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    FirstBank Review 1st Half of 2011 FirstBank Review 1st Half of 2011 Document Transcript

    • From the GroupManaging Director/CEOII am pleased to present to you the maiden edition of our As the nation’s largest and most respected financialsemi-annual publication, the FirstBank Review. Through the institution with over N2.5 trillion in assets, 5 millionFirstBank Review, we seek to shed light on contemporary customers and 1.3 million shareholders, we remaineconomic and business issues in a practical and readable committed at FirstBank to the development of Nigeria. Onefashion. The publication is targeted at business leaders, of the means by which we hope to do this is by stimulatingpolicy makers, legislators, academics, enthusiasts, and of intelligent fact-based discourse on salient business andcourse, our valued customers. It will be widely distributed economic issues of our times amongst decision makers andamongst professional organisations, blue-chip institutions, opinion leaders. It should therefore come as no surprise thatgrowing businesses, government agencies, as well as local we have chosen “Unlocking the Domestic Credit Market”and international investors. as the theme for the maiden edition of our publication.This journal is enriched with well-researched articles from We hope that you find this publication stimulating andour Research and Economic intelligence team, respected informative, and we welcome any feedback that you mighteconomic and financial analysts, seasoned business have.commentators, and is supported by an experienced editorialteam. The scope of the Review will cover an assortment oftopics over time, including recent economic developments, Bisi Onasanyagovernment policy pronouncements, local and global Group Managing Director/CEOmarket updates, and perspectives on promising business First Bank of Nigeria Plcopportunities within the Nigerian economy. FirstBank Review | 1st Half 2011 3
    • ContentsVOL 1 ISSUE 1 | 2011 06 Editorial Note 10 The Economy at a Glance 12 The Nigerian Credit Conundrum Tackles the question why banks with excess liquidity do not lend more. FirstBank Economic Intelligence 14 Regulatory Intervention: Towards Unlocking the Domestic Credit Market Highlights the recent Federal Government’s assisted funds, directed at some key sectors of the economy. FirstBank ResearchCover Image: YINKA OBEBE 32 Credit Growth in Africa Examines the potential bargains implicit in the credit markets across a number of African countries. Razia Khan
    • 36 Sectoral Perspectives Outlines emerging business opportunities across sectors.18 Syndicated Loans Gaining FirstBank Research Popularity in Nigeria Profiles the domestic syndicated credit market in the past few years. FirstBank Research22 Definitive SME Guide to Getting A Bank Loan Provides practical tips for small business owners who desire to secure a bank loan. Patrick Akhidenor26 Nigerian Banking Sector – Set to ‘Resume’ Lending? Provides useful analysis on key policies/activities that will influence the dynamics of banks’ intermediation role in 2011. 47 About FirstBank FirstBank Research30 Credit Dynamics: Is It Better to Borrow in Naira or in Dollars? Describes the root cause of credit problem/ conundrum. Financial Derivatives Company
    • Editorial NoteFGetting Banks to Lend AgainFinancial intermediation is fundamental affected. When whole sectors of the productively. The regulator also adoptedto the success of market economies. economy are denied capital, the social several measures to promote lending toThe reason banks in particular have such and frequently political consequences of critical sectors of the real economy suchpronounced influence on economic such are enough to make governments as agriculture, manufacturing, power,growth and development is simple: all very interested in ensuring the free flow and transportation. Notwithstanding,businesses require financing. Financing of capital within a nation, and particularly many of the healthy banks were slow tois to any business venture what food is in times of a recession when investments respond and individuals and businessesto the body – a source of energy that are required to create jobs, generate did not fare much better in trying to getallows the consuming entity to conduct stronger economic output, and ultimately bank loans. In fact, in the year endedits activities profitably and to grow – lead to recovery. December 2010, total credit to the privateand without which it would cease to sector actually declined relative to thebe alive. And financing can come from Against this backdrop, the actions of the prior year!multiple sources. As a child might drink Central Bank of Nigeria in the wake ofmilk until it is weaned and then eat our recent homegrown banking crisis are In the same year, we as the FirstBanksolid foods, a business in its early stages very understandable. When ten banks Group (the largest banking group andtypically requires startup equity capital were deemed to be in grave condition in lender in Nigeria) grew loans at face valueand at a later stage expansion capital in 2009, the Central Bank pumped in N620 by 6%. However, because we woundlarger portions and potentially different billion to stabilize the financial sector and down nearly N150bn in loans to ourforms, and over the course of its life it went on to champion the establishment subsidiaries and replaced them with loansmay consume daily increasing rations of the Asset Management Corporation of to customers, our actual loan growthof working capital which it continually Nigeria to purchase ‘toxic’ assets off the to customers was much closer to 20%.replenishes to fund general activities as balance sheets of banks. It additionally We remain intrigued, notwithstanding,it grows. When a business is in poor guaranteed creditors who had lent to by this phenomenon which we call thefinancial health, it may require emergency these banks and depositors who had ‘credit conundrum’. Why are banks whoinfusions of capital to keep it alive, and placed their funds with them. The are awash with liquidity so reluctantconversely when it is doing well, it can government could not afford a situation to lend? Are the reasons to be foundalso suffer from an excess of capital, when in which the failure of a few banks might within the banking system, the broaderit consumes much more than it requires, bring down healthy banks and grind the economy or with the potential borrowersand in forms and under terms that may financial sector and economy to a halt. themselves? And what can be done tonot be the best for its long-term health. restore the vital flow of credit in the Paradoxically, in the wake of the economy? In this edition of the FirstBankWithout over-emphasizing the metaphor, interventions, the industry found itself Review, we explore this topic and weit becomes apparent why regulators and awash with liquidity and interest rates hope that the ensuing pages will not justgovernments are so interested in keeping dropped dramatically with the benchmark elucidate the causes but will also offerthe flow of credit going. When companies NIBOR overnight rate (the rate at which practical advice and knowledge to thosebecome ‘starved’ of credit (and are not banks lend to and borrow from each who seek to take advantage of bankable to finance their operations internally other) averaging 2% in the first quarter financing opportunities.or via other means), they run the risk of 2010 (it has since shot up again). In anof shrinking and eventually dying out effort to stimulate lending and jumpstart- which in turn has broader social and the economy, the CBN attempted during Onche R. Ugbabeeconomic implications as their employees 2010 to maintain low interest rates which Chief Strategy Officer, FirstBankfind themselves out of work and as their would theoretically allow bank customers Editor-in-Chiefcreditors, suppliers, and customers are to access cheap funds and deploy them6 FirstBank Review | 1st Half 2011
    • EDITORIAL COMMITTEEBayo AdelabuChief Financial OfficerOnche UgbabeChief Strategy OfficerMorohunke BammekeGroup Head, OperationsRichard OgunmodedeHead, Business Performance ManagementFolake Ani-MumuneyHead, Marketing & Corporate CommunicationsBismarck RewaneMD/CEO, Financial Derivatives Company Limited(External Reviewer)Dr. Yomi MakanjuolaPrincipal Partner, Thinck Metrics (External Reviewer)Renuka RayasamRoland Berger Strategy ConsultantsRESEARCh/PRODUCTION TEAMVincent Nwani – Head, Research UnitTunji Inaolaji – Research AssociateSaheed Olajide – Research AnalystINTERNAL REVIEWERSBabatunde SalamiHead, Local Currency, TreasuryGodspower I. NkwoparaHead, HR StrategyEloho OmameHead, Corporate DevelopmentAkeem OladeleHead, Group CoordinationIfeanyi UddinChief EconomistKayode OsolajaHead, Special ProjectsOze K. OzeHead, Publications & ConferencesCREATIVE DIRECTION/DESIGNSymon Adeji, Sleek MediaAyoade Ojo, DesignCavePROPRIETARY & ENQUIRIESFirstBank Review is a publication of the Strategy& Corporate Development department, producedwithin the Research Unit. Further enquiries/commentsand submission of articles should be directed toResearch@firstbanknigeria.comREPRODUCTIONCopyright © 2011 First Bank of Nigeria Plc. All rights reserved.No part of this publication may be reproduced or transmitted inany form or by any means, electronic or mechanical, including NOTE TO READERSphotocopying, recording or any information storage devicewithout written permission. The views expressed in the articles are the authors’ and not necessarily those of First Bank of Nigeria Plc. Whilst reasonable care has been taken in packaging this report, no responsibility or liability is accepted for errors or fact or for any views expressed herein by any member of the FirstBank Group for actions taken as a result of information provided in this publication. FirstBank Review | 1st Half 2011 7
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    • The Economy GDP Growth 9.0 9.0 7.4 7.0 7.0 6.6 6.9 7.0 7.0 ? 6.2 2011 may mark the second 5.0 5.0 time in six years that 4.6 actual GDP exceeds the Federal Governments budgetary target for GDP. ? 1Q2011 figures already appear promising at 7.4% (in line with 2010 actual). Outcome Outcome Outcome Outcome Outcome Outcome Outcome Target Target Target Target Target Target Target 2005 2006 2007 2008 2009 2010 2011 2.5m bpd Crude Oil Production 2011 Daily Average (YTD June 2011) Daily crude oil production is at its highest sustained level since 2006. We expect strong continued production given 1.8m bpd the success of the recently-concluded general elections and sustained peace in the Niger Delta. 2008 July n (Ja et h ark hig X m nd to k F isk a r FX an r fo US$ 153 2011 Daily Average terb itical and e In pol dem t th ut as at Jan 2011 2011) t es 2 a s abo xpec t (YTD June Ra N by cern We e r. ge ed n . iat y co evels uarte an rec xch b l ep iven tion ing q E ad r a air 1) d port e com e N 01 h Th ne 2 ity im in t g - Ju mod tron s com ain rem 8.0% MPR (as at June 30, 2011) Interest Rates @ 2 year high Interest rates have risen steeply since September 2010. Changes in 10.92% Interbank rate (overnight) the MPR and its corridors will continue to influence the direction of (as at June 30, 2011) deposit and lending rates. Down 2.5% from high of 13.46% in Nov. 2010 Was as low as 1.15% in June 2010 Where are the jobs? 19.7% Official Une m ployment Ra te 12.4% Nigerias of ficial unem Inflation - May rate is high Middle East er than that and North ployment of most of the 2011 African nati As econo currently w on mic activ itnessing re ity Nigeria ha volutions an s the chall enge to in rallies on post ele sa d aggregate flati ction resu Unemploym larger proportion of expendit on control lies in lts, ent (which youth. of inflati u understate is likely on in imp re and moderati containing d) remains orted go ng the im of the gove in our view ods. pact rnments to one p five priori10 FirstBank Review | 1st Half 2011 ties.
    • at a Glance Private Sector Credit Growth Private sector credit growth declined from an 97% 59% 27% -5% astronomical 97% in 2007 to a contraction of 5% in 2010. However, we expect gradual credit growth in 2011. Non Performing Loans (N billion) 2,922 Non Performing Loans Nigerian Banks’ non-performing loans (NPLs) which 869 ballooned from N151 billion in 2006 (shortly after the regulatory-induced recapitalization exercise) to 272 N2.9 trillion in 2009 reduced significantly in 2010. 209 151 Available data (for 13 banks) shows that NPLs have declined to N869 billion in 2010 – in part due to write-offs and the interventions of the 2006 2007 2008 2009 2010 Asset Management Corporation of Nigeria. an Market Syndicated Lo e syndicated and 2009, th e value of owdo wn of 2008 enin g. Th After the sl be reawak e t appears to 2011 is greater than th loan marke als in 09. the tw o biggest de ecuted in 2008 and 20 of deals ex total value Sectoral Share of Bank Loan The agricultural sector which contributes over 40% to the nations GDP accounts for less than 1% of total bank lending while telecommunications which contributes 4% of GDP accounted for over 12% of total bank loans in 2010. FirstBank Review | 1st Half 2011 11
    • The NigerianCredit ConundrumFirstBank Economic Intelligence T The larger context for the ongoing debate With the banks awash with new liquidity, about current constraints in the domestic questions have inevitably been raised credit market is the astronomical growth about a credit squeeze, and much effort in credit to the private sector, which spent trying to device new approaches to occurred between 2006 and 2008. In unlocking the domestic market for credit. excess of 100% per annum within this Again, the CBN’s intervention in this period, it is worth recalling that the bulk regard has been the most noticeable. The of this credit growth fuelled speculative jury is not yet in on the extent to which activity in non-productive sectors of the apex bank’s quasi-fiscal operations the economy, especially connected may have helped to improve credit flow party lending, margin lending, and oil to the real sectors of the economy, but importation. it is hard not to commend much of what the CBN has done thus far. It was inevitable therefore, that the Central Bank of Nigeria’s (CBN) intervention to Nevertheless, success in unlocking the reform and repair the sector would lead domestic market for credit will however to an attenuation of domestic credit depend on getting the right mix along growth. The latter consequence has four interconnected dimensions of the been the main upshot of stronger risk economy. First, the banks. Traditionally, management frameworks, and improved their business model has focused on governance arrangements. However, it generating retail liabilities and on-lending is hard to ignore another effect of the these to the top corporate names. As the apex bank’s attempts at cleaning up the structure of the economy has changed industry’s balance sheets. Along with the with successive reforms, this model has Asset Management Company of Nigeria’s been challenged by a noticeable bulge (AMCON) purchase of the industry’s in the middle of the economy. Along non-performing loan portfolio, the CBN’s with the transition in the trend growth guarantee on interbank transactions rate of the economy from around 4% helped push up bank liquidity beginning prevalent in the late 1990s to around 2011.12 FirstBank Review | 1st Half 2011
    • 7% today, there has emerged a new which ensure that the landing cost of noticed attempts by policy makers tomiddle class in the country with financing imports is cheaper than for domestic stimulate credit growth by loweringneeds which the banks are ill-prepared production have helped contract the interest rates to near zero. LIBOR whichto serve. Change would thus see the manufacturing sector. The challenge here came down to 0.5% per annum combinedbanks re-appraise their pricing models, is to reduce the cost of doing business with huge doses of quantitative easingrisk acceptance criteria, and the size of in the economy, including the provision did little to motivate banks into a bullishtheir loan packages if they are to take of infrastructure through the public- lending mode. The same happened inadvantage of the new vistas opening up private partnership, in the expectation Nigeria (March-June 2010) when OBB andin this sector. that growth in the manufacturing sector T/Bill rates declined to 3% per annum, will drive a resurgence in the demand and we did not notice a spike in lending.Much of the rest of what has to be for credit. This means that low interest rates anddone though is completely beyond the liquidity saturation do not on their ownbanks’ ken. Emergent sectors of the This latter challenge is a fiscal one. alter banking and lending behaviour.economy demand specific responses, Government must create the environment It is the perception of risk that makesstemming, among others, from the fact for this to happen. Government though, the difference. In the U.K. like otherthat they still suffer from a narrowness of has an added task: fiscal consolidation. advanced markets, it took approximatelyentrepreneurial competences. Most small Since 2006 and on the back of revenue 24 months after the stimulus before weand medium sized enterprises operating over-performance from elevated crude noticed any substantial increase in creditin the economy today still do not know oil prices, government spending has extension and flows to the market. Onehow to optimise their capital mix, cannot grown steadily. Government debt has thing that is common between lendersput coherent business plans together, grown too. And as banks have dealt with response to policy incentives acrossand often do not keep adequate books net interest margin pressure through various markets is that the trauma of theof accounts. So, even to the most increasing their holding of government financial crisis led to a high level of riskentrepreneurial of this class, it would be instruments, government has contributed aversion which takes time to thaw.hard to see much credit flowing their significantly to crowding out privateway unaided. sector borrowing. Adjusting the public All told, it would be necessary, in light expenditure management framework to of the feedback between these diverseIn spite of this, credit opportunities were take cognisance of this would thus be dimensions of the economy that aalways going to be constrained by the a useful contribution to the process of solution to the credit problem be allfact that manufacturing contributed unlocking the domestic credit market. inclusive. This was always going to be a4.19% of GDP in 2009. Ideally, one of challenge to be solved over the medium,the areas in which net capital formation As an international bank, there are certain and not the short term.should take place in the economy, and to characteristics of the global recoverywhich credit should flow for this purpose, which we noticed in the various marketsstructural constraints in the economy, where we operate. For example, we FirstBank Review | 1st Half 2011 13
    • RegulatoryInterventions:Towards Unlocking the Domestic Credit MarketFirstBank ResearchE Evidently, the Federal Government appears determined to influence and stimulate the level of economic activities in the real sector of the national economy. Within the last 20 months, the Central Bank of Nigeria (CBN) has released four guidelines for disbursement of funds totaling N900 billion, directed at boosting real activities across five sectors. The four Funds, with varying loan tenures, are Commercial Agricultural Credit Scheme (CACS), SME Credit Guarantee Scheme (SMECGS), SME/Manufacturing Sector Refinancing/Restructuring Fund, and Power and Aviation Intervention Fund (PAIF). The Funds are earmarked to finance five sectors: Agriculture, Aviation, Power, Education and SME/Manufacturing. Prior to 2010, the last time the Federal Government injected direct funds into the real sector was in 2006 (Agriculture Credit Support Scheme). In the table shown below, we highlight the funds’ basic framework:14 FirstBank Review | 1st Half 2011
    • FirstBank Review | 1st Half 2011 15
    • Profile of Recent Government Assisted Funding Funding Intervention Year of Establishment Amount Sectors to be Funded Measures /Release of Guideline (N ‘Billion) Agricultural Credit April, 2006 50 Agriculture (Establishment or Support Scheme management of plantations; cultivation or production of crops; livestock; farm machinery and hire services) Commercial Agricultural January, 2010 200 Agriculture (Production of cash crops, Credit Scheme food crops, poultry, livestock, aquaculture; processing; storage; and farm input supplies) SME Credit Guarantee March, 2010 200 • Manufacturing Scheme • Agricultural Value Chain • Educational Institutions • Any other activity as may be specified by the ManagingAgent from time wto time SME/Manufacturing April, 2010 200 • Nigerian SME/Manufacturing Sector Sector Refinancing/ Restructuring Fund Power, Aviation & August, 2010 300 • Power Infrastructure Fund (PAIF) • AviationSource: Funds’ GuidelinesWhat happened to the target sectors still face onerous by government, funding gaps have challenges that inhibit their ability to persisted (and appear to be approachingFunds? easily access financing. Key among epic proportions), when seemingly theFigures from CBN show that the funding the limiting factors are: nation’s GDP growth is increasingly beingschemes have been largely successful in disconnected from bank lending.terms of disbursement and utilisation. For • Difficulty encountered in obtaininginstance, as at December 2010, over 60% Irrevocable Standing Payment Order In the Nigeria Vision 20:2020 – Firstof the funds directed at the agricultural (ISPO) from state governments National Implementation Plan (2010–sector had been disbursed. Updates of to guarantee loans disbursed to 2013) Blueprint (draft copy) – releasedthe funds utilisation are highlighted as farmers in their various states; in May 2010, the Federal Government’sfollows: • Mismatch between the mean time planned investment across all sectors of for processing credit and the timing/ the domestic economy between 2010• N109.628 billion out of the N200 seasonality of the available business and 2013 is estimated at N7 trillion. billion CACS Fund has been opportunities for which the loan is The top-5 priority sectors are projected released for disbursement to sought; to account for 73.6% of the total 115 beneficiaries (comprising 95 • Inability of the fund-seekers to investment expenditure estimate. The individuals/private promoters and provide the required security as priority sectors, in descending order 20 State Governments), through 12 stated in the Fund guidelines, of indicative allocations, are: transport banks (as at February 2011); especially when banks have to bear (N2.43 trillion), power (N880.98 billion),• N199.6 billion out of the N200 the credit risk. education (N611.66 billion), agriculture billion for re-financing/re-structuring & water resources (N595.34 billion), and of banks’ existing loan portfolios to oil & gas (N541.79 billion). Any Funding Gap? the manufacturing sector and SMEs was disbursed to 539 beneficiaries The recent Intervention Funds Similarly, the expenditure in the power across 12 different sectors of the pronouncement is positive confirmation sector over the next ten years is projected economy (as at December 2010); that government is aware of the financing at about $100 billion (N15 trillion) – in• N35.82 billion out of the N50 billion challenges facing the real sector of order to increase electricity generation ACSS Fund has been guaranteed the economy. However, the available from its current level of less than 4,000 since inception (as at June 2010); funds are just a fraction of the financing megawatts to 40,000 megawatts by 2020. resources required by the sector to regain Projections of the other priority sectors This apparent success traction and achieve sustainable growth. will likely follow a similar pattern. notwithstanding, operators in the Despite the ongoing funding initiatives16 FirstBank Review | 1st Half 2011
    • The national and sub-national “Clearly, aggregated the impediments which have hamperedgovernments’ investment in these the private sector’s ability to access creditsectors is to enable a conducive investments in facilities from banks. In addition, suchenvironment and to galvanise the private these sectors will strategic measures should checkmate pastsector’s participation in the economy. pitfalls (e.g. ballooning of non-performingCumulatively, the funding required to open up investment loans, escalating interest rate, etc.), asachieve the anticipated sectoral/economic opportunities for the well as pre-empt future hindrances.development projections is massive. private sector. But it A related and festering concern is the needClearly, aggregated investments in will be very difficult to accelerate land reforms. In Nigeria, thethese sectors will open up investment primary collateral for bank loan requestsopportunities for the private sector. But for the private sector is landed property, and, over the years,it will be very difficult for the private solely to finance all this has created an incongruous barriersector solely to finance all the sub-sectorsof the real sector to the extent of their the sub-sectors of to entrepreneurship. Recognising this fact, government, in 2007, included landfunding requirements, without financing the real sector to the reforms in its 7-point agenda, statingassistance from the banking sector. extent of their funding “While hundreds of billions of dollars have been lost through unused government-In the Doing Business Report (2010), requirements, without owned landed assets, changes in the landa co-publication of Palgrave Macmillan, financing assistance laws and the emergence of land reformsInternational Finance Corporation (IFC) will optimise Nigeria’s growth throughand the World Bank, Nigeria ranked from the banking the release of land for commercialised125th position out of the 183 countries sector.” farming and other large-scale businessessurveyed in the report. The ranking was by the private sector. The final resulta decline from the 120th position Nigeria translates to improved welfare”. Hence to will ensure improvements and boostsachieved in 2009. realise this goal, the Bankers’ Committee to the production and wealth-creation “has identified three key sectors: power, initiatives.”The difficulties that characterise the ‘Ease transportation and agriculture, as mostof Doing Business in Nigeria’ index have critical to the development of the real Additionally, it is important to develop thea strong direct correlation with funding. economy, as well as the change that primary and secondary markets for long-In a survey by the World Bank, “An will drive other sectors and contribute to term debt. This is particularly importantAssessment of the Investment Climate economic development in Nigeria.” given the banks’ limitation in extendingin Nigeria (2009)”, it was reported that loans to the real sector (considering theironly 1% of the business financing needs Five key decision thrusts that would loan/deposit maturity mismatch profile).in Nigeria are sourced from banks and influence Bankers’ Committee’s lending The current practice whereby the bondother financial institutions. The remaining provision to the three identified sectors market is dominated by governmentbusiness financing comes from internal are: at the expense of the private sectorfunds/retained earnings (70%), suppliers’ is not sustainable for a country thatcredit and advances from customers • Identification of initiatives in each of has identified the private sector as its(25%), and borrowing from family and the focus sectors that the financial primary engine of economic growth. Bothfriends (4%). system will support; government and financial intermediaries • Determination of the requirements should institute strategies that will reduceAccess to financing, according to the for success, including funding; the crowding-out effect of government’sGlobal Competitiveness Report (2010– • Engaging in advocacy to effect borrowing at the expense of private2011), was the most problematic factor government policy changes; sector lending.impeding doing business in Nigeria • Support for industry-wide capacity-out of the 15 factors considered in the building; While the issues described abovereport. The other factors, in descending • Work on the development of are considered crucial to unlockingproblematic order, are: inadequate supply regulation and legislation to support the domestic credit market, all keyof infrastructure, corruption, policy lending to the sectors. stakeholders should ardently brainstorminstability, government instability/coups, and fine-tune the modalities to actualiseinefficient government bureaucracy, the strategic objectives that would spurinflation, inadequately educated Bridging the Gap sustainable economic growth. This willworkforce, crime and theft, poor work With the apparent mutual understanding facilitate deeper understanding of theethics in national labour force, foreign of the funding gap and remedial actions funding schemes and the technicalitiescurrency regulations, restrictive labour to bridge the gap, a new chapter appears of lending to the real sector. This isregulations, poor public health, tax to have been opened in the Nigerian a clarion call to all stakeholders toregulations, and tax rates. real sector financing. However, to pro-actively champion and contribute orchestrate tangible increase in credit towards Nigeria’s attainment of theInterestingly, one of the four cardinal to the private sector (real sector, in enviable position of ‘one of the 20 largestpillars of the CBN’s ongoing reform particular), all parties must concertedly economies by 2020’.is “ensuring that the financial sector design pragmatic strategies that willcontributes to the real economy, which reduce actual and inherent risks in the realis very critical to the type of growth that sector. By so doing, this should reduce FirstBank Review | 1st Half 2011 17
    • SyndicatedLoans GainingPopularity inNigeriaFirstBank ResearchOver the past five years, about 64% of syndicated lending in Nigeria wentto the telecommunications sector and 20% to oil & gas.When Etisalat Nigeria closed on a representative in the Etisalat syndicated have taken advantage of loan syndicationsyndicated loan deal earlier this year, it loans deal, “just one bank may not be structures. Over the past five years, aboutwas a sign of renewed dynamism in the able to shoulder that level of borrowing 64% of syndicated lending in Nigeriacountry’s lending markets. Eight Nigerian because of the size of the facility”. went to the telecommunications sectorlenders financed the N97 billion facility. and 20% to oil & gas. In recent years,The mobile operator plans to use the funds Etisalat first approached lenders in the country has averaged only aboutto aggressively expand its network across December 2010. Over the course of the four syndicated deals per year. But as thethe country, buying new equipment and next few months, the FirstBank team Nigerian government intensifies its powerbuilding new infrastructure. along with representatives of other major sector reforms, banks will be called upon lenders met multiple times to flesh out to finance even more capital-intensiveIn such transactions, several banks team the details. Although the banks strove projects.up to structure and underwrite a single to protect their own interests, therelarge loan, allowing them to share were nevertheless no major obstacles in Clients seeking to approach lendersinformation and diversify their risks. As agreeing stipulated terms. “While such for a syndicated loan must be well-Nigerian banks continue to strengthen deals take more time and co-ordination, prepared. While it helps to have a goodtheir balance sheets and stabilise their they are worth it because they help existing relationship with lenders, thepositions, syndicated loans represent banks to better evaluate risks, and ensure most important selling point is a strongthe type of financing schemes that an certain comfort in knowing that all the proposal. Potential borrowers must haveincreasing number of Nigerian firms will banks are in the same situation.” a clear idea of what they are using theexplore. facility for, be able to show strong cash- Syndicated deals have for long been a flow projections and prove that they haveWith the slow thawing of the credit staple in Western markets. In the U.S., good management. Clients make the dealenvironment in Nigeria, loan syndication they formed 51% of total corporate as straightforward as possible for lendersdeals offer companies a way to finance financing in 2007. By contrast, in Nigeria by showing profitability, sticking to loanmajor capital-intensive projects, which they were 12% of corporate lending that terms and communicating regularly withare often too large for just one lender year. Since then, an increasing number all lending partners.to undertake. According to the FirstBank of companies in mostly mature sectors18 FirstBank Review | 1st Half 2011
    • FirstBank Review | 1st Half 2011 19
    • Top-10 Banks in the Nigerian Loan Syndication Market (2006–2010) Bank Amount (US$ ‘m) No. of Deals Platinum Habib Bank Plc 9,576.23 10 Access Bank Nigeria Plc 8,953.39 9 First Bank of Nigeria Plc 8,808.39 9 Oceanic Bank International Nigeria Plc 7,431.85 9 Stanbic IBTC Bank Plc 8,717.54 9 United Bank for Africa Plc 7,211.00 9 First City Monument Bank Plc 8,688.39 8 Guaranty Trust Bank Plc 8,688.39 8 Standard Chartered Bank Nigeria Plc 8,799.54 8 Zenith Bank Plc 8,684.65 8 Source: FirstBank ResearchSupportive Operating syndication scheme. It is our belief that up in monetary policy rates, in our view,Environment the Freedom of Information Bill (FIB) signals higher interest rates on domestic passed by the National Assembly, once debt instruments. CBN has indicated thatGrowing interest in loan syndication is signed into law, will bolster information it is prepared to tighten further shoulda product of its intrinsic loan portfolio dissemination and disclosure, going the inflation outlook worsen in 2011. Itdiversification attribute, as it reduces forward. is our hope that fiscal consolidation andexcessive single-lender exposure risk. It likely interest rate hikes later in the yearalso serves the dual purpose of aiding At the Monetary Policy Committee (MPC) will not be at the expense of the recoveryfinancial institutions to comply with strict meeting held on March 21 to 22, 2011, of credit growth.regulatory limits and in curtailing risk. the CBN noted that the net foreign assetsIn terms of earnings, it enhances mixed in the first two months of 2011 posted With about N1.5 trillion yearly investmentsincome sources through the collection positive growth, the first time since estimated for the power sector over theof fees, while tackling lack of origination January 2009. Therefore, enhanced credit next ten years, analysts have projected acapability and origination costs. flow to the private sector is envisaged three-digit growth rate multiplier effect in due to the high potential for accelerated the power and ancillary sectors, providedOne major challenge that arrangers and growth, the stabilisation of the banking the ongoing power reform programmeother players in the loan syndication sector and improving investor confidence, intensifies and is sustained.market face is the uneven access to following the take-off of the Assetmarket information amongst them Management Corporation of Nigeriaand other participants in a given loan (AMCON). On the downside, the trending20 FirstBank Review | 1st Half 2011
    • One major challenge that arrangers and other players in the loan syndication market face is the uneven access to market information amongst them and other participants in a given loan syndication scheme.*Profile of Syndicated Loans in Nigeria Project Syndicated/Beneficiary Amt Banks Involved Year Involved (US$’Mn) Transcorp – Acquisition of 75% stake of NITEL 750.00 consortium of Nigerian banks 2006 Obajana Cement Plc – Construction 160.00 consortium of Nigerian banks 2006 Celtel – Network Expansion 1,584.00 12 Nigerian Banks and 13 International Banks 2007 Zenon Petroleum 1,500.00 BNP Paribas of France & 9 local Banks 2007 House for Abuja Civil Servants 769.00 Oceanic Bank and two other local Banks 2007 Xechem Pharmaceuticals 7.69 Bank PHB & Diamond Bank 2007 Eleme petrochemicals 123.00 Stanbic Bank, UBA and Fidelity Bank 2007 AES Nigeria Barge 270MW Power Station Project 25.00 Local Banks 2007 NLNG Trains 50.00 Local Facility Agent 2007 NNPC/MPN NGLII Project Financing 50.00 Nigerian Banks 2007 NNPC/MPN $600m Satellite Oil Field Financing 90.00 Local & International Banks 2007 Lekki Infrastructure Project 46.15 Local Banks 2007 Refinancing the New Lagos Airport Terminal Project 153.85 Access, FirstBank, GTB, Oceanic, Zenith, FCMB 2007 MMA2 Lagos Project 250.00 Oceanic Bank 2007 MTN Nigeria 2,000.00 consortium of 21 foreign and Nigerian banks and financial institutions 2007 Exxon Mobil - finance exploratory and 265.00 United Bank for Africa Plc, Oceanic Bank, 2008 production activities Standard Chartered Bank, Skye Bank, Zenith Bank, Bank PHB, Access Bank and Union Bank Plc Lafarge Cement- WAPCO - Ewekoro 268.74 Stanbic-IBTC, GTBank, Std Chartered, FirstBank, 2009 Expansion Plant UBN, Ecobank, Bank PHB, Access, FCMB Main Street Technologies 120.00 AfDB, DEG, First Bank of Nigeria Plc, Skye 2009 Bank Plc MTN Nigeria 2,150.00 Access Bank, Afribank, Bank PHB, Citibank, Diamond Bank, Ecobank, FCMB, Fidelity Bank, FirstBank, GTBank, Stanbic IBTC, Standard Chartered Bank, Union Bank,UBA, Zenith Bank, Industrial & Commercial Bank of China and KfW IPEX-Bank of Germany 2010 AccuGas Limited 60.00 Stanbic IBTC, UBA 2010 Etisalat - Network expansion 650.00 FirstBank, Zenith Bank, Access Bank, Fidelity Bank, 2011 Bank PHB, GTBank, UBA, and Oceanic Bank Shell Petroleum Development Company of Nigeria 30.00 FirstBank, Zenith Bank, UBA 2011 Limited - Shell Contractor Support FundSource: FirstBank Research*Commercial banks still dominate the primary syndicate market all over the world and they appear not in a hurry to leave the space FirstBank Review | 1st Half 2011 21
    • Definitive SMEGuide to GettingA Bank Loan*Patrick Akhidenor“Mr. Small-Medium Business” is likely to taken regarding the appropriatepoint accusingly to lack of access to bank form of support, which may notloans as the greatest challenge he faces. always be direct lending. A businessBut, is this real or mere exaggeration owner must be able to clearlyand possibly prejudice? If this conjecture express the precise financial need. The longer ais true, why is this so and, how can it be A lender will need to know if, forreversed? This short article will attempt example, the actual purpose is for business has beento address this issue. the payment of salaries, financing in existence, the of receivables, or if the request isLack of Access to Bank Loans – more capital-oriented for, say, the more likely thatFact or Myth? construction of a factory. When the it has assimilated funding request is vague, what “Mr.Generally speaking, the small business is by Small-Medium Business” seems to be and weathereddesign “unitary” with ownership centred conveying is arbitrariness, ambiguity the vicissitudeson a “key man” and supported nominally or evasiveness. Consequently, aby his close family and, sometimes, a few lender would rather choose to err of its operatingfriends. Typically, the business derives on the side of caution…; environment;its vision and dynamism from this keyman who often has very limited funds at • Business plan or FEASIBILITY “surprises”his disposal but almost unlimited ideas study. This will readily indicate if should thereforeand boundless optimism. His inability to the promoter, especially where start- be less frequenttransmit the vision and potential he SEES up risk is envisaged or expansionto his banker often hampers his access to into some new area of business and financialfunds. On his part, his banker’s checklist is intended, has carefully thought projectionswould usually focus on the following: through the business idea and is able to articulate its viability and back likely to be more• A clear loan PURPOSE. Clarity it up with documentary evidence. realistic. and conviction, exhibited by the Otherwise, the promoter might prospective borrower for the simply come across as a spontaneous requested bank loan, will make for or impulsive risk taker; easier and faster decisions to be22 FirstBank Review | 1st Half 2011
    • • C A PA C I T Y t o re p a y . A f t e r • Reliable FINANCIALS with good extra mile to ensure the success conducting appropriate due CASh FLOW Projections and of a deal or transaction and not diligence on the character and supporting ASSUMPTIONS. More “abandon ship at the slightest signs credibility of “Mr. Small-Medium often than not, “Mr. Small-Medium of turbulence” if the borrower has Business” – usually sourced from Business” pays very little attention personal funds at risk. Oftentimes, past credit history, and professional to keeping good, reliable, and collateral stake is also required, in relationship with employees, readily accessible financial records. addition to equity where the risk is suppliers, trade partners, etc. – a Often categorised as “one-man perceived to be quite high, and given lender would need to assess and businesses”, such business owners the need to comply with regulatory determine from current business characteristically focus more on cost requirements for lending. operations whether the loan can be savings (by not engaging the services repaid as and when due, towards of accountants or auditors) than on With the above pointers as guidelines, the achieving a win-win proposition for keeping good finance records. perennial claim by small to medium-sized both parties. Business acumen and Obviously, the better the quality of business owners of poor access to bank conservative financial management available financial records, the more loans should become less emotional but skills are two key attributes of easily banks can understand and rather premised on hard-nosed reality. successful and long-term business assess the needs of customers; owners; • P ro m o t e r ’s e q u i t y S TA K E . *Patrick Akhidenor is a Senior Credit Analyst in FirstBank• Track record or EXPERIENCE. Generally, the credibility of a proposal Obviously, the longer a business will reflect in the level of equity that has been in existence, the more the promoter has in the proposition. likely that it has assimilated and A lender is more inclined to support weathered the vicissitudes of its a request that puts the promoter’s operating environment; “surprises” own personal funds at risk than one should therefore be less frequent where the promoter’s risk is tied and financial projections likely to be to the expected margins or profit. more realistic; Economic history has shown that business owners will usually go the FirstBank Review | 1st Half 2011 23
    • DNAL RESIURC BPL BRISCOE PROPERTIES LTDTA YOTO
    • Nigerian BankingSector - Set to‘Resume’ Lending?FirstBank ResearchA As the global financial and economic recovery continues, the need for the domestic banking industry to ‘resume’ lending to the private sector gains higher credence, albeit with greater prudence and consideration to inherent risks in business transactions, especially those considered as ‘notable transactions’.26 FirstBank Review | 1st Half 2011
    • FirstBank Review | 1st Half 2011 27
    • Catalysts in the Nigerian may prescribe afterwards. Banks were Extension of CBN Guarantee required to submit their compliance At its meeting on March 21 to 22,Banking Industry plans on or before February 14, 2011. 2011, the Monetary Policy CommitteeKey policies/activities that will influence Except the four banks that have chosen (MPC) extended the CBN Guarantee forthe dynamics of banks’ intermediation to operate a holding company (Holdco) all interbank transactions, and foreignrole in 2011 include the following: model (FirstBank of Nigeria Plc, United credit lines, as well as pension funds’ Bank for Africa Plc, Stanbic IBTC Bank Plc placements with banks from June 30, and First City Monument Bank Plc), manyCBN Policy on Cash Withdrawals 2011 to September 30, 2011. other banks plan to sell their subsidiaries./Lodgments Limits Even those that choose the Holdco model A key issue that will determine howIn an effort to reduce the dominance may not retain all their subsidiaries. quickly CBN can withdraw its guarantee isof cash in the Nigerian economy Consequently, consolidation activities the success record of the recapitalisationand encourage the use of electronic (joint ventures, alliances, mergers and exercise/pending sale of the rescued banks.payment systems, the Central Bank of acquisitions) are expected to intensify If mergers/acquisitions/recapitalisationNigeria (CBN), in collaboration with in 2011. exercise is successful, and with AMCONthe Bankers Committee, has set limits firmly in place, the likelihood that CBN willon cash withdrawals and lodgments by In addition, there could be a restructuring not extend the guarantee further fromindividuals (N150,000) and corporate of customers’ composition across banks, September 30, 2011 is very high, as bothinstitutions (N1 million) transacting depending on each bank’s operating investors and creditors will have accesswith Deposit Money Banks (DMBs). This model – coverage and ease of access to sufficient information to enable themdirective, effective from June 2012, is to other financial services will be key assess the inherent risks before makingalso expected to help moderate the cost determinants. commitments – thanks to uniform year-of cash management and reduce related end, supportive regulatory regime andincidences of security breaches and Sale of Toxic Assets banks’ migration to International Financialmoney laundering activities. Plainly, the establishment of Asset Reporting Standards (IFRS). Management Corporation of NigeriaGiven its primary objectives, it is our (AMCON) in 2010 was the reform catalyst If CBN removes its guarantee on allopinion that this policy initiative is required to propel the recovery of the interbank transactions and foreign creditcommendable. Majority of the world’s domestic money and capital markets. lines, the expectation is that there will beadvanced and emerging economies a surge in interbank rates, depending onhave since transited from cash-dominant 21 deposit money banks (DMBs) met the risk level, across various maturities.systems to electronic payment channels, the December 30, 2010 deadline set byhence a policy that will elevate Nigeria AMCON for all DMBs to sell their toxic Expiration of Rescued Banksto the committee of nations that has assets to the company. The portfolio ofentrenched electronic payment platforms Interim Tenures impaired assets of the 21 DMBs comprisedin their financial culture is timely, N2.43 trillion from 9 rescued banks and August 14, 2011 and October 2, 2011appropriate and admirable. However, N581 billion of 12 healthy banks. The will mark the end of the 2-year tenureas laudable as the policy initiative may total value of toxic assets of the banks given to the interim Chief Executiveappear, the practical implications in a is within the limit of N3 trillion in bonds Officers appointed by the CBN for 8 ofNigerian economy that is traditionally cash that AMCON plans to issue. the management teams of the 10 rescuedoriented demands that all stakeholders banks.pull together to discuss and agree its In line with the terms of the loan purchase‘operability’. The debate should also agreement AMCON signed with DMBs The first batch (with August 14, 2011address the lingering risks associated with on the purchase of their toxic assets, tenure expiry date) includes Oceaniconline banking in Nigeria. AMCON has started injecting funds into International Bank Plc (John Aboh), the banks. The action has facilitated more Intercontinental Bank Plc (Lai Alabi),New Banking Model trading activities in the market shares of Afribank Plc (Nebolisa Arah), Union DMBs. Given the volume and influence Bank of Nigeria Plc (Funke Osibodu), andCBN, in its effort to promote a sound of the banking industry’s shares on the FinBank Plc (Susan Iroche).financial system in Nigeria, repealedthe Universal Banking Guidelines (UBG), movement of other stocks, the multiplier effect of the industry’s gains are also The second batch (with October 9, 2011effective from November 15, 2010. The being felt across other sectors of the tenure expiry date) comprises: Springrepeal was approved after months of market. Bank Plc (Sola Ayodele), Bank PHB Plcdeliberations, consultations and intensive (Cyril Chukwuma), and Equatorial Trustreview, in order to curtail the exposure of With this development, we expect Bank Ltd (Gbolahan Folayan).banks to higher operating risks, as wellas prohibit investment of depositors’ investors’ confidence in quoted bank shares to rise. This will facilitate financial The CEOs of the remaining two banksfunds into risky adjacent non-banking stability and credit expansion, as well as (Wema Bank Plc and Unity Bank Plc)businesses that often heighten financial further enhance the depth and liquidity of will remain in charge, but have beensystem instability. the domestic money and capital markets mandated to recapitalise their banks. in 2011. We expect CBN to make specificThe expected effective date for compliance pronouncements on the tenure of all theis May 14, 2012 (i.e. 18 months from the appointed CEOs before August 14, 2011.regulation date) or such date as the CBN28 FirstBank Review | 1st Half 2011
    • A key issue that will The CEOs’ tenure may be extended if and protecting against money-laundering the bid to finalise the consolidation fails and terrorism financing, as well as help determine how quickly to materialise before these expiry dates. protect individual customer’s interests. CBN can withdraw its guarantee is the Corporate Governance Increase in MPR, CRR & LR As a fallout of the CBN’s special audit At its third meeting in 2011, MPC success record of on all banks in mid-2008, the apex bank unveiled its decision to raise the Monetary the recapitalisation has renewed its efforts to enshrine good Policy Rate (MPR) – from 7.5% to 8.0%. It exercise/pending sale corporate governance in the banking sector. Two major pronouncements by would be recalled that the CBN had also increased in January 2011 the Liquidityof the rescued banks. If the CBN in this regard relate to tenure Ratio from 25% to 30% (effective March mergers/acquisitions/ limit for directors and external auditors’ 1, 2011) and Credit Reserve Ratio (CRR) - independence. from 2% to 4% (effective June 8, 2011).recapitalisation exercise The overall effect of this tight monetary is successful, and with Tenure Limit for Directors: On January policy is a rise in interest rate, and possible 19, 2010, CBN released a circular, decrease in inflation rate.AMCON firmly in place, restricting the tenure of banks’ CEOs to the likelihood that 10 years, and non- executive directors’ Nigerian Uniform Bank Account tenure to 12 years. CBN will not extend Number the guarantee further Auditors Independence: On September On August 19, 2010, CBN released a 13, 2010, CBN released another circular, policy on the standardisation of account from September 30, requesting banks to replace auditors numbering for all banks in Nigeria. 2011 is very high, as that had spent over 10 years, effective NUBAN is a 10-digit code that will enable both the employer and the presenting both investors and December 31, 2010. The 10-year tenure for external auditors is in line with the bank validate account numbers. The creditors will have provisions of paragraph 8.2.3 of the deadline for the full compliance by the access to sufficient CBN Code of Corporate Governance for banks is May, 2011. Banks. information to enable CBN expects “every bank to maintain them assess the The primary objectives of these circulars/ their present Account Numbers and use directives/guidelines are to enforce them for their internal operations only inherent risks before succession planning and promote good as from the effective date of NUBAN, making commitments corporate governance in the banking but every such account number would industry. Hence, we expect more robust have to be mapped to a NUBAN code as – thanks to uniform corporate governance practices and an Alternate Account Number. The bank year-end, supportive enhanced investors’ confidence in the customer should be provided with only banking sector in 2011. the NUBAN code which he/she would use regulatory regime and as a means of account identity at every banks’ migration to Update on Bank Account interaction with the bank.” International Financial Information We expect the policy to have a positive Reporting Standards On November 29, 2010, CBN directed impact on banking transactions, (IFRS). all customers of banks and financial institutions in Nigeria to update their by reducing error rates and undue delay in Automated Clearing House account information by January 31, processing activities, and consequently, 2011. facilitate seamless payment processing nationwide. We expect this account update, which forms part of the Customer Due Diligence (CDD) and Know-Your-Customer (KYC) requirements commonly applied internationally to assist in monitoring FirstBank Review | 1st Half 2011 29
    • Credit Dynamics:Is It Better to Borrow inNaira or in Dollars?Financial Derivatives CompanyA As Nigeria’s financial markets have evolved this past decade, one of the most compelling concerns for investors, speculators and businessmen has been how best to navigate the stormy waters of the country’s credit markets. Undoubtedly, this is a highly pertinent issue in an economy dominated by trade, where the relative propensity to import hovers around 65%. Peripherally, the introduction of a financial instrument, Forex Forwards, appears to be breathing new life into the debate of whether it is better to borrow in local or foreign currency.30 FirstBank Review | 1st Half 2011
    • Put simply, Forex Forwards are short-term to squeeze monetary policy, in order toinstruments that help companies mitigate quell excess liquidity and subsequentexchange rate risk. Because they can be inflationary pressure. The impact willused to anticipate quarterly positions, be a higher interest rate in the domesticForex Forwards allow companies to economy, which should encourage localmoderate unprecedented problems investment and depress demand forand smooth out earnings volatility. To currency resulting from capital flightfully take advantage of them, however, activities and speculation. Also, withtreasurers within the corporate finance crude oil expected to trade above $80function must learn the interplay between per barrel, and production over 2 milliondiffering economic trends and their barrels per day, the CBN’s ability toimpact on credit markets. Corporations support the local currency is enhanced.that successfully negotiate these dynamicsare best positioned to improve financial However, a cue from multilateral In answering theperformance and long-term success. institutions’ purchasing power parity analysis suggests that the Naira is question as toGenerally, companies seeking an optimal overvalued by 15%. Therefore, the real what currency tosolution to a particular financing need equilibrium exchange rate is believedmust consider a number of factors, such to be between N156 and N165 to the borrow in, eventsas access to foreign capital, relative US dollar. As a result, we expect 4 to in the Nigerianbargaining power (multinational versus 5% depreciation in the Naira and adomestic firms), risk profile of the risk-neutral interest rate of above 8% economy must becounterparty or operating environment, per year. put in context oftiming and degree of systemic liquidity. those in the global International Factors: IncreasesMeanwhile, as the Naira moves towards in Foreign Benchmark Rates in economy.convertibility, the domestic economy’sappetite for foreign currency credit Response to Inflation is Imminentis shrinking. Decisively, Nigeria must On the other hand, inflationary pressureeliminate black markets and reduce in the international markets is likely toregulatory arbitrage to adapt to new force policy makers to push up interestinternational financial standards. In rates, albeit in a gradual but upwardaddition, new international debit progression. A sharp and drastic increase(payment) cards make money increasingly in the benchmark rate is unlikely, as policyfungible. makers take cognizance of its impact on economic recovery. We expect LIBOR toDomestic Factors: Currency move closer to 1% per year from theDepreciation and high Interest current 0.76% per year.Rate Environment in 2011 In conclusion, putting it all in context,In determining the currency in which to we envisage prime lending rate ofborrow, events in the Nigerian economy approximately 16.8% to 20.5% permust necessarily be assessed within year in Naira, as against foreign currencythe context of the global economy. borrowing of 9.9% to 11.7% per year.For example, in anticipation of fiscal (See table below).expansion and the effect of high-poweredmoney for extraordinary items (e.g.AMCON’s bailout of rescued banks), theCentral Bank of Nigeria (CBN) is expected Domestic Borrowing Foreign Currency Borrowing (% pa) (% pa) Risk Free Rate (T-Bill and LIBOR) 8.8 /9.5 0.9/1.2 Risk Premium 6.0/9.0 2.5/4.0 Other Charges 2 0.5 Currency Depreciation nil 3.5 Hedging Cost nil 2.5 Total 16.8/20.5 9.9/11.7 FirstBank Review | 1st Half 2011 31
    • Credit Growthin Africa*Razia KhanP Prior to the recent global financial crisis, Africa’s economic upswing – which went beyond the usual commodities boom – was noted for a number of factors: narrower fiscal deficits, lower inflation and lower debt-servicing costs, which were often driven by yield-curve extension and the deepening of domestic debt markets. Unsurprisingly, rising levels of household consumption and, in many countries, an increase in private-sector credit extension also featured heavily. Although credit growth was most dramatic in Nigeria, following a ten-fold increase in banks’ minimum capital requirement, almost every African frontier market experienced rising rates of private sector credit, banking sector consolidation and a rush to grow assets as banks scrambled to maintain return on shareholder equity.While easy money typified the growth upswing the world over, in Africa the growth rate of private-sector credit – off an admittedly weak base - exceeded that seen in many other developing regions.32 FirstBank Review | 1st Half 2011
    • FirstBank Review | 1st Half 2011 33
    • Fast-Forward to the Global South Africa’s Pre-Crisis 14.5% a year ago, following the new minimum capital requirements. But evenCrisis Credit Binge this has proven insufficient to compensateIn theory, Africa, with its limited Nonetheless, for a variety of country- for the shock suffered by the sector as adependence on cross-border lending, specific reasons, concerns abound over result of Ghana’s 2008 twin-deficits crisis,should have been more immune to the transmission mechanism of monetary which continues to negatively impact thethe credit crunch or potential foreign policy. The pre-crisis years saw South country’s macro economy. The build-contagion. Among financial intermediaries Africa experiencing a credit binge of its up of arrears in the energy sector hasin sub Saharan Africa, dependence on own, with a new and growing middle- unsurprisingly translated (with some lag)domestic depositor bases for funding is class proving to be receptive borrowers. into higher non-performing loans (NPLs)greater than reliance on wholesale inter- Household debt as a percentage of in the financial sector. Although NPLs atbank markets. Only one major African disposable income soared from 52% in 18.7% in May 2010 have declined fromeconomy – Nigeria – experienced its own 2002 to over 80% at the peak of the the 20% recorded earlier this year, thehome-grown banking crisis, with the cycle. Even after a recession in South figure is still higher than the 11% ratiorapid growth of credit during the upswing Africa, debt levels remain high, inhibiting registered only a year ago.helping to mask (for the most part) an new demand for credit. Unemploymentunsustainable asset market bubble, poor is over 25%, consumer confidence is Moreover, new entrants into Ghana’srisk management practices, and – in some generally weak, and even 550bps of banking sector and increasingly fierceinstances – outright fraud. Evidently, the easing by the South African Reserve Bank competition for liabilities have drivenauthorities intervened in a timely way in this cycle has done little to lift credit up deposit rates. Faced with a structuralto prevent any of the undercapitalised growth. increase in their cost of funds, with highbanks from failing. However, Nigeria is rates of deposit interest paid on timenot alone in exhibiting weak post-crisis Although anecdotally there has been deposits in particular, official easing bycredit growth. some loosening of tight lending standards the Bank of Ghana has had little impact. by the banks in recent months, this has In time, this should change because theMeasured in y/y terms, credit growth in not yet gone far enough. Tellingly, credit maturing of time deposits will see lowermany other African economies is even is not available on the same easy terms rates offered on new deposits, and withweaker. as it was pre-crisis. Both the supply and a lower cost of funds in place, loan rates demand for credit are constrained, and should eventually decline. But all of thisIn South Africa, where financial sector further interest-rate easing – more than will take some time, suggesting that theregulation is often considered among the might take place in a more ‘normal’ cycle transmission of monetary policy changesbest globally, y/y rates of private-sector – may well be required. has slowed appreciably. In addition, withcredit extension (PSCE) were contracting arrears in the region of 6% of GDP stilluntil May 2010. Even now, PSCE is still to be resolved, and NPLs likely to remainonly weakly positive. What would explain Paltry Credit Growth in high in the interim, it will be a whilethis? Ghana before credit growth reacts meaningfully In Ghana, despite significant interest-rate to interest-rate easing by the Bank ofThe longer lag which characterises easing (500bps so far in this cycle) and Ghana, even as the country moves to oilAfrican economic cycles has certainly the introduction of new minimum capital producer status.played a role in the weakness of credit requirements for foreign banks, whichgrowth. Consumption baskets in Africa – other factors being equal – should Nigeria: Disappointingare dominated by food, and Africa have lifted loan growth, commercialwas hit hard by the dual food and fuel bank credit to both the private and Credit Growthprice shock of 2008. Inflation soared public sectors over the twelve months Perhaps, nowhere in Africa has theabove the single-digit levels that had to May 2010 was a paltry 3.2% y/y. breakdown in the traditional transmissionbriefly typified Africa’s macro economic The sector has certainly witnessed some mechanism of monetary policy receivedstabilisation. While the rest of the world improvement in financial soundness more attention than in Nigeria. Althoughwas able to move quickly to provide a indicators – the capital adequacy ratio, the costs of the banking crisis have beenmonetary stimulus, with many major for example, has increased to 19.2% from somewhat limited – to date, no bankcentral banks introducing quantitative has technically failed, and even the fiscaleasing, continuing high inflation forcedmany African central banks to proceed “...money typified the impact of the bank rescue effort seems well under control – credit growth ismore cautiously. It is only recently, growth upswing the nonetheless disappointing. Given thatwith a clearer disinflation trend finallymanifesting itself across Africa, that world over, in Africa the the quantum of losses announced by the Central Bank of Nigeria (CBN)-rescuedAfrican central banks have shown more growth rate of private- banks was sufficient to erode two-assertiveness in providing liquidity. The sector credit – off an thirds of the Nigerian banking sector’sbias towards monetary easing persists in capital base, disappointing credit growthmost markets, and this should eventually admittedly weak base ahead of the formal establishment of afeed through into healthier levels of credit - exceeded that seen in recapitalisation vehicle, namely, Assetgrowth, albeit with a lag. Management Company (AMCON), was many other developing not a surprise. In the meantime, various regions”. measures have been implemented by the CBN to stimulate lending.34 FirstBank Review | 1st Half 2011
    • Interest rates have been cut, with deposit liquidity has not yet found its way in to the Monetary easing alone is unlikely to berates reduced to just 1% in order to real economy. Perhaps it will take more sufficient. Greater confidence in realencourage banks to lend rather than time. Perhaps it requires an audacious economy outcomes will be needed tokeeping funds on deposit with the CBN. confidence boost. Perhaps there is little see a more meaningful improvement inThe authorities have made long-term prospect of a meaningful rise in credit credit growth.funds available for onward-lending until the NPLs that are constraining newat concessional rates to designated credit growth have been purged fromindustries. The same facility can also be banks’ balance sheets. Following the *Razia Khan is Head of Macroeconomics and Regional Head of Research for Africa at Standard Chartered Bank.used for refinancing existing obligations establishment of AMCON, Nigeria mayin the manufacturing, airline and other have to wait only a little while longerindustries. A credit guarantee scheme to see record liquidity transformed intofor SMEs has also been established, private sector credit.through which the CBN will repay 80%of the principal to banks in the event In the meantime, a telling trend can beof a default. Finally, the 1% general observed, both in Nigeria and elsewhereloan-loss provisioning regime previously in Africa. Given aggressive monetaryin place was temporarily suspended, easing, lows in interest rates, and banks’on the grounds that it could prove too excessive liquidity positions, even in anpro-cyclical. environment characterised by considerable risk aversion, the competition to lend to the best credit risks is growing. SpreadWill it Work? compression has begun, and eventually,While there is ample evidence that banks will seek higher returns by lendingNigerian banks are awash with liquidity to riskier market segments. For now,(borrowing from the CBN’s discount however, the negative effect of thewindow remains minimal), this excess crisis may still have to run its course. FirstBank Review | 1st Half 2011 35
    • SectoralPerspectivesFirstBank Research36 FirstBank Review | 1st Half 2011
    • FirstBank Review | 1st Half 2011 37
    • AgriculturalSector Outlook Although Nigeria depends largely on the oil and gas sector for revenue generation, agriculture has remained the largest contributor to the nation’s GDP, ranging between 40% and 46% over the last few years. In spite of its high growth potential, Nigeria’s agriculture sector continues to experience inadequate investment flows. Considering that agriculture provides employment for about 70% of the nation’s workforce, actual investment in the sector has been abysmally low, according to Business Monitor International (BMI), with Federal Government’s allocation to the sector a paltry 6% of the national budget in the last Agriculture has 6 years. Incredibly, it has fallen to as low as 0.8% in the 2011 budget appropriations remained the largest bill. In 2009 and 2010, agriculture’s share of bank loans was put at an average of 0.85%, in contrast to the oil and gas sector’s share of 12.5%. contributor to the country’s GDP, To further highlight the declining attention paid to agriculture in the national budget, rice importation alone for 2010 cost billions of dollars, a figure above the Federal ranging between Government’s total agriculture sector’s budget for that year. 40% and 46% over Nevertheless, analysts still predict enhanced local agriculture production – with targets the last few years. ranging from 30% to 100% by 2015. Agriculture has a strong positive outlook in the years ahead, particularly in high growth areas of corn, soya, rice, cassava, and poultry, and beyond growing, in value addition/processing. Budget Allocation to Agriculture for the period 2005-2010 Year FGN Budget (N’bn) Agric Allocation (N’bn) % of Agric Allocation 2005 1,700.00 76.6 4.5 2006 1,800.00 107.2 5.9 2007 2,300.00 38.0 1.7 2008 2,450.0 89.95 3.7 2009 2,870.0 91.8 3.2 2010 4,080.0 148.7 3.6 2011 4,226.20 34.1 0.8 Source: FG’s Budget for several years38 FirstBank Review | 1st Half 2011
    • EntertainmentSector OutlookNigeria’s large population, melting pot of diverse cultures and talents, as well as theingenuity and enterprising persistence of practitioners are largely responsible for thephenomenal growth of the country’s entertainment industry over the last decade.A report by the United Nations Educational, Scientific and Cultural Organisation(UNESCO), released in May 2009, revealed that the Nigerian movie industry’s(‘Nollywood’) annual production density (number of movies produced per annum) hasovertaken Hollywood’s, and is steadily approaching the volume produced in India.It is further estimated that every film produced in Nigeria has a potential audienceof 15 million viewers within the country and about 5 million abroad. These statisticsmay be relatively conservative, considering that more than half of West Africa’s 250 The over 1,500 filmsmillion people are Nigerians and, according to the World Bank, slightly over 7 million released in NigeriaNigerians reside overseas, most of them in developed countries. every year has aEvidently, the quality of nascent Nollywood movies is undoubtedly subordinate to potential audienceHollywood’s as a result of lack of funding and endemic piracy. Consequently, allstakeholders agree on the pressing need to enhance the production quality and of 15 million viewersprofitability in the industry – by bridging the funding gap and curbing the spate of within the countryinsidious piracy. Concerted partnership with government and its agencies shouldensure improved adherence and enforcement of the necessary laws to drastically and about 5 millionreduce the menace of piracy. abroad.Other initiatives that could be harnessed include:• Collaboration with cinema houses to sponsor movies and concerts, based on pre-determined and well-defined criteria;• Public-private partnerships to build Film Studios of international standards;• Injection of credit facilities and/or venture capital in response to well-executed feasibility studies, due diligence and contracts;• Adequate data-gathering and analysis of performance metrics such as the cost of production of standard movies, average annual turnover of movie producers, income distribution of artistes, estimated time frame per movie production, etc.It is our viewpoint that investors should place this budding and innovative industryon their ‘watch list’, especially as overall quality improves and international attentionfocuses on this dynamic domestic business. In the near term, more efforts should beexpended to fully understand the evolution, trends, dynamics and investment outlookof this industry. Such insights will enable stakeholders and investors evaluate theparameters that will drive sustainable long-term growth.Number of Films Produced in Video in Nigeria Years 1995 1998 2001 2004 2007 2010E 2011E Films 3 356 843 1,082 1,588 2,035 2,167Source: Ina global, FirstBank Research FirstBank Review | 1st Half 2011 39
    • Insurance SectorOutlook Indisputably, Nigeria’s insurance sector holds great potential for sustainable economic growth. Key statistics from the National Insurance Commission (NAICOM) recently revealed that the Nigerian insurance industry grew appreciably in the last three years (premiums grew by 25% in 2008, 33% in 2009 and 26% in 2010), and that opportunities for further growth abound in the sector. It is hoped that NAICOM hopes to attain N1 trillion gross premiums by 2012 (and N6 trillion by 2020) through full enforcement of the Market Development and Restructuring Initiatives Insurance Industry (MDRI), by leveraging relevant provisions in the 2003 Insurance Act, Pension Reform will attain N1 trillion Act of 2004 and Local Content Policy. gross premiums by MDRI is a policy that mandates the public to comply with compulsory insurance 2012 (and N6 trillion regulations on six insurance products: group life Insurance (Pension Reform Act 2004), employers liability (Workmen’s Compensation Act 1987), buildings under construction by 2020) through full (section 64 of the Insurance Act 2003), occupiers liability insurance (Insurance Act enforcement of the 2003), motor third party insurance (section 68 of the Insurance Act 2003) and health Market Development care professional indemnity insurance(section 45 of the NHIS Act 1999). These products, when fully enforced as stipulated in the Insurance Act 2003 and other sister and Restructuring legislations, hold the potentials to upscale activities in the sector. Initiatives (MDRI) As deposit money banks comply with the new banking model, we expect the wave and Local Content of mergers and acquisitions to intensify within the insurance industry, as most banks Policy. are expected to shed their insurance subsidiaries. Inevitably, this will lead to industry consolidation and a reduction in the number of operators in the sector. Gross Premium Income 1000 800 600 N Billions 400 200 0 2003 2004 2005 2006 2007 2008 200 9 2010 2012 (E) Source: BGL 2010 Insurance Report, FirstBank Research40 FirstBank Review | 1st Half 2011
    • ManufacturingSector OutlookIn 2010, Nigeria’s manufacturing sector faced multiple challenges (aside from the morepredictable barriers), in the aftermath of the recent global financial crisis. Lookingahead, improvement in key economic and investment indices promise major relief inthe medium term.Ostensibly, poor power supply and dilapidated transportation networks continue tohamper the growth of industry. In fact, alternative power arrangements to replacepublic sector sources accounted for 35% of the sector’s 2010 production costs.Companies in turn passed some of those costs onto consumers by raising prices, butcould only go so far before their products became uncompetitive.Funding is critical to growth – whether organic or inorganic. But access to external Manufacturingfunds attracts costs and implicit conditions. Effectively, the capacity of a company toaccommodate recurring financing costs will, to a large extent, determine the quantum sector growth hasof debt it can service. Both costs of funds and credit (lending), including requisite stagnated overconditions, are usually very difficult for Nigerian manufacturing companies to absorb.Hence, this explains the low funding levels from the major providers of funds, the the years, withbanking industry, to the sector. total contributionUnsurprisingly, the sector’s growth has stagnated over the years, with total contribution to Nigeria’s GDPto Nigeria’s GDP growth declining every year, over the past five years, except for2008. growth declining every year, overHowever, due to government’s interventionist policies, the outlook for manufacturersappears to be improving. Specifically, power sector reforms (if well implemented) and the past five years,infrastructure financing support should lower costs sufficiently to return the sector except for 2008.to profitability in 2012. Government-sanctioned higher minimum wage should boostconsumer income and, in turn, demand for manufactured goods.Furthermore, the Central Bank of Nigeria (CBN) has injected a N400 billion stimuluspackage to support manufacturing/agriculture/SMEs lending. It is envisaged thatadditional government assistance should be forthcoming in 2011, as Nigeria strivesto meet the 2015 deadline of the United Nations’ Millennium Development Goals.For a country with a population of over 140 million and the largest market in Africa,Nigerian manufacturers should expect to thrive, once crippling factors are addressed.We therefore forecast manufacturers to lead the charge towards the realisationof Nigeria’s 20:2020 Vision, by forming a key component of the country’s growthtrajectory. Manufacturing Sector Contribution to GDP (%) 11.0 7.5 5.5 4.6 4.2 4.2 4.2 3.5 1960 1970 1980 1990 2000 2009 2010 (Q3) 2011Source: CBN, NBS, FirstBank Research FirstBank Review | 1st Half 2011 41
    • Oil & Gas SectorOutlook Since early 2009, Nigeria has witnessed a strong and steady increase in both crude oil production and prices, with production today at over 2.5 mb/d, and prices comfortably in the $100 plus range. Notwithstanding the growth, however, the sector’s total GDP contribution, which the Bureau of Statistics (BOS) reported at a quarter (25%) of the country’s economic output in 2007, fell to 15.5% in 2009, and is estimated to have decreased to 15% in 2010. Interestingly, the faster growth recorded in the non- oil sector of the economy during the period moderated the oil & gas sector’s percentage Relative peace contribution to GDP. that has returned In BMI’s Nigeria Oil and Gas Report, Q2 2011, natural gas consumption by the African to the Niger Delta continent was estimated at 124 billion cubic metres (bcm) in 2010, and is forecast to region has boosted reach 176 bcm by 2015. Meanwhile, the continent’s gas production estimate for 2010 was 218 bcm, and is projected to reach 321 bcm by 2015. Consequently, Africa’s oil production natural gas net-export by 2015 will rise to 145bcm, up from 94bcm. since inception Nigeria’s relative gas consumption in 2010 was 10.51% of the region’s total, and is of Amnesty forecast at 14% by 2015. In terms of supply, Nigeria’s share of African regional oil Programme. The supply is predicted to reach 23% by 2015. sustained high oil As global economic recovery improves, the domestic, regional and global demands are price is good news expected to increase in 2011. While Nigeria has experienced a continuous decline in oil revenue’s contribution to GDP, crude oil proceeds’ contribution to total government’s for the country revenue base has remained relatively stable, sometimes even higher than expected. The and we expect this relative peace that has returned to the Niger Delta region, courtesy of government’s trend to continue Amnesty Programme, has also boosted oil production since inception. Broadly, the sustained high oil price is good news for Nigeria and we expect this trend to continue all through the all through 2011. year. Oil Production vs Oil Prices 2700 160 2600 140 2500 Oil Production (000 b/d) 120 2400 Oil Price ($/b) 100 2300 80 2200 60 2100 2000 40 Output Price 1900 20 Jan06 Jan07 Jan08 Jan09 Jan10 Jan11 Source: OPEC, FirstBank Research42 FirstBank Review | 1st Half 2011
    • Power SectorOutlookOn August 26, 2010, President Goodluck Jonathan presented the Roadmap forthe Nigerian Power Sector Reform to a cross-section of industry stakeholders. TheRoadmap is a continuation of the previous administration’s reforms that led to the Given theenactment of the Electric Power Sector Reform (EPSR) Act in 2005, and the unbundling perceived strongerof Power Holding Company of Nigeria (PHCN), formally known as National ElectricPower Authority, into 11 distribution companies, six generating companies and one political will totransmission company. execute reforms inPower sector reforms, reactivated in 2010 (after a 3-year ‘technical’ suspension), the power sector,appear to be fully on course and expert opinions suggest that they might be difficult to the likelihood thatreverse. Indeed, stable power supply was a major campaign promise of the President-elect, Dr. Goodluck Jonathan. Towards achieving projected economic growth, there the sector’s reformshas also been increasing pressure from cross-sections of stakeholders: industrialists, will yield positiveinvestors, the media, civil society groups and others, on the Presidential Task Force results similar toon Power to deliver tangible results to Nigerian consumers. the one postedWith the commencement of the bidding process, there is strong indication that various by the country’sconsortia, comprising sub-nationals and international companies, may be selected inthe near-term to acquire the distribution companies. Given the population density telecommunicationsand higher per capita consumption rates of major cities, especially Lagos metropolis, industry over thePort Harcourt and Abuja, we anticipate that distribution companies in these areas(e.g. Eko Electricity Distribution Company Plc., Ikeja Electricity Distribution Company last few yearsPlc, and Abuja Electricity Distribution Company Plc) would attract greater attention is at the best,by prospective investors. moderate: canFurthermore, given government’s renewed commitment and the perception of stronger only become highpolitical will to finally execute power sector reforms, the likelihood that these reformswill yield positive results, similar to those recorded by the telecommunications industry if there are well-in this past decade, is at the best, moderate: can only become high if there are well- planned structuresplanned structures to ‘co-opt’ other stakeholders to support the reforms. to ‘co-opt’ other stakeholders to support the Target Generating Capacity (MW) articulated by Government reforms. 14,218 11,879 9,767 5,379 Dec 10 Dec 11 Dec 12 Dec 13 Source: The New Power Roadmap FirstBank Review | 1st Half 2011 43
    • TelecommunicationsSector Outlook Following the liberalisation of the Nigerian telecommunications sector in 2000, the industry has experienced tremendous growth rates fuelled by new entrants and the launch of mobile and broadband services. With a population of about 150 million, teledensity of 64.98 (as at March 2011), and mobile penetration of 53.4% (as at December 2010), growth of the Nigerian telecommunications market is forecast to continue apace. In corroboration, Business Monitor International (BMI) projects that mobile subscription will reach 93 million by end-2011, and 128 million by end-2015; translating to a penetration rate of about 72%. Medium-term, intense competition in the telecoms sector will assume an exciting dimension if number portability becomes operational. Nigerian Communications The shift in Commission’s (NCC) plan to introduce mobile number portability has been in view since 2007. We expect this plan to receive the Commission’s speedy attention in 2011 after intense the second phase of SIM card registration is concluded. Once it becomes operational, competition it is expected that service delivery, network coverage and relative service affordability will facilitate subscribers’ choice of service providers. Already, the prospect of number from voice call portability has enhanced the post-paid to pre-paid migration flexibility within a given to data services network. As a result of increased competition, we expect marked improvement in the collocation and infrastructure-sharing services among service providers in 2011 – will become more spurred primarily by the drive for cost- efficiency, safety, and environmental pollution pronounced in reduction considerations. 2011, as internet To attain profitability and remain viable, owner-managed businesses in the CDMA services become segment will need to adopt credible survival strategies. This may lead to market- cheaper and faster induced consolidation in 2011. Also, voice and data penetration rate is forecast to rise to 61.9% in 2011 and 77.6% in 2013. for individual subscribers and The shift in intense competition from voice call to data and value-added services will become more pronounced in 2011, as Internet services become cheaper and faster for companies. individual subscribers and companies, and as established operators seek new means to boost revenue amidst declining average revenue per user (ARPU). Active Mobile Lines (million) Mobile Active Lines (million) 128. 0F 87. 3 90. 0 73. 1 63. 0 40. 4 2007 2008 2009 2010 Mar- 11 2015 Source: NCC, BMI, FirstBank Research44 FirstBank Review | 1st Half 2011
    • Trade – FastMoving ConsumerGoodsNext to agriculture, trade is the second largest contributor to the Nigerian economy.The contribution of trade and commerce to GDP has consistently risen since 2007,estimated at about 18.5% of GDP in 2010. Fast Moving Consumer Goods (FMCGs)have been the major driver of sectoral growth, thus reflecting government’s liberal FMCGs have beentrade policy and the gradual expansion of the Nigerian middle class with diverse tastesand sophistication. the major driver of trade growth, andFollowing the resuscitation of the middle-class in Nigeria, there has been a distinctiveand steady increase in consumer loans for the purchase of FMCGs. This is not this is a reflectionsurprising, given the causal link between FMCGs’ demand and consumer credit of the gradualtrends in developed economies, characterised by advanced consumer credit schemes.Consequently, banks and some key players in the FMCGs trade have developed expansion of theinnovative product and sales strategies (e.g. sales discount, sales credits on the basis ‘middle class’ withof periodic payments, etc.) to increase their turnover and profitability. diverse tastes andThere is therefore the likelihood that structured trading activities, including the opening sophistication.of shopping malls in major urban areas and influx of cheaper imported products fromChina and other labour-competitive economies, may benefit from this trend.Business opportunities for FMCGs in 2011 remain positive, buoyed by the positiveoutlook of the economy. According to the United Nations Development Index (2010),close to 90% of Nigerians are below the age of 50 years, whilst the population growthrate remains slightly above 2%. Implicitly, this suggests that the potential and absolutemarket for FMCGs in Nigeria is huge.Consumer Goods Trade 2007 2008 2009 2010 2011(F) 2012(F) Consumer Goods Trade Retail sales (N bn) 6,896.2 7,734.4 8,928.8 10,233.0 11,370.5 12,569.3 Retail sales (US$ bn) 54.8 65.7 73.8 82.5 89.9 98.2 Retail sales volume growth (%) 3.6 2.9 6.3 6.1 3.7 3.9 Retail sales US$ value growth (%) 11.7 19.8 12.4 11.8 8.9 9.2 Non-food retail sales (US$ bn) 19 24.4 28.2 32.4 36.8 42.2 Food retail sales (US$ bn) 35.8 41.2 45.6 50.1 53.1 56 Source: Economic Intelligence Unit FirstBank Review | 1st Half 2011 45
    • About FirstBankFirst Bank of Nigeria Plc (FirstBank) remains one of Africa’s most diversified and leadingfinancial services providers. Since its establishment in 1894, the Bank has consistently builtrelationships with customers focusing on fundamentals of best-in-class corporate governance,strong liquidity, outstanding risk management, strong capitalization and succession planning.FirstBank has 1.3 million shareholders globally and is quoted on The Nigerian Stock Exchange(NSE), where it is one of the most capitalized companies. It also has an unlisted GlobalDepository Receipt (GDR) programme.With more than 5 million customers, FirstBank has over 600 business locations and eleven(11) subsidiary companies in Nigeria, providing a comprehensive range of retail and corporatefinancial solutions, including capital market operations, private equity/venture capital, pensionfund management, registrarship, trusteeship, mortgages, insurance brokerage, bureau dechange, life assurance underwriting and microfinance. The Bank has international presencethrough its subsidiary, FBN Bank (UK) Limited in London and Paris, and its RepresentativeOffices in Johannesburg and Beijing.The FirstBank Group boasts of an unparalleled reputation for leadership, strength, andstability, even in uncertain times. The Bank has been at the fore-front of industry reformsover the past century and we are currently pursuing the most aggressive transformationinitiative designed to enhance portfolio optimization, group coordination and reduce risks andduplications across our businesses; refocus non-bank services around Investment Banking/Asset Management and Insurance; and exploit synergies across these business lines whilealso pursuing selective international expansion with priority given to sub-Saharan Africanmarkets, driven by clear economic and investment rationale. Our main goal is to becomeSub-Saharan Africa’s leading financial services group.FirstBank has indeed reinforced its role as a leader in the financial services sector in Nigeriaand sub-Saharan Africa with activities and interventions to depict the Brand Pillars ofLeadership, Enterprise, Safety and Security, and Service Excellence. The Bank’s growth ishinged on its continued network expansion, product development, mergers and acquisitionsand growth of its international foot print. With the Bank’s global reach through its operationson many continents, it provides prospective investors wishing to explore the vast businessopportunities that abound in Nigeria, an internationally competitive world-class brand anda credible financial partner.