Mobius Sees Nigerian Banking Acquisitions on Rising Competition

Nigeria’s smaller banks may be forced to consolidate to compete with the biggest institutions, Mark Mobius, executive chairman of Templeton Emerging Markets Group, said.

Nigerian banks have reported rising profits and loan growth this year. Guaranty Trust Bank Plc, the nation’s largest lender by market value, said Oct. 18 that nine-month net income jumped 59 percent from a year earlier, as loans advanced 8 percent. Zenith Bank Plc, the nation’s second-largest, said Oct. 22 that third-quarter profit increased 51 percent, while loans rose 8 percent.

“The largest banks are moving forward at a fast pace to strengthen their position, so smaller banks may not have any other choice but to merge or acquire,” Mobius, who oversees about $45 billion, said in an e-mailed reply to questions on Oct 23. “There is a possibility of further consolidation,” he said, without identifying any banks that may combine.

The growth of the industry comes after Central Bank of Nigeria Governor Lamido Sanusi fired the chief executive officers of eight of the country’s 24 lenders in 2009 and bailed them out with 620 billion naira ($4 billion) because loans by banks to equity speculators and fuel importers had pushed the industry to the verge of collapse. The government then set up Asset Management Corp. of Nigeria, or Amcon, to buy bad debts from the country’s banks.

While five were later acquired by other banks, three were nationalized after regulators decided they couldn’t meet banking requirements. Amcon appointed Citigroup Inc. and Renaissance Capital to value and advise on plans for the state-owned lenders, which may involve selling the banks or listing them on the Nigerian Stock Exchange, the agency’s Chief Executive Office Mustafa Chike-Obi said Aug. 7.

Bad Debts

Most banks have swung back to profit after selling their bad debts and are set to benefit from an economy forecast by the government to grow 6.5 percent next year, the same pace as it expects this year.

That’s helped spur stock prices. The Bloomberg NSE Banking Index, which tracks Nigeria’s 10 biggest banks by market value has advanced 60 percent this year, compared with the 31 percent rise of the Nigerian Stock Exchange All-Share Index.

Templeton holds shares in Nigerian lenders including Guaranty Trust, Zenith Bank, Access Bank Plc, United Bank for Africa Plc and First Bank of Nigeria Plc, according to data compiled by Bloomberg.

“We are not reducing,” said Mobius. “We are long-term holders.”

Templeton is also considering buying shares in Kenyan banks to “get exposure to the entire Kenyan economy which we see growing at a healthy pace,” Mobius said.

Excellent Prospects

Kenya, East Africa’s biggest economy, is forecast to grow 5.1 percent in 2012 and 5.6 percent in 2013, Investment Secretary Esther Koimett said on Oct 23.

Equity Bank Ltd., based in the capital, Nairobi, is the nation’s largest bank by customers and market value, while Kenya Commercial Bank Ltd. is biggest by assets and outlets. Other lenders include units owned by Barclays Plc., Standard Chartered Plc., both based in London, and Johannesburg-based Standard Bank Group Ltd., Africa’s largest lender.

Kenyan banks are attractive to international investors because their practices, capital adequacy and other ratios are fundamentally good, he said.

“ Given the generally low penetration of banking services throughout the country there are excellent prospects for growth,” Mobius said. “We see continued growth in the next 10 years.”

Increased capital requirements in Nigeria and other African countries are “quite positive,” he said.

Reserve Requirements

Kenya, Ghana, Gambia and Zambia increased minimum capital requirements for foreign lenders in the past 12 months. Nigeria boosted its reserve requirements for banks to 12 percent of assets from 8 percent after its monetary policy committee meeting on July 24.

Banks must obtain new funds to re-capitalize their foreign units and won’t be allowed to use money already raised by their parent companies, the Central Bank of Nigeria said in a statement published on its website on July 26. Lenders that can’t raise additional capital for foreign subsidiaries “in the host market” will have to close the units, the Abuja-based regulator said.

“We like to see capital requirement at high levels so the bank are strong and can withstand all kinds of crises,” said Mobius.

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