Nigerian banks brace up for $1 trillion economy

The Bola Ahmed Tinubu-administration has made an ambitious plan to drive a $1tr economy and the federal government is working to leverage on the potentials in every sector of the economy to achieve this plan. One of the sectors, which is latching onto this future plan is the banking sector. In the midst of the […]

The Bola Ahmed Tinubu-administration has made an ambitious plan to drive a $1tr economy and the federal government is working to leverage on the potentials in every sector of the economy to achieve this plan.

One of the sectors, which is latching onto this future plan is the banking sector. In the midst of the challenging economic ecosystem, Nigerian banks are repositioning for greater visibility and services.

This, they have long recognized by expanding their operations abroad, not only to bolster revenue but also to mitigate risks inherent in the domestic market.

Analysts say this trend has gained momentum recently, driven by a heightened awareness of the need for global opportunities to hedge against domestic uncertainties. In 2023, three prominent banks, namely Fidelity Bank, Zenith Bank, and Access Bank, made an attempt to unlock value in the international market.

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Fidelity Bank made headlines by acquiring the United Kingdom subsidiary of Union Bank, a move designed to tap into the lucrative UK market.

Additionally, Fidelity announced plans for further expansion across the African continent.

Similarly, Zenith Bank inked a memorandum of understanding (MoU) with the French government, signaling its intent to commence operations in France.

Meanwhile, Access Bank set its sights on strengthening its presence in Asia, highlighting the strategic importance of diversifying geographic footprints for Nigerian banks.

The Central Bank of Nigeria (CBN) recently announced a recapitalisation exercise for Nigerian banks in response to evolving economic dynamics.

The CBN had proposed a minimum capital requirement of N500bn for deposit money banks with international authorisation and N200bn for national banks while those with regional authorisation are expected to achieve a N50bn minimum capital.

Recognising the inadequacy of current capital bases to support Nigeria’s ambitious goal of becoming a $1 trillion economy by 2026, analysts say the proposed recapitalisation underscores the imperative for banks to fortify their financial positions.

Indeed, leading Nigerian banks had already been laying the groundwork for international growth prior to the recapitalisation proposal. By expanding beyond national borders, these banks are positioning themselves to capitalise on new growth opportunities while contributing to the Nigerian economy’s development.

The commencement of the African Continental Free Trade Area (AfCFTA) agreement in 2021 presented a significant opportunity for Nigerian banks to ramp up their expansion efforts across the continent in an effort to position for the challenges ahead.

In addition to this, the Japa syndrome has created a viable market for Nigerian banks to tap into the remittance flows and investment activities of Nigerians abroad.

Already, Access Bank operates subsidiaries across Africa and beyond, contributing substantially to its revenue streams. Similarly, Guaranty Trust Holding Company boasts a robust presence in Africa and the United Kingdom, with offshore operations significantly bolstering its earnings.

Also, UBA has equally expanded its offerings across Africa, resulting in strong earnings from its African operations.

Despite these achievements, Nigerian banks are now looking beyond the continent to hedge risks and forge enduring business partnerships. Fidelity Bank’s acquisition of Union Bank UK and plans for further expansion underscore its commitment to global growth.

Under the leadership of CEO Nneka Onyeali-Ikpe, Fidelity Bank has achieved impressive growth in total assets and profits.

Zenith Bank’s plans to enter the French market and Access Bank’s expansion into Asia also represent a broader trend of Nigerian banks venturing into new territories.

Financial experts believe strategic partnerships and alliances with international financial institutions have enabled Nigerian banks to access global networks and expertise, facilitating the provision of financial products and services worldwide.

In an increasingly digital landscape, Nigerian banks are leveraging technology and innovation to enhance competitiveness globally.

Fidelity Bank’s pioneering digital banking solutions and robust risk management frameworks exemplify the industry’s commitment to sustainable growth and resilience in the international market.

Speaking on the plans, an analyst, Ope Ademuyiwa stated that banks have a role to play in achieving the $1tr plan of the federal government through leveraging on global opportunities and tapping new markets.

“By diversifying revenue streams, forging strategic partnerships, and embracing digital innovation, Nigerian banks are poised to emerge as key players in the dynamic world of international finance. As they actively position themselves for success in the global market, they will play a pivotal role in Nigeria’s journey towards becoming a $1 trillion economy,” the expert said.