SA Banks vs Nigerian Banks

SA Banks vs Nigerian Banks: The Gulf In Class And The Greener Grass


November 11, 2020

The banking sector is one of the most important sectors for any economy as it can serve as a tool for development if run like a well-oiled machine. Ideally, for an economy to grow optimally and get sturdy, its banking industry should not be ignored.

For Africa, its two biggest economies are seen to be far wide apart in their respective banking industries, on an asset scale. Topping the banking charts in Africa is a South African bank. In fact, South Africa is home to the top three biggest banks in Africa. 

A harder pill to swallow is that the biggest bank in South Africa is single-handedly larger than the top five banks in Nigeria combined.

This means that, If the top five banks in Africa’s most populous country and the continent’s largest economy, Nigeria, decided to merge and form a single bank, they still wouldn’t measure up to the largest South African bank, asset-wise.

One thing is obvious then; In African banking, South Africa is king. South Africa possesses a highly developed and advanced banking industry. Indeed, the only African bank that is found on the list of the top 150 banks globally is a South African bank known as First National Bank (FNB), occupying the 146th spot

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The banking industry in South Africa also has a higher financial penetration than the rest of Africa. South African Reserve Bank (SARB), which is the country’s central bank, regulates a total of 42 banking institutions.

Based on Total Asset, its largest banks are Standard Bank, FirstRand, Absa, Nedbank, Investec, with the industry’s total asset measuring to ZAR 5.74 Tn (USD 367.1 Bn).

Nigeria, on the other hand, has the second-largest banking industry in Sub-Saharan Africa, behind South Africa. The banking system in Nigeria is run by the Central Bank of Nigeria (CBN) which heads 22 banks with total assets worth NGN 42.2 Tn (USD 110.9 Bn).

Nigerian banks versus SA banks

As earlier stated, the largest bank in South Africa is bigger in assets, than the top five banks in Nigeria combined.

Based on total assets, South Africa’s biggest bank, Standard Bank, lays claim to USD 115 Bn, while Nigeria’s top five tier-one banks [known by the acronym, FUGAZ, implying FirstBank, United Bank for Africa (UBA), Guaranty Trust Bank (GTB), Access Bank, And Zenith Bank] add up to USD 82.5 Bn in total. These figures suggest that Standard Bank is still about 30 percent larger than all Nigeria’s big five banks combined.

How is this so? Firstly, this can be looked at from the point of the period of establishment, as this goes some way to determine the extent of their success and advancement.

It is seen that the first bank established in South Africa was in 1793, which was called the Lombaard Bank in Cape Town. However, South Africa’s oldest existing bank, FNB, was established in 1838. 

Nigeria, on the other hand, had its banking system kick-off in the colonial era, with its first bank coming to life in 1892. This bank was called the African Banking Corporation, which later handed its operations to the British Bank of West Africa (The now-First Bank of Nigeria). 

Also, the central bank in South Africa, the SARB, started operations in 1921, making it the oldest central bank in Africa.

Another likely reason for the gulf in class between South African banks and their Nigerian counterparts is the huge gap in the comparative economic advancement of both countries.

South Africa is characterized by a highly diversified economy and is the continent’s most advanced economy, with Nigeria still struggling to wean itself off of a heavily one-sided economy largely dependent on a single primary export, crude.

Although Nigeria appears to have the largest economy in Africa in terms of gross domestic product (GDP), it is not enough to judge the state of an economy from only the GDP, as it doesn’t give the full picture of the country’s economic health.

Rather, to fully grasp the ideal state of both economies, a clearer picture is obtained by looking at the economy from the angle of the GDP per capita. Based on this, the wealth of both countries is divided equally amongst its people. Thus, it becomes clear that each person in South Africa is wealthier compared to each person in Nigeria.

For South Africa, the GDP per capita is around USD 6 K while that of Nigeria is about USD 2.2 K. This means that the GDP per capita in SA is about 3 times larger than Nigeria’s; a country with a population that is about 4 times greater. 

How then does this relate to the banking industry?

Generally, a bank is known to be a place where monetary transactions are made. This would mean that the amount of money available per individual, is a determinant of the level at which the banking sector would be. A country with a better standard of living is likely to have its banking sector supersede another with a lower living standard.

Also, high net-worth individuals (HNWI) attribute a significant amount to the banking volume and they naturally are the big catch for the industry.

From this, it is found that South Africa is home to 38,400 millionaires (in US dollars) and Nigeria having seemingly less, with 29,500 millionaires, even as Nigeria has 4 times more people as stated previously. Nigeria’s three billionaires (in US dollars) also pales in comparison to South Africa’s five.

Notwithstanding, the banking industry in Nigeria is not entirely off the pace when compared to South Africa, as it is found to be on the winning side when measuring the scale of profitability.

While South African banks are bigger banks in terms of Total Assets, Nigerian banks are found to be more profitable, based on their return on Assets (ROA), from comparing the profit after tax to their total asset.

As of the first half of 2020, the biggest bank in South Africa (Standard Bank) has a ROA of 0.3 percent while the biggest bank in Nigeria (Zenith Bank) has a ROA of 1.3 percent. This somewhat shows that Nigerian banks are making more from less.

On the whole, South Africa is seen to have more advanced and bigger banks while Nigerian banks are seen to be more profitable. Perhaps the grass is not greener on the other side after all.

Featured Image Courtesy: waystocap

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