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Nigeria Commercial Banking Report Q1 2008Product Type: Market Research ReportPublished by: Business Monitor International Published: January 2008 Product Code: R302-1632 Description Key IssuesFrom Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors. Nigeria’s overall CBBER is 48.0. The equivalent figures for the USA and the eurozone are 84.8 and 81.4, respectively. Nigeria’s CBBER is in the upper bottom-half of the countries in the Middle East and Africa surveyed by BMI. Within the CBBER, the most important aspect is the (banking) market element of the limits of potential returns. This element accounts for 42% of the overall CBBER. Nigeria’s rating for this element - 48.8 - is almost exactly equal to the overall CBBER, and only slightly higher than the country element of the limits of potential returns - 44.3. This indicates that although the banking sector is not especially large or highly developed the extent of its development as a sector is nonetheless roughly on a par with the general wealth, stability and financial infrastructure of the country. This reflects the small size of the total assets of Nigeria’s banking sector relative to other countries. Moreover, although growth rates will be high, the absolute growth in total assets and client loans during the 2007-2012 forecast period will be inhibited by the current small base from which it is growing. The CBBER highlights clearly some of the factors that are holding back Nigeria’s banking sector. One is the extremely low level of per-capita GDP (which is exacerbated by the uneven distribution of income). Another is the potential volatility of GDP and the Nigerian economy more generally. Figures of Q307 point to higher growth for the Nigerian economy, although the potential for inflation remains. Recent figures from the third quarter are broadly in line with our own views for Nigeria, although we have raised our 2007 real GDP growth estimate to 5.8%. We forecast a real GDP growth rate of 9.2% for 2008. Real GDP growth was driven by the non-oil sector, which grew by 9.5% in Q307 and increasingly accounts for a larger share of total GDP (82% in Q307 at 1990 constant prices). We see this trend continuing into Q407 before undergoing a seasonal dip in Q108, and therefore estimate a Q407 real GDP growth rate of 6.1%, continuing the trend for relatively high growth rates in the fourth quarter of the year. The trend towards less dependence on the oil sector and the government’s 2008 budget, which included a medium term plan for dealing with oil market volatility are both healthy signs for Nigeria’s longer term prospects There is good reason to worry about inflation in 2008, and we are particularly concerned about inflation pressures emanating from a growth in 2008 state government expenditure, in response to a surge in oil revenues flowing to state coffers from the federal government. The federal government was expected to transfer almost US$6bn of oil savings to state governments, and depending on how the state governments allocate the revenue, this could result in an inflation spike via a liquidity surge. We continue to forecast significant upside potential to the naira and have revised our 2008 year-end forecast to NGN114.0/US$, on the back of projected further inflation risks. Table of Contents
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