Ike Chioke Managing Director · 2019. 10. 15. · fundamentals: oil price crash, MPR hike and currency devaluation Post-election lull: awaiting President Buhari’scabinet and weakened

www.afrinvest .com

6th October 2015

Ike ChiokeManaging Director

Page 2

OUTLINE

2015 NIGERIAN BANKING SECTOR REPORT

Macroeconomic Review

Prof ile of Indust ry Developments

10-Year Indust ry Operat ing Stat ist ics

2014 Performance Review

Current Indust ry Valuat ion

Implicat ions for the Next Decade

Page 3








OUTLINE

Page 4

GDP Growth Rate in Nigeria

MACROECONOMIC REVIEW

Source: NBS, Afrinvest Research

3

8

7

6

7

8

5

4

5

6

4

5

6.0%

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015f 2016f

GDP Growth (%) Average

Page 5

Brent Crude 10-Year Price History


Source: Bloomberg, Afrinvest Research

(US$/b)

66

127

96

112

20

40

60

80

100

120

140

03-Jan-05 03-Jan-06 03-Jan-07 03-Jan-08 03-Jan-09 03-Jan-10 03-Jan-11 03-Jan-12 03-Jan-13 03-Jan-14 03-Jan-15

Extended period of stable prices

above US$100/b.

2008/2009 crash

Current price collapse due to

oversupply, slow global growth,

price war between OPEC and

Shale Oil producers

Market recovery

Page 6

External Reserves vs. Crude Oil Price


Source: CBN, Bloomberg, Afrinvest Research

(US$

’ B

n)

(US$

)

30.0

50.0

70.0

90.0

110.0

130.0

150.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

55.0

60.0

65.0

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Reserves (LHS) Crude Oil (RHS)

Page 7

FGN Budget Profile


Source: CBN, FM F, Afrinvest Research

0.20.4 0.4 0.4 0.2

0.40.4

0.5 0.5 0.6 0.7

0.90.8

1.11.3

1.51.3

0.6

1.5

1.8

1.71.6

1.71.8

0.9

0.4

0.60.7 0.7

0.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010 2011 2012 2013 2014 2015

(N’t

n)

Statutory Transfers Debt Service Capital Expenditure Personnel Cost Others

4.2

3.8

4.54.8 4.6

4.5

Page 8

Fiscal Deficit: Absolute vs. % of GDP


Source: FM F, CBN, Afrinvest Research

(N’bn)

1,021.91,068.8

1,104.4

862.2

960.0

1,055.2

828.6

1,075.1

1,298.1

1,492.2

1,253.6

633.5

2% 2%

2%

1%1%

1%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

-

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

2010 2011 2012 2013 2014 2015

Fiscal Deficit (N' bn) Capital Expensditure (N' bn) Deficit As a % of GDP

Page 9

Interbank Exchange Rate


Source: CBN, FM DQ, Afrinvest Research

(N:U

S$

)

154157

174

190

202

199

110

120

130

140

150

160

170

180

190

200

210

03-Jan-05 03-Jan-06 03-Jan-07 03-Jan-08 03-Jan-09 03-Jan-10 03-Jan-11 03-Jan-12 03-Jan-13 03-Jan-14 03-Jan-15

Plunging oil price

driven FX pressure

November 2014

Devaluation

RDAS Shutdown in

Feb 2015

SLS Era of Defending

the Naira

Soludo’s Era of

Banking

Consolidation and

dovish monetary

policy

Page 10

Inflation Progression


Source: NBS, Afrinvest Research

14

16

13

11

9

11

13

11

12

10

9

8

9

88

9

8 8

8 9

9

9

6.0

8.0

10.0

12.0

14.0

16.0

2010 2011 2012 2013 2014 2015

Cost push inflation after direct and

indirect devaluation of the Naira,

fuel scarcity and FX restrictions on

41 items

%

Page 11

Interest Rate Divergence (%)


Source: CBN, Afrinvest Research

13.0

16.9

26.6

3.0

8.0

13.0

18.0

23.0

28.0

2005 06 07 08 09 10 11 12 13 14 2015

MPR

Prime Lending Rate of Commercial Banks

Maximum Lending Rate of Commercial Banks

%

Page 12

Nigerian Stock Exchange - All Share Index


Source: NSE, Afrinvest Research

10,000.0

20,000.0

30,000.0

40,000.0

50,000.0

60,000.0

70,000.0

Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

Post -consolidat ion

Stock market bubble

Global f inancial

crisis t riggered

stock market crash

2012/13 Market

recovery

Market rout act ivated

by polit ical

uncertainty and

plunging Crude oil

prices

Page 13

Nigerian Stock Exchange - All Share Index (52-Wks)


Source: NSE, Afrinvest Research

25000.0

27000.0

29000.0

31000.0

33000.0

35000.0

37000.0

39000.0

41000.0

43000.0

Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15

Market decline due

to long w ait for

Cabinet

Elect ion

postponement &

Shut dow n of the

RDAS

Post elect ion Buhari

Rally

Plunge in Global

Crude Oil Prices and

Naira Devaluat ion

Page 14








OUTLINE

Page 15

Assets, Loans and Deposits Growth

PROGRESSION OF REGULATORY DEVELOPM ENT

2.2

2.83.1

3.8

1.1 1.21.4

1.7

0.5

1.5

2.5

3.5

4.5

2001 2002 2003 2004

Tri

llio

ns Commercial Bank Total Assets

Commercial Banks Total Loans

1.0

1.3

1.5

1.8

0.0

0.5

1.0

1.5

2.0

2001 2002 2003 2004

Tri

llio

ns

Total Assets and Loans (N’tn)

Industry Total Deposits (N’tn)


Pre – Consolidation Era

Page 16

Consolidation Era - Soludo


Total Assets and Loans (N’tn)


2.2

3.5

5.5

8.9

-

2.0

4.0

6.0

8.0

10.0

2005 2006 2007 2008

Tri

llio

ns

Total Deposits (N’tn)

4.5

7.2

11.0

15.9

2.2 2.2

4.0

6.3

2.0

5.0

8.0

11.0

14.0

17.0

2005 2006 2007 2008

Tri

llio

ns

Total Assets (N)

Total Loans (N)

Assets, Loans and Deposits Growth

Page 17


22%

8%

37%

4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

Pre-Consolidat ion - 2004 Post - Consolidat ion - 2007 2009 - Banking Crises Post CBN Clean-up - 2012


Industry Non Performing Loans Ratio (%)

Page 18

Four Pillars of Banking Sector Reforms

Quality of

Banks

Financial

StabilityFinancial

Sector

Evolution

Contribution

to Real

Economy

Post Consolidation Era


Strong

Corporate

Governance

& Risk Based

Supervision

Counter

-cyclical

Fiscal

policies

Phasing

out

Universal

Banking

Re-assert

use of MPR

as effect ive

interest

rate policy

tool

Page 19

Industry Total Assets, Loans and Deposits (N’Tn)


17.5 17.3

19.4

21.3

24.3

8.0 6.9 6.6

7.7

9.5

2.0

8.0

14.0

20.0

26.0

2009 2010 2011 2012 2013

Total Assets (N)

Total Loans (N)

10.6 11.3

13.4

15.9

17.2

5.0

8.0

11.0

14.0

17.0

20.0

2009 2010 2011 2012 2013

Tri

llio

ns

Industry Total Deposits (N’Tn)


Post Consolidation Era - Sanusi

Page 20

Market Impact of CBN Intervention- 2014 to Present


200.0

250.0

300.0

350.0

400.0

450.0

500.0

1-Ja

n-1

4

1-F

eb

-14

1-M

ar-1

4

1-A

pr-1

4

1-M

ay

-14

1-Ju

n-1

4

1-Ju

l-14

1-A

ug

-14

1-S

ep

-14

1-O

ct-14

1-N

ov-1

4

1-D

ec-1

4

1-Ja

n-1

5

1-F

eb

-15

1-M

ar-1

5

1-A

pr-1

5

1-M

ay

-15

1-Ju

n-1

5

1-Ju

l-15

1-A

ug

-15

1-S

ep

-15

Announcement of the sack of

Governor Sanusi Lamido as the CBN

Governor

Governor Emefiele’s nomination as

CBN Governor and official speech

announcing plans for a dovish policy

Weakening macroeconomic

fundamentals: oil price crash, MPR

hike and currency devaluation

Post-election lull: awaiting President

Buhari’s cabinet and weakened

economic fundamentals

Pre-election panic, cancellation of

RDAS

NSE Banking Index (2014 to Sept. 2015)

Page 21



Progression of Regulatory Development





OUTLINE

Page 22

4,501.8 4,342.7

3,755.3

2,762.6

2,355.9

2,104.4 1,933.1

1,421.1

1,187.0 1,169.4 1,009.2 944.5

824.5

413.3 382.6

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

4,000.0

4,500.0

5,000.0

Total Assets of Listed Banks (2014)

Tier-1 Banks

Tier-2 Banks

2014 PERFORMANCE REVIEW

N’bn

Page 23

Total Assets to GDP (2005 – 2014)

10-YEAR INDUSTRY OPERATING STATISTICS

GDP Rebasing Moderation

31%

39%

53%

66%

71%

32% 31%30% 30% 31%

15.0%

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Page 24


Total Assets

4.5

7.2

11.0

15.9

17.5 17.3

19.4

21.3

24.3

27.5

-3.0

2.0

7.0

12.0

17.0

22.0

27.0

32.0

1 2 3 4 5 6 7 8 9 10

N’tn

Page 25


Total Loans (2005 – 2014)

2.2 2.2

4.0

6.3

8.0

6.9 6.6

7.7

9.5

12.1

-1.0

1.0

3.0

5.0

7.0

9.0

11.0

13.0

15.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

N’b

n

Page 26

98%

62%

73%71%

76%

61%

50% 49%

55% 56%

25.0%

35.0%

45.0%

55.0%

65.0%

75.0%

85.0%

95.0%

105.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014


Loans to Deposits Ratio (2005 – 2014)

Average:

65.1%

Page 27


Gross Earnings vs Gross Earnings Growth (2005 – 2014)

0.4

0.6

1.0

1.6 1.5

1.2

1.9

2.5

2.9

3.3

50%

67%

60%

-6%

-20%

58%

32%

16%

14%

6%

-40%

-20%

0%

20%

40%

60%

80%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Gross Earnings Growth rate

Page 28


PBT vs. PBT Growth (2005 – 2014)

81.3

129.0

252.6

494.0

282.5

344.8

147.4

551.1

501.3

682.3

59%

96%96%

-43%

22%

-57%

274%

-9%

36%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

PBT Growth Rate

Page 29


Cost to Income Ratio (2005 – 2014)

70.6

67.5

61.3

54.4

67.3

97.0

73.7

68.9

81.9

65.5

40.0

50.0

60.0

70.0

80.0

90.0

100.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cost-to-Income Rat io Average

Average:

70.0%

Page 30


NPLs Ratio

0.8

1.7

2.9

4.7

6.0

7.0

9.0

11.0

13.0

15.0

11%

7%

3%

10%

16%

14%

6%

5%

4%3%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Loan & Advances (N'tn) NPL Rat io

Page 31








OUTLINE

Page 32

35%

65%

N2.8tn

Industry Gross Earnings & PBT


66%

34%

N3.3tn

(+17.7%

Y-o-Y)

75%

25%

N696.2bn

(+31.6%

Y-o-Y)

Tier-1 Banks

Tier-2 Banks

2013 2014

13%

88%

N501.3bn

Gross

Earnings

PBT

Page 33

68%

32%

N25.4tn

(+15.5%

Y-o-Y)

70%

30%

N29.1tn

(+15.9.%

Y-o-Y)

Industry Total Assets & Liabilities


Tier-1 Banks

Tier-2 Banks

2013 2014

68%

32%

N25.1tn

65%

35%

N22.0tn

Total

Assets

Total

Liabilities

Page 34

Industry Total Loans & Deposits


Tier-1 Banks

Tier-2 Banks

70%

30%

N15.0tn

(+26.6%

Y-o-Y)

69%

31%

N11.8tn

70%

30%

N18.9tn

2013 2014

70%

30%

N21.1tn

(+11.6%

Y-o-Y)

Total

Loans

Total

Deposits

Page 35

Sectoral Credit Distribution in Nigeria


Oil & Gas, N3.2tn, 26%

Agriculture, N0.5tn, 4%

Manufacturing , N1.7tn, 13%

Government , N0.7tn, 6%

Construct ion & Real Estate, N1.2tn, 9%

ICT & Transport , N1.3tn, 10%

Pow er, N0.5tn, 4%

General Commerce, N1.1tn, 8%

General: Household , N1.2tn, 10%

Others, N1.2tn, 10%

Total Credit

– N12.6tn

(excluding

NSE listed

banks loans

outside

Nigeria)

Page 36








OUTLINE

Page 37

Banks Market CapitalizationCURRENT INDUSTRY VALUATION

706.3

524.3

340.4

227.6 222.6

160.0 153.3

101.6 72.7 61.3

46.5 42.9 39.5 30.8

15.9

-

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0(N’bn)

Page 38

16.5%

27.9%

20.8%

18.7%

16.7%

19.1%

14.7% 14.6%

7.7% 8.2%

12.7% 12.2%

3.7%

5.6%

20.5%

14.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

ROE Industry Average

Tier-1 and Tier-2 Banks’ 2014 ROE

CURRENT INDUSTRY VALUATION

Source: Company Financials, Afrinvest Research

Page 39

Banking Multiples across Selected African Countries



17.8%

19.7%

21.4%

25.0%

27.7%

15.0%

17.0%

19.0%

21.0%

23.0%

25.0%

27.0%

29.0%

SOUTH AFRICA NIGERIA EGYPT KENYA GHANA

Average ROE of Top-Tier Banks across Africa

Page 40

2.4x

5.3x

2.6x

6.3x

2.5x

5.0x

3.2x

2.2x

3.0x2.5x

10.1x

6.1x

4.0x

0.8x

16.7x

4.0x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0xPE Tier-1, Tier 2 & Indust ry Average

Valuation by Price to Earnings (P/E) Ratio



Page 41

0.4x

0.7x

0.4x

1.9x

0.5x

1.0x

0.3x 0.3x0.2x 0.2x

2.1x

0.7x

0.5x

0.2x

0.9x

0.7x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

PBV Industry Average

Valuation by Price to Book Value (P/BV) Ratio



Page 42

Banking Multiples across Selected African Countries


Source: Bloomberg, Afrinvest Research

4.0x

7.4x8.0x

9.8x

21.4x

0.7x 1.2x0.6x

2.4x2.9x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

NIGERIA GHANA EGYPT KENYA SOUTH AFRICA

P/E P/BV

Average Trading Multiples of Top-Tier Banks across Africa

Page 43








OUTLINE

Page 44

Regulatory Expectations

IMPLICATIONS FOR THE NEXT DECADE

Ant icipated Government Reforms

Accommodat ive Monetary Policy in the

Medium Term

Tighter Prudent ial Regulatory Landscape

Regulat ions on Shadow Banking

Support ing Regulat ions for Banking

the Unbanked

Page 45

Macroeconomic Indicators


COUNTRYGross

Earnings/GDP

Total

Assets/GDP

Total

Loans/GDPNet Margin

BRAZIL 11% 62% 25% 13%

RUSSIA 6% 49% 35% 7%

INDIA 9% 89% 47% 25%

CHINA 9% 184% 93% 41%

SOUTH AFRICA 10% 116% 71% 26%

BRICS AVERAGE 9% 100% 54% 22%

NIGERIA 3% 23% 8% 20%

Page 46

Monetary Policy


COUNTRY FOREX REGIME MONETARY POLICY

BRAZIL Floating Inflation Targeting

RUSSIA Other Managed Price Stability

INDIA Floating Multiple Indicators Approach

CHINA Crawl Like Arrangement Currency Stability

SOUTH AFRICA Floating Inflation Targeting

NIGERIA Other Managed Price and Exchange Rate Stability

Page 47

Banking Industry Metrics


COUNTRYGross

Earnings/GDP

Total

Assets/GDP

Total

Loans/GDPNet Margin

BRAZIL 11% 62% 25% 13%

RUSSIA 6% 49% 35% 7%

INDIA 9% 89% 47% 25%

CHINA 9% 184% 93% 41%

SOUTH AFRICA 10% 116% 71% 26%

BRICS AVERAGE 9% 100% 54% 22%

NIGERIA 3% 23% 8% 20%

Page 48

Top 4 Banks Market Share - BRICS vs. Nigeria


94%

85%

43%

63%

98%

54%

77%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BRAZIL RUSSIA INDIA CHINA SOUTH AFRICA NIGERIA

Page 49

Sector Credit Distribution vs Contribution to GDP


27.0%

4.4%

12.4%

8.6%

9.8%

4.9%

10.2%11.2%

20.2%

9.3%

12.0% 12.1%

0.6%

17.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Oil &

Gas

Ag

ricultu

re

Man

ufa

cturin

g

Co

nstru

ction

& R

ea

lEsta

te

ICT &

Tra

nsp

ort

Po

we

r Ge

ne

ral

Co

mm

erce

/Tra

de

Industry Average Sector % Contribut ion to GDP

Page 50

Sector Credit Distribution vs Contribution to GDP


27.0%

4.4%

12.4%

8.6%

9.8%

4.9%

10.2%11.2%

20.2%

9.3%

12.0% 12.1%

0.6%

17.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Oil &

Gas

Ag

ricultu

re

Man

ufa

cturin

g

Co

nstru

ction

& R

ea

lEsta

te

ICT &

Tra

nsp

ort

Po

we

r Ge

ne

ral

Co

mm

erce

/Tra

de

Industry Average Sector % Contribut ion to GDP

Page 51

Sector Credit Distribution Across Selected Countries


0.8% 1.0% 0.8%

4.9%

16.8%

6.0%

2.2%

3.8%

17.7%

33.7%

1.7%2.9%

2.4%

16.3%

28.2%

1.5%

8.7%

2.1%

28.0%

40.8%

12.4%

10.7%

0.6%

22.9%

18.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Agriculture Ut ilit ies (Water, Gas,Elect ricity)

Mining/Natural Resources Manufacturing Services

Malaysia Indonesia Russia Brazil India

4.0%

17.7%

2.0

%

27.6

%

4.7%

Page 52

Sector Credit Distribution Across Selected Countries


0.8% 1.0% 0.8%

4.9%

16.8%

6.0%

2.2%

3.8%

17.7%

33.7%

3.9%3.4%

25.0%

12.0%12.7%

1.5%

8.7%

2.1%

28.0%

40.8%

12.4%

10.7%

0.6%

22.9%

18.0%

1.7%

2.9%2.4%

16.3%

28.2%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

Agriculture Ut ilit ies (Water, Gas,Elect ricity)

Mining/Natural Resources Manufacturing Services

Malaysia Indonesia Nigeria Brazil India Russia

Page 53


Mining/ Natural

Resources Sector

Over a Quarter of

the Total Loans by

banks is

concentrated in this

sector

Manufacturing Sector

A Shif t to more complex

Manufacturing which will require

more Capital Expenditure

Utilities Sector

Increased ef forts by Government to

improve delivery in the sector opens up potent ial lending

opportunit ies

Household Sector

The Expanding income level and

middle-Class populat ion

suggests a viable market to create

f inancial products

Going Forward

Growing Non-Oil Sectors

Lending Structure – The Way forward

Page 54

Thank You

Documents

Ike Chioke Managing Director · 2019. 10. 15. · fundamentals: oil price crash, MPR hike and currency devaluation Post-election lull: awaiting President Buhari’scabinet and weakened