Tier 1 Banks Extend Dominance Over Tier 2 Lenders

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Any moment from now, quoted companies and banks listed on the floor of the Nigerian Stock Exchange (NSE) will begin to submit their third quarter financials to the management and stockbrokers of the Exchange.

There are expectations that most tier 2 banks may be looking at increasing their performances to be able to compete with tier 1 banks that dominated them in the first quarter of the year.

The full first quarter 2018 unaudited results of banks have shown that the gap between the tier 1 and tier 2 banks in the country, in terms of market share, has continued to widen.

A review of the results of 10 banks, comprising the five tier 1 banks and six tier 2 lenders, showed that the tier 1 banks continued to control a significant chunk of the market in terms of assets, gross earnings, loans and advances, customer deposits and profit before tax.

The tier 1 bank results reviewed were those of Zenith Bank Plc, Guaranty Trust Bank (GTBank) Plc, United Bank for Africa (UBA) Plc, FBN Holdings Plc and Access Bank Plc.

On the other hand, the six tier 2 bank results reviewed comprised Fidelity Bank Plc, Stanbic IBTC, Sterling Bank, First City Monument Bank (FCMB), Ecobank and Wema Bank.

The review showed that the total assets of the 10 banks increased to N29.049 trillion at the end of the period under review, higher than the N26.718 trillion recorded in the first quarter of 2017.

In the period under review, the total assets of the five tier 1 banks stood at N23.210 trillion, while those of the five smaller lenders accounted for N5.839 trillion of total assets in the same period.

Also, while the 10 banks realized combined gross earnings of N1.199 trillion in Q1 2018, tier 1 banks accounted for N1.034 trillion as against N164.512 billion by the five tier 1 banks.

Findings also showed that total loans and advances of the 10 banks whose results were reviewed stood at N13.179 trillion in period under review. Tier 1 banks gave out N10.272 trillion, while tier 2 banks gave N2.907 trillion.

Similarly, while total customer deposits of the 10 banks stood at N17.954 trillion in Q1, 2018, higher than the N16.787 trillion they realized in the previous year.

The tier two banks, on the other hand, posted combined customer deposits of N3.746 trillion, higher than N3.651 trillion in the previous year.

In the same vein, of a total of N164.696 billion posted as profit after tax by the 10 banks in their combined Q1 2018 results.

The five tier 1 banks accounted for N152.367 billion, while tier 2 banks recorded N12.329 billion.

Mr. Ayodeji Ebo, Managing Director, Afrinvest Securities Limited, attributed the yawning gap between the tier 1 banks and tier 2 banks to the fact that the bigger Nigerian lenders have been riding on economies of scale and larger branch networks.

“Because of these, the tier 1 banks have been squeezing out their tier 2 counterparts. What the latter can do is to ride on technology to improve their market share,” he explained.

However, one of the tier 2 banks, Fidelity Bank has successfully risen to the leadership position amongst tier-2 banks with its robust performance in the 2017 financial year (FY17) and the first quarter 2018, (Q1’18) .

Mr Nnamdi Okonkwo, Managing Director, told some financial journalists that the bank has just finished its four-year strategic growth plan which would usher it into tier-1 group upon successful implementation.

He said the growth strategy may be in a combination of organic and in-organic, explaining that if the opportunity presents for acquisition of other entities the bank would do that.

On the implication of the growth plan on its capital adequacy, he said though the bank is presently adequately capitalised at over 16 per cent ratio despite the application of the International Financial Reporting Standard, IFRS-9, with stress tests, if any opportunity presents itself requiring additional capital for expansion the bank would go to the capital market.

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