Nigerian banks must recreate to woo investors back into their shares

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Twenty years ago, Nigerian banks had simple, but elegant marketing techniques to lure customers. One lender, Guaranty Trust Bank, seduced customers with style. An air-conditioned banking hall refreshed visitors while a pianist tinkled away in the middle of the room.

This sharp contrast with the hot, sweaty marketplace nearby in central Lagos literally made GTB the coolest place to bank in town.Whomever the bank was trying to impress, it probably was not the average individual. Years on, less than a third of adults in Nigeria have an account, according to the World Bank, well below the level of South Africa. In general, Nigerian banks do not lend to the average household.

Larger lenders such as GTB focus on corporate customers. Even smaller ones that do offer “retail” banking, such as Diamond and Access, really mean smaller companies or wealthy individuals.That tilt away from smaller borrowers will not protect the sector from credit problems. The economy has slowed markedly in the past year, because of the collapse in the oil price. Nigerian economic growth should slow to 3.2 per cent in 2015, down from a nearly 6 per cent average the past two years, according to Credit Suisse.

Meanwhile, the Central Bank of Nigeria’s effort to prevent capital flight and contain inflation — running at over 9 per cent — has caused lenders some problems.

In May the CBN forced banks to increase the amount of cash reserves held against their deposits, sharply restricting their ability to lend. By November the CBN had slashed the cash reserve ratio twice and cut interest rates.

These reversals did not help bank share prices, which kept on falling.The reason for the policy reversal may have to do with the pace at which loan growth has slowed. Whereas Nigerian banks began the year forecasting their loans to rise by as much as a fifth this year, that optimism has been reined in towards 5 per cent, thinks FBN Capital. Credit quality has begun to turn down.

Having held reasonably steady in the first half of the year, non-performing loans should rise by over half to around 5 per cent by year-end. No surprise then that few Nigerian banks trade above their book value.As a result, these companies will have to play a seductive tune to entice investors back into their shares. (FT)

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