The nation’s tier-2 banking industry sub sector is fast turning into a highly competitive landscape, as players in this banking sub sector create a market niche for themselves, which is manifesting in the forms of higher market share for some banks while others shed weight in the sub sector. The banks operating in this sub sector in Nigeria are Fidelity Bank, Sterling Bank, Wema Bank, FCMB, Union Bank, Unity Bank, Polaris Bank, Providus Bank, Heritage Bank and Stanbic IBTC Bank. Only five have their 2019 audited financial statements available as at the time of the analysis.
An analysis of the performance of the five tier-2 banks by BusinessDay Research & Intelligence Unit (BRIU) has shown that Stanbic IBTC and Fidelity Bank have started to dominate the tier-two segment of the nation’s banking industry. Other tier-2 banks in the analysis are First City Monument Bank (FCMB), Sterling Bank and Union Bank.
And the parameters employed included the gross earnings, profit after tax (PAT), assets, deposits and loans from 2015 to 2019. On the average, the combined tier-2 industry’s gross earnings grew by 9.22 percent between 2015 and 2019. On year on year, their combined gross earnings rose by 8.36 percent between 2015 and 2016; increased further by 18.88 percent in 2017; grew by 2.44 percent in 2018, and further rose by 7.20 percent in 2019 when the cumulative gross earnings amounted to N943.41 billion in 2019.
Three tier-2 banks surpassed the industry average during the period. One of them is Fidelity Bank which recorded a five-year average growth of 10.22 percent; Stanbic IBTC recorded an average growth rate of 14.33 percent while Union Bank recorded a five-year average growth rate of 10.17 percent. On the contrary, FCMB recorded an average growth rate of 4.47 percent while Sterling Bank posted 7.85 percent.
This growth trend reflected in their market shares within the period. Fidelity Bank’s market share remained stable during the reference period from 22.03 percent in 2015 to 22.84 percent in 2019. Stanbic IBTC’s market share rose from 21 percent in 2015 to 24.78 percent in 2019 just as Union Bank’s market share remained stable at 17.65 percent in 2019 which is similar to 17.58 percent in 2015.
On the flip side, FCMB and Sterling Bank’s market share slightly declined. In 2015, FCMB controlled 22.87 percent of the tier-2 banking industry’s market share. The bank’s fortuned improved in 2016 when its market share rose to 24 .40 percent and that was the highest market share it controlled in the last five years. However, FCMB’s market share declined to 19.77 percent in 2017; 19.93 percent in 2018, and in 2019 it was 19.09 percent.
Sterling Bank’s market share stood at 16.52 percent in 2015; 15.39 percent in 2016; 15.48 percent in 2017; 16.79 percent in 2018 and 15.63 percent in 2019.
“Each bank has its strategy to penetrate and grow in the market. The financial market is not yet saturated. So, what you are presently witnessing is just the manifestations of the strategies those banks have implemented overtime. If you look at financial inclusion, you will see that the market is still big for every player to have more penetration.
“Stanbic IBTC is very aggressive and is leveraging on its very strong subsidiaries as the group is into investment banking, asset management, stock broking, among others. Fidelity Bank is very aggressive too. We all know it doesn’t have subsidiaries, and yet competing in that sector very well. The drive is that it wants to migrate into the tier-1 bank category”, David Adu, an analyst with Meristem Securities said.
The five tier-2 banks mobilised N4.59 trillion deposits in 2019. That was 8.47 percent higher than N4.23 trillion they all mobilised in 2018. Deposit mobilisation sets Fidelity Bank apart from others as its share of the total deposits was 26.72 percent in 2019. This compares with 20.57 percent which is the FCMB’s share in the total tier-2 banks’ deposits last year.
Stanbic IBTC mobilised N637.84 billion deposits from customers to account for 13.91 percent of the industry deposits. Sterling Bank reported N892.66 billion deposits from customers to account for 19.47 percent share of the industry deposits last year. Similarly, Union Bank’s share of the industry deposits was 19.33 percent on account of the N886.26 billion deposits from customers that it reported in 2019.
The industry loans and advances to customers grew by 12.52 percent on the average from 2015 to 2019. Fidelity Bank and Sterling Bank outperformed others in this regard. On the average, Fidelity Bank’s loans and advances grew by 18.60 percent while those of Sterling Bank rose by 17.36 percent.
The three other tier-2 banks recorded lower than industry average growth in loans and advances. Union Bank posted 12.03 percent; Stanbic IBTC recorded 11.13 percent while FCMB recorded 5.07 percent.
The assets of the five tier-2 banks added up to N8.70 trillion in 2019, representing 18.09 percent increase over N7.36 trillion in 2018. On this parameter, there seems to be an even distribution of assets among the banks, although Fidelity Bank still maintains an edge by controlling 24 percent of the total assets.
“With the current devaluation of the naira to N360/$, the assets of these banks have further become weaker. Meanwhile, the sector is pressured. So, the Central Bank of Nigeria (CBN) might ask these banks to shore up their capital which they may do through rights issues, later this year or early next year. We cannot rule out mergers and acquisitions”, Adu added.
Stanbic IBTC and Union Bank control 22 percent each market share each. And FCMB, 19 percent while Sterling Bank controls 13 percent share of the assets.
Profit after tax (PAT) of the five tier-2 banks at the end of 2019 was N155.33 billion, which was 11.03 percent higher than N139.9 billion reported by all the banks in 2018. But Stanbic IBTC accounted for 48 percent of the industry PAT. Fidelity Bank reported N28.42 billion, representing 18 percent of the industry profit after tax. Union Bank accounted for 16 percent; FCMB, 11 percent , and Sterling Bank 7 percent.
