The Banker in its 2021 Top 1000 World Bank ratings has said that Nigerian banks experienced difficulties on a number of fronts in 2020.

The impact of the coronavirus pandemic, combined with a slump in oil revenues, which eased toward the end of the year, resulted in the country’s worst economic performance in more than 20 years. Its five largest lenders all posted significant falls in this year’s Top 1000 ranking, with only First Bank Nigeria registering an increase in its Tier 1 capital base during 2020.

Zenith Bank, the country’s largest lender by Tier 1 capital, fell 68 places to number 454 in the Top 1000 ranking, its Tier 1 capital position declining by 5.4 per cent even as it recorded a 7.7 per cent rise in total assets. Meanwhile, Nigeria’s second biggest lender, Guaranty Trust Bank, drops from 537 to 625 in this year’s main ranking.

In the 2021 ranking it said “When it comes to performance however, the position of the country’s top two lenders is reversed.

Guaranty tops the performance tables for Nigeria for the second consecutive year, coming first in its scores for operational efficiency, liquidity, and leverage, with Zenith remaining in second position. Guaranty’s cost-to-income ratio remains far lower than its national peers, standing at 28.9% at the end of 2020, compared with 41.2% for Zenith and 56.1% for Access Bank. Zenith scored highest for profitability and soundness in the 2021 performance tables. The lender’s return on equity stood at 20.6%, second only to Guaranty’s 24.7% at the end of 2020. Guaranty also overtakes Access Bank in the main Top 1000 ranking to become Nigeria’s second largest lender, even as its Tier 1 capital base decreased 10.8% for the year.

“Access Bank’s Tier 1 capital suffered a steeper fall of 18.1% for the year, putting it just behind Guaranty in the country rankings, and in 630th place in the overall Top 1000, compared with 508th spot last year. But Access remains the country’s largest lender by total assets, thanks in no small part to a series of acquisitions across the continent. After merging with local rival Diamond Bank and acquiring Kenya’s Transnational in 2019, Access announced the acquisition of Zambia’s Cavmont in 2020, and also acquired Mozambique’s African Banking Corporation earlier in 2021. Access comes in in fourth position in 2021’s performance rankings, compared with fifth position last year. The bank topped the country for asset quality — its non-performing loan ratio dropping from 5.7% to 4.3% for the year — but ranked lowest in the country’s top five for soundness. United Bank for Africa, the country’s fourth largest lender in the Top 1000, ranks third nationally for performance, with high scores for growth and return on risk offset by lower scores for leverage, soundness, asset quality and operational efficiency.

“While South African lenders continue to dominate the top African positions in The Banker’s Top 1000 World Banks ranking, domestic economic pressures, combined with the worst outbreak of Covid-19 on the continent, have hit the country’s lenders hard. After posting gains across the board in 2019, just three of the country’s seven lenders in this year’s rankings saw an increase in their Tier 1 capital position in 2020, as higher impairments took their toll on balance sheets. Standard Bank consolidated its position as the continent’s largest lender — a position it has held for more than 20 years — with a 5.8% gain in its Tier 1 capital base, the only one of the country’s big four to record such an increase. While impressive in the circumstances, Standard Bank slips five places in the overall Top 1000 to 157th place.

“FirstRand and Absa Group remain in second and third place in the continent, their Tier 1 capital base dropping by 15.5% and 2.1%, respectively. Lenders in Nigeria suffer a similar fate in this year’s rankings, as the continent’s largest economy briefly entered recession in late 2020 ahead of a recovery in oil revenues towards the end of that year. Zenith Bank, the country’s largest lender, exits the continent’s top 10 for the first time, following a 5.4% decrease in its Tier 1 capital base. First Bank of Nigeria, the country’s fifth largest lender, was the only one of six Nigerian banks in this year’s Top 1000 to improve its Tier 1 capital position. Despite such decreases, Nigerian banks continue to score highly for profitability and efficiency compared not only with their African peers but also the global competition. Guaranty Trust Bank, United Bank for Africa and Zenith Bank top the continent in terms of return on capital, coming in fourth, 16th and 22nd positions globally.

“Egyptian lenders continue to account for the bulk of Tier 1 capital growth across the continent. All seven Egyptian banks in this year’s Top 1000 registered an improvement in their Tier 1 capital base, and all climbed up in the overall rankings. National Bank of Egypt overtook South Africa’s Nedbank to become the continent’s fourth largest lender, and climbed 22 places to occupy 215th position in the Top 1000. Local rival Banque Misr records the continent’s best growth, with a staggering 84.2% rise in its Tier 1 position. This rise, a gain of 94 positions in this year’s Top 1000, makes it the sixth highest mover in this year’s overall rankings. North African lenders make up eight of the continent’s highest movers, highlighting the region’s growth profile compared with sub-Saharan economies. Morocco’s Attijariwafa is the pick of the region’s non-Egyptian lenders, its Tier 1 capital position improving by 15.7% in 2020”.

In a statement, the Banker said “The world’s largest banks have withstood the pressures from the Covid-19 pandemic, adding 12.7% to their collective Tier 1 capital to reach the highest ever level of $9.9 trillion, according to The Banker’s latest ranking of the Top 1000 World Banks. In addition, total assets increased by 16.0%, to $148.6 trillion, while the deposit base expanded by 17.1%, to $93.9 trillion. Compared to the global financial crisis in 2007-09 there is more resilience in the banking sector. Overall, the Top 1000 World Banks increased the allowance for loan losses (or the reserve to cover bad debts) by 25.8%, to $1.7 trillion, which is a bigger increase than the aggregate loan book, which grew by 11.4%. However, as many jurisdictions have extended their Covid-19 support packages into 2021, the true impact of the pandemic has not hit the banks’ loan books yet.

“Despite challenging economic conditions, banks have been able to generate pre-tax profits (see table: Top 10 Countries’ profit change). However, most countries recorded a reduction in pre-tax profits, with just 16 countries increasing aggregate profits. While the Top 1000’s combined profits dropped by 19.2% year-on-year, it is not as catastrophic when compared to the fallout from the financial crisis, when profits plummeted 85.3% in 2009. China continues to be the engine of growth for the world’s banking industry, increasing aggregate Tier 1 capital and total assets by 18.6% and 18.4%, respectively. China, with 144 banks in the ranking, now holds almost double the amount of Tier 1 capital ($2.96 trillion) than the US ($1.58 trillion), with 178 banks in the ranking. The four largest Chinese banks – Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China and Bank of China – have consolidated their positions at the top of the ranking, and have extended their lead over US counterparts (JPMorgan Chase, Bank of America, Citigroup and Wells Fargo) with double-digit growth in Tier 1 capital (see table: Top 20 World Banks 2021). Overall Chinese banks increased their aggregate Tier 1 capital by 18.6%, against 8.5% for US banks.

“In addition, profits continued to grow in China by 5.2% year-on-year, while falling by 31.5% in the US and 41.8% in western Europe. Joy Macknight, editor of The Banker, said: “During a challenging year for the world’s banking industry, the top Chinese banks have extended their lead over US counterparts with double-digit increases in Tier 1 capital, as well as expanding their asset base and increasing profits. The global banking industry overall has exhibited impressive resilience in such a difficult time.” However, western Europe had another difficult year – due to low economic growth and the interest rate environment hitting the profitability of the region’s biggest lenders. Of the largest European economies, banks’ aggregate pre-tax profits shrank by 43.71% in Germany, 75.72% in Italy and 47.67% in Netherlands, while France experienced a more modest decline of 11.61%. Spain recorded negative pre-tax profits at an aggregate level, with two of its largest banks, Banco Santander and Bankia, moving from profit to loss in this period (see table: Ten largest moves from profit to loss). The Asia-Pacific region generated more than half (55.1%) of the world’s profits, based on net income data, up from 43.5% in the 2020 ranking, and was the only region to increase its share of profits”.