it failed to pass the stress test jointly conducted by the CBN and the Nigerian Deposit Insurance Corporation last year, they saw an opportunity for growth. Fast forward to ETI s 2012 annual general meeting. Shareholders praised the investment, recognising that it went a long way in giving Ecobank the thrust it needed to break into the top five banks in Nigeria, the most populous country in Africa. For Arnold Ekpe, outgoing ETI Group CEO, this was the single most significant event in 2011 and helped fulfil his vision to place the bank in the tier one segment in Nigeria. This swan song feat transformed Ecobank into Nigeria s second largest bank by branch network with 610 branches and fifth largest in terms of assets. Though by far the largest and most important, the Oceanic Bank acquisition was not the first for Ecobank Nigeria, as previous reforms in the banking sector had required the financial institution to expand. Jibril Aku, Managing Director, explains: In Nigeria we found ourselves small, because historically the bank was a corporate and investment bank that catered to a particular class of customers. But after the 2005 banking reforms, which raised the capital level to $200 million, we had to expand into a full service bank and we started to grow. Before we acquired Oceanic, we had three other acquisitions: Allstates Trust, Hallmark and Africa International banks. That increased our market share but it was not going to take us to top three. Organically we could not do it because the other banks were also growing. With the monetisation of foreign currency, you can actually grow without taking business from anybody else. He continues: With Oceanic Bank we found a bank that was well embedded in the middle market. While Ecobank had mostly corporate accounts, it was missing that value chain of distributors, suppliers and employees, whereas Ocean Bank was missing the corporate value chain. So, it was the perfect combination. In Oceanic Bank we also found a vibrant microfinance business, being run as a department. At the time of the merger that business had N20 billion in assets N1 billion in loans and the rest were deposits. These small savers borrow We have built a One Bank concept. Our products are designed to provide convenience as you do business or travel across West Africa. Jibril Aku, Managing Director of Ecobank Nigeria money and repay every time, which encourages a savings culture. At year-end 2011, ETI s revenue from operations in Nigeria had grown by 42% to $360 million, while profit before tax had risen by a massive 338% to $38.8 million. Assets also rose, totalling $7.5 billion, a 150% increase on Ecobank s customer base rocketed from 1.3 million to 5.9 million, following the acquisition. Present in 33 countries on the continent, the pan-african group has pursued a growth strategy based on both mergers & acquisitions and greenfield projects. To date, ETI has made a dozen acquisitions, mainly during the commodity boom, when Pan-African group ETI is present in 33 countries African customers were especially keen on banking services that interconnect African markets. We follow the African trade chain and provide the banking support for it, says Mr Aku. We have built a One Bank concept. We can move workers across these countries, regardless of language or nationality barriers. Truly, we are the pan-african bank. Our products are designed to provide convenience as you do business or travel across West Africa. Our remittance product provides a rapid transfer of service, and our debit card which is used to access accounts in Nigeria is called the Regional Card, because you can receive cash in local currency in any country. We are the bank for clients who have regional ambitions beyond Nigeria and want to have an African footprint. ETI s acquisition frenzy (in 2011, it also acquired The Trust Bank in Ghana) is winding down and now the bank plans to focus on its customers and internal efficiency, a strategy that should drive the group s profits up across the regions. Ecobank isn t the only bank coming out ahead as a result of the CBN reforms. Another banking merger, completed in February 2012 between First City Monumental Bank (FCMB) and FinBank PLC, is set to drive FCMB s profits back into the black this year and has produced a customer base of 1.7 million. The overall process, however, has not been as fluid as the Ecobank- Oceanic Bank one. As Ladi Balogun, Managing Director of FCMB, stated in the bank s most recent annual report, it was a transaction that tested our resources and resolve in a longer than anticipated acquisition campaign. Although FCMB was strong enough to take on FinBank, it had recently experienced a few difficult years due to the capital market bubbles and the excesses in oil prices. Mr Balogun remains optimistic: With the bold provisions and write-offs taken, we have now put these behind us and can look forward with confidence to significantly better years ahead.

7 monday, 30 July 2012 NIGERIA 7 Providing support for SMEs to grow Banks are working together with government institutions to make financing available for small businesses The Nigerian Industrial Revolution Plan will help fast-track the country s development Small and medium-sized enterprises (SMEs) are crucial to the development of any economy. They possess great potential for employment generation, improvement of local technology, output diversification, development of indigenous entrepreneurship and forward integration with large-scale industries. World Bank research reveals that, on average, formal SMEs contribute to 50 per cent of GDP in high-income countries. Also, in OECD countries, SMEs with fewer than 250 employees employ twothirds of the formal workforce According to the Central Bank of Nigeria (CBN), four key issues have hindered Nigeria s SME growth: unfriendly business environment, poor funding, low managerial skills and lack of access to modern technology. Globally, commercial banks have in many cases shied away from lending to small businesses because of perceived risks and uncertainties in recent years. In Nigeria, previous double-digit interest rates have been a further deterrent for businesses seeking out loans. To improve access to finance for SMEs, Governor of the CBN Lamido Sanusi has announced the establishment of a N200 billion micro business and SME (MSME) development fund before the end of the year. He affirms that the fund will be a veritable source of funding for small businesses in the country. According to the Governor, MS- MEs play a major role in Nigeria s economy with about 95 per cent of firms in the organised manufacturing sector recognised as SMEs, which account for about 75 per cent of industrial employment, yet contribute a mere 10 per cent to GDP. In addition, the Minister of Trade and Investment Olusegun Aganga has announced that the Ministry s NIRP (Nigerian Industrial Revolution Plan) is to provide the framework for fasttracking the country s industrial revolution and attracting investments into the critical sectors of the economy. Efforts to kick-start small businesses are not just coming from the government. In the private sector, Nigeria s banks are also now pushing financial and business support packages to budding entrepreneurs. Diamond Bank in particular has shone in this sector and its initiatives have garnered international praise, lauded as the best bank for MSMEs in the country. It has entered into partnership with the IMF to expand access to finance for SMEs across the country and Shell to increase support in oilproducing communities. Diamond Bank has also recently signed a memorandum of understanding with a Russian company that is experienced in consumer lending for the under banked and SMEs. The small business department at Nigeria s Zenith Bank is building up its portfolio. Its reserve for investment in small-scale businesses currently exceeds N3.7 billion ( 17.9 million) and the bank is on the look out for viable projects and business opportunities with good returns and strong growth prospects. In addition to funding, Zenith Bank provides SMEs with business advisory and project management services to help new businesses start with good corporate governance practices from day one. As a Nigerian institution, we are supporting the government s efforts in growing agriculture, manufacturing, infrastructure, and power sectors. These are areas that the government is looking at aggressively, says Godwin Emefiele, Group Managing Director and CEO of Zenith Bank Plc. That is why you see the government, the Ministry of Agriculture and the CBN setting up various financing schemes where banks are given guarantees for loans to agriculture companies, or loans granted to SMEs. The CBN has agreed to award short-term liquidity to those who need to finance some operations, especially small manufacturing companies. Most manufacturing companies have embraced this initiative and Zenith Bank has guaranteed some loans to these customers. At the Guaranty Trust Bank, Group Managing Director and CEO Olusegun Agbaje also highlights the agricultural sector as ripe for increased lending. We should look at agriculture the way we look at any other commercial business as an enterprise that will make money and will pay back, he says. What we are concerned about is that any loan we give out gets paid back. So once the agricultural sector becomes commercially valuable, and the value chains are quite clear, we will move away from the primary part of it and go to where there is added value; banks are always looking for new areas to put money into. As businesses take off and prosperity spreads, Nigeria s emerging middle class is opening up a potentially huge future market for personal banking services. The middle markets and SMEs are areas where I envision much growth, as well as in agriculture. Nigeria has a very vibrant and growing middle class, as is evidenced by the shopping malls you can see springing up in the cities. People are starting to exhibit lifestyles similar to those in more developed economies. The middle class is very young and there is going to be tremendous growth in that area, says Faith Tuedor-Matthews, Group Managing Director and CEO of Mainstreet Bank. The government is investing heavily in the agricultural sector. As part of the efforts to reduce risk in that sector, they are subsidising loans to finance the agricultural value chain through a collaborative effort with the banks. We expect to see a lot of employment coming out of this sector in the future. Also, significant banking growth in the retail segment will be spurred through retail outlets and chains, such as hotels, supermarket chains or auto dealerships, issuing credit facilities to consumers through the use of credit cards. As people s level of sophistication rises, you will find out that banks will begin to face competition from outlets outside the financial services segment. We are supporting government s efforts in growing agriculture, manufacturing, infrastructure, and power sectors. Godwin Emefiele, Group MD & CEO of Zenith Bank SMEs account for about 75% of industrial employment, yet contribute a mere 10% to GDP. Lamido Sanusi, Governor of the CBN We should look at agriculture the way we look at any other commercial business. Olusegun Agbaje, Group MD & CEO of Guaranty Trust Bank The middle markets and SMEs are areas where I envision much growth, as well as in agriculture. Faith Tuedor-Matthews, Group MD & CEO of Mainstreet Bank We provide limitless opportunities to small medium scale enterprises and small-medium corporates. Kehinde Durosinmi-Etti, MD & CEO of Skye Bank Local banks go global Nigerian banks are taking significant strides in building a global brand and establishing international footprints As a result of their expansion and internationalisation, many Nigerian banks aim to become global players, with corporate visions in tune with the government s agenda to make the country one of the world s top 20 economies. But if Nigeria is to successfully raise its international economic profile, then its banking sector must do likewise. Diamond Bank is one of a raft of banks determined to highlight the service quality, strengths and competences that can be found in Nigeria s banking industry that fly in the face of global misconceptions. The Nigerian banking industry has learnt many lessons, the major one being corporate governance, says Dr Alex Otti, Group Managing Director and CEO of Diamond Bank. In June 2009, the administration changed at the Central Bank of Nigeria (CBN), and Governor Lamido Sanusi s team introduced many far-reaching reforms, dispatching examiners from the Nigeria Deposit Insurance Corporation (NDIC) and CBN to every bank in the country. The CBN took action, which led to the reduction in the number of banks we have today after the mergers and acquisitions that took place. Three banks were taken over by AMCON (Asset Management Corporation Of Nigeria) and they have been recapitalised and are in the process of being sold, says Dr Otti. The capital adequacy ratio, which is often used to measure a financial institution s strength, of Nigeria s banks is between 15-30%, well above the CBN s minimum stipulation of 10%. However, image and branding are essential if Nigeria s banks are to translate their strengths into international success, as both national and international perceptions are vital to attracting clients and banking partners. In a 2012 report published by the London-based brand valuation consultancy Brand Finance, four of Nigeria s banks make it into its list of the 500 most valuable world banking brands. First Bank of Nigeria was ranked as the number one bank brand in Nigeria, with its brand valued at $170 million ( 135 million). It was closely followed by Guaranty Trust Bank, with a brand value of $169 million. Zenith Bank came third, at $147 million, and United Bank for Africa (UBA) had a brand value of $121 million. The four banks brands are also amongst the world s top 50 by total brand value by country. South Africa s top 10 bank brands led the African pack with a combined brand value of $8.2 billion, followed by Nigeria s four totalling $607 million. Investing in a Nigerian major bank might actually give you a foothold into Africa because the mother bank will always be looking to expand. Olusegun Agbaje, MD Guaranty Trust Bank Guaranty Trust Bank s ranking as a global brand has been earned through a number of firsts in its business, partnerships and corporate social responsibility endeavours. In 2007 it became the first sub-saharan bank to be listed on the London Stock Exchange. We have picked nine countries in which we would like to engage over the next five years. We are hoping that by then we will have a footprint in 12 to 15 African countries, says Olusegun Agbaje, Group Managing Director and CEO of Guaranty Trust Bank. So far, the group operates in three geographic regions: Nigeria, Rest of West Africa (Ghana, Gambia, Sierra Leone and Liberia) and Europe (UK and Netherlands). Skye Bank is also looking into regional expansion. Group Managing Director and CEO Kehinde Durosinmi-Etti comments, We are currently active in three West African countries: Guinea, Sierra Leone and Gambia. We have focused on English-speaking countries to start with. We are in two such countries and have a foothold in a francophone country. This is important because most of the countries in West Africa are French-speaking, which makes it key to have a presence in order to access this wider market. UBA has also made significant strides: Boston Consulting Group has ranked UBA among the top 40 African Challengers African companies competing and rapidly expanding in the global economy. With the start of operations in Congo DRC and Congo Brazzaville, UBA is now present in 19 African countries besides Nigeria. Meanwhile, Zenith Bank has been growing its brand internationally in the UK, Ghana, Sierra Leone and The Gambia. It also has representative offices in South Africa and China. Our aspiration is to continue to expand and make our world-class products and services available to as many markets as possible. We will also ensure that we contribute to the growth of the local economies we enter, says Godwin Emefiele, Group Managing Director and CEO of Zenith Bank Plc. Finally, with a presence in 35 countries, 33 of them in Africa, Ecobank can claim to be a truly pan- African operation. Ecobank also has representative offices in Dubai, London and China. If you want to do business in Africa, there is only one bank that takes you to 33 countries. We have relationship managers based in Paris that market European communities and businesses into Africa, says Jibril Aku, Managing Director of Ecobank Nigeria, who also has plans for his bank to enter Angola and Mozambique.

8 8 NIGERIA monday, 30 July 2012 Competition for retail banking raises the quality bar With a population over 160 million and a mere estimated million bank accounts, there is significant room for expansion in Nigeria s retail banking sector A shining example of Nigerian banking Focusing on innovation and technology has put Diamond Bank at the cutting edge of the industry, and made it the number one choice for SMEs New policies introduced by the Central Bank to increase financial stability over the past few years have prompted significant changes in Nigeria s banking sector. The industry has been undergoing a period of transformation as banks have embarked on consolidation initiatives involving recapitalisation, management shake-ups, mergers and acquisitions, policy reforms and other institutional changes as they looked to strengthen their businesses and plan for future expansion. In the world of retail banking, the landscape has changed with the creation of larger competitors in the top tier of banks, who are aggressively pursuing larger market shares. Even smaller banks are also chasing greater deposits with more gusto, evolving their product ranges on offer to appeal to modern lifestyles and encourage access in rural communities. The retail banking sector often viewed as the high-street face of banking incorporates private banking services, individual customer current accounts, savings deposits, investment savings products, credit and debit cards, customer loans and mortgages. In addition to private individual customers, it also involves meeting the banking needs of small and medium-sized enterprises (SMEs). The changing environment puts additional pressure on banks to focus on the quality of their customer service, as retail banking relies heavily on customer loyalty and the banks need to allay any feelings of uncertainty or instability in their current customer base, while at the same time seek out new accounts. Long queues and inattentive staff are major annoyances for banking customers and the current trend toward mobile and internet banking means financial institutions need to sharpen their focus on both physical and virtual customer service. Within the process of re-tooling you have to bring in younger and brighter people, you must look at new horizons and continue to re-invent oneself. You must look at retail and try to analyse new sectors, says Olusegun Agbaje, Managing Director and CEO of Guaranty Trust Bank, one of Africa s leading banks. Guaranty Trust Bank came out top in a customer satisfaction survey carried out by Nigeria s S.M.A.R.T. Advisory Ltd, a business solution provider specialised in analysing corporate finance, business management and process improvement to help businesses grow. S.M.A.R.T. polled more than 7,000 customers of banks nationwide and Guaranty Trust Bank came out the number one choice as the bank to switch to if they were to change banks; 28 per cent of all respondents indicated their preference for Guaranty Trust Bank. The survey also reported that about one in five people had an account with Guaranty Trust Bank and it got the most frequent recommendation from its customers to other people, reflecting a large army of support for the bank. Until 2007, Guaranty Trust Bank was essentially a high-end wholesale bank up to around per cent of its business was dealing with that market. It then started to grow its retail base and in 2011 the retail segment of Guaranty Trust Bank had 3.4 million clients and represented 41 per cent of the bank s deposits, 8 per cent of its loans and 15 per cent of its profits before tax. The bank is currently in the process of conducting a very strict segmentation of its retail base. As you go into retail you start to see even more opportunities, says Mr Agbaje. Guaranty Trust Bank has separated SMEs services from its main retail unit to allow it grow independently. It has also segmented the retail unit itself and developed a private banking section to focus on the country s emerging middle class separate from the mass retail business. Nigeria s middle class is estimated at around 23 per cent of the population a projected 36 million Nigerians defined as earners of average monthly incomes between N75,000 and N100,000 ($463-$617). We are going to try to serve our retail customers as much as possible, not through bricks and mortar but through alternative channels Olusegun Agbaje, MD & CEO of Guaranty Trust Bank The reality about retail is that while it has opportunities, it is a very expensive business if you do not scale it properly, says Mr Agbaje. For Guaranty Trust, if you compare us to our peers, we believe that cost is the only sustainable source of competitive advantage. Therefore, in everything we do we make sure we have a cost-effective model. We are going to try to serve our retail customers as much as possible, not through bricks and mortar but through alternative channels, and that is why we do not have a massive branch network. We think that to service Nigeria effectively you do not need more than 250 branches, of which some of them will be e-branches. E-branches are a lot of what we are rolling out now: they just have cash deposit ATMs, cash pay ATMs, kiosks, so no physical staff are actually needed. Interestingly, the S.M.A.R.T. survey noted that while 26 per cent of those polled look at the stability and the financial strength of a bank, many customers of Guaranty Trust Bank showed a departure from this trend as 36 per cent of its customers chose to open an account with the bank as a result of its customer service experience perhaps taking its financial stability as an assumed quality. The bank s aim is to reach 10 million retail customers in the next five years, up from its current 3.4 million account holders. As the middle-class grows, we will create a way of servicing them in a manner they are used to. We went into retail and have learnt as we have gone along; we have acquired more than three million customers in just five years. A big thing for us now is to conduct the segmentation properly and service clients accordingly, says Mr Agbaje. The S.M.A.R.T. survey also reported Nigeria s Diamond Bank as being well recognised for its customer support, noting that it was strong in rewarding its customers for loyalty as 31 per cent of them indicated the bank rewards customers for being with them over a long period. It also enjoys 55 per cent of its clients regularly recommending the bank to others. Similarly, the report showed Zenith Bank, which over the years has redefined customer service standards and created diverse service delivery channels, was equally appreciated, being recommended by 57 per cent of its customers on a regular basis. By 2011, 41% of Guaranty Trust Bank s deposits were from the retail segment Diamond Bank s unaudited results released on the NSE trading floor show gross earnings of N64.6 billion Today, online banking is a given in the industry, but we pioneered the service in Nigeria. Dr Alex Otti, Group Managing Director and CEO of Diamond Bank Financial inclusion in Nigeria is low approximately 40 per cent of the population are under-banked or completely unbanked, which means there is a huge untapped market, especially in rural areas, for banks looking to expand their reach. As modern developments in mobile banking mean a physical branch is no longer absolutely necessary for banks to deliver everyday banking services to customers, electronic banking has become one of the greatest innovations in modern banking services, widening access to banking products and adding a whole new level of convenience in personal banking. Diamond Bank has been at the forefront of developing online retail banking in Nigeria since its inception more than 20 years ago. From day one, Diamond Bank integrated all its branches into an online network, so all you needed to carry was your chequebook. Today, online banking is a given in the industry, but we pioneered the service in Nigeria. We have continued that trend of pioneering, innovation, and product development, and we pride ourselves on being the number one retail bank in the country, says Dr Alex Otti, Group Managing Director and CEO of Diamond Bank. Diamond Bank ranks amongst the top 50 banks in Africa with around $3.85 billion in assets, 230 branches, some 300 ATMs and 1.8 million account holders. It was the first African bank to be listed on the Professional Securities Market of the London Stock Exchange following $500 million in Global Depository Receipts (GDRs) in January A multiple award-winning financial institution with a presence in West Africa s Francophone countries, Diamond Bank has always paid close attention to emerging technologies. It was the first to introduce debit and credit cards in Nigeria that also work anywhere in the world. Additionally, its ATMs, point-of-sale terminals, internet banking, mobile banking and cards themselves are integrated on the same platform, so clients only need one PIN. In May, it announced that the bank s internet banking service, DiamondOnline, had gone live on CR2 s BankWorld internet platform. In partnership with Pagatech, the bank is also developing additional e-banking products and a mobile money system that effectively turns any mobile phone into an electronic wallet. These types of initiatives will make a difference in the rural population in Nigeria, says Dr Otti. We have an advantage in that we have been able to go into many of the areas where there are more small and medium-sized enterprises (SMEs). We are probably one of the few banks in Nigeria that provide good support for SMEs today. With a good business plan, we can award anyone an unsecured loan of up to 2 million naira ($12,320). Some people with very good ideas do not always have the financial security that banks usually ask for. We have a good story to tell in the retail banking area. In addition to its Retail Banking section, Diamond Bank s three other units cater to other financial markets. The Corporate Banking department deals with large corporations and multinationals in sectors such as the oil and gas industry, power, maritime, manufacturing, aviation and telecoms. Its Business Banking section serves the needs of the middle-market customer and the bank s Public Sector unit is set up to serve the banking needs of the federal government, its agencies and parastatals. Internationally, Diamond Bank has partnered with major banks and institutions such as Deutsche Bank and Commerzbank. German banks can find more profitable use for facilities they want to create by partnering with a local bank like ours. We have the local knowledge and can provide them with guarantees so they do not face any credit risks, says Dr Otti. The CEO highlights various sectors where the opportunities are huge for German investors wanting to invest directly in Nigeria, particularly in agriculture, infrastructure and telecoms. The bank is recognised by the IFC as the Best Micro and SME Bank in Nigeria and has worked with the IFC and World Bank to help boost the country s small business sector. The IFC gave us about $20 million for initiatives with SMEs and another $20 million for agriculture, says Dr Otti. Together with Shell we also put together a $30 million GroFin fund to support SMEs in the oil-producing communities. Dr Otti adds, We have gone into uncharted territories and pioneered a technology-driven service. We have retooled our bank, re-analysed our strategies, redefined our brand essence, and geared up towards excelling even more than we have done over the past two decades. We have the right people with the right skills, the right technology and the right kind of customers. Currently, we have a product range that caters to every socioeconomic segment. With Diamond bank, there is something for everybody.

9 monday, 30 July 2012 NIGERIA 9

10 10 NIGERIA monday, 30 July 2012 Raising capital through bonds Nigeria s $500 million Eurobond was oversubscribed 2.5 times, proving international confidence in the country s economy as a whole, and its financial institutions in particular Bonds are generally defined as a loan given to a government in exchange for certificate of investment and differ substantially from shares. While typical shares represent an entitlement to ownership of a specific company, bonds are loans or debt which is owed by the issuer to anyone who may choose to take them up. This key difference represents one of the main advantages that investing in bonds holds over investing in stock. Generally, investing in debt is safer than investing in equity, simply due to the fact that debt holders have a priority over shareholders in the event of a company filing for bankruptcy. If this happens, debt holders will receive capital before any shareholders do. Creditors often receive their investments back in the case of bankruptcy while shareholders may lose their investment. In January of 2011 Nigeria issued a $500 million Eurobond with a 7 per cent yield: the offer was oversubscribed 2.5 times. People have speculated as to why the country would take the bond option and the decision was widely discussed among those involved in the Nigerian economy, with members of different financial organisation expressing concern as to whether the decision taken would be a successful one. But Nigeria s Minister of Finance at the time, Olusegun Aganga, was bullish in his assessment of the offer, and its success. This single transaction clearly puts Nigeria on the global map. We now have a transparent and internationally observable benchmark against which international investors can accurately price risk. The delay in the bond offering, and the fact that the amount was relatively small when compared to other international dealings at the time, was due to caution and fear of failure in the international marketplace. Eurobonds are issued in by an international syndicate and normally categorised by the currency in which they are denominated. The At the time the Eurobond was issued Nigeria s foreign reserves were over sixty times the size of the bond itself, and the external debt to GDP ration was just 2.3% Eurobond issued in London by the Nigerian government was denominated in U.S. dollars known as a Euro-Dollar bond. At the time Nigeria had the option to issue this Euro-Dollar bond in any country other than the U.S. The Eurobond represents an attractive financing tool to many countries as they offer the issuer the flexibility to choose any country in which to offer their bonds. This allows the issuer to choose a country whose regulatory constraints and legislation suits the issuer s needs, as well as giving them the opportunity to denominate their Eurobond in whatever currency they choose. These bonds are attractive to potential investors as they tend to have high liquidity and small par values. The Eurobond issued by Nigeria last year is set to represent a benchmark yield curve for the country in the global market, resulting in the ability to easily repay investors rather than simply raising funds. At the time the Eurobond was issued Nigeria s foreign reserves were over sixty times the size of the bond itself. The country also had an external debt to Gross Domestic Product ratio of just 2.3 per cent, meaning the risk of default on the Eurobond was negligible. However, some experts are speculating whether this Eurobond puts the Nigerian economy at risk, as it may expose the nation s banks to foreign exchange fluctuations and other risks that can occur because of external borrowing. However, the decision made by Nigeria to raise funds from the international financial market is not an indication that its banks are experiencing problems, but rather a reflection of the strength, capability and credibility displayed by these financial institutions. Many Nigerian banks have already successfully sought funds from the international financial market and multilateral institutions, or have announced plans to do so. Guaranty Trust Bank s five-year Eurobond offer of 2011, the largest by any Nigerian corporate to international investors, was rated Best Financial Institution Bond for Nigeria by EMEA Finance UK. Olusegun Agbaje, Managing Director, Guaranty Trust Bank says, We will continue to seek for funds that would enable us carry on our global expansion programme, acquire the best IT infrastructure to enhance service delivery and compete favourably with other international banks in terms of ability to lend. Our 2011 Eurobond offer was totally oversubscribed, and is placed with over 30 accounts in Europe, United States, Asia and Africa. Meanwhile, Skye Bank has recently raised over $100 million at a floating coupon rate of 6.3 per cent spread over the course of seven years. Kehinde Durosinmi- Etti, Chief Executive Officer and Managing Director of Skye Bank, has stated that the bond issuance programme will boost the bank s capital base and add almost 2 per cent to its capital adequacy ratio. And Diamond Bank is to seek the approval of its shareholders at its next general meeting in order to raise $200 million, claiming they would target strategic investors including the subsidiary of the World Bank, the International Finance Corporation. Kehinde Durosinmi-Etti, MD & CEO of Skye Bank Breathing new life into nationalised banks Recapitalised banks are going through a transformation to make them more attractive to potential investors In August of 2011 a decision was made by the Asset Management Corporation of Nigeria (AM- CON) to recapitalise three of the country s banks to the tune of 15 per cent Capital Adequacy Ratio through the bond issuance. The recapitalisation of Mainstreet Bank, Keystone Bank and Enterprise Bank was aimed at boosting the bond market. The Central Bank of Nigeria revoked the operating licenses of Afribank, Bank PHB and Spring Bank for failure to consummate binding mergers and acquisitions toward recapitalisation. These events occurred on August 5th of last year, ahead of the original September 30th deadline, and Afribank, Bank PHB and Spring Bank were replaced by Mainstreet Bank, Keystone Bank and Enterprise Bank respectively. The institutions are now run by AMCON. This nationalisation of some of Nigeria s financial institutions is thought by analysts to minimize many of the risks and problems that would have stemmed from liquidation. The full deposit liabilities of these financial institutions would have been a serious burden for the Nigerian Deposit Insurance Company and the Central Bank of Nigeria had liquidation occurred, and could have led to another cycle of job-losses. Group Managing Director and Chief Executive Officer of Mainstreet Bank, Faith Tuedor- Matthews, has over two decades experience working with leading banks in Nigeria. At present Ms. Tuedor-Matthews is working with both the shareholders and management teams at Mainstreet Bank in order to turn the institution around in preparation for its sale to private investors. From a customer s perspective the bank had to be stabilised in order to win back confidence in the institution. There were a number of measures that needed to be taken once we concluded a wide-ranging diagnostic study of the bank. First, we needed to stabilize the organisation in terms of its staff and customers. This bank is over 50 years old, but has never gone through any major transformation. There had been about three government interventions before we came in. So, some staff were apprehensive about their job security. Although the previous bank s license was revoked, we took on every member of staff, Ms Tuedor-Matthews said of the changeover, before going on to highlight the investment potential the new rebranded bank enjoys. There were issues that led to the nationalisation of these banks.these have largely been addressed now by the regulators. There is now greater levels of disclosure and transparency; stronger risk management and corporate governance framework in all banks, and as a result a stronger financial services sector. Faith Tuedor-Matthews, MD and CEO of Mainstreet Bank

11 monday, 30 July 2012 NIGERIA 11 Identifying the nation s potential comes easy Comprehensive financial services from Kedari Capital Ltd are connecting new investors to the heart of the nation s potential in numerous sectors Nigeria has the potential to become the gateway to African capital markets. It has more than a quarter of the continent s population, a solid, productive base to its economy and has increasingly become more politically stable all key factors in attracting capital. One of Nigeria s premier Investment Banking firms, Kedari Capital Ltd, is well positioned to guide investors into a variety of the country s prime investment prospects. Nigeria is about business and investment, people who are determined to make things work, and people of integrity, says Odun Odunfa, CEO of Kedari Capital Ltd. You need to find the partners you can work with, the areas you are interested in, and a platform to make those investments a reality. You will typically walk away with very good returns, much more than you can get from many world economies today. Kedari Capital Ltd is a full-service investment bank focused on providing tailor-made long-term capital appreciation solutions for each of its clients. Its diverse portfolio of clientele includes governmental organisations and agencies, private corporations, financial institutions and high net-worth individuals. The bank s broad business offerings include corporate finance, financial and business advice, asset management, financial markets services and risk management consulting. Mr Odunfa says, What we do differently is focus on a few areas. To a large extent, we do not wait for business to come to us: we seek out the business. We recognise in an economy such as ours that skills and capital are limited. So if you have a combination of the skills and the capital, you are better off putting the deals together yourself. That is what we are trying to do in power, infrastructure, and with our bank acquisition in Ghana. Kedari Capital Ltd together with We do not wait for business to come to us: we seek out the business. That is what we are doing in power, banking and infrastructure. Odun Odunfa, CEO of Kedari Capital Ltd other investors has acquired a 75 per cent stake in First Atlantic Merchant Bank Ghana and plans to make it one of the top five banks in Ghana within five years. We are doing everything possible to make that happen; leveraging e- banking platforms, international partnerships, and deepening our branch network on the retail side, says Mr Odunfa. It is a strategic acquisition for us, it complements the business we do in Nigeria and opens us up to more investors and clients to whom we can cross sell products, either in retail, investment, or wholesale banking. Kedari s main expertise areas include investment in infrastructure, the oil and gas industry, project finance, real estate, non-banking financial institutions, energy projects and renewable energy development. Most of the initiatives that Kedari is undertaking are in the productive economy: power, infrastructure, ports, etc. The opportunities for German businesses or investors to partner with us are tremendous, says Mr Odunfa. I believe one of the challenges for European businesses in Africa is identifying good projects, and good partners to work with to make those projects happen. Kedari would offer them an opportunity to achieve both objectives in one. We have a host of projects, which are ours and third-party projects, whether public or private sector. Investors can also find a partner in us that is serious, focused, and will do everything to ensure that things are done properly. The differentiator is that we are happy to sponsor projects, form teams, look at different ideas, and put together the building blocks of what would make it work. That will continue to be the way we do business. We also believe in doing things right, we do what we say and we believe in what we do. Nigeria s top lenders l Access Bank With an asset base in excess of N2.02 trillion as of February 2012, Access Bank has placed excellent corporate governance at the very core of its operations, and was named 2011 Sustainable Bank of the Year for Africa and Middle East by Financial Times/IFC. The following year, it completed the recapitalisation of Intercontinental Bank Plc. l Diamond Bank Operating on one of the most advanced banking technology platforms in the market, Diamond Bank is a full-service international commercial bank. Financial results for year-end 2011 were N723 billion in assets and N630 billion in liabilities, of which N544 billion were customer deposits. The bank posted gross earnings of N89.3 billion. l Ecobank When Ecobank Transnational Inc. (ETI) acquired Oceanic Bank last year, it entered the Nigerian top five. Some 5.9 million Nigerians are ETI customers, accounting for more than 70% of the group s total for all its operations throughout 30 African nations. As of December 2011, the ETI group s total assets were valued at $17.2 billion. l Fidelity From merchant to commercial to universal bank, Fidelity s 24 years of history has helped shape it into becoming one of Nigeria s ten largest banks. In 2011, it was ranked the 25th most capitalised bank in Africa. Fidelity Bank closed last year with N739.5 billion in assets and N603.2 billion in liabilities, and posted a profit of N5.36 billion. l First Bank Nigeria s oldest bank and largest retail lender, dating back to Today, the bank enjoys strong ratings and posted total assets of N2.9 trillion as of Q l First City Monumental Bank A wholesale banking group with an emerging retail business, and flagship of the First City Group. Having recently acquired 100% shareholding in Finbank, FCMB has enjoyed robust growth in return on equity, deposit growth and return on assets year-on-year l Guaranty Trust Bank Made an indelible mark upon the financial sector when it became the first Nigerian bank to undertake a $350 million regulation S Eurobond issue and a $750 million Global Depositary Receipts Offer in Today, Guaranty Trust Bank has an asset base of more than N2 trillion. l Skye Bank The result of a 2006 five-way seamless merger that compiled the individual banks strengths into one, solid institution that has made a positive impact on various sectors, including oil & gas, construction, real estate, agriculture, telecoms, retail and manufacturing. Assets and customer deposits for 2011 were valued at N893 billion and N643 billion, respectively. l United Bank for Africa With subsidiaries in 20 sub-saharan countries, UBA is the product of the merger of Standard Trust Bank Plc and the old UBA, and the subsequent acquisition of Continental Trust Bank Ltd. Total assets for 2011 were up 17.4%, at N1.94 trillion, while total deposits rose 14% to N1.45 trillion. l Zenith Bank Just 22 years old, but a leading institution, having posted N2.2 trillion in assets as of Q With more than 350 domestic branches, the bank has explored opportunities abroad and is now present in Ghana, the UK, Sierra Leone, Gambia and South Africa.

12 12 NIGERIA monday, 30 July 2012