Second round of bank consolidation draws near in Nigeria

As expected, the passing into law of the Asset Management Corporation of Nigeria (AMCON) Bill in Nigeria, as well as the advent of the reporting season, has seen Nigeria‘s All Share Index rally somewhat over the past few days, gaining 4.43% since 19 July when the bill was finally signed.

Most of the banks have since seen their share prices putting on a strong performance, with only GT Bank showing a negative outturn, down 2.52% since 19 July, while Unity Bank is unchanged.

While the strong showing can be attributed to both the AMCON signing and in some cases results announcements, we believe the interest in the sector may also be a function of punters trying to position themselves ahead of the central bank’s 31 July 2010 deadline for interested investors to submit bids for the rescued banks.

The Central Bank of Nigeria (CBN) governor confirmed yesterday that there are parties “interested in combining with each and every one of the banks”, although he did admit that at this juncture nothing had been signed and concluded yet.

The CBN said several private equity players and foreign banks had expressed an interest, including three of South Africa‘s ‘big four’ banks, namely First Rand Group, Standard Bank and Nedbank.

This comes after the International Finance Corporation (IFC) on Monday said it would provide funding that would help the ‘clean’ Nigerian banks that are interested in doing so, to acquire some of their distressed counterparts. The IFC said it had already agreed to provide a total of US$300m to GT Bank ($200m in long term funding) and First Bank ($100m in convertible debt and senior loans), and that it was in talks with several others about providing financing. Others that have already expressed an interest are Diamond Bank, Fidelity Bank and Skye Bank.

The “second round” of consolidation that many has called for even prior to the country’s banking crisis seems to finally be coming to pass, forced consolidation though it has turned out to be, and the net result should be a stronger banking sector for Nigeria. With international investors waiting in the wings, this should also see a change in the competitive landscape of the industry. It will be interesting to see what comes out of the wash!

Article produced by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.