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RUEHZK/ECOWAS COLLECTIVE
RUCPDOC/USDOC WASHDC
RULSDMK/DOT WASHDC

UNCLAS SECTION 01 OF 02 LAGOS 000654 
 
SIPDIS 
 
PASS TO DOE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV PGOV NI
SUBJECT: NIGERIA: SECOND PHASE OF BANK CONSOLIDATION UNDERWAY 
 
¶1. (U) Summary: Another phase of bank consolidation in the wake of 
successful recapitalization of banks in 2005 pursuant to the Central 
Bank of Nigeria (CBN) banking reform is underway. Many banks are 
going to the stock market to raise capital. Banks which had 
criticized the CBN directive to recapitalize to 25 billion naira 
(USD 190 million) in 18 months now relish the challenge, amassing 
from 70 billion to 100 billion naira (USD 560 to 800 million) in new 
capital, as they position themselves to manage portions of Nigeria's 
USD 45.9 billion foreign reserves. End summary. 
 
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Banks Rush to the Stock Market 
------------------------------ 
 
¶2. (U) Reminiscent of the 2005 drive to recapitalize, banks are 
raising additional funds from the capital market, in what is termed 
the second phase of bank consolidation. Banks which had criticized 
the CBN directive to recapitalize to 25 billion naira (USD 190 
million) within 18 months now relish the challenge to amass capital 
ranging from 70 billion to 100 billion naira (USD 560 to 800 
million) in anticipation of market induced consolidation. In the 
first three quarters of 2007, banks raised about 278.8 billion naira 
from the Nigerian stock Exchange. Oceanic Bank and United Bank for 
Africa (UBA) raised 55 billion naira (USD423 million) and 53.8 
billion naira (USD 414 million) respectively in the first quarter 
(Q1). First Bank raised 100 billion naira (USD769 million) in Q2, 
Access Bank, 70 billion naira (USD 538 million) in Q3, while GT Bank 
successfully raised USD350 million in Eurobonds from a foreign 
market. Zenith Bank had earlier raised 50.7 billion naira (USD390 
million) in December 2006, and there are indications that Union 
Bank, Afribank, Fidelity Bank, Sterling Bank, First City Monument 
Bank and Skye Bank are likely raise similar amounts in the next six 
months. 
 
¶3. (U) That these banks are returning to the market to further raise 
their capital base has experts predicting an imminent wave of 
mergers and acquisitions. An industry source told Consulate Economic 
Specialist that banks are rushing to the stock market because they 
want to be in better bargaining positions when the consolidation 
begins. 
 
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And Take Over Defunct Banks for More Market Share 
--------------------------------------------- ---- 
 
¶4. (U) Meanwhile, strong banks have been taking over some of the 14 
banks that failed to meet the 2005 recapitalization deadline, in a 
"cherry-picking" process put in place by the CBN. Experts believe 
some banks, which had earlier spurned the CBN's invitation to take 
over weaker partners, now see the process as a show of strength. 
Others believe stronger banks are using takeovers to expand 
operations. 
 
¶5. (U) UBA, which took over Trade Bank (in liquidation) in November 
2006 and Metropolitan Bank in May 2007, recently accepted the offer 
of the Nigerian Deposit Insurance Corporation (NDIC) to take over 
City Express Bank, also in liquidation, under a purchase & 
assumption arrangement. Earlier, Afribank took over Assurance Bank 
and Lead Bank, while Ecobank took over Allstates Trust Bank. 
 
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Big-Ticket Mergers in the Offing 
-------------------------------- 
¶6. (U) The CBN governor predicted that market induced consolidation 
would follow the CBN's 2005 mandatory bank consolidation. Banks now 
moving to increase their market share via mergers are Stanbic 
Bank-IBTC-Chartered Bank, and First Bank-EcoBank Transnational 
Incorporated (ETI). When finalized, the First Bank-ETI, merger will 
create a financial institution worth about USD 8 billion, and one of 
the first six banks in Africa.  The Stanbic-IBTC deal which is at an 
advanced stage will see Standard Bank SA, parent company of Stanbic 
Bank take over 51 percent of the company through a tender, becoming 
the core investor in what could be Nigeria's biggest bank. The deal 
effectively brings together an investment bank (IBTC), a retail 
bank(Chartered Bank) and a wholesale bank(Stanbic bank). 
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Banks Expand Branches 
--------------------- 
 
¶7. (U) Industry operators say the new banking consolidation is 
driven by the desire for greater market share and the opportunity to 
manage a portion of Nigeria's foreign reserves currently estimated 
at USD45.9 billion. 
 
¶8. (U) To increase market share banks have embarked on branch 
expansion and introduction of new products. Branches of banks are 
springing up in locations that were previously had no or few banks. 
Rural and market branches are now commonplace, some are even opening 
 
LAGOS 00000654  002 OF 002 
 
 
up in largely residential areas to bring services closer to the 
people. According to the CBN, the number of bank branches has risen 
by over 4,000 since 2004. New products including household appliance 
acquisition loans, shares and stock acquisition loans, mortgage 
finance loans, and salary advance loans have been introduced to win 
more patronage. Introduction of debit and credit cards in both local 
and foreign currencies are also major selling points for banks. 
 
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And Target Foreign Reserves 
--------------------------- 
 
¶9. (U) Banks have also signed pacts with foreign financial 
institutions in order to qualify to manage a portion of Nigeria's 
foreign reserves. The CBN had promised that some reserves would be 
managed by each local bank in partnership with global asset 
managers. The local press reported that the CBN has finalized the 
legal framework pursuant to which banks can start managing the 
reserves. The legal framework includes custody arrangements between 
the CBN, global asset managers, and participating banks. In July 
2006, the CBN disbursed USD 7 billion, about 18.4 percent of total 
reserves to 14 banks; USD500 million was disbursed to each. 
Currently 17 banks are partnering to manage foreign reserves. 
 
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Comment 
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¶10. (U) Financial analysts expect the new wave of consolidation to 
further strengthen the Nigerian banking sector. They laud bank 
branch expansion and extension of credit but warn that increased 
capitalization must be part of a sound business plan, not growth for 
growth's sake. End comment. 
McConnell