Top 10 African Banks – Why Nigerian Banks Are Missing

Isn’t it surprising that Nigeria – the largest economy in Africa – is missing on the list of top 10 banks in Africa? Indeed, many have expressed shock over this reality.

A recent report of a ranking done by Statista, the leading markets and consumer data provider, shows that Africa’s largest banks by asset size, consists mostly of South African and North African banks.

Assets include all the properties, cash, account receivables and other valuable resources owned by corporations such as banks.

The top 10 banks according to their asset sizes include:

1. Standard Bank (Stanbank) Group: At $172.9 billion, this South African bank has the largest asset size in Africa.
2. National Bank of Egypt: This Egyptian bank’s total asset size is $124.9 billion.
3. Absa Bank: This is another South African bank with an asset size of $87.8 billion.
4. FirstRand: The third South African bank on the top 10 list has a total asset size of $81.9 billion.
5. Nedbank Group: This South African bank has an asset size of $78.6 billion.
6. Attijariwafa Bank: This Moroccan bank has an asset size of $63.8 billion.
7. Banque Misr: This Egyptian bank has an asset size of $57.9 billion.
8. Banque Centrale Populaire: This is a Moroccan bank with an asset size of $49.9 billion.
9. BMCE Bank Group: This is another Moroccan bank with an asset size of $37.3 billion.
10. Investec Bank: Lastly, this South African bank has an asset size of $29.9 billion.

Nigeria has a total of 24 commercial banks similar to that of Uganda. Experts are of the view that the following reasons are responsible for Nigeria’s missing in the top 10 list.

Naira’s depreciating value

The value of the Nigerian currency, Naira, has been rising and falling due to different factors (it has depreciated by 24 per cent year-to-date). As at Thursday, December 15, 2022, the exchange rate at the Investors and Exporters window, the official foreign exchange market recognised by the Central Bank of Nigeria (CBN) was N450.58/$1 USD. At the parallel market, the exchange rate was N755 to $1.

A weaker Naira according to experts increases Nigerian banks’ risk-weighted assets (RWA) related to their foreign currency loans, which puts negative pressure on their capital metrics.

Inflation

According to Investopedia, Inflation is a persistent general increase in prices of goods and services within an economy which causes a decline in purchasing power over time.

The rate of inflation in Nigeria has been on a steady increase. According to a report released by the National Bureau of Statistics (NBS) on Thursday, December 15, 2022, the rate jumped to 21.47 per cent in November from October’s rate of 21.09 per cent, accelerating for the 10th straight month in the year.

NBS attributed the latest rise to a sharp increase in demand for goods and services ahead of the Yuletide season, hikes in cost of imports due to the depreciation of the naira, and rise in production costs.

Food inflation according to the bureau was put at 24.13 per cent in November, compared to 23.72 per cent in October this year.

The rising cost of goods and services has been attributed to the surge in energy prices, depreciation of the local currency at the black market, imported inflation, and increased cash in circulation among other socio-economic issues in the domestic market.

The economy is import-dependent

Nigeria is regarded as an import-dependent economy as it has not enough local production to boost foreign reserves and strengthen the local currency.

According to IGI Global, import dependency is an “economic characteristic of a nation that cannot produce enough goods and services to sustain its citizens and must depend on importing the majority of its forms of sustenance.”

Nigeria’s trade data as published by the National Bureau of Statistics (NBS) indicate that in 2021, total trade was N39.8 trillion, comprising N20.84 trillion imports, and N18.91 trillion exports, leaving a trade deficit of N1.94 trillion.

Although experts say Nigeria’s import volume is not too high when compared to that of imports by countries with high economy, the challenge lies in the type of goods imported and the value they add to the economy in terms of having regenerating effect.

Nigeria’s major exports over the years has been oil but this year even with the high oil prices in the international market (averaging $102/barrel) it could not earn much in foreign  exchange due to low output leading to inability to meet the OPEC export quota.

In summary, Nigerian banks’ asset worth might be big in naira worth but insignificant in dollar terms due to depreciating value of the local currency.

Commenting on the reasons for Nigerian banks not making the top 10 list, Jonathan Ogbuabor, a senior lecturer in the Department of Economics, UNN, said, “Several reasons can account for the absence of Nigeria’s tier-1 banks from the list, including the fall in the value of the Naira relative to the dollar, which has impacted the asset values of Nigerian banks as well as the huge volume of currency in circulation outside the banking system.”

“Hopefully, the ongoing CBN cashless policy may address the latter,” Ogbuabor, Secretary General, Institute of Chartered Accountants of Nigeria, Nsukka and District Society, said in a chat with Prime Business Africa.

Deputy Managing Director Afrinvest West Africa, Mr. Victor Ndukauba, said one of the reasons none of the Nigerian banks made the top 10 list in Africa is due to sheer scale of devaluation.

“Why you will not find any of the Nigerian banks there is the sheer scale of devaluation that has happened in the past two years which brought the dollar to where it is today. Even if they use the official rate which is probably closer to N450, that’s still merely 25 per cent depreciation. The dollar value of the balance sheet is even smaller and is not as though the banks have been growing their balance sheets aggressively given all the issues. So, it is not exactly surprising.”

“The only way to compare valuation across different countries is benchmark everything in the US dollar,” Mr. Ndukauba stated in a chat with Prime Business Africa.

Speaking on reasons for the status of the banks valuation when compared to other countries, an Economic analyst and senior lecturer at the Niger Delta University, Dr. Wisdom Krokeyi, said several negative macroeconomic indicators are responsible for that. He said “Granted that Nigeria is the largest economy in Africa, however, she is bedeviled with high unemployment rate, soaring prices (Inflation), overdependence.”