As lenders expand in size and scale to meet the demand of a $1 trillion economy, analysts at Proshare have warned of poor Asset and Liability Management (ALM) risks.
This information was detailed in Proshare’s third edition of its Tier 1 Banks press statement report, presented in Lagos on Wednesday.
The analysts who called for attention to macro and microeconomic risks, as seen in the United States of America (US) said poor asset and liability management (ALM) was a major contributor to the failure of several US banks, such as Silicon Valley, First Republic, and Signature Banks, in 2023.
“Poor asset and liability management (ALM) was a major contributor to the failure of several US banks, such as Silicon Valley, First Republic, and Signature Banks, in 2023,” they said.
Nigeria’s GDP
Looking at the Nigerian economy and banking sector, the Proshare analysts noted that Nigeria’s GDP in 2005 was N38.78 trillion and rose to 77.94 trillion, roughly two times in 2023, suggesting an average annual growth rate of 3.55% in the last two decades.
They stated, however, that between 2000 and 2005, bank equity sizes grew over ten times or by 1,150% from N2 billion to N25 billion.
According to them, for a decade and a half, banks have used ten times more equity in their businesses than before 2005, yet the country’s GDP growth has been modest.
Nigerian banks’ equity base
The report further stated that raising Nigerian banks’ equity base is no guarantee for economic growth and development.
“Transforming bank equity into drivers of economic growth requires more than money; it requires a coordinated public and private sector plan, with what Proshare analysts have repeatedly called a whole-of-government approach to policies, programmes, and processes,” they said.
Ranking
According to the analysts, the Proshare Bank Strength Index (PBSI), which evaluated banks using a pool of financial metrics based on audited financial statements for the Financial Year (FY) 2023, named Access Corp, Zenith Bank, FBNH, ETI, UBA, and GTCO as Tier 1 Banks in 2024, reinforcing the Afrinvest-inspired concept of FUGAZ.
According to the latest Proshare report, Tier 1 banks tend to edge out their Tier 11 counterparts for big-ticket public and private sector transactions. Hence, the evaluation metrics for bank classification need to be continuously revised, especially when big appears to be beautiful.
“Banks are like bulls in a pen; they are stuck behind bars that are difficult to escape. Banking, on the other hand, is free-spirited, agile, and capable of reinterpreting economic reality. Over the last two decades, the financial payment and settlement business has increasingly grown on the back of cloud-based blockchain technology, which may be destined to improve the efficiency of financial transactions and the quality of person-to-person (P2P) and business-to-business (B2B) relationships,” the report said.
Banking sector recapitalisation
The analysts noted that with an ongoing Central Bank of Nigeria-inspired banking sector recapitalisation programme, investment in financial technology, customer service scalability, and digital asset engineering will take a fresh turn between 2024 and 2026.
They added that with higher capital levels, banks must use the larger amounts of cash available to improve shareholder returns and customer service experiences.
The analysts noted that many banks will get cut at the knees by lacking a deliberate strategy to transition from cash flow to value creation.
“Recalling the challenges faced by banks during the Charles Soludo-inspired in 2005, a few bank executives would have more money than business skills, resulting in a terrible waste of additional capital,” they said.
