CASE STUDY Nigeria

Nigeria is the largest country in Africa in terms of population (170 million), and has the second-largest banking system on the continent, after South Africa. However, its largest bank – First Bank of Nigeria – is paradoxically only the 15th largest in Africa.

“Nigeria’s economy continued to perform strongly in 2013,” says Gene Leon, the IMF’s mission chief and senior resident representative there. “Real GDP grew by 6.8 percent in the third quarter of 2013. The banking sector is well capitalized with low levels of nonperforming loans.”

According to The Economist, the onpaper returns are enormous for banks operating there. Net interest margins in countries such as Nigeria are as high as 8 percent – about twice as high as in South Africa and four times higher than those routinely achieved in the West.

But getting these returns involves developing a branch network, and taking on the risks that go along with this. According to analysts, the outlook is clouded by political risks, including the presidential elections next year, and a change in central bank governor earlier this year.

Nigeria’s banking system is important but not dominant in Africa, according to analyst David Gyori, mainly owing to the collapse of the domestic banking system in 2008.

The nation’s banking market has again recently been in the spotlight, with foreign markets ceasing trading after Nigeria’s central bank governor, Lamido Sanusi, was suspended in February after alleging that $20 billion in oil revenue had gone missing.

“Although the outlook is positive, risks need to be managed,” Leon concludes. “Growth is projected to increase to about 7 percent in 2014, while in ation should rremain in the single digits. Growth in the next decade will rely on continuing reforms to strengthen institutions, improve ef ciency, and prioritize quality infrastructure investments.”