Nigerian Banks Outshines Kenyan Counterparts

Given the economic crisis that rocked Nigeria in 2016, the near dominance that the country was known for in financial circles in the continent was threatened, especially by Kenya whose stock exchange actually overtook Nigeria’s at some point. But threatened only, as Bloomberg reports that Nigerian banks remain, on average, more profitable than their Kenyan counterparts, who are East Africa’s economic powerhouse.

Putting the top banks in both countries side-by-side, Nigeria’s Guaranty Trust Bank (GTB) still out-performs Equity Group Holdings from Kenya. While GTB’s net income climbed 33 percent, Equity Group reported its first-ever drop in annual profit last week as non-performing loans more than doubled and lending in the final quarter shrank.

Giving the reason for this stellar performance considering the contracting economy, Craig Metherell, an analyst at Avior Capital Markets Ltd. in Cape Town said “GTB stands out in the Nigerian banking sector based on their ability to optimize their balance sheet and conservatively position themselves against any unforeseen shocks”

However, the lead is not solely attributable to GTB as other Nigerian banks have out-performed their East African counterparts. In general, while the index of Nigeria’s 10 largest banks have dropped by only 2.5% since August 24, Kenya’s 11 publicly traded lenders have declined an average of 12% during the same period.

While Kenyan financial institutions will point to interest rate cap rules, which President Kenyatta put in place last year, as reason for their inferior performance, experts say that Nigerian banks also had problems of their own but handled them better.

Aleksej Gren, a fixed-income analyst at Exotix Partners LLP in London recommended a buy for GTB’s bonds due November 2018 as well as 2019 notes issued by Zenith Bank Plc and 2021 debt securities from Access Bank Plc. Explaining his reason for the recommendation, he said “Nigerian banks appear to be navigating current challenges better than anticipated. [They] are prepared for naira weakness. Further asset quality deterioration is likely, but many of the problems have already been identified.”

Thus while Nigerian banks will continue to moan about policy issues hampering their growth, they will remain an envy to their East African counterparts.