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Executive Summary: Nigeria’s Banking Industry: The Case for Redefining Tier 1 Banks

May 28, 2022   •   by Proshare Research   •   Source: Proshare   •   eye-icon 3704 views

Nigeria's banking industry has swung from one model to another between 1999 and 2022. From universal banking in 1999, it steered towards the old, specialized banking model before the recent hard brake reset sent the sector into a more contemporary 'Holding Company (Holdco)' mode. The new banking structure mixes specialized banks like investment and merchant banks with a universal banking-like feature condensed into Holdco structures. 

 

In simpler days, banks gained respect by their asset sizes; tier 1 banks would be banks with the largest assets above the industry's median asset value. Today, asset or share capital size would be inadequate to determine whether a bank was tier 1 or 2. The measuring tape has increasingly become elastic. 

 

This report, therefore, critically appraises the extant approach to Tier based classification of Nigerian Banks and proffers a testable methodology as a credible alternative. This report notes that while there is no statutory guidance on the qualifying features of a Tier 1 bank, the Afrinvest Tier Based Classification of 2013, which produced the first-tier banks known by the moniker ‘FUGAZE’, has been widely adopted.

 

This is despite its over-emphasis on Assets and its failure to consider non-financial measures like governance.  Nonetheless, such banks as have been classified as Tier 1 tend to edge out the so-called Tier 11 banks in big-ticket public and private-sector mandates to raise capital. Hence the need to ask questions about the very basis of the classification.

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