afrinvest nigeria banking report 2008[1]

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    Nigerian Banking SectorMacro-economic play on Africas largest emerging market

    January 2008

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    Nigerian Banking Report

    Section 1

    Section 2

    Section 3

    Section 4

    Section 5

    Section 6

    Section 7

    Executive Summary

    Political and Socio-Economic Update

    Elections Aftermath: Stability and Continuity 16

    Continued Economic Growth 19

    Key Risks: Infrastructure, Security, Corruption 20

    Nigerian Banking Sector

    2007: After Reforms, Growth 22

    The Opportunity is Real 23

    Size and Capital are becoming Key 25

    Capital Markets have Helped 29

    But there are Risks 31

    Post-Consolidation Scenario

    New Rules: Size is Imperative 34

    New Entrants: Top Dollar, Tough Market 35Grand Ambitions: Expansion and Diversification 36

    Bank Profile: Fifteen Banks

    Operating and Valuation Statistics

    Macro-economic and General Statistics 72

    Financial Forecasts 74

    Public Market Operating Comps, Part I 79

    Public Market Operating Comps, Part II 80

    Public Market Valuation Comps 81

    Chart List 82

    Contacts

    Afrinvest (West Africa) Limited 86

    Disclaimer 87

    Table of Contents

    3

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    Nigerian Banking Report

    Executive SummarySection 1

    5

    January 2008

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    Nigerian Banking Report

    Independent assessment of Nigerias macro-economic performance

    continues to be favourable...

    ...And much of the local and international financial community have become

    familiar with the compelling Nigeria story.

    In many ways, Nigerias story mirrors a wider African renaissance.

    In December 2006, the International Monetary Fund (IMF) published its second review

    of Nigeria under a two year Policy Support Instrument (PSI). IMF endorsement had

    been a key part of achieving the US$31bn 2006 Paris Club debt restructuring

    agreement. The IMF made the following statements on Nigerias economic

    performance, following on positive commentary from its previous review:

    GDP growth and per capita income have doubled in the last five years

    compared with the previous two decades. Headline inflation declined to

    single digits in 2006 and the parallel and official exchange rates have

    converged, reflecting the unification of the foreign exchange markets.

    the authorities have maintained their commitment to the reform agenda;

    nevertheless, the ongoing conflict in the Niger Delta poses a policy challenge.

    Growth would benefit from significant infrastructure spending. This

    spending reflects the governments efforts to address pressing infrastructure

    needs.

    Following years of tortuous reforms, and stability ensuing from over eightuninterrupted years of democratic governance, Nigeria has begun to exhibit macro-

    economic characteristics that are more in line with the worlds leading emerging

    market countries. Foreign portfolio investors have been quick to take advantage of

    opportunities in the market. Amid the global quest for higher yields in 2006-2007,

    Nigeria witnessed significant inflows into its sovereign debt and public/private equity

    markets. Afrinvest Research estimates that, the banking sector (considered by many

    to be an investment proxy for the larger economy) has attracted over US$5.0bn in

    new foreign debt and equity investments, excluding direct equity portfolio

    investments on the Nigeria Stock Exchange (NSE). The Nigeria story is essentially one

    of a larger, yet faster growing version of commodities rich Africa. Just as

    importantly, significant room continues to exist for growth, with per capita GDP

    barely over the US$1,000 mark despite recent advancements (See Chart 1 and 2).

    Key elements of the Nigeria macro story (GDP growth, declining inflation, improved

    sovereign risk ratings and increased inward flow of Foreign Direct Investments) are

    very much in line with emerging trends in many countries within the sub-Saharan

    African region. A continuing global commodities boom has combined with significant

    amounts of international interest in (and demand for) emerging market

    opportunities, to spur a renaissance in many African markets. Many of these countries

    are now enjoying the longest, sustained period of uninterrupted economic growth in

    their post-colonial histories.

    According to data from sovereign risk specialists Standard and Poors, Africas major

    markets (a sample including South Africa, Nigeria, Egypt, Morocco, Tunisia, Kenya,

    Executive Summary

    Nigerias national leadership

    continues to demonstrate

    commitment to a private

    sector driven reform agenda;

    and to a secure, corruption

    free country.

    6

    Independent observers attest

    to a vastly improved

    Nigerian macro-economic

    environment in the last 3 to

    5 years.

    Foreign investors have been

    quick to seize opportunities,

    with local capital markets

    benefiting from increased

    levels of awareness and

    inflow.

    January 2008

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    Senegal and Ghana) are each seeing 5-year average output growth rates in the 5%

    per annum region. Each is also seeing per capita GDP exceeding or approaching theUS$1,000 mark, with South Africa (US$5,516) and the North African countries

    (averaging US$2,356) being well ahead of the rest of the continent. While these

    indications of prosperity appear more pronounced in these more developed African

    economies (South Africa and the Northern African countries) than in Nigeria, a closer

    analysis reveals that there is indeed a higher, underlying level of per capita wealth

    within the Nigerian economy.

    There is evidence that a small proportion (estimated at 20%) of Nigerias 140 million

    people account for up to 80% of the nations wealth. With a 2006 year end GDP of

    US$140bn, our analysis indicates that while Nigeria may report a national per capita

    GDP of merely US$1,000, there is actually a select, underlying market of up to 28

    million people in the country; boasting a per capita GDP of US$4,000 (very nearly

    comparable to South Africa, and well in excess of the North African average).

    We believe that this select section of the population is responsible for much of the

    underlying consumer market demand that is beginning to come to light in Nigeria.

    Due to very high poverty rate, much of the analysis of the market opportunity has

    failed to take cognisance of this latent consumer group, itself a substantial market,

    and primary targets for immediate new business opportunities.

    The wealthiest 20% of Nigerias population accounts for 80% of national

    output; an estimated market of 28 million people with a per capita GDP of

    US$4,000 per annum.

    Nigerian Banking Report

    Population (millions) Per Capita GDP (US$) GDP Growth (2007E)

    South Africa

    Nigeria (Select)

    Tunisia

    Morocco

    Egypt

    Nigeria (Nationwide)

    Chart 1: Underlying market demand in Nigeria

    Source: Standard and Poors, Afrinvest Research

    Executive Summary

    7

    47.1 5,516.0 4.58%

    28.0 4,000.0 N/A

    10.3 3,226.0 6.00%

    33.8 2,264.0 4.31%

    80.4 1,577.0 5.88%

    140.0 1,000.0 7.58%

    January 2008

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    Nigerian Banking Report

    Chart2:So

    vereignRiskIndicators,NigeriaVersusAfricaI

    Executive Summary

    8

    RSA

    Morocco

    Nigeria

    Egyp

    t

    Tun

    isia

    K

    enya

    Senega

    l

    Ghana

    2007Per

    CapitaGDP,US$

    5,5

    16

    2

    ,264

    924

    1,5

    77

    3,2

    26

    724

    887

    632

    5-yearAv

    erageGDPGrowth,

    %

    4.4

    7

    4.7

    6

    7.39

    4.4

    7

    5.4

    2

    4.9

    5

    5.0

    3

    5.7

    7

    2007CPIAverage,

    %

    5.4

    6

    2.7

    5

    8.70

    9.9

    0

    2.8

    6

    10

    .00

    2.6

    0

    9.5

    0

    2007Bud

    getSurplus/(Deficit),

    %

    0.2

    9

    (2.4

    0)

    7.98

    (7.4

    8)

    (3.4

    0)

    (3.9

    7)

    (5.5

    0)

    (3.9

    2)

    2007Gov

    ernmentDebt,%

    ofGDP

    26

    .02

    42

    .49

    1.55

    64

    .72

    48

    .82

    40

    .93

    29

    .90

    19

    .99

    Savings,%

    ofGDP

    13

    .03

    31

    .88

    30.05

    21

    .64

    21

    .23

    15

    .40

    11

    .68

    24

    .12

    2007Inve

    stment,%

    ofGDP

    20

    .14

    28

    .85

    23.76

    19

    .99

    23

    .12

    20

    .58

    20

    .28

    27

    .89

    2007InvestmentGrowth,

    %

    9.2

    7

    7.0

    6

    11.5

    7

    14

    .06

    6.7

    3

    12

    .83

    10

    .10

    18

    .00

    2007Une

    mployment,%

    ofWorkforce

    26

    .60

    10

    .48

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