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www.afrinvestwa.com
July 24, 2013
2013 Report Card on:The Nigerian Banking Sector
”Standing on the 4th Pillar”
Ike ChiokeManaging Director
Page 2
OUTLINE
4 PILLARS OF BANKING SECTOR
REFORMS
NIGERIAN BANKING LANDSCAPE
IMPACT OF CBN REFORMS
RATING PERFORMANCE OF THE 4
PILLARS
4 PILLARS OF BANKING SECTOR REFORMS
Page 3
THE CAUSES
Remembering the 2009 Banking Sector Crisis
Toxic assets in 2008 US
sub-prime housing market
bubble
Global financial institutions
(Lehman, AIG) driven to
bankruptcy
Foreign investors on NSE
began bailing out
Weak risk management and
governance issues in
Nigerian banks
Some banks had toxic
assets in excess of
shareholders funds
THE IMPACTS
NSE ASI went into a freefall
Market downturn magnified
losses in already ailing
banks
Some banks began to face
severe liquidity challenges
A near collapse of the
financial system was
imminent
THE RESPONSE
CBN intervened with the
EDW to pump liquidity into
ailing banks
Sanusi appointed Governor
and shut down EDW. Then
pumped N640bn into 8
distressed banks after
dismissing management
AMCON created in 2010 to
mop up toxic assets
4 PILLARS OF BANKING SECTOR REFORMS
Page 4
Four Pillars of Banking Sector Reforms
Enhancing the
Quality of
Banks
Released by CBN, Feb. 2010
Strong Corporate
Governance
Risk Based
Supervision
Consumer
Protection
CBN
Transformation
Enhancing
Financial Stability
Effective
Intermediation
CBN Financial
Stability
Committee
Counter-cyclical
Fiscal policies
Enabling Healthy
Financial Sector
Evolution
Effective
Competition
Phasing out
Universal
Banking
Greater Diversity
in Banks
Ensuring the
Financial Sector
Contributes to
Real Economy
Re-assert use
of MPR as
effective interest
rate policy tool
Greater
engagement
with Industry
4 PILLARS OF BANKING SECTOR REFORMS
Page 5
4 PILLARS OF BANKING SECTOR
REFORMS
NIGERIAN BANKING LANDSCAPE
IMPACT OF CBN REFORMS
RATING PERFORMANCE OF THE 4
PILLARS
2013 NIGERIAN BANKING SECTOR REPORT
Page 6
The Equities MarketPost Reforms - A Positive Market Trend
NIGERIAN BANKING LANDSCAPE
15000
25000
35000
Jan. 2012 June.2012
Dec. 2012 July. 2013
NSE Performance
200
300
400
Jan. 2012 June.2012
Dec. 2012 July. 2013
Banking SectorPerformance
Page 7
Market Capitalization
Banking Stocks accounts for 30% of the entire NSE market capitalization
GTBank has the highest capitalization given its premium price dynamics
N775 ($4.8)
N672 ($4.2)
N598 ($3.7)
N274 ($1.7)
N253 ($1.6)
N211 ($1.3) N193 ($1.2)
N154 ($1.0)
N99 ($0.6)
N90 ($0.6)
N89 ($0.60
N63 ($0.4)
N41 ($0.3)
-
100
200
300
400
500
600
700
800
900
GT Bank Zenith First Bank UBA Access Union Bank ETI Stanbic Diamond Fidelity FCMB Skye Bank Sterling
Market Capitalisation (N’bn/$bn)
Tier 1 Banks Tier 2 Banks
NIGERIAN BANKING LANDSCAPE
Page 8
0.6x 0.6x 0.6x 0.6x
0.9x 0.9x 1.1x 1.1x
1.4x 1.4x 1.5x
1.8x
2.7x
-
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
ETI Fidelity FCMB Skye Bank Sterling Diamond AccessBank
UnionBank
First Bank UBA Zenith Stanbic GTBank
Price/BV
Tier-2
Average
(0.9x)
Tier-1
Average
(1.4x)
Shareholders Funds
463 439
340
283
241
194 189 162
132 109 107
86
47
-
100
200
300
400
500
Zenith First Bank ETI GT Bank AccessBank
UnionBank
UBA Fidelity FCMB Diamond Skye Bank Stanbic Sterling
Shareholders Funds (Nbn)Industry Average – N214.7bn
Industry Average – 1.2x
NIGERIAN BANKING LANDSCAPE
Page 9
Industry Assets 2012
Tier-2 Banks, 32.0%
14.9%
14.6% 12.2%
10.6%
8.1%
8.1%
Tier-1 Banks 68%
Tier-2 Banks First Bank ETI Zenith Bank UBA Access Bank GTBank
N3.18tnN6.4tn
N1.7tn
N2.6tnN3.15tn
N1.7tn
N2.2tnN14.6tn
December 2012
NIGERIAN BANKING LANDSCAPE
Industry Total Assets – N21tn
Page 10
Cost to Income Ratio
42.7%
53.9%
57.6%
60.3% 60.6% 61.0% 61.9% 62.3%
67.1%
72.0% 72.4%
81.0%
89.2%
64.8%
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
GT Bank Zenith Skye Bank FCMB Diamond AccessBank
First Bank Fidelity UBA ETI Stanbic Sterling UnionBank
Cost to Income Ratio Industry Average
NIGERIAN BANKING LANDSCAPE
Page 11
Profitability: Profit Margin vs Asset Turnover
Tier 1 banks accounts for 68.0% of industry’s N2.5tn gross earnings
Our DuPont Analysis shows that high profit margin drives Tier 1 Banks' ROE
while Tier 2 banks focus on Asset turnover
By 2016, Tier 1 banks will control approximately 75.0% of industry’s gross
earnings
360.3
307.1
277.7
220.3 220.1208.3
138.0127.3
119.4 116.3 112.8
91.7
68.9
92.7102.1
55.2
103.0
52.044.9
28.416.5 21.6 16.2
9.111.7 7.5
19%
24%
16%
34%
32%
18%
23%
12%
12% 11%
4%
12%16%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0
100
200
300
400
First Bank Zenith ETI GT Bank UBA AccessBank
Diamond Skye Bank Fidelity FCMB UnionBank
Stanbic Sterling
Gross Earnings (N'bn) PBT (N'bn) ROE
NIGERIAN BANKING LANDSCAPE
Page 12
Deposits and Loans
32%
39%
47%
56%61% 62%
65%67% 68%
77% 78% 79%84%
62.6%
20%
30%
40%
50%
60%
70%
80%
UnionBank
UBA Access Sterling Zenith Fidelity ETI GT Bank SkyeBank
Diamond First Bank FCMB Stanbic
Loan/Deposits Average
2.5 2.3
1.9 1.8
1.3 1.2
0.90.8
0.7
0.5 0.5 0.4 0.4
2.0
1.5
1.2
0.7 0.6
0.8 0.7
0.50.4
0.20.3 0.3 0.3
-
0.5
1.0
1.5
2.0
2.5
First Bank ETI Zenith UBA Access BankGT Bank Diamond Skye Bank Fidelity Union Bank Sterling FCMB Stanbic
Total Deposits (N'tn) Total Loans (N'tn)
NIGERIAN BANKING LANDSCAPE
Page 13
4 PILLARS OF BANKING SECTOR
REFORMS
NIGERIAN BANKING LANDSCAPE
IMPACT OF CBN REFORMS
RATING PERFORMANCE OF THE 4
PILLARS
2013 NIGERIAN BANKING SECTOR REPORT
Page 14
In exchange for nearly N5tn,
AMCON has acquired over 12,500
NPL accounts.
Mainstreet, Keystone & Enterprise
were acquired at a total cost of
N765billion to prevent potential
liquidation.
Now that the bridge banks are back
to profitability, they are set to be
disposed off during 2013/14
The jury is still out on how much
will be raised from the disposals
AMCON and the Bridge Banks
2010 NIGERIAN BANKING SECTOR REPORTCARD
Announces plans to
refinance bonds
MAY‘13
Absorbs N3tn
of NPLs
DEC ‘ 10
Issues N3.1tn in zero
coupon bonds
MAY ‘11
Creation of
AMCON
NOV/DEC ‘09
Announces
plans to sell
Bridge Banks
July‘13
2010 2011 2012 2013
Injects N1.6tn
to rescued
banks
MAY‘11
Page 15
CBN: Intervention Funds
CBN Interventions
N300 Billion on Power and Airline Intervention Fund (PAIF)
N200 Billion Refinancing/ restructuring of SME/
manufacturing portfolios N200 Billion
Commercial Agriculture Credit Guarantee Scheme
IMPACT OF CBN REFORMS
Page 16
NPL Ratio: Responding to CBN’s Reform
IMPACT OF CBN REFORMS
22.0%
8.0%
20.7%
3.7%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Pre Consolidation(2004)
Post Consolidation(2007)
Banking Crisis(2009)
Post Crisis (2012)
Page 17
Results of the CBN Reforms
Strong
& Stable
Banks
No Bank Failed
throughout the
crisis
Higher
stakeholder
confidence
Improved Corporate
Governance and Risk
Management
IMPACT OF CBN REFORMS
Page 18
Emerging Trends
Cashless Policy
131.4
111.8
170.2
192.6
286.4
100.0
150.0
200.0
250.0
2008
2009
2010
2011
2012
LENDING TO AGRICULTURAL SECTOR
NEFT transactions now N50billion
daily
45 million Internet users in Nigeria:
banking now more accessible
Lending to the agric sector attained over
N300billion
IMPACT OF CBN REFORMS
Page 19
Emerging Banking Services
Merchant Banking
Non Interest Banking
Microfinance Banking
Primary Mortgage
Institutions
Emerging
Banking
services
IMPACT OF CBN REFORMS
Page 20
4 PILLARS OF BANKING SECTOR
REFORMS
NIGERIAN BANKING LANDSCAPE
IMPACT OF CBN REFORMS
RATING PERFORMANCE OF THE 4
PILLARS
2013 NIGERIAN BANKING SECTOR REPORT
Page 21
Rating the 4 Pillars…Our Basis
Enhancing the
Quality of Banks
Better corporate
governance and risk
management system
NPL declined from
20%(2009) to 3.7%
(2012) due to
AMCON intervention
However,
management and
supervision
challenges still exist
Enhancing
Financial Stability
Stable economy
despite global fiscal
and socioeconomic
turmoil
Inflation declined
significantly from
14% in 2010 to 8.4%
in 2013
No bank failed since
the inception of “the
pillars”
Enabling Healthy
Financial Sector
Evolution
Repeal of universal
banking
Emergence of
Merchant Banks,
NIB, PMIs and
Mobile banking
Introduction of Tiers
of capital
requirements for
banks
Ensuring the
Financial Sector
Contributes to
Real Economy
Despite special CBN
Intervention funds to
various sectors,
there are still
challenges
RATING PERFORMANCE OF THE 4 PILLARS
Page 22
Rating the 4 Pillars
4
5
3
2
1
Good
Very
Good
Very
Good
Weak
Pass
Quality of
Banks
Financial
StabilityFinancial
Sector
Evolution
Contribution
to Real
Economy
4th Pillar as the next lever
RATING PERFORMANCE OF THE 4 PILLARS
Page 23
Thank You
2013 NIGERIAN BANKING SECTOR REPORT