June 28, 2012 / BGL Research

Despite the upheavals in the Nigerian banking industry which led to record write-downs and a costly bailout exercise, there has been no shortage on optimism even all through this period for Nigerian lenders. The country’s sweet macro-economic story and potentials (even amidst the obvious infrastructural deficit) is one major factor why this confidence in the lenders has been relatively firm when compared to other supposedly promising sectors like agriculture.

According to the Economist Intelligence Unit (EIU), the research outfit of The Economist, the banking system in Nigeria will expand quickly. The EIU argues that the Nigerian banking industry will ride on the country’s massive population, oil riches and free market orientation (following a more transparent election than usual in 2011), to achieve considerable promise, though issues like weak infrastructure, inefficient administration and extensive corruption may cap these promises.

However, despite the growing optimism, we see a widening gap in the banking industry on many fronts. The gulf is basically between the Tier One banks and the others. In terms of expansion strategy, there has been a relative slow-down on brick and mortar expansion across board. But the Tier One banks have been relatively stable compared to peers.

The likes of Wema Bank have used the window provided by the Central Bank to embark on significant reforms leading to a significant scale back of expansion. After dissolving the universal banking structure, the Central Bank introduced new structures that can allow banks elect to become regional, national or international banks. Wema Bank is the only lender that has opted to be a regional bank. Access Bank’s branch size and physical spread has been given a massive boost by its absorption of Intercontinental Bank’s operations. A few other banks are muting plans to close down branches especially in rural areas or urban places that have proven unprofitable over the years........

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