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Nigeria's New Wonder Banks
The term "wonder bank" conjures an image of a deposit collecting organization
operating outside the ambit of the Central Bank of Nigeria and the law,
promising out of this world returns while having no visible corrensponding
business or investment to drive the growth. These organizations love the masses
so much that instead of getting a loan from the bank for 21-25%, they opt to
collect deposit from the massess, shelling out more than 400% per annum. They
have mercifully been run out of town for now, to resurface in a year or two to
help a new set of gullibles part with their hard earned money.
The new set of wonder banks, which are the subject of this write up are legit,
regulated by CBN an applauded worldwide and taking the Africa banking landscape
by storm. They scaled the N25 Billion requirement during the banking
consolidation of 2005 and have since crossed the $1 Billion mark and still
climbing for the stars.
Their stock price have more than quadrupled, investors are smiling all the way,
back to the bank of course and their branch expansion has taken a life of its
own. Nowadays, if you see a prime property being pulled down in a prime
location, the question is not who?, but which bank? Banks are changing the city
skyline in Lagos. Awash with funds from the consolidation and subsequent public
offers, banks are buying up the city.
Take Iju Road in Ifako Ijaiye, a sleepy suburb in the Ogba-Agege axis, not just
Iju Road, but a section of it, from Jungle Bus Stop to Fagba Bus Stop, a
distance of less than 150 metres. There are already six banks operational with
three under construction (making nine banks by end of first quarter 2008). Iju
Road is more famous for traffic jams than business. A lot of businesses have
folded up and moved due to lack of patronage. The narrow partitioned road makes
it hard to execute a u-turn or park along the road. This stretch of road is now
home to nine banks, you begin to wonder what is going to sustain these bank
branches. Some of these branches are two storey edifices, making one wonder if
they are regional head offices.
This brings up the point, what is feeding the growth of these banks while the
economy is not showing any signs of quick recovery? The textile industry is
going extinct, a lot of factories are closing shop due to high cost of funds and
energy. The Niger Delta militants have almost made sure that gas does not get to
Lagos by blowing up transmission pipelines. The few factories left standing have
to face up to cheaper imported, and sometimes inferior good. In the midst of the
pall of gloom hanging over the economy, the banks are clinking glasses.
With the conclusion of the banking consolidation of 2005, all our problems were
to be over, and all our prayers answered. The main reason touted for banks
giving out loans with out of this world interest rates and lack of mortgage and
single digit rate consumer loans was due to high cost of funds which were mainly
short term funds (fixed deposit). With the banks awash with cash as a result of
the exponential rise of shareholder funds (free long term funding), the
expection was that banks will give out single digit interest rate loans, as well
as mortgage and consumer loans. Book makers were betting on a boom in the
manufacturing sector based on cheaper sources of funds for companies to do
business, and empowered consumers that will buy the finished goods. Also a boom
was predicted for the construction industry, as every Okoro, Musa and Femi can
now take out a mortgage to build/buy his dream house as is done in other climes.
The fear was, can cement companies cope with the boom?
Continued on Page 2
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