Nigeria’s banking
sector could see 20-25 percent loan growth over the next three to five
years as demand for both consumer and infrastructure finance increases,
the chief executive of Stanbic IBTC said.
Chris Newson, head
of the Nigerian unit of South Africa’s Standard Bank, said growth would
be driven by Nigeria’s significant infrastructure finance needs as well
as the emergence of small businesses and a growing middle class.
“If you think about
what would be a reasonable level of growth within risk assets across
the industry, our sense is a 20-25 percent is not completely
unrealistic,” Newson said on Monday in an interview as part of the
Reuters Africa Investment Summit.
Africa’s most
populous nation has a huge infrastructure gap. The government has
announced multi-billion dollar plans to privatise the power sector in a
bid to end chronic electricity shortages, while new roads, bridges and
homes are being built in cities including the capital Abuja and
commercial hub Lagos.
“There is an
advisory opportunity but there is also an asset opportunity. Where we
have liquidity and capital, as we do, we’ll be looking to take on some
of those assets on to our own books,” Newson said.
A widening middle
class in the nation of 150 million people, combined with the potential
for the growth in small business as infrastructure improves, also
present opportunities for personal and small business banking.
“We think the
engine room of growth coming out of Nigeria will particularly be in
that business banking, individual environment,” Newson said in his
offices in Lagos.
“The question of
consumer finance is very, very young in Nigeria and the opportunity
there we think over time is very significant,” he said.
He said Stanbic IBTC had 151 branches in Nigeria, double the number it had in 2007, and was still in an “investment phase”.
First step in banking reform
Newson said the
Asset Management Corporation of Nigeria (AMCON) — a state-run “bad
bank” set up to soak up non-performing loans in the banking sector
following a $4 billion bailout in 2009 — was an important first step in
developing a strong and sustainable financial system in Nigeria.
AMCON Chief
Executive Mustapha Chike-Obi told Reuters last week the company, which
is also tasked with recapitalising the rescued banks, was on track to
soak up all bad credit in the sector by the end of the month.
“AMCON and the
recapitalisation is only one step in the process. We need to realise
that the heart and the core of the problems in the sector were really
around corporate governance and risk management,” he said.
“The questions over
time will be are the lessons learned, and the capacity of both the
industry and the regulators to manage those two key aspects.”
He said he
anticipated a further round of consolidation in the banking sector once
the system had been fully stabilised. One major challenge for
businesses in sub-Saharan Africa’s second-biggest economy is a lack of
long-term credit, something Newson said was changing as the capital
markets develop. Although Nigeria has 20-year bonds, the bulk of
liquidity is in the shorter-term 3- and 5-year papers, making long-term
risk pricing difficult, particularly with a lot of long-term
infrastructure financing denominated in dollars. Newson said Nigeria’s
debut Eurobond, launched in January, was a step in the right direction,
giving it a greater ability to price and hedge dollar risk.
He also said he
believed Nigeria had a “healthy level” of foreign reserves which were
adequate for it to continue to support the naira currency.
