With the few tier one banks in the country taking over more than 70 per cent of the Nigerian banking sector market share, the Managing Director and Chief Executive of Afrinvest West Africa, Ike Chioke, has warned against allowing a collapse of smaller banks.
Speaking ahead of the launch of the Afrinvest 2017 Nigerian Banking Sector Report, Chioke noted that the big banks were growing bigger at the expense of the smaller banks as they had increased their market share holding from around 60 per cent in the last couple of years to over 70 per cent.
According to him, while tier two banks may not be classified as systemically important, the failure of all of them or most of them at the same time would be equivalent to that of one big bank.
A member of the Monetary Policy Committee had recently raised the alarm on the deteriorating state of some of the tier two banks.
Chioke noted that “while one would say that the system itself is sound, if you have multiple tier two banks that have challenges, if all of them were to go down at the same time, we could have the impact of a systemically important bank.”
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He noted that the 2017 banking sector report shows that while the devaluation of the currency had impacted the books of some banks as their capital adequacy ratio had become compressed.
His words: “Some of the bigger banks, basically the tier one banks, who have more of foreign currency assets, foreign currency deposits and risk assets have benefited from the devaluation and you see them booking foreign exchange gains and so their profit number have shot up and they are getting record numbers.
“So what we see is a continued widening of the gap between the tier one and tier two banks. Once upon a time the tier one banks accounted for 60 to 65 per cent of the market share of the banking sector. In the universe of the 14 banks that we covered in this report, we have seen that percentage rise to over 70 per cent. So the tier one banks continue to grow often at the expense of the tier two banks.”
Meanwhile, he said banks had continued to maintain a preference for investment securities in asset allocation. “As already noticed in 2016, banks are more willing to direct funds towards investment securities as opposed to credit extension given the risk environment and we believe this will continue till the end of the year and possibly first half of 2018.”
