Nigeria bank bailout gives big opening to foreign investors

August 17, 2009

Lagos, Nigeria's central business district (File photo) By Ed Cropley, African Investment Correspondent
JOHANNESBURG, Aug 17 (Reuters) – Anyone wanting to be big in Africa has to be big in Nigeria, and the shock $2.6 billion bailout of five of its banks may have given foreigners a golden chance to enter the continent’s must-have market on the cheap.

With the global economic crisis forcing Western banks to hunker down at home, emerging market lenders in Africa, Asia and the Middle East are best placed to scoop up stakes in Afribank, Finbank, Intercontinental Bank, Oceanic Bank and Union Bank.

The five, declared undercapitalised on Friday, are being run as going concerns by Nigeria’s central bank until it can find new foreign or domestic investors.

Their management were also fired in a stunning move by new central bank governor Lamido Sanusi to clean up the notoriously murky financial sector.

“Where are the banks with the money to be investing at this time, given what’s happened to the banking sector globally?” said Razia Khan, head of Africa research at Standard Chartered in London, pointing to South African or Chinese banks, or Middle East institutions trying to dilute exposure to Western markets.

Given their location and experience of the vagaries of African business practices, as well as their openness about long-term plans for Africa’s most populous nation, the South Africans are likely to lead the pack, other analysts say.

“You cannot ignore Nigeria if you want to be a serious player in Africa,” Sizwe Nxasana, CEO-designate of number two lender FirstRand, told Reuters in June.

Standard Bank, the continent’s biggest bank by assets, is already in Nigeria through its Stanbic IBTC franchise, which is predicting 20-30 percent loan growth this year in sub-Saharan Africa’s second-biggest economy.

Standard Bank said it was not interested in an acquisition, preferring to let Stanbic grow on its own, although analysts speculated that it might jump at the chance to buy an established branch network for a knock-down price.

“The problem in Nigeria is just acquiring the actual bricks and mortar. It’s extremely difficult and very costly,” said one South Africa-based analyst, who did not want to be named.

“They would want to acquire a branch footprint if they could, particularly if they could pick it up on the cheap. It’s much more about getting the footprint and the distribution capability than wanting their clients.”

Nedbank has also expressed an interest in Nigeria, despite its tie-up with Ecobank Transnational Inc, which already operates in west, east and central Africa.

According to analysts’ estimates, Oceanic trades at a price to book of less than 0.6 and Intercontinental at 0.7 compared with 1.8 for South Africa’s Standard Bank and 1.1 times for European banks on average.

Oceanic Bank’s rollercoaster share price is typical of the sector, spiking well above 30 naira in early 2008 only to slump to less than 5 last week amid concerns about exposure to unsecured stock market lending.

Nigeria’s banking crisis, caused mainly by loose lending to investors in a stock market that crashed last year, is unlikely to spread beyond its borders since the banks had very little by way of foreign credit.

Most of them were still only in the early throes of external expansion.

However, the saga — which Sanusi is tackling head-on with the full backing of President Umaru Yar’Adua — has served as a reminder to investors of the pitfalls, as well as potential rewards, Nigeria has to offer.

South African or other regulators are likely to bear that in mind if asked to approve any move into Nigeria, especially while Sanusi’s shake-up is still in its infancy.

Despite the prospect of volatile share and currency moves until the clean-up is complete, the long-term logic of getting into an oil-rich country where only 20 million of 140 million people have bank accounts remains compelling.

“Nigeria is where the outsized opportunities are going to be — and what’s going on in the banking sector only makes it a more, not less, attractive opportunity,” Khan said. “Why wait until it becomes more expensive?”

** Please see also: Nigerian stocks fall, naira weakens as markets digest bank bailout

Q + A: Implications of Nigerian bank bailout

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