Document Sample
					                          Cowry Asset Management Limited

                    Following the progress of Nigerian banks in the last 10 years

                                         Cowry Research Desk

A concise look at the milestones, challenges, successes and outlook of the Nigerian banking system

Cowry Research Desk                                                                             Page 1
                                  EXECUTIVE SUMMARY

The Nigerian banking system, the key driver of the economy, has definitely evolved over the years, since
1894 when First Bank of Nigeria plc (then Bank of British West Africa), the first commercial bank, was
established originally to serve the British shipping and trading agencies in Nigeria. It has thrived from a
government regulated environment to the era of the Structural Adjustment Programme (SAP) embarked
upon by government in 1986 which was aimed at deregulating the economy in the direction of market-
determined pricing. Since the market deregulation, which involved the liberalisation of the bank licensing
process, the need to properly oversee the activities of the increased number of licensed banks became more
apparent especially from organizations such as the Central Bank Nigeria (CBN) and the Nigerian Deposit
Insurance Corporation (NDIC).

Fed up with the rot in the financial system accumulated over the years from insider abuses, poor corporate
governance, inefficiencies, etc, and fearing a collapse of the financial system (and by extension the entire
economy), the apex bank, with the support of the Federal Government, started a wave of consolidation in
the banking industry, setting the minimum capital base of each bank at N25 billion (and shrinking the
number of banks to 25 after as series of mergers and acquisitions)with the aim that the banks would robust
enough to act as agent/catalyst of economic growth and development functioning in line with healthier and
more prudent modus operandi.

Nigerian banks currently face major stress tests as a result of the US mortgage industry-linked global
financial crisis, a situation not made any better by the ‘invisible mono product economic policy’ that
emphasizes overdependence on oil produced from its crisis-ridden Niger Delta region. They are reportedly
exposed to credit risks in a weakened capital market, oil and gas sector affected by exchange rates risks, as
well as the credit-dependent real estate sector. The CBN, which estimated the sector-wide exposure to be
about NGN800bn-NGN1,200trn at end of 2008, has allowed banks to reschedule these obligations, without
classifying them as non-performing. However, by December 2009, the banks would have classified their
loans in keeping with disclosure requirements of the CBN, thus painting the full picture on bad loans.

The Nigerian financial institution, an important economic development agent, could thrive to the extent to
which its economy is diversified and dovetailed to the global economy in terms of meeting the needs for
goods and services internationally. Increased revenue in the economy could easily boost liquidity in the
financial system available for further capital formation activities. This could be sustained, among other
things, via strict regulatory oversight, reduced operating costs (a major component of interest rates, for
instance) as well as excellent corporate governance by the banks. Holistic measures to treating national
issues ( e.g. security and the Niger Delta crisis, politics, etc) of economic importance would also strengthen
the bedrock on which the every institution is built.

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                                  THE NIGERIAN BANKING SECTOR

The financial system is dominated by the banking sector (about 90% of the assets) and about 55% of
market capitalization of the NSE as June 2009. It is the key driver of the economy- supplier of oxygen- with
new credit to private sector expected to exceed the combined spending by three tiers of government (this
was the case in 2008 which never happened in Nigeria before). In 2009, FGN and State Governments expect
to borrow approx. N1.6 trillion, and it is the banks that will provide much of this funding. The significant
new equity in the banking system after the conclusion of capital raising activities by 2008 contributed to
Nigeria having the highest credit growth of any country covered by Fitch during 2007 and continuing to be
rapid throughout 2008. As a result, Fitch’s Macro Prudential Indicator was downgraded to ‘3’ from ‘2’ in
May 2009, signalling the potential for increased risks within the system.

The Nigerian banking sector could be said to have thrived over the years; witnessing changes in
governments and their accompanying policies which have egged and spurred its growth and development
bringing it to the remarkable pedestal and international acclaim and goodwill it presently enjoys. Symptoms
of distress in the Nigerian financial system was first officially pointed out by the World Bank team that
examined the financial sector shortly before the NDIC Decree No 22 of 1988 took off in February 1989. The
Structural Adjustment Programme (SAP) embarked upon by government in 1986 was aimed at deregulating
the economy in the direction of market-determined pricing. It was envisaged that since deregulation would
involve the liberalisation of the bank licensing process, there would be a substantial increase in the number
of licensed banks to be supervised by the CBN. The establishment of an explicit deposit insurance scheme
with supervisory powers over insured institutions was expected to complement the supervisory efforts of the
CBN. Prior to the establishment of the Corporation, government had been unwilling to let any bank fail, no
matter a bank’s financial condition and/or quality of management. Government feared the potential adverse
effects on confidence in the banking system and in the economy following a bank failure. Consequently,
government deliberately propped up a number of inefficient banks over the years, especially those banks in
which state governments were the majority shareholders.

Indeed, before now (up until 2004), the Nigerian financial environment was in dire need of major reforms
since the military era when Nigeria was still a pariah state with a regulated modus operandi and the financial
standing of banks that pointed to an inevitable collapse in a system fraught with corruption and poor
corporate governance issues exemplified by high turnover in the Board and management staff, inaccurate
reporting and non-compliance with regulatory requirements. Others included the late or non-publication of
annual accounts that obviates the impact of market discipline in ensuring banking soundness; and gross
insider abuses, resulting in huge non-performing insider related credits. Also, there was low aggregate credit
to the domestic economy (20% as a percentage of GDP before the banking consolidation in 2004). There

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existed a Low banking/population density of 1:30,432 and the payment system that encouraged cash-
based transactions.

To resolve this problem, the CBN and NDIC used an approximation by adjusting the Book Value of some
predetermined rules based on experience and comparative study of other economies’ banking systems. Such
rules include those based on Capital Adequacy, Asset Quality, Management Competence, Earnings Strength,
and Liquidity Sufficiency (CAMEL). The classification of banks based on this rating system enabled the
authorities to determine those banks that were distressed and their levels of distress (see table 1). Upon
application of CAMEL, the authorities came up with the an assessment of Nigerian Banks (see table 2) which
revealed that ten (10) banks were sound, fifty one (51) were unsatisfactory, sixteen (16) were marginal and
ten (10) were unsound.

Table 1: Classification of Banks based on rating system

   CLASS                   COMPOSITE SCORE %                RATING
      A                              86-100               Very Sound
      B                               71-85                  Sound
      C                               56-70               Satisfactory
      D                               41-55                 Marginal
      E                                0-40                Unsound
Source: NDIC Quarterly vol 17 No ¾ Sept/Dec 1997 p. 20

According to the governor of the Central Bank of Nigeria, Professor Chukwuma Soludo, “as at end-June,
2004, there were 89 deposit money banks operating in the country, comprising institutions of various sizes
and degrees of soundness. Structurally, the sector was highly concentrated, as the ten largest banks account
for about 50 percent of the industry’s total assets/liabilities (an oligopolistic structure). Most banks in
Nigeria had a capitalization of less than $10 million. Even the largest bank in Nigeria had a capital base of
about US$ 240 million compared to US$ 526 million for the smallest bank in Malaysia.” According to him,
the small size of most of our banks, each with expensive headquarters, separate investment in software and
hardware, heavy fixed costs and operating expenses, and with bunching of branches in few commercial
centres all led to a very high average cost for the industry. This in turn had implications for the cost of
intermediation, the spread between deposit and lending rates, and put undue pressures on banks to engage
in sharp practices as means of survival. Some of our banks were not engaged in strict banking business in
terms of savings intermediation - they were traders - trading in foreign exchange, in government treasury

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bills, and sometimes in direct importation of goods through phony companies. This was not healthy for the

Table 2: Rating of Banks using the “CAMEL” parameter

          RATING                  2001            2002          2003   2004
           Sound                   10               13          11     10
         Satisfactory              63               54          53     51
          Marginal                  8               13          14     16
          Unsound                   9               10           9     10
Source: CBN Annual Report and Statement of Accounts 2004 P.15


At the Special Meeting of the Bankers’ Committee held in Abuja on the 6 of July 2004, Soludo stated that

“the Nigerian banking system today is fragile and marginal. Our vision is a banking system that is part of the
global change, and which is strong, competitive and reliable. It is a banking system which depositors can
trust, and investors can rely upon”.

He pointed the way forward for every Nigerian bank when he revealed the following major elements of the
reforms by the CBN in that first phase of the banking sector reforms:

   i.       Requirement that the minimum capitalization for banks should be N25 billion with full compliance
            before end-December 2005 (that is, 18 months notice rather than 12 months normally given in
            many countries).
                a. Only the banks that meet the requirement can hold public sector deposits, and participate
                     in the DAS auction by end 2005.
                b. Publish the names of banks that qualify by 31 December 2005.
   ii.      Phased withdrawal of public sector funds from banks, starting in July 2004.
  iii.      Consolidation of banking institutions through mergers and acquisitions.
  iv.       Adoption of a risk focused, and rule-based regulatory framework. We will always pre-announce the
            rules of the game and stick to them. Arbitrariness will be reduced to the barest minimum. More
            often, operators who run foul of the rules plead for ‘political solution’. Those who petition for
            ‘political solutions’ to otherwise strictly economic and financial problems should understand the
            damages that such arbitrariness can do to the system, and the wrong signals and moral hazard that
            it creates. Once we start with one ‘political solution’, there is no end to it and the system would

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        suffer. In the interest of preserving the integrity of the system, transparency and probity, we will
        insist on the rules and regulatory framework, in the interest of Nigeria and Nigerians.
  v.    Adoption of zero tolerance in the regulatory framework; especially in the area of data/information
        rendition/reporting. All returns by banks must now be signed by the MDs of the banks. The so-
        called ‘re-engineering’ or manipulation of accounts especially in hiding of information under ‘other
        assets/liabilities’ and off-balance sheets will henceforth attract serious sanctions.
 vi.    The automation process for rendition of returns by banks and other financial institutions through
        the electronic Financial Analysis and Surveillance System (e-FASS) will be completed expeditiously.
 vii.   Establishment of a hotline, confidential internet address ( for all Nigerians
        wishing to share any confidential information with the Governor of the Central Bank on the
        operations of any bank or the financial system. Only the Governor has access to this address.
viii.   Strict enforcement of the contingency planning framework for systemic banking distress;
 ix.    Work towards the establishment of an Assets Management Company as an important element of
        distress resolution;
  x.    Promotion of the enforcement of dormant laws, especially those relating to the issuance of dud
        cheques, and the law relating to the vicarious liabilities of the Board members of banks in cases of
        failings by the bank. A situation where a bank collapses due to negligence and mismanagement in
        pains is unjust and unfair. There is a law which makes the Directors and the bank directors move
        about in their limousines while the poor depositors languish management liable, and we will
        henceforth enforce them.
 xi.    Revision and updating of relevant laws, and drafting of new ones relating to the effective
        operations of the banking system.
 xii.   Closer collaboration with the Economic and (FIU), and the en Financial Crimes Commission (EFCC)
        in the establishment of the Financial Intelligence Unit enforcement of the anti-money laundering
        and other economic crime measures. Greater transparency and accountability will be the hallmark of
        the system.
xiii.   Rehabilitation and effective management of the Mint to meet the security printing needs of Nigeria,
        including the banking system which constitutes over 90 percent of the Mint’s business. In due
        course, you will not need to print your cheques abroad.

Cowry Research Desk                                                                                     Page 6

At the end of the N25 billion recapitalization exercise, 25 banks scaled the hurdle either alone or by merger
and acquisitions. The successful banks with their component legacy banks and their respective resultant
capital base are as tabulated below:

Table 3: Twenty five standing banks in Nigeria- Post Consolidation

                                                                                                                      Capital Base (N
          Bank                                                       Constituents

    First Bank Group                        First Bank, MBC International, FBN Merchant Bankers Ltd                       44.62
  Diamond Bank Group                                          Diamond Bank, Lion Bank                                     33.25
   Oceanic Bank Group                          Oceanic Bank International, International Trust Bank                       33.10
  Intercontinental Bank
                                         Intercontinental Bank, Global Bank, Gate way Bank, Equity Bank                   51.70
   Fidelity Bank Group                          Fidelity Bank, FSB International Bank, Manny Bank                         29.00
       UBA Group                                              UBA, Standard Trust Bank                                    50.00
          FCMB                                   FCMB, Coop Dev. Bank, Nig. American Bank Ltd                             30.00
                               Citizen Bank International, ACB International, Guardian Express Bank, Oceanic Bank,
   Spring Bank Group                                                                                                      25.00
                                                  Trans-international Bank, Fountain Trust Bank
   Access Bank Group                    Access Bank, Marina International Bank, Capital Bank International                28.50
                                Intercity Bank, First Interstate Bank, Tropical Commercial Bank, Centre Point Bank,
    Unity Bank Group                                                                                                      30.00
                                              Bank of the North, Societe Bancaire, Pacific Bank, NNB
  Equitorial Trust Bank
                                                          Equitorial Trust Bank, Devcom Bank                              26.50
    Union Bank Group             Union Bank of Nigeria, Union Merchant Bank, Broad Bank, Universal Trust Bank             58.00
 First Inland Bank Group                            First Atlantic Bank, Inland Bank, IMB, NUB                            28.00
     Afribank Group                  Afribank International (Merchant) Bank, Afribank of Nigeria, Trade Bank              29.00
 IBTC Chartered Group*                                    IBTC, Chartered Bank, Regent Bank                               35.00
    Skye Bank Group                      Prudent Bank, EIB, Bond Bank, Reliance Bank, Cooperative Bank                    37.00
   WEMA Bank Group                               Wema Bank, Lead Bank, National Bank of Nigeria                           26.20
   Sterling Bank Group                 Trust Bank, NBM Bank, Magnum Bank, NAL Bank, Indo Nigeria Bank                     25.00
  Platinum Habib Bank                                         Habib Bank, Platinum Bank                                   26.00
       Zenith Bank                                                      Alone                                             38.00
  Nigerian International
                                                                        Alone                                             25.00
         Ecobank                                                        Alone                                             25.00
   Standard Chartered                                                   Alone                                             26.00
   Guaranty Trust Bank                                                  Alone                                             34.00
      Stanbic Bank*                                                     Alone                                             25.00
*IBTC Chartered bank recently merged with Stanbic Bank.

*Platinum Habib Bank has also acquired with Spring bank

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Below is the list of 45 failed banks which were closed, having had their licenses revoked by the Central Bank
of Nigeria, between 1994 and 2006. The Federal High Court issued orders for them to be wound up and
appointed the Nigeria Deposit Insurance Corporation (NDIC) as Liquidator of the banks. The Corporation is
currently winding up the banks.

Table 4:Closed Financial Institutions

S/NO             NAME OF BANK UNDER LIQUIDATION                                DATE OF CLOSURE
1                Abacus Merchant Bank Ltd                                      Jan. 16, 1998
2                ABC Merchant Bank Ltd                                         Jan. 16, 1998
3                African Express Bank Ltd                                      Jan. 16, 2006
4                Allied Bank of Nigeria Plc                                    Jan. 16, 1998
5                Allstates Trust Bank Plc                                      Jan. 16, 1998
6                Alpha Merchant Bank Plc                                       Sept. 08, 1994
7                Amicable Bank of Nigeria Plc.                                 Jan. 16, 1998
8                Assurance Bank of Nigeria Plc                                 Jan. 16, 2006
9                Century Merchant Bank Ltd.                                    Jan. 16, 1998
10               City Express Bank Plc                                         Jan. 16, 2006
11               Commerce Bank Plc                                             Jan. 16, 1998
12               Commercial Trust Bank Ltd                                     Jan. 16, 1998
13               Continental Merchant Bank Plc                                 Jan. 16, 1998
14               Coop. & Commerce Bank Plc                                     Jan. 16, 1998
15               Credite Bank Nig. Ltd                                         Jan. 16, 1998
16               Crown Merchant Bank Ltd.                                      Jan. 16, 1998
17               Financial Merchant Bank Ltd.                                  Jan. 21, 1994
18               Great Merchant Bank Ltd.                                      Jan. 16, 1998
19               Group Merchant Bank Ltd.                                      Jan. 16, 1998
20               Gulf Bank Ltd                                                 Jan. 16, 2006
21               Hallmark Bank Plc                                             Jan. 16, 2006
22               Highland Bank of Nig Plc                                      Jan. 16, 1998
23               ICON Ltd. (Merchant Bankers)                                  Jan. 16, 1998
24               Ivory Merchant Bank Ltd.                                      Dec. 22, 2000
25               Kapital Merchant Bank Ltd.                                    Jan. 21, 1994
26               Lead Bank Plc                                                 Jan. 16, 2006
27               Lobi Bank of Nig. Ltd.                                        Jan. 16, 1998
28               Mercantile Bank of Nig. Plc.                                  Jan. 16, 1998

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S/NO            NAME OF BANK UNDER LIQUIDATION                                 DATE OF CLOSURE
29              Merchant Bank of Africa Ltd.                                   Jan. 16, 1998
30              Metropolitan Bank Ltd.                                         Jan. 16, 2006
31              Nigeria Merchant Bank Ltd.                                     Jan. 16, 1998
32              North-South Bank Nig. Plc.                                     Jan. 16, 1998
33              Pan African Bank Ltd.                                          Jan. 16, 1998
34              Pinacle Commercial Bank Ltd.                                   Jan. 16, 1998
35              Premier Commercial Bank Ltd                                    Dec. 22, 2000
36              Prime Merchant Bank Ltd.                                       Jan. 16, 1998
37              Progress Bank Ltd.                                             Jan. 16, 1998
38              Republic Bank Ltd                                              29-Jun-95
39              Rims Merchant Bank Ltd.                                        Dec. 22, 2000
40              Royal Merchant Bank Ltd.                                       Jan. 16, 1998
41              Trade Bank Plc                                                 Jan. 16, 2006
42              United Commercial Bank Ltd.                                    Sept. 8, 1994
43              Victory Merchant Bank Ltd.                                     Jan. 16, 1998
44              Eagle Bank Plc.                                                Jan. 16, 2006
45              Liberty Bank Plc.                                              Jan. 16, 2006

The above list of closed financial institutions does not contain the names of these banks whose licenses
were revoked by the Central Bank of Nigeria but the Federal High Court is yet to issue winding up orders
and appoint the Corporation as Liquidator for the banks. Due to court actions instituted by some of the
closed banks’ shareholders challenging the revocation of their banks’ licenses, the Corporation was unable
to conclude the closing exercise and initiate the payment of deposits to depositors of the banks.

1.      Savannah Bank of Nigeria Plc, license revoked Feb. 16, 2002*

2.      Peak Merchant Bank Limited, license revoked Feb. 28, 2003

3.      Eagle Bank Plc, license revoked Jan. 16, 2006, (NDIC appointed Provisional Liquidator)

4.      Fortune Bank Plc, license revoked Jan. 16, 2006, (NDIC appointed Provisional Liquidator)

5.      Liberty Bank Plc, license revoked Jan. 16, 2006

6.      Societe Generale Bank of Nigeria Plc, license revoked Jan. 16, 2006*

7.      Triumph Bank Plc, license revoked Jan. 16, 2006

*However, the CBN later restored the licenses of Savannah Bank of Nigeria Plc Societe Generale Bank of
Nigeria Plc in 2009

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Below is an excerpt from a statement by Professor Chukwuma Soludo, on the safety and soundness of the
banking system which he gave in Abuja on June 12 2007:

“As you are all aware, the banking sector consolidation programme was necessitated by the pervasive
weaknesses and uncertainty of the banking system, and the need to re-engineer and fast-track a system
that will engender confidence and power a new economy. So far, the grand objectives of that policy are
being achieved, and our consolidation programme has been adjudged about the most successful in the
world. The world is celebrating Nigeria’s success, and over $1 billion of foreign investment has gone into the
sector within the last 12 months, and several hundred millions of dollars are still pouring in. The non-
performing loans as percentage of total loans have gone down from about 23% before consolidation to less
than 8% currently; total deposits have almost doubled, and credit to the private sector growing
astronomically (annualized at 72% within the first four months in 2007). Today, individual banks can finance
big projects valued at hundreds of millions of dollars and also operate in the oil and gas sector – a feat they
never could do before now. Interest rates are gradually coming down. Today, Nigeria has the fastest growing
banking system in Africa, and one of the fastest in the world. As seasoned commentators have observed, it
has taken Nigeria less than three years to achieve what it took South Africa 20 years to achieve in the area
of banking. To put it succinctly, a new banking system has emerged, and will only get stronger for the
benefit of the Nigerian economy.”

Initiation of Nigerian Banks into global financial circles

The Investment Committee of the CBN at its meeting of 3rd October, 2006 appointed external fund
managers for Nigeria’s foreign reserves in order to allow for professional management, diversification of
investment and to leverage on the expertise of the foreign banks to transform Nigerian banks into global
financial institutions.

The CBN had traditionally kept the external reserves as deposits with foreign banks. That was the first time
that it appointed foreign assets managers to manage part of its reserves, in line with global best practice.

As a first step, the Investment Committee decided to award mandates for US $7 billion out of the CBN
portion of the total external reserves. The $7 billion was awarded to 14 out of 17 reputable Global Asset
Managers which not only met the CBN’s requirements for appointment as external assets managers, but also
for partnership ties with Nigerian banks, as follows:

Cowry Research Desk                                                                                   Page 10
Table 5: The appointed global asset managers

Asset Management         Local Partner
Black Rock               Union Bank of Nigeria plc
J.P. Morgan Chase        Zenith Bank plc
HSBC                     First Bank of Nigeria plc
BNP Paribas              Intercontinental Bank plc
UBS                      United Bank for Africa plc
Credit Suisse            IBTC-Chartered Bank plc
Morgan Stanley           Guaranty Trust Bank plc
Fortis                   Bank PHB plc
Investec                 Fidelity Bank plc
ABN Amro                 Access Bank plc
Cominvest                Oceanic Bank plc
ING                      Ecobank
Bank of New York         Stanbic Bank plc
Crown Agents, Actis* Diamond

Specifically, in its own words, the Committee noted that:

(i) All the foreign institutions are reputable international asset managers with excellent track records each
with a minimum credit rating of ‘AA’ rating by international rating companies.

(ii) Except for Crown Agents, each of the selected Asset Managers has Asset under management in excess of
US $50 billion - indeed the volume of assets under their management ranges between US $50 billion and US
$1.6 trillion

(iii) In determining the amount of the mandate to each asset manager, consideration was given to the size
of the shareholders’ funds of its local partner.

The effective take off of each mandate is contingent on the strength of the partnership between the local
banks and their foreign partners. The CBN would be sending specific suggestions to each group to enable
them strengthen their partnerships.

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Furthermore, the Investment Committee noted with satisfaction, the performance of the Nigerian banks
which have branches in OECD countries which have been beneficiaries of small portions of the CBN’s
reserves as deposits. Consequently, the CBN has increased their deposit limits by US $50 million each.

Finally, the CBN decided to redeem the promise made to reward the first and the largest groups of banks to
consolidate. UBA group was the first to consolidate while Unity Bank comprises the largest number of
banks. The Investment Committee therefore awarded deposit placements of $50 million to each of them.
The deposits shall be given to their foreign branches or reputable foreign partners.


The success of Nigeria’s banking industry continued to be felt in all spheres of the economy as the banks
acquired a larger capacity for financial intermediation. Year 2007 saw a number of banks taking steps to
enhance their capital base through a combination of rights issue and public offer, in pursuit of their
domestic and regional expansion programmes via a second self-induced wave of consolidation. Several
banks grew phenomenally so much so that they entered the league of Africa’s top ten banks and 12 of them
rated among the world’s top 1000 banks. By 2007 year end, there were some banks with shareholders’ fund
in excess of US$1 billion. With that development, most banks in the system had the capacity to undertake
big-ticket transactions. The enhanced capital level of Nigerian banks had heightened competition among
the institutions and that manifested in the form of branch network expansion, new product offerings and
investment in IT infrastructure. As at December, 2007 insured banks had about 4,579 branch networks
across Nigeria with most of the branches supported by Automated Teller Machines (ATM). Banks took
initiatives to bank the unbanked rural dwellers (ruralites) at even the remotest parts of the country as a
number of them sought to win the accounts of the lower end of the market, whose annual income,
according to the Central Bank of Nigeria is put at N500,000: totaling about N13tn.

Also, many banks during the year expanded their operations to some African countries and other parts of
the world. By the end of 2007, total direct foreign investments in the banking sector stood at over US$1
billion (N117 billion) which was a sign of investors’ growing confidence in the economy despite the global
financial crunch. Also in the same year, six Nigerian banks namely: Access Bank plc, First Bank plc, United
Bank for Africa plc, FCMB plc and Diamond Bank plc accessed the capital market and raised a total of US$2
billion through Global Depository Receipts channel. Again, there was successful the merger between the
indigenously owned IBTC Chartered bank and Stanbic (Nigeria) bank, a subsidiary of Standard bank of
South Africa; upon regulatory approvals and sanctioned by the Federal High Court on Monday, September
24, 2007. The coming together of the two banks symbolized a significant step in the evolution of banking in
Nigeria. More recently, the June 18 2009 edition of BusinessDay gathered that FirstRand, South Africa’s
second biggest bank, is planning to expand its operations to Nigeria as part of strategies targeted at reaping

Cowry Research Desk                                                                                  Page 12
from the current global crisis. The report came barely a week after Nedbank, another South African top
bank, disclosed plans for expansion opportunities to Nigeria.

At the 14th Nigerian Economic Summit, Olufemi Fabanwo, acting director, other financial institutions
department (OFID) of the CBN, noted that MFBs are more concentrated in the southern part of the country,
especially Lagos and Anambra states. In terms of distribution, North-West has the highest number of 335,
followed by South-East with 168; South-South, 114; North-Central, 108; North-West, 57 and North-East
with only 33 MBFs. He saw no significant improvement in the rural areas as less than two percent of rural
households have access to financial services while existing formal microfinance institutions serve less than
one million of over 80 million that need their services.

Aggregate net credit to micro entrepreneurs and low income groups rose by 51.7 percent from N22.8 billion
in December 2007 to N34.6 billion in July 2008. Modest levels of savings/deposits mobilized totaled N51.6
billion as at July 2008, an increase of 22.8 percent from N41.2 billion in December 2007.

He therefore stated the need to:

    •   promote linkages and strategic alliances between deposit money banks, specialized financial

        institutions/ programmes and MFBs;

    •   establish more microfinance banks in areas that have not been adequately covered;

    •   encourage savings with microfinance banks which he said are safe and backed by deposit insurance;
    •   provide guarantees and references to borrowing customers of microfinance banks; and
    •   reach out in length, breadth, scope and depth of the country as well as continuous capacity building
        and human capital development in the sector, among other suggestions.

Latest Mergers and Acquisition

    •   The market-induced bank merger, post-consolidation, was kick-started with the merger of IBTC and
        Stanbic Bank and the merger of Bank PHB and Spring Bank ended the 2008 year (although hasn’t
        scaled some pending law suits from some of the acquired bank’s (Spring bank) shareholders.

    •   Ecobank and Unity Bank Plc took the market by storm when they announced their proposed merger
        on Wednesday May 9, 2007. Professor Akin Mabogunje and Alhaji Falalu Bello, Chairman and
        managing director/CEO respectively signed for Unity Bank Plc, while Chief John Odeyemi and Mr.

Cowry Research Desk                                                                                Page 13
        Offong Ambah, Chairman and managing director/CEO respectively signed for Ecobank. Unlike
        United Bank for Africa, UBA, which was rumoured to be planning a hostile take-over of Unity Bank
        several weeks earlier, the merger between Unity Bank and Ecobank was said to be a friendly one.
        “The combination is a friendly and business induced one that allows opportunity to further expand
        our business in the country,” the Managing Director of Ecobank, Mr. Ambah stated. Since then,
        however, all has been quiet about the proposed merger.

    •   Intercontinental Bank Plc and First City Monument Bank are also said to have put in their best bid
        for WEMA Bank Plc. The bank, which is currently under CBN management, is said to be nodding in
        the direction of Intercontinental Bank; but the deal wasn’t concluded before the end of the year.

Some Banks that have Crossed international boundaries

There has been an aggressive foray of Nigerian banks into foreign countries in a bid to offer their ever
dynamic and expanding range of products and services to markets brimming with perceived opportunities.
For example, since First Bank (as the first bank to set foot on the shores of Europe, specifically the United
Kingdom) and Union Bank of Nigeria plc (which followed a year after), more recent emigrants included the
likes of Zenith bank plc, Guaranty Trust Bank plc (the first Nigerian bank to offer full fledged commercial
banking services: both corporate and retail: having received its operational license from the FSA, Financial
Services Authority, one of the strictest financial regulatory authorities in the world) and Intercontinental
Bank plc. Access bank which opened for business on October 15, 2008 is the latest of the pack. United Bank
Africa plc also has its registered office in the United States of America. All of these, not to mention the rapid
expansion of several Nigerian banks into several African continents. In 2009, Ecobank Transnational
Incorporated has disclosed plans to set up shop in France.

The Liquidation Of Fourteen (14) Banks in January 2007

    •   The banking licenses of fourteen (14) banks were revoked on 16th January, 2006 by the Central
        Bank of Nigeria (CBN). The Corporation has so far been appointed the liquidator for nine (9) banks
        namely; All States Trust Bank Plc, Lead Bank Plc, Assurance Bank Nigeria Limited, Trade Bank Plc,
        Metropolitan Bank Limited, City Express Bank Limited, Hallmark Bank Plc., African Express Bank
        Plc. and Gulf Bank of Nigeria Plc. ; and the provisional Liquidator for Fortune Bank and Eagle Bank

Cowry Research Desk                                                                                     Page 14
    •   The regulatory authorities decided that Purchase and Assumption Transaction should be adopted to
        resolve the failure of the 14 banks. Under this arrangement the 9 banks have been or are in the
        process of being offered to the 25 existing banks to assume their private sector deposits and
        acquire their assets. The outcome of the bidding processes are as follows:

    •   Ecobank Plc emerged the successful bidder for All States Trust Bank Plc (in-liquidation). Ecobank
        has reopened all the 65 branches from where the failed All States Trust Bank operated. As the
        depositors of All States Trust Bank turn up, their deposits are verified and new accounts opened for
        them as Ecobank customers. Over 32,000 depositors have verified their deposit claims.

    •   Afribank Plc, likewise, emerged the successful bidder for Assurance Bank of Nigeria Plc (in-
        liquidation) and Lead Bank Plc (in-liquidation). New accounts were opened for depositors of these
        banks as Afribank customers.

    •   UBA Plc emerged the successful bidder for Trade Bank Ltd (in-liquidation). Verification of
        depositors commenced on 31st January, 2007.

    •   Liquidation activities are at various stages of completion in the rest of the banks where the action
        of the Corporation is not facing any challenge in court.

Online banking Supervision- eFASS

The eFASS, which was designed to enhance efficient on-line surveillance of financial institutions, has
continued to undergo upgrading since it was implemented. In order to incorporate the MFBs into the eFASS,
the Software Requirement Specification (SRS) for the institutions were submitted to the vendor for
development. Further training of Finance Companies and Primary Mortgage Institutions’ staff on the eFASS
XML return template was conducted 10 2007. Concerted efforts were made to ensure that the institutions
commence parallel rendition of returns to the eFASS by the middle of 2008. Similarly, efforts were
intensified to connect other reporting institutions like hotels, oil and gas service companies to the eFASS
server. The eFASS software had been sold to the Bank of Ghana, while other central banks in Africa, Asia
and South America showed interest in acquiring the software. Efforts were made to integrate the system
with other third party applications in order to enhance its marketability. In line with the eFASS system
architecture, plans had reached an advanced stage in 2007 to ensure the establishment of a replica server of
the eFASS at the NDIC in 2008.

Cowry Research Desk                                                                                Page 15
Instituting Credit Bureaux

The failure by some banks to report their non-performing loans to the Credit Risk Management System at
the CBN and the inability of others to confirm the credit status of intending borrowers before disbursing
loans led to the increasing incidence of predatory borrowers. Concerned about this development, and to
encourage industry self-regulation, the CBN embarked on the development of guidelines for the licensing of
private credit bureaux in Nigeria.

Government Equity Ownership

The industry has largely complied with the provision that limits government equity in a bank to a maximum
of 10 percent. At the introduction of the Code, seven banks had government holdings ranging from 10.49
percent to 72 percent. By the end of 2007, only two banks had holdings above the 10 percent threshold and
both were making efforts towards full compliance. For instance, the CBN ordered Ogun, Oyo, Osun, Ondo
and Ekiti states to reduce their combined holdings to not more than 10 per cent, following the consolidation
of the banking sector by the end of 2005. However, a group known as SW 8 (short for South West 8) believed
to be a special purpose vehicle formed by some former and serving governors of the O’dua states, recently
acquired 26.5 per cent of the warehoused shares of the bank.

Managing Commercial Banks’ Toxic Assets as a result of stock market crash.

The legal backing for the establishment of the proposed Asset Management Corporation of Nigeria
(AMCON), which was a needed vehicle to manage the non-performing assets of post consolidation banks,
had still not been enacted as at December 31, 2007. However, the federal government is seeking from the
National Assembly the passage of an Act to establish an Asset Management Company for Nigeria. The
Vanguard Newspapers had reported on its Wednesday 11 March, 2009 edition that “the federal government
through its executive council has asked that the draft legislative bill, which was drawn up some years ago be
sent to the office of the Attorney-General and Justice Minister in order to quicken the passage of the Act by
the National Assembly. It was also gathered that if the law for the establishment of an Asset Management
Company is passed, it could significantly change the ownership structure in the banking sector since banks
whose toxic assets are purchased by the Federal Government will in exchange have to relinquish a certain
percentage of their equity to the government.”

Cowry Research Desk                                                                                 Page 16
Chairman/CEO Position and Family Membership of Board

Two banks had positions with a semblance of an Executive Chairman; one had an Executive Vice Chairman
while another had an organogram in which the management staff reported directly to the Chairman instead
of the CEO. These anomalies had been rectified as at end 2007. The case of two or more family members
occupying sensitive positions of Chairman and that of CEO or Executive Director was found in three banks.
In one other bank, two members of the same family occupied the position of a CEO and a Non-Executive
Director who also doubled as the CEO of a significant subsidiary of the bank. In all these four cases, the
banks had been advised to comply with the relevant provisions of the Code.

Size and Structure of Board

There has been full compliance with the provision of a maximum board size of 20, with a composition of
more Non-Executive Directors.


The nation’s banking sector witnessed a robust growth in 2007 even though number of banks reduced from
25 to 24 following the successful merger between IBTC Chartered Bank plc and Stanbic Bank limited to form
Stanbic IBTC Bank plc. Tabulated below are some of key indicators of the financial state of banks in that

Table 6: Insured Bank’s Capital Adequacy

              Capital Adequacy Indicators             2006*          2007
           Total Qualifying Capital (N billion)      1000.03     1000.07
        Capital to Risk Weighted Asset Ratio (%)      22.57          21.09
                    Number of Banks                     25            24
Source: Bank Returns/NDIC 2007 Annual Report
             Returns/                              *Revised figure

Capital Adequacy: There was a significant increase in the industry shareholders’ funds as a result of
continuous recapitalization efforts of the banks through fresh capital from the stock market and the
reinvestment of part of the profits declared during the year. Three (3) banks recorded capital adequacy ratio
of less than 10%. That was in contrast to the situation in the preceding year where only one (1) bank had
capital adequacy ratio below the minimum requirement.

Cowry Research Desk                                                                                 Page 17
Table 7: Asset Quality of Insured Banks

                               Item                             2006*        2007
                     Total Credit (N billion)                  2,840.10      5,250
               Non-Performing Credit (N billion)                225.08      387.99
                Shareholders’ Funds (N billion)                1,000.04     1,650.00
     Ratio of Non-performing Credit to Total Credit (%)          7.92        7.39
Ratio of Non-performing Credit to Shareholders’ Funds (%)        22.5        23.98
Source: Bank Returns/NDIC 2007 Annual Report          *Revised figure

Table 8: Earnings and Profitability Indicators

                            Indicators                          2006*         2007
                  Profit before tax (N billion)                 181.04       397.75
                Interest Income (Net) (N billion)               306.18       524.24
                Non-interest Income (N billion)                 233.02       408.97
                  Interest Expenses (N billion)                 178.21       361.17
                 Operating Expenses (N billion)                 367.67       579.2
                  Yield on Earning Assets (%)                    3.47         5.27
                      Return on Equity (%)                       17.36       23.07
                      Return on Assets (%)                       2.65         3.64
Source: Bank Returns/NDIC 2007 Annual Report          *Revised figure

Table 9: Liquidity Ratio of Insured Banks

                                Items                              2006         2007

                   Average Liquidity Ratio (%)                     62.19        61.98
           Loans and Advances to Deposit Ratio (%)                 75.6         91.75
No. of Banks with less than the 40% minimum Liquidity Ratio             3           2
Source: Bank Returns/NDIC 2007 Annual Report

Insured banks’ financial condition was generally satisfactory in 2007 by CAMEL ratings.

Cowry Research Desk                                                                       Page 18
Table 10: 2007 Ratings of Banks using the “CAMEL” parameter

RATING                        2007
Sound                         4
Satisfactory                  17
Marginal                      2
Unsound                       1
Source: NDIC 2007 Annual Report

Out of the 24 banks in the industry as at the end of 2007, four were rated sound, seventeen were rated
satisfactory, two marginal and one was rated unsound. The market share of assets, credit and deposits of
the unsound bank represented 1.63%, 1.97% and 1.68% of the industry’s total respectively. The bank’s
non-performing credits to total credit ratio was as high a 88.35%. The two marginal banks’ total market
share of assets, credits and deposits were 3.95%, 3.81% and 3.86% of the industry total respectively. The
average non-performing credits to total credits ratio stood at 21.11% with an average capital to risk-
weighted assets ratio of 11.74%.


As in prior years (pre-consolidation era), sadly, the routine examinations and investigations conducted by
the Nigerian Deposit Insurance Corporation (NDIC) revealed some violations of banking laws, rules and
regulations of which the following were most common:

     •    Non-implementation of recommendations contained in previous bank examination reports;

     •    Failure to provide the minimum information prescribed for credit printout;

     •    Acquisition of landed properties with the approval of CBN;

Cowry Research Desk                                                                              Page 19
    •   Rendition of inaccurate and misleading financial statements to the regulatory authorities;

    •   Granting credit facilities in excess of specified single obligor limits;

    •   Prevalence of large volume of non-performing insider-related credit facilities; and

    •   Investments in subsidiaries without CBN approval.

Apart from violations of banking laws, rules and regulations, there were instances of willful violations of
Foreign Exchange rules and regulations. Some of the banks examined also violated the Money Laundering
(Prohibition) Act, 2004; especially the rules pertaining to “Know Your Customers” (KYC), staff awareness
and training.

The greatest challenge faced by banks, post consolidation, arose from high capitalization and attendant
pressure to generate acceptable returns to shareholders. Consequently, banks had become more
enterprising and daring in their quest for profits. This manifested in the array of products being offered to
the banking public; and establishment of subsidiaries to compete in areas hitherto neglected or dominated
by a few players. Accordingly, many banks had recorded strong showing in Insurance, Capital Market
Operations, Trusteeships, Company Registrars, Assets Management, etc. However, it was observed that
some banks had turned their various subsidiaries into vehicles for circumventing regulatory requirements.
For instance, some banks engaged in financing highly risky business activities including speculative trading
in stocks and shares through their respective subsidiaries. In fact, it was later revealed by the CBN that
banks total exposure to Capital market as at end January 2009 was N784 billion or 10% of total loans.

The examined banks exhibited various weaknesses in Corporate Governance. Some of them were yet to
imbibe the tenets of the Code of Corporate Governance. Some of them were yet to imbibe the tenets of the
Code of Corporate Governance issued by the CBN in 2006. Non-performing insider-related debts remained a
cause for concern. Board oversight was weak in some of the banks. In some instances, the boards had
assigned the responsibility of vetting big-ticket transactions to their respective credit committees that were
often dominated by the executive directors. Yet, such boards had failed to institute effective feed-back
mechanisms to keep them abreast of the status of their respective bank’ credit portfolios. Some of the
governance weaknesses observed in the course of routine examinations of banks during the year included
the following:

    •   Failure to institute appropriate framework for risk management;

    •   Non compliance with the requirement to institute contingency plan for liquidity support at the time
        of crisis;

Cowry Research Desk                                                                                  Page 20
    •   Failure to develop or test business continuity and disaster recovery plans;

    •   Investing in subsidiaries without CBN approval;

    •   Failure to appoint independent directors;

    •   Resort to use of bank’s funds to purchase managers’ cheques and crediting same to debtors’
        accounts as evidence of repayment of nonperforming loans in order to evade provisioning;

    •   Granting of share purchase loans to various individuals to purchase the respective bank’s shares and
        using such shares as collateral;

    •   Willful violation of banking laws, rules and regulations;

    •   Insiders’ dealings and abuses; and

    •   Weak oversight of management by the respective banks’ boards.

In addition to the above highlights,

    •   One of the more critical governance issues observed in the banks had to do with non reliability of
        financial statements generated by the banks. Loans were deliberately misclassified as other assets
        while long term loans were packaged as Commercial Papers in violation of circular on the Treatment
        of Bankers Acceptances and Commercial Papers. It was worrisome that some of the External
        Auditors of banks did not take exception to such undesirable practices.

    •   Another major impediment to the realization of development through the intermediation role of the
        banking industry is the wide and persistent spread that exists between deposit and lending rates.
        The interest rate spread, which is the difference between the bank’s earnings from loaned funds
        and its cost of funds is influenced by non-interest expense, prudential and reserve requirements,
        market structure, inflation, credit risk and profit expectation of banks, among others. Excessive
        interest charges increase the risk of huge loan losses and financial instability in the medium term. It
        is therefore clear that in the present arrangement, all but the most powerful companies are at the
        mercy of banks as fund providers.

Cowry Research Desk                                                                                   Page 21
Global financial crises and its

… Impact on Nigeria:

    •   Reduction in capital inflows and Divestment (FDI, Portfolio, ODA, remittances, etc) leading to crash
        of Nigerian capital market ‘Confidence Trap’ in Stock market with N trillions loss in value with the
        associated ‘wealth effect’ on domestic aggregate demand.

    •   Collapse of commodity prices (especially oil) leading to reduction in export earnings and
        government revenue.

    •   Demand pressure on the forex market arising from divestment and repatriation of capital and
        dividends by foreign investors.

    •   De-accumulation of foreign reserves and pressures on exchange rate (depreciation).

    •   Greater forex outflows also means liquidity mop-up and hence tightness of liquidity in the financial
        system, combined with greatly reduced rate of monetization of forex inflows from oil sales means
        drastic reduction in growth rate of money supply.

    •   Higher Govt borrowing, and slower growth rate of credit to the private sector.

    •   Lower Growth Rate of oil and non-oil GDP projected; inflation at 10- 15%.

    •   Outlook of Sovereign Credit Risk rating downgraded from ‘Positive’ to ‘Negative’ (although S&P
        confirms the BB-).

… Impact on the Financial System

    •   Tightening of liquidity due to net forex outflows and lower monetization of oil earnings.

    •   Further tightening of liquidity as lines of foreign credits enjoyed by Nigerian banks were called in.

    •   Depression of the capital market and drop in the quality of part of the credit extended by banks for
        trading in the capital market (liquidity pressures as loans not fully serviced or repaid)

    •   Greater loan-loss provisioning both due to capital market exposures and decline in growth of
        economic activities.

Cowry Research Desk                                                                                   Page 22
    •   Exposure to loan losses from oil industry lending

    •   Potential exchange rate risks on foreign lines due to depreciation of the exchange rate

    •   Liquidity pressures push up domestic interest rates which if not addressed could pose systemic

    •   Global credit crunch and re-pricing of risks push up interest rates on lines of credit for Nigerian

    •   Slower growth rate of banks’ balance sheet in response to the crisis and higher provisioning, leading
        to lower profitability

Nigeria’s responses so far include:

    •   Stimulus Budgeting: FGN and State Govts expect to borrow N1.6 trillion (deficit spending as in
        many other countries)

    •   Presidential Steering Committee on the Global Economic crisis

    •   Proactive measures to conserve the foreign reserves, and also allowing the exchange rate to
        depreciate as a shock-absorber

    •   Injection of Liquidity into the banking system

    •   Tightening of regulation and supervision

    •   Stimulating the dormant growth reserve- agriculture- through Special Agric Fund

Other measures by the CBN under Prof. Chukwuma Soludo (CBN Gov. 2004-2009)

A       Liquidity Management:

    •   reduction of the MPR from 10.25 to 9.75 per cent (below inflation rate) and then to 8.0 per cent at
        its MPC meeting on April 08, 2009.

    •   reduction in CRR from 4.0 to 2.0 percent which was further slashed to 1.0 per cent with effect from
        April 14, 2009.

Cowry Research Desk                                                                                 Page 23
    •   reduction of liquidity ratio from 40.0 to 30 per cent and then to 25.0 per cent with effect from April
        14, 2009

    •   directive to banks that they have option to restructure margin loans (if necessary) until December

    •   expanded discount window, which allows banks to borrow for up to 360 days (currently at interest
        rate not exceeding 500 basis points above the MPR)

    •   Suspended aggressive mop–up of liquidity since September, 2008

B       Foreign Exchange/Exchange Rate Management

    •   Exchange rate adjustment to preserve foreign reserves

    •   Reversion from Whole Sale Dutch Auction System (WDAS) to Retail Dutch Auction System (RDAS)
        to check speculative demand for forex

    •   Introduction of a band of plus or minus 3 percent to ensure stability

    •   Temporary suspension of inter-bank forex transactions

    •   Restructuring of the Bureaux de Change operations- two classes ‘A’ and ‘B’

    •   Reduction in Net Open Position of banks from 2% to 1%

    •   Sale of cash forex only through bank BDCs

    •   Revision and enlargement of transactions that are eligible under the RDAS window

However, from its 63 Monetary Policy Committee (signed by Professor Chukwuma Soludo, the Ex Governor

of the CBN) held on May 21 2009, the CBN resolved on the following:

1. To issue short-term instruments to be synchronized with the Debt Management Office’s (DMO) issuance
of the FGN Bonds to mop-up excess liquidity in the system.

2. To return to a regime of fully liberalized foreign exchange market over the next three months (around
August 2009). As a first set of measures towards the return to Wholesale Dutch Auction System (wDAS), the

Cowry Research Desk                                                                                  Page 24
Committee decided to increase the net foreign exchange open position (NOP) for banks from 1.0 to 2.5 per
cent with immediate effect, while keeping in view the possibility of raising it further at the end of June

3. Banks are no longer mandatorily required to sell to the CBN, after 5 days, funds sourced from non-rDAS
and non-oil export proceeds and may use such funds for interbank transactions.

4. Removal of the requirement that banks transact foreign exchange at 1.0 per cent around the CBN rate.
The CBN will now participate in the interbank foreign exchange market at the prevailing rate.

5. Effective June 1, 2009, rDAS will be twice weekly.

6. Approval-in-Principle (AIP) has been granted to 50 non-bank Class ‘A’ BDCs. The list of the BDCs will be
published from Saturday, May 23, 2009. As from next week (week beginning from May 25, 2009), about
US$60 million will be sold to the BDCs per week. The BDCs are expected to sell at retail rate of not more
than 2.0 per cent above the CBN selling rate.

7. Government Agencies and Oil Companies will have discretion to sell foreign exchange at the interbank
foreign exchange market or to the CBN with effect from May 25, 2009.

The CBN is of the belief that the premium between the parallel and official exchange rates will narrow
significantly in the days ahead, and that it could sustain the changes over time. It is also exploring the
possibility of introducing futures and swaps in the foreign exchange market.

C       Tightening of Regulation and Supervision

    •   Greater emphasis on enforcement of Code of Corporate Governance

    •   Resident Examiners have been deployed to banks since January 2009

    •   Standby teams of target examiners being deployed to any bank at any time to ensure timely
        regulatory actions if necessary

    •   Review of Contingency Planning Framework for Systemic Distress in Banks

    •   Introduction of Credit Bureau Advice to banks on risk management extra conservatism during time
        of crisis- capital conservation, cost minimization, de-emphasis on size, salaries/bonuses, etc

Cowry Research Desk                                                                                  Page 25
    •   Strengthening of institutional coordination through the Financial Sector Regulatory Coordinating
        Committee (FSRCC)

    •   Greater emphasis on e-FASS as a tool for banks’ returns analysis for speedy identification of early
        warning signals

    •   Consolidated Supervision and Risk Based Supervision have been adopted and arrangements are
        being made to migrate from the current fragmented sub-sectoral supervision to all-inclusive
        financial sector supervision

    •   All banks are to be examined in 2009 by consolidated teams

    •   Adoption of common accounting year end for all banks with effect from end-Dec. 2009, aimed at
        improving data integrity and comparability

    •   Adoption of the International Financial Reporting Standards (IFRS). Currently, Access Bank plc,
        Ecobank plc and First Bank plc have adopted it.

    •   Review of BOFIA to strengthen regulatory capacity

D       Interest Rate Regime:

    •   To reduce pressure on interbank rates, CBN reduced rates on Expanded Discount Window (EDW) to
        max. of 500 basis points above MPR effective from March 16, 2009.

    •   Also as temporary measure, and to ensure that the liquidity pressures and run up to common year
        end do not drive banks to ‘race to the bottom’, Bankers’ committee decided to peg the maximum
        deposit and lending rates at 15% and 22% respectively from April 1, 2009 until end of 2009. This
        would also have salutary effects on the real economy.

E       Confidence Building:

    •   Assurances about the state of the banks and that Govt/CBN would not allow any bank to fail

    •   Advice to banks to ensure greater disclosure to the public

Cowry Research Desk                                                                               Page 26
   •   Bankers Committee increasing emphasis on maintaining high ethical standards in the operations of
       banks: using service delivery as key instrument of competition.


   •   No bank has failed or gone out of clearing

   •   Total outstanding borrowing on Expanded Discount Window as at March 26: N370 billion

   •   Banks total exposure to Capital market as at end January 2009 was N784 billion or 10% of total

   •   Banks total risk assets as at end of Feb. 2009 = N12.78 trn.

   •   Non-performing risk assets as at end Feb. 2009 = 4.74%

   •   Banks total loans as at end of Feb. 2009 = N8.13 trn

   •   Total Non-performing loans as percentage of total as at Feb. 28, 2009= 6.2%

   •   Estimated non-performing loans as at end of December 2009= about 7.4%

   •   Amount banks are prepared to turn over to an Asset management company (AMCON) if such were
       set up by end of the year= N350 to N400 billion or approx 4- 5% of loans as at Feb. 2009

   •   About 15 banks would have no need for AMCON

   •   Of those that indicated interest in AMCON, there is hardly any for which it would threaten their

   •   CAMELS rating of the banks as at end-December 2008, showed an average composite score of 62
       per cent and average industry rating is satisfactory

   •   Total shareholders’ fund as at end of December 2008 was N2.8 trillion

   •   Average capital adequacy ratio of 22 per cent, among the highest in the world

Contingency Plans

Cowry Research Desk                                                                               Page 27
The CBN emphasized the following:

    •   No bank will fail (Avoiding the Lehman brothers’ phenomenon as contagion effect of any bank
        failure at this time will be catastrophic for the economy)

    •   Strengthening CBN’s contingency planning framework for systemic distress

    •   Keeping vigilance on early warning signals through rigorous examinations

    •   If chronic liquidity problems- provide term loans; target examination, and seek restructuring of
        balance sheet and management

    •   If solvency problem: Could change Management, and strategic plan to recapitalize bank, including
        possibility of merger with/acquisition by stronger bank

    •   Encourage banks to strengthen/ review bank-specific contingency plans

    •   Reviewing the draft Asset Management Company of Nigeria (AMCON) bill- to be established to buy
        up toxic assets of banks (if necessary)

Reform of the Payments System

The payments system plays a crucial role in any economy as a channel of inter-sector, inter-industry and
inter-company financial resource flows, thus, promoting economic growth. Understandably, the Central
Bank of Nigeria (CBN) accorded the payments system due priority in its reform agenda of the financial
system. Thus, the CBN in partnership with other stakeholders embarked on extensive reforms of the
payments system to enhance its safety, efficiency and reliability. This effort culminated in the introduction
of institutional arrangements, operational mechanisms, interrelated IT infrastructure and instruments that
are gaining wide acceptability among service consumers in the banking industry.

The emerging payments landscape in Nigeria has generally been significantly influenced by financial
liberalization and integration across the globe and, in particular, developments in payments framework
including regulations, infrastructure and information and communications technology. The first major step
towards reforming the National Payment Systems (NPS) by the CBN was the articulation of national
payments system framework and guidelines for all payments system initiatives with the objectives of
generally, ensuring availability without interruption, meeting as much of the users' needs as possible, and
operating at minimum risk and reasonable cost. In retrospect, the CBN’s payments system reform agenda

Cowry Research Desk                                                                                 Page 28
has produced salutary outcomes. The major developments so far have been in the areas of deployment of
several requisite infrastructures since 2002 and the establishment of the institutional framework to drive the
payments system reforms.

Therefore, the NPS would be a major driver of changes in the financial markets, and would serve as a
platform for supporting the integration of the Nigerian wholesale and retail payments system with that of
the West African Monetary Zone (WAMZ). The Bank will continue to pursue the payments system reforms
as outlined in the Financial System Strategy FSS 2020. Specifically, the implementation of the seven key
initiatives that will drive the usage of electronic payments will be vigorously pursued. These initiatives
include Government supplier payments, person-to person trade, salary and bill payments, business and
individual taxes and securities settlement.

DMB Activities in the First Quarter of 2009

While we still expect the 2008 report on the financial state of the insured Money Deposit Banks via the
instrumentality of the CAMEL analysis by the NDIC, available information culled from the CBN first quarter
economic report indicated that “total assets/liabilities of the DMBs amounted to N15,542.6 billion,
representing a decline of 2.4 per cent from the level in the preceding quarter. The development was
attributed largely to the 7.7 per cent decline in unclassified assets, reinforced by the 9.8 per cent fall in
foreign assets. Funds, which were sourced mainly from unclassified liabilities and increased foreign assets
were used mainly for the settlement of unclassified liabilities.

“At N9,165.4 billion, credit to the domestic economy declined by 0.6 per cent from the level in the
preceding quarter. The development was attributed largely to the 12.1 per cent decline in claims on the
Federal Government. Central Bank’s credit to the DMBs rose by 1.9 per cent to =N=134.7 billion in the
review quarter, reflecting the increase in CBN’s overdrafts to the DMBs.

“Total specified liquid assets of the DMBs stood at N3,123.1 billion, representing 35.6 per cent of their total
current liabilities. At that level, the liquidity ratio rose by 3.0 percentage points over the preceding quarter’s
level, but was 4.4 percentage points below the stipulated minimum ratio of 40.0 per cent. The loans-to-
deposit ratio fell by 1.4 percentage points to 86.6 per cent from the level in the preceding quarter, and was
6.6 percentage points above the prescribed minimum target of 80.0 per cent.”

Cowry Research Desk                                                                                     Page 29
Banking Analysis For 2009

Nigerian banks have been a major source of finance to the Government. But since the dramatic spike in
forex rates in December that necessitated a measured depletion of our external reserves on top of an
internal liquidity crunch, credit to the Government from the financial system dropped at a CAGR of 0.30 per
                                     N3.11                          respectively
cent from Dec 2008 to May 2009 (from N3. trillion to N3.05 trillion respectively). In its Q1 2009
economic report, the CBN noted that at N842.26 billion, oil receipts, which constituted 71.2 per cent of the
total, was higher than the proportionate budget estimate by 8.2 per cent, but lower than the receipts in the
                                                                                           preceding quarter to
preceding quarter by 39.5 per cent. It attributed the fall in oil receipts relative to the prec
the decline in receipts from crude oil and gas sales as well as petroleum profit tax and royalties.

Figure 1

                        Credit to Government
                                                     -0.30% CAGR

Source: CBN, Cowry Research

The Naira’s unfavourable parity to the dollar hasn’t had much of a negative impact on the inflation rates
(cost push) as well as lending rates to businesses as would have been expect since the CBN has been
                                                               system.   se
adopting measures to maintain price stability in the financial system These short term policies included a
reduction in cash reserve ratio from 2 per cent to 1 per cent with effect from April 14, 2009 as well as a
shaving of the MPR (Monetary Policy Rate) from 9.75 per cent to 8 per cent. Also, having observed liquidity
tightness and hence relatively higher interbank interest rates, and also pressures on other interest rates, the
apex bank capped deposit and lending rates to 15 per cent and 22 per cent respectively in order to check
pressures of banks chasing funds to knock prices (interest rates) out of whack. Consequently, base money
              d                                                                        money
was reduced and credit to the private sector increased as banks managed to create more money.

Cowry Research Desk                                                                                   Page 30
Figure 2
                                                          Credit rises by 0.91% CAGR (Dec. 08-
                           Credit to Private Sector
                                                          Jan. 09)as CRR drops from 2% to 1%

Source: CBN, Cowry Research

                                                 inter-bank market via the reduction of the MPR to 8 per
The CBN also sought to shore up liquidity in the inter
                             eaper                       window.
cent so banks could obtain cheaper funds at the discount window

Figure 3: At the Discount window…

                                  2-Jun-08            19-Sep-08             14-Apr-09
       Standing Lending Rate      10.25%               9.75%                  8.00%

Source: CBN, Cowry Research

Since June of 2008, inflation rate (year on year) has always thrown deposit rates into the negative,
suggesting a decline in real returns that depositors have gotten from their Deposit Money Banks, and by
implication, a major disincentive to save amid tightening liquidity in the financial system given the proximity
of a mandatory harmonized year end for all commercial banks (see Fig. 4) Also, current accounts with banks
have been on the decline in spite of increasingly competitive marketing activities to win new accounts the

new focus on rural banking, notwithstanding. Demand deposits also dropped at a CAGR of 1.79 per cent
from December 2008 to May 2009 (respectively from 3.97 trillion to 3.56 trillion)

Cowry Research Desk                                                                                   Page 31
Figure 4: Inflation rate vs money market rates
                                                      Savings Deposit Rate
   12                                                 1 Month Deposit Rate
    8                                                 3 Months Deposit Rate
    4                                                 6 Months Deposit Rate
                                                      12 Months Deposit Rate
                                                      All Items (Year on Change)

Source: CBN, Cowry Research

             Total Population (Million) – June 2009                                  150
                       Total Area (sq. km)                                         923,768
              Total Commercial Banks – June 2009                                      24
    Crude Oil Price (Bonny Light) (US$/Barrel) May, 2009                            60.02
             Domestic Production (mbd) May, 2009                                     1.70
               Crude Oil Export May (mbd), 2009                                      1.25
             Foreign Reserves (US$bn) June, 2009.                                   43.19
        Exchange Rate (N/US$) Official - June, 2009                                146.25
        Exchange Rate (N/US$) Parallel - June, 2009                                165.00
      Inflation Rate % (12 - Month Average) June, 2009                              13.70
          Inflation Rate % (Year-On-Year) June, 2009                                11.20
         Estimated Nominal GDP (US$)Bn June, 2009                                  193.12
         Estimated GDP Growth Rate (%) June, 2009                                    5.13
         Monetary Policy Rate - MPR (%) June, 2009.                                  8.00
         Average Prime Lending rate (%) –June, 2009                                 19.05
  NSE All-Share Index - 31,450.78 -30th June, 2009 %(YTD)                          (14.59)
  Market Capitalization - N6.96 Tr.-30th June, 2009 %(YTD)                         (11.95)
Source: CBN/NSE/World      Book/Cowry
Source: CBN/NSE/World Fact Book/Cowry Research

Cowry Research Desk                                                                          Page 32
                                                                         Current Account with DMBs
                                                                                                                                                                                                                                                             Current account of individuals held with
    2,000,000.00                                                                                                                                                                                                                                             deposit money banks, which grew at a CAGR
    1,000,000.00                                                                                                                                                                                                                                             (Compounded Annual Growth Rate) of 4.34 per
                                                                                                                                                                                                                                                             cent from January 2007 to December 2008,
                                                                                                                                                                                                                                                             however, declined by a CAGR of -2.08 per cent



                                                                                                                                                                                                                                                             from January 2009 to May 2009: indicative of
                                                                                                                                                                                                                                                             the business challenges faced by the banks
                                                                                                                                                                                                                                                             during the period by way of reductions in COTs
Source: CBN,Cowry Research                                                                                                                                                                                                                                   as well as a decrease in money-creating power.

                                                       Demand Deposits with DMBs                                                                                                         1.79% CAGR from Dec ’08 –
         5,000,000.00                                                                                                                                                                    May ‘09
         3,000,000.00                                                                                                                                                                                                                                        Demand deposits also fell at a CAGR of 1.79
         2,000,000.00                                                                                                                                                                                                                                        per cent from December 2008 to May 2009,
         1,000,000.00                                                                                                                                                                                                                                        showing a reduced ability of DMBs to
                                     0.00                                                                                                                                                                                                                    transmute very short-term deposits into cash
                                                                                                                                                                                                                                                             for utilizing in the money market.





Source: CBN, Cowry Research

                                                                                                                                                                                                                                                             Both Narrow money (M1) and Broad Money
                                                                                                                                                                                                                                                             (M2) supply began slowing in January of 2009
         5,000,000.00                                                                                                                                                                                                                                        as liquidity crunch began to felt in the
                                                                                                                                                                                                                                                             economy; conspicuously revealed by the
                                     0.00                                                                                                                                                                                                                    devaluation or the Naira by the CBN.

                                                                   Narrow Money                                                                                    Broad Money

Source: CBN, Cowry Research

                                                                                                                                                                                                                                                             Inter-bank call rates fluctuated rather
                                                                                     Inter-Bank Call Rate                                                                                                                                                    erratically since the beginning of the turbulent
    20                                                                                                                                                                                                                                                       2009 financial year as the market for very short
    15                                                                                                                                                                                                                                                       term funds, the money market, operated under
    10                                                                                                                                                                                                                                                       stifling financial conditions caused by the
     5                                                                                                                                                                                                                                                       impact of the global financial crises which
                                                                                                                                                                                                                                                             necessitated, among other things, the






                                                                                                                                                                                                                                                             withdrawal of funds by the foreign banking
                                                                                                                                                                                                                                                             partners of the indigenous commercial banks.

Source: CBN, Cowry Research

Cowry Research Desk                                                                                                                                                                                                                                                                  Page 33

                                    Market Capitalisations (N billion)
      600.00                              as @ 30/June/2009






Source: Cowry Research

                         Shareholders' funds (N billion)

Source: Cowry Research

Cowry Research Desk                                                           Page 34
       AFRIBANK                                                                                                                                                  24.64%
             UBA                                                                                                                                     21.15%
            UBN                                                                                                                                     20.55%
     INTERCONT                                                                                                               17.35%
       SKYEBANK                                                                                                             16.90%
      GUARANTY                                                                                                          15.56%
   ZENITHBANK                                                                                                          15.00%
      PLATINUM                                                                     11.59%
           FCMB                                                                   11.30%
         ACCESS                                                                   11.30%
  DIAMONDBNK                                                                     10.87%
      FIRSTBANK                                                                 10.27%
      FIDELITYBK                                                              9.64%     Returns on Equities

Source: Cowry Research

                                                                                          Returns on Total Assets

        SKYEBANK                                                                                  2.11%
              UBA                                                                                      2.48%
       PLATINUM                                                                                        2.50%
   DIAMONDBNK                                                                                            2.59%
             UBN                                                                                             2.92%
       FIDELITYBK                                                                                              3.05%
       FIRSTBANK                                                                                                3.12%
    ZENITHBANK                                                                                                  3.14%
      INTERCONT                                                                                                   3.28%
       GUARANTY                                                                                                        3.65%
          ACCESS                                                                                                       3.69%
        AFRIBANK                                                                                                                                                 4.29%
            FCMB                                                                                                                                                  4.39%

Source: Cowry Research












Source: Cowry Research

Cowry Research Desk                                                                                                                                                           Page 35


Source: Cowry Research


                                             ACCESS     AFRIBANK   DIAMONDBNK    FCMB     FIDELITYBK     FIRSTBANK

         Price as @ 30-June-2009              9.05        7.56        8.59       8.51        3.46          22.02
            Earnings' Yield (%)               14.03      21.69        11.29      10.81       9.25          8.40
                  ROE (%)                    11.30%      24.64%      10.87%     11.30%      9.64%         10.27%
                ROTA (%)                     3.69%       4.29%       2.59%       4.39%      3.05%          3.12%
         Net Profit AT/Sales (%)             19.04%      20.13%      21.09%     28.61%     30.83%         23.53%
          Sales/Total Assets (%)             15.39%      13.97%      9.66%      11.30%      7.97%         10.17%
      Net Profit AT/Total Assets (%)         2.93%       2.81%       2.04%       3.23%      2.46%          2.39%
   Total Assets/Stockholders. Equity (%)    385.71%     876.25%      533.59%    349.67%    392.66%        429.53%
              Price to book X                 0.81        2.54        1.06       1.04        0.73          1.53
             Price to Asset X                 0.21        0.29        0.20       0.30        0.19          0.36
         Price to Gross Earnings X            1.36        2.08        2.06       2.64        2.35          3.51
         Price to Earnings (PAT) X            7.15        4.61        8.86       9.25       10.81          11.90
              Price to PBT X                  5.68        3.69        7.08       7.40        8.65          9.52
              Price to Loan X                 0.35        0.41        0.33       0.36        0.35          0.55
            Price to Deposit X                0.32        0.47        0.30       0.55        0.26          0.78
          BV/SHARE(NAS) NGN                   11.20       2.98        8.10       8.16        4.71          14.37
          T.ASSET/SHARE NGN                   43.21      26.08        43.22      28.53      18.49          61.73
             GE/SHARE NGN                     6.65        3.64        4.18       3.22        1.47          6.28
            PAT/SHARE NGN                     1.27        1.64        0.97       0.92        0.32          1.85
            PBT/SHARE NGN                     1.59        2.05        1.21       1.15        0.40          2.31
           LOANS/SHARE NGN                    25.98      18.55        26.09      23.52       9.83          39.90
         DEPOSITS/SHARE NGN                   28.32      16.14        29.00      15.34      13.07          28.30
Source: Cowry Research

Cowry Research Desk                                                                                    Page 36

                                        GUARANTY   INTERCONT   PLATINUM   SKYEBANK     UBA       UBN         ZENITHBANK

      Price as @ 30-June-2009             14.01      9.10        6.27       6.74      13.55      17.02         14.32
         Earnings' Yield (%)              13.35      21.21      15.47      10.98      17.71      13.63         16.83
              ROE (%)                    15.56%     17.35%      11.59%     16.90%    21.15%     20.55%         15.00%
              ROTA (%)                   3.65%       3.28%      2.50%      2.11%      2.48%     2.92%          3.14%
       Net Profit AT/Sales (%)           27.20%     20.03%      22.28%     20.46%    24.07%     22.78%         24.96%
        Sales/Total Assets (%)           10.82%     12.47%      8.40%      7.62%      7.41%     10.01%         11.65%
    Net Profit AT/Total Assets (%)       2.94%       2.50%      1.87%      1.56%      1.78%     2.28%          2.91%
Total Assets/Stockholders. Equity (%)   528.87%     694.67%    619.30%    1084.36%   1186.13%   901.22%       515.79%
           Price to book X                1.45       0.86        0.75       0.82       0.88      2.93           0.42
           Price to Asset X               0.27       0.12        0.12       0.08       0.13      0.21           0.20
      Price to Gross Earnings X           2.54       0.99        1.45       1.00       1.72      2.08           1.73
      Price to Earnings (PAT) X           9.16       4.72        5.23       9.11       7.13      11.90          5.94
            Price to PBT X                7.33       3.77        4.18       7.29       5.71      9.52           4.75
           Price to Loan X                0.63       0.19        0.40       0.17       1.87      0.36           1.59
          Price to Deposit X              0.56       0.16        0.18       0.16       0.85      0.28           1.16
       BV/SHARE(NAS) NGN                  9.66       10.63       8.32       8.18      15.37      5.81          34.03
        T.ASSET/SHARE NGN                 51.10      73.82      51.52      88.69      106.22     81.62         71.18
          GE/SHARE NGN                    5.53       9.20        4.33       6.76       7.87      8.17           8.29
          PAT/SHARE NGN                   1.53       1.93        1.20       0.74       1.90      1.43           2.41
          PBT/SHARE NGN                   1.91       2.41        1.50       0.93       2.38      1.79           3.01
        LOANS/SHARE NGN                   22.23      48.33      15.52      39.61       7.23      47.41          8.98
       DEPOSITS/SHARE NGN                 25.07      56.05      35.45      43.30      15.96      61.85         12.32
Source: Cowry Research

Cowry Research Desk                                                                                      Page 37

    •      Rated by Fitch in 2008 with international Long-term and Short-term ratings at 'B+' and 'B' respectively with a stable
    •      Fitch also affirmed the Bank’s National Long- and Short-term ratings at 'A+(nga)' and 'F1(nga)', respectively.
    •      According to the Agency, the ratings, the second in two years, reflect a well-established and growing franchise and
           improving asset quality indicators. The ratings also take into account Nigeria's difficult operating environment, the Bank's
           concentrated loan book, increased credit exposure to individuals and accelerated credit growth since the financial year-
           ended March 31, 2007. During Financial year ended March 31, 2007, First Bank reported a 19.5 percent year-on-year
           increase in net earnings to N18.4b, and strong improvement in financial performance was reported for half year 2008.
    •      In May 2007, Fitch acknowledged the improvements made to the bank's risk management framework and asset quality
           indicators (the non-performing loan (NPL) ratio reduced to 3% at Financial Year 2007 from 9% at Financial Year 2006.
    •      First Bank is one of the three largest banks in Nigeria by total assets and has a network of 420 branches and 501 ATMs.
    •      The Bank commenced operations in 1894 and provides universal banking services to corporate and retail clients.

                                 FBN PLC

  Prices as @ 6/30/2009           22.02
 % Of Market Capitalisation       8.93%
          Latest EPS               1.85
         Current PER              11.90
         Latest DPS                1.20
        Dividend Yield             5.45
     Year-To-Date (%)              4.31
          Year High               24.86
          Year Low                13.70
        Projected EPS              1.79
        Projected PER             12.28
        Projected Price           24.11
     Projected Returns            9.48%
 50% Discounted Projected         4.74%

                                                           Source: Cowry Research

Cowry Research Desk                                                                                                         Page 38

    •      Voted the “Best Bank in Nigeria” at the 2009 Euromoney Awards for Excellence Dinner in London in July 2009
    •      Rated by KPMG as the Most Customer Focused Bank in Nigeria for the second consecutive years in its 2009 Banking
           Industry Customer Satisfaction Survey.
    •      Adjudged The Most IT-Driven Bank 2008, The Most Customer friendly Bank 2008, The Best Bank in Corporate
           Governance 2008 and Best Bank in CSR 2008. In 2007, the Bank was awarded the Most Respected Company in Nigeria by
           Price Waterhouse Coopers.
    •      The first Nigerian Company and first African bank to be listed on the London Stock Exchange and pioneered such
           innovative e-products as Telephone and Internet banking in 2002, Slip-free banking in 2006, GT Connect in 2006 as well
           as Drive-Through-Banking and GTBank on wheels in 2007.
    •      The first Nigerian institution since the early 1990s to venture into the international capital markets and raise funds in a
           Regulation S Eurobond issue with a $350 million Eurobond issue.
    •      This ever growing list of achievements serve to bolster the bank’s reputation as one of Nigeria's most profitable
           institutions and reinforces the AA- (double A minus) by Fitch; and BB- (double B minus) by Standard & Poor's, the best
           ratings assigned by the two international rating agencies to any Nigerian or West African-based bank.

                                 GTB PLC

  Prices as @ 6/30/2009           14.01
 % Of Market Capitalisation       4.33%
          Latest EPS               1.87
         Current PER               7.49
         Latest DPS                1.00
        Dividend Yield             7.14
     Year-To-Date (%)             40.74
          Year High               14.59
          Year Low                 8.25
        Projected EPS              2.51
        Projected PER              5.58
        Projected Price           22.40                   Source: Cowry Research
     Projected Returns           59.88%
 50% Discounted Projected        29.94%

Cowry Research Desk                                                                                                        Page 39

    •      Complied to the Basel II Prudential Standards (a best practice framework for credit, market and operational risk
           management as well as capital management and risk reporting).
    •      Adopted International Financial Reporting Standards (IFRS) as the global standard for financial reporting. Its most
           significant impact for Nigerian banks will be in the area of credit provisioning.
    •      Adopted the Committee of Standards Organisation (COSO) which relates to the integration of internal audit with wider
           enterprise risk management- though COSO is not a Nigerian requirement.
    •      South African King III corporate governance code during the course of the 2009 financial year (Q4) to put the Bank on a
           par with international peers.

                                 UBA PLC

  Prices as @ 6/30/2009           13.55
 % Of Market Capitalisation       4.79%
          Latest EPS               2.40
         Current PER               5.65
         Latest DPS                1.00
        Dividend Yield             7.38
     Year-To-Date (%)              3.04
          Year High               17.50
          Year Low                 6.67
        Projected EPS              1.87
        Projected PER              7.25
        Projected Price           16.69
     Projected Returns           23.14%
 50% Discounted Projected        11.57%

                                                  Source: Cowry Research


    •      Zenith Bank remains outstanding in the pursuit of excellence and commitment to high quality service, a result of which
           has enhanced its performance over time. Some of its major laurels include:
    •      Best Global Bank (2008) from the African Bankers Award
    •      Best Bank in Nigeria (2008) by Euromoney
    •      KPMG: Most Customer-Focused Bank (2008)
    •      Fitch Ratings (AA-) 2007 which "reflect adequate levels of capitalisation and the potential that capital levels will be
           further enhanced"
    •      Standard and Poor's (BB-) 2007: "The stable outlook balances the bank's ability to benefit, in terms of size, profitability,
           from strong macroeconomic growth"
    •      Web-Jurist Award (2001, 2002, 2004, 2005, 2006 & 2008) by Phillips Consulting voted the bank’s website as the Best
           Bank Website in Nigeria; 1st Overall rating
    •      The Banker, Financial Times of London adjudged it the Bank of the Year (2005)

Cowry Research Desk                                                                                                         Page 40
                              ZENITH PLC

  Prices as @ 6/30/2009         14.32
% Of Market Capitalisation      5.90%
       Latest EPS                2.41
       Current PER               5.94
       Latest DPS                1.70
      Dividend Yield            11.87
    Year-To-Date (%)            15.09
        Year High               29.00
        Year Low                11.13
      Projected EPS              1.62
      Projected PER              8.86
     Projected Price            16.16
    Projected Returns          12.82%            Source: Cowry Research
50% Discounted Projected        6.41%


The outstanding performance of the Bank continues to attract commendation within and outside the industry. The latest of these
was the award for excellence as The Best Bank in Nigeria received from Euromoney in 2006. This marks the fifth time the Bank is
winning global award, having won the prestigious "Banker's award" as Nigeria's Best Bank four times in 2000, 2001, 2002 and 2004.

                                UBN PLC       Figure 5
   Prices as @ 6/30/2009          17.02
 % Of Market Capitalisation       3.86%
         Latest EPS                2.32
        Current PER                7.34
         Latest DPS                1.00
       Dividend Yield              5.88
     Year-To-Date (%)             11.97
         Year High                21.12
         Year Low                  9.76
       Projected EPS               1.93
       Projected PER               8.84
       Projected Price            17.19
     Projected Returns            1.02%
 50% Discounted Projected         0.51%

                                                                  Source: Cowry Research

Cowry Research Desk                                                                                                    Page 41
                                                                                                                                                                                                 NSE ASI VS THE FIVE BANKS


    0.80                                                                                                                                                                                                                                  INDEX
    0.40                                                                                                                                                                                                                                  UBN





Source: Cowry Research

Figure five above shows the market performance of the five banks vis a vis the performance of the market’s
All share Index.

Fitch’s 2009 Ratings of Nigerian Banks

                                                                                                                       National Long-Term Rating                                                                                   Foreign Currency Long-Term IDR
      Stanbic IBTC Bank PLC                                                                                                                           AAA(nga)                                                                                  NR
 Guaranty Trust Bank PLC (GTB)                                                                                                                         AA-(nga)                                                                          B+/Stable Outlook
         Zenith Bank PLC                                                                                                                               AA-(nga)                                                                          B+/Stable Outlook
 First Bank of Nigeria PLC (FBN)                                                                                                                       A+(nga)                                                                           B+/Stable Outlook
    Intercontinental Bank PLC                                                                                                                          A+(nga)                                                                           B+/Stable Outlook
United Bank For Africa PLC (UBA)                                                                                                                       A+(nga)                                                                           B+/Stable Outlook
    Union Bank of Nigeria PLC                                                                                                                          A+(nga)                                                                           B+/Stable Outlook
        Diamond Bank PLC                                                                                                                                A-(nga)                                                                          B/Stable Outlook
 Oceanic Bank International PLC                                                                                                                       BBB+(nga)                                                                          B/Stable Outlook
       Ecobank Nigeria PLC                                                                                                                            BBB-(nga)                                                                          B-/Stable Outlook
         Access Bank PLC                                                                                                                              BBB-(nga)                                                                                 NR
Source: Fitch Ratings/Cowry Research

NR: Not Rated

Cowry Research Desk                                                                                                                                                                                                                                            Page 42

2008 marked the end of a period of rapid expansion for the Nigerian banking sector with the onset of the
global credit crisis and lower oil prices causing a weakening in the operating environment. How the sector
tackles the nagging issues from lapses allowed in recent years will be a subject of interest for all
stakeholders in the near future. However, the system-wide consolidation in 2005/2006, when the banks’
minimum capital requirements were raised significantly, has better positioned the sector to absorb these
risks, and a slower period of growth would be a positive development.

Share-backed lending has emerged as an important risk consideration following the collapse in share prices
since early 2008 and is going to have to be absorbed in some form. The Central Bank of Nigeria (CBN),
which estimates the sector-wide exposure to be about NGN800bn-NGN1.200trn at end-2008, has allowed
banks to reschedule these obligations, without classifying them as non-performing. However, by the
December ending, banks would have classified their loans in keeping with disclosure requirements of the

The outbreak of the financial crisis provoked a broad liquidation of investments, substantial loss in wealth
worldwide, a tightening of lending conditions, and a widespread increase in uncertainty. Higher borrowing
costs and tighter credit conditions, coupled with the increase in uncertainty provoked a global flight to
quality (i.e. selling high risk investment to purchase safer ones), caused firms to cut back on investment
expenditures, and households to delay purchases of big-ticket items. According to the World Bank,
unemployment is on the rise, and poverty is set to increase in developing economies, bringing with it a
substantial deterioration in conditions for the world’s poor and most vulnerable.

It goes without saying that the outlook for the Nigerian financial system is pretty much seamed with realistic
revenue projections of the government. And this also is in no way isolated from the global economy into
which Nigeria remains plugged via international trade. According to the International Monetary Fund, IMF,
Nigeria's budget deficit is likely to widen to around 8.5 percent of GDP this year as oil and gas revenues
decline, while foreign reserves are seen falling below $40 billion. This means that for increased revenue from
oil to be possible, militancy in the Niger Delta has to be addressed once and for all. Also, Nigeria needs to
diversify into other areas such as agriculture.

As the world changes the way it does business, ranging from innovations for cutting edge technology to
institutionalizing financial best practices across international borders, the progression of Nigeria’s financial
ship will depend to a large extent, on its socio-political stability as well as its economic diversity. But
ultimately, also, the state of its financial health and soundness would easily reflect whatever progress (from

Cowry Research Desk                                                                                    Page 43
the industry-sanitizing measures) its financial authorities and crusaders for change, are able to achieve in
the medium to long term.

There is increased global proposition for and adoption of the Basel II Prudential Standards (a best practice
framework for credit, market and operational risk management as well as capital management and risk
reporting); also, an increased demand for the adoption of the International Financial Reporting Standards
(IFRS) as the global standard for financial reporting. Already, four banks, namely Access Bank plc, Guaranty
Trust Bank plc, First Bank plc and United Bank for Africa plc have all adopted the IFRS reporting standard.
The deadline for total compliance with, and adoption of the IFRS by all Nigerian banks is December 31,

On loan exposures, the fortune of the Nigerian Stock Exchange is another factor that will somehow
influence the banking industry in 2009. In 2008, the NSE lost about N5 trillion in values as stock prices
plummeted to unimaginable levels, resulting in severe capital loss for most investors. As a result, investors
that borrowed from the banks via margin loans could not repay the loans, leaving the banks dangerously
exposed to the market. In addition, Nigerian banks were exposed to the Oil and gas industry, telecoms
industry, real estate as well as the money market. Fortunately, banks have already started making loan loss

Finally, there is no gainsaying the fact that the Nigerian financial institution, which is also a very important
economic development agent, could thrive to the extent to which its economy is diversified and dovetailed
to the global economy in terms of meeting the needs for goods and services internationally. Increased
revenue in the economy could easily boost liquidity in the financial system available for further capital
formation activities. This could be sustained, among other things, via, reduced operating costs (a major
component of interest rates, for instance), strict regulatory oversight as well as the imbibing of excellent
corporate governance by all stakeholders within the context, of course, of a global economy. Holistic
measures to treating national issues ( e.g. security and the Niger Delta crisis, politics, etc) of economic
importance would also strengthen the bedrock on which the every institution is built.

Cowry Research Desk                                                                                    Page 44

Cowry Research Desk           Page 45
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Head Office:                                 Port-Harcourt Office
Plot 1319 Karimu Kotun Street,               Charis Plaza,
Off Sanusi Fafunwa,                          No. 141, Olu-Obasanjo Road
Victoria Island,                             Port Harcourt,
Lagos, Nigeria.
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Phone: +234-1-2715008-9                      Phone: +234-084- 896813
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Abuja Office

Plot 129, Adetokunbo Ademola Crescent,
Wuse Zone II, Abuja,
Phone: +234-09-4611100-5

Upcoming branch:
No. 16 Park Road,
G.R.A., Onitsha,
Anambra State,
Phone: +234-04-6483776


Cowry Research Desk                                                       Page 46

 This report is produced by the Research Desk of Cowry Asset Management Limited (CAML) as a guideline for Clients
   that intend to invest in securities on the basis of their own investment decision without relying completely on the
 information contained herein. The opinion contained herein is for information purposes only and does not constitute
any offer or solicitation to enter into any trading transaction. While care has been taken in preparing this document, no
responsibility or liability whatsoever is accepted by any member of CAML for errors, omission of facts, and any direct or
                         consequential loss arising from the use of this report or its contents.

Cowry Research Desk                                                                                            Page 47

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