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July 24, 2013

2013 Report Card on:The Nigerian Banking Sector

”Standing on the 4th Pillar”

Ike ChiokeManaging Director

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

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


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



REFORMS




PILLARS

2013 NIGERIAN BANKING SECTOR REPORT

The Equities MarketPost Reforms - A Positive Market Trend


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

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


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


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


Industry Total Assets – N21tn

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


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


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)



REFORMS




PILLARS


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

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


NPL Ratio: Responding to CBN’s Reform


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)

Results of the CBN Reforms

Strong

& Stable

Banks

No Bank Failed

throughout the

crisis

Higher

stakeholder

confidence

Improved Corporate

Governance and Risk

Management


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


Emerging Banking Services

Merchant Banking

Non Interest Banking

Microfinance Banking

Primary Mortgage

Institutions

Emerging

Banking

services



REFORMS




PILLARS


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

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

Thank You


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