Nigerian banks expanding into the rest of the continent or diversifying into other financial services will be better insulated from shocks than they were during the global financial crisis, according to Moody’s Investors Service.
Lenders including Access Bank Plc and Guaranty Trust Bank Plc are following peers FBN Holdings Plc and Stanbic IBTC Bank to transition to financial holding companies that will protect their local banking assets from other businesses. Access Bank plans to open a payments unit and increase its African footprint, while GTB is looking to establish subsidiaries in asset management.
Survival Strategies Pushing Banks in Nigeria Away from Lending
The Central Bank modified rules in 2010 after the global debt crisis and the abuse of client funds brought the industry on the verge of collapse.
According to Peter Mushangwe, a banking analyst at Moody’s, “Regulation this time will be tighter and regulators will ringfence local depositors and senior creditors.” “In 2008 and 2009, Nigerian banks funded their non-banking activities using the deposits originated in their Nigerian operations.” Nigerian banks usually expand into West Africa and Central Africa before moving to East Africa. “Some of the neighboring countries have weaker operating conditions and regulations and therefore present risks.” “However, due to the general low penetration and growing per-capita income, they also present long-term opportunities.” “Diversification will create resiliency in both revenue generation capacity and asset quality for banks.” “Nigerian banks are facing challenges in revenue growth due to the difficult operating environment.”