Afrinvest Nigeria Banking Report 2008

Nigerian Banking Sector
Macro-economic play on Africa’s largest emerging market
January 2008
Nigerian Banking Report
Table of Contents January 2008
Section 1 Executive Summary
Section 2 Political and Socio-Economic Update

Elections Aftermath: Stability and Continuity 16
Continued Economic Growth 19
Key Risks: Infrastructure, Security, Corruption 20
Section 3 Nigerian Banking Sector

2007: After Reforms, Growth 22
The Opportunity is Real 23
Size and Capital are becoming Key 25
Capital Markets have Helped 29
But there are Risks 31
Section 4 Post-Consolidation Scenario

New Rules: Size is Imperative 34
New Entrants: Top Dollar, Tough Market 35
Grand Ambitions: Expansion and Diversification 36
Section 5 Bank Profile: Fifteen Banks
Section 6 Operating and Valuation Statistics

Macro-economic and General Statistics 72
Financial Forecasts 74
Public Market Operating Comps, Part I 79
Public Market Operating Comps, Part II 80
Public Market Valuation Comps 81
Chart List 82
Section 7 Contacts
Afrinvest (West Africa) Limited 86
Disclaimer 87
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4
January 2008
Section 1 Executive Summary
5
Executive Summary January 2008
Independent assessment of Nigeria’s macro-economic performance

continues to be favourable...
In December 2006, the International Monetary Fund (IMF) published its second review
Independent observers attest of Nigeria under a two year Policy Support Instrument (PSI). IMF endorsement had
to a vastly improved been a key part of achieving the US$31bn 2006 Paris Club debt restructuring
Nigerian macro-economic agreement. The IMF made the following statements on Nigeria’s economic
environment in the last 3 to performance, following on positive commentary from its previous review:
5 years.
“GDP growth and per capita income have doubled in the last five years
compared with the previous two decades. Headline inflation declined to
single digits in 2006 and the parallel and official exchange rates have
converged, reflecting the unification of the foreign exchange markets.”
Nigeria’s national leadership “…the authorities have maintained their commitment to the reform agenda;
continues to demonstrate nevertheless, the ongoing conflict in the Niger Delta poses a policy challenge.
commitment to a private Growth would benefit from significant infrastructure spending. This
sector driven reform agenda; spending reflects the government’s efforts to address pressing infrastructure
and to a secure, corruption
needs.”
free country.
...And much of the local and international financial community have become
familiar with the compelling Nigeria story.
Following years of tortuous reforms, and stability ensuing from over eight
uninterrupted years of democratic governance, Nigeria has begun to exhibit macro-
economic characteristics that are more in line with the worlds’ leading emerging
market countries. Foreign portfolio investors have been quick to take advantage of
Foreign investors have been opportunities in the market. Amid the global quest for higher yields in 2006-2007,
quick to seize opportunities,
Nigeria witnessed significant inflows into its sovereign debt and public/private equity
with local capital markets
markets. Afrinvest Research estimates that, the banking sector (considered by many
benefiting from increased
levels of awareness and
to be an investment proxy for the larger economy) has attracted over US$5.0bn in
inflow. new foreign debt and equity investments, excluding direct equity portfolio
investments on the Nigeria Stock Exchange (NSE). The Nigeria story is essentially one
of a larger, yet faster growing version of “commodities rich” Africa. Just as
importantly, significant room continues to exist for growth, with per capita GDP
barely over the US$1,000 mark despite recent advancements (See Chart 1 and 2).
In many ways, Nigeria’s story mirrors a wider African renaissance.
Key elements of the Nigeria macro story (GDP growth, declining inflation, improved
sovereign risk ratings and increased inward flow of Foreign Direct Investments) are
very much in line with emerging trends in many countries within the sub-Saharan
African region. A continuing global commodities boom has combined with significant
amounts of international interest in (and demand for) emerging market
opportunities, to spur a renaissance in many African markets. Many of these countries
are now enjoying the longest, sustained period of uninterrupted economic growth in
their post-colonial histories.
According to data from sovereign risk specialists Standard and Poor’s, Africa’s major
markets (a sample including South Africa, Nigeria, Egypt, Morocco, Tunisia, Kenya,
6
Senegal and Ghana) are each seeing 5-year average output growth rates in the 5%
per annum region. Each is also seeing per capita GDP exceeding or approaching the
US$1,000 mark, with South Africa (US$5,516) and the North African countries
(averaging US$2,356) being well ahead of the rest of the continent. While these
indications of prosperity appear more pronounced in these more developed African
economies (South Africa and the Northern African countries) than in Nigeria, a closer
analysis reveals that there is indeed a higher, underlying level of per capita wealth
within the Nigerian economy.
The wealthiest 20% of Nigeria’s population accounts for 80% of national

output; an estimated market of 28 million people with a per capita GDP of
US$4,000 per annum.
There is evidence that a small proportion (estimated at 20%) of Nigeria’s 140 million
people account for up to 80% of the nation’s wealth. With a 2006 year end GDP of
US$140bn, our analysis indicates that while Nigeria may report a national per capita
GDP of merely US$1,000, there is actually a select, underlying market of up to 28
million people in the country; boasting a per capita GDP of US$4,000 (very nearly
comparable to South Africa, and well in excess of the North African average).
We believe that this select section of the population is responsible for much of the
underlying consumer market demand that is beginning to come to light in Nigeria.
Due to very high poverty rate, much of the analysis of the market opportunity has
failed to take cognisance of this latent consumer group, itself a substantial market,
and primary targets for immediate new business opportunities.
Chart 1: Underlying market demand in Nigeria

Population (millions) Per Capita GDP (US$) GDP Growth (2007E)
South Africa 47.1 5,516.0 4.58%
Nigeria (Select) 28.0 4,000.0 N/A
Tunisia 10.3 3,226.0 6.00%
Morocco 33.8 2,264.0 4.31%
Egypt 80.4 1,577.0 5.88%
Nigeria (Nationwide) 140.0 1,000.0 7.58%
Source: Standard and Poor’s, Afrinvest Research
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Chart 2: Sovereign Risk Indicators, Nigeria Versus Africa I
Executive Summary
Chart 2: Sovereign Risk Indicators, Nigeria Versus Africa I
RSA Morocco Nigeria Egypt Tunisia Kenya Senegal Ghana
2007 Per Capita GDP, US$ 5,516 2,264 924 1,577 3,226 724 887 632
5-year Average GDP Growth, % 4.47 4.76 7.39 4.47 5.42 4.95 5.03 5.77
2007 CPI Average, % 5.46 2.75 8.70 9.90 2.86 10.00 2.60 9.50
2007 Budget Surplus / (Deficit), % 0.29 (2.40) 7.98 (7.48) (3.40) (3.97) (5.50) (3.92)
2007 Government Debt, % of GDP 26.02 42.49 1.55 64.72 48.82 40.93 29.90 19.99
Savings, % of GDP 13.03 31.88 30.05 21.64 21.23 15.40 11.68 24.12
2007 Investment, % of GDP 20.14 28.85 23.76 19.99 23.12 20.58 20.28 27.89
2007 Investment Growth, % 9.27 7.06 11.57 14.06 6.73 12.83 10.10 18.00
2007 Unemployment, % of Workforce 26.60 10.48 N/A 9.90 13.60 N/A N/A 11.20
Long Term Foreign Currency Rating BBB+ BB+ -

BB BB+ BBB B+ B+ B+
Source: Standard and Poor’s, Afrinvest Research

January 2008
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Democracy has come to stay in Nigeria...
After several decades of The nation completed a historic political transition in May 2007, when President
successive military Umaru Musa Yar’Adua was sworn into office; albeit amid widespread domestic and
governments, democracy international condemnation of the polls that brought him into power. Despite the
appears to have finally taken controversy, the successful transition has raised hopes that the momentum of
root in Nigeria, albeit with economic reforms of the outgoing government will be sustained. The previously
severe teething problems. unknown and reclusive new president now seeks to step out of the shadows of
former President Obasanjo.
…and stability is spurring economic growth: a boom for banks.
A combination of robust economic growth, an ambitious government initiative to

With political stability has
position Nigeria as a regional financial hub, and fierce competition among the
come macro-economic
surviving 25 players has underpinned the rapid growth of the Nigerian banking sector.
growth, and Nigeria’s banks
appear to have been given a
Total assets have grown by 39% over the last year, an indication of the strength of
new lease of life, achieving the underlying market. Banks continue to be successful in financing these assets from
significant expansion on the various domestic and international sources. Retail deposit generation has been a
back of a growing economy. major imperative for the larger banks as they seek lower cost financing. Capital
raising was a major theme of 2007, following on the rounds of mergers and
acquisitions in 2005-2006. 2007 saw local and/or international capital market
transactions by at least 15 banks, with over US$15bn in new capital expected to have
been raised by the end of Q1 2008.
Industry regulation is strong and forward-looking...
The central bank has stepped up surveillance of the industry, unveiling an ambitious
Active regulation, and a
forward looking national
plan for an integrated transformation of the financial services landscape (the FSS
financial services strategy is 2020 plan). This integrated plan envisions a Nigeria that becomes one of the largest
helping banks become larger economies in the world by the year 2020, propelled to those heights in large part by
and stronger, agents of its indigenous financial institutions.
future national development.
...and so the next round of consolidation has begun.
A second round of consolidation has begun to gather momentum as the local players
compete to remain among the critical top 10 (out of 24). The strategic priorities for
the major banks include regional expansion, expanded retail banking, real estate
finance, project and infrastructure finance, mortgage banking, expanded consumer
lending, and corporate finance.
Economic growth remains robust; forecast at over 6% per annum for the
next 3 years...
The Nigerian economy is experiencing its longest growth streak in over two decades.
High oil prices, combined with effective fiscal and monetary guidance by the Central
Bank of Nigeria (CBN) contributed to the 6% average annual GDP growth recorded
by the country since 2006. Non-oil GDP growth continues to outpace oil related
growth, as robust expansion in the agriculture, trading, building and construction,
and services sectors compensate for the decline in the oil sector, where growth has
largely been stifled by disruption in production by local militants.
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The international investment community has continued to endorse the emergence of

structural changes in the Nigerian economy on the back of a BB- sovereign rating,
and investing billions of dollars in the debt and equity markets. In particular, the
banking, infrastructure, industrials, consumer goods and insurance sectors have
attracted significant interest from international institutional investors, including
private equity and hedge funds from as far away as Europe, Asia, and the Americas.
Several international banks have also upgraded their operations in Nigeria, seeking
investment opportunities and offering corporate finance services as they aim to lead
the search for new capital to finance the growth of the economy.
...translating to accelerated development of the local financial markets.
Nigeria’s financial markets have recorded significant positive developments over the
last 12 months. Equity returns on the NSE ranked 3rd among emerging markets in
2006, behind Zimbabwe and China. A flurry of new issues and a bull market
supported by excess local and international liquidity have led to a 74.9% appreciation
in the benchmark NSE index during 2007. In the fixed income arena, Primary Dealer
Market Makers (PDMMs) have been appointed to create a secondary market for
trading in Nigeria sovereign bonds, leading to an active market with a 10-year yield
curve. Yields on the Nigerian bonds have continued to decline, with successive issues
achieving higher levels of over subscription from both local and international
institutional investors. Newly licensed pension funds, large commercial banks and
recapitalized insurance companies provide most of the local subscription to the bond
markets.
Chart 3: NSE Market Capitalization (Trillions, Naira), Index (100=1984)

9 Naira, Trillions 60,000
Market Capitalization Index
Local equity markets have 8
seen substantial appreciation 50,000
7
in size and valuation and
6 40,000
improvements in trading
liquidity over the last five 5
30,000
years. . 4
3 20,000
2
10,000
1
0
3
5
04
06
2
04
06
7
4
6
3
07
5
-0
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n-
n-
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ar
ar
pr
ov
ov
ug
ug
ct
Ja
Ja
Ju
Ju
Se
M
M
O
A
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Source: Afrinvest Research
Chart 4: Sovereign Yield Curve (November 12, 2007)

A long dated (10 year) risk
11.00 Current Yield (%)
free yield curve has emerged,
with active, daily trading in 10.00
domestic currency sovereign
debt. 9.00
8.00
The OTC sovereign bond
market records nearly 1000 7.00
deals each week, valued at
6.00
up to US$1.3bn.
Time to Maturity
5.00
1 Year
6 Months
2 Years
3 Years
7 Years
10 Years
1 Month
3 Months
5 Years
Source: Financial Datanet House Limited (FDHL), Afrinvest Research
10
Growth is broadly distributed across sectors, and primarily non-oil related.
Of crucial importance, much of the stability in new growth comes from non-oil
related sectors. Agriculture, wholesale and retail trading, telecommunications and
services have been the largest contributors to growth in output over the last five
years. Crude oil related output on the other hand, has been unreliable: driven largely
by factors such as global oil prices and domestic production output. In any event, the
oil and gas sector continues to be an enclave, largely separated from the rest of the
economy, with bridgeheads only resulting from federal government revenue inflows
via petroleum taxes and royalties.
Domestic production output has declined significantly in recent years, due to violent
protests, kidnappings, and other militant related production disruptions. Anglo-
Dutch giant, Shell, Nigeria’s largest oil corporation, has been forced to shut down
almost 50% of its production capacity in the on-shore Niger Delta region, with largely
offshore based ExxonMobil recently assuming the top spot in Nigeria’s production
rankings. Total national output has thus dropped by almost 0.5m barrels per day to
about 2.2m barrels per day.
- -
Chart 5: Stable Non-Oil Related Growth, Volatile Oil-based Growth
Non-oil GDP growth has
been steady, and is projected
30%
Crude Oil Related GDP Growth
to accelerate to 15% per 25%
annum in the coming years.
20%
15% Non- Oil based Growth
10%
5%
0%
)
)
00
01
02
03
04
05
(f
(f
(e
-5%
20
20
20
20
20
20
07
08
06
20
20
20
-10%
National foreign exchange revenues and reserves are up; with the naira
holding up well against the U.S. dollar.
Strong global oil prices Regardless of recent developments in the oil and gas sector (Nigeria’s major source of
continue to help support foreign exchange income), the country’s currency has proven resilient against major
government foreign international currencies, particularly the U.S. dollar. We have seen essentially a
exchange income, and relatively stable naira/dollar regime over the last eight years, and a steady
provide an anchor for appreciation of the naira during the last three of those years (2004 to 2007). Over the
currency stability. same period, foreign reserves have soared, largely on the back of disciplined fiscal
planning by a more accountable democratic government. Now at over US$50bn, with
external debt almost wiped out, Nigeria has one of the lowest national debt and
highest national reserves to GDP ratios among emerging market countries.
11
This recent appreciation in naira valuations (in part on account of the general slide in
Positive domestic and
international views of the
the value of the dollar across global markets) has supported inward flows of foreign
long term prospects for the investments into the local fixed income and equity markets. The impact of this has
naira has become a key driver been quick to emerge: declining yields across sovereign bond maturities, a demand
of continued inward flows of driven stock market, and new private equity inflows across sectors. While some of this
investment into Nigeria. demand can be attributed to the emergence of local institutional investors (pension
funds) and an influx of domestic retail investors; these favourable conditions for
foreign inflows has provided a further source of supporting liquidity to the local
markets.
Chart 6: Growing Reserves, Stable Currency
70 Nigeria Foreign Reserves, US$ bn Naira-USD Exchange, Naira = 1USD 160

Government fiscal discipline
at a time of high oil prices is 60 140
leading to a rapid build-up in
dollar reserves. 120
50
100
40
80
30
60
20
40
10 20
0 0
2000
2001
2002
2003
2005
2006
2007 (e)
2008 (f)
2004
Foreign Reserves (US$bn) Annual Average Interbank FX Rate N/$
Nigeria’s newly capitalized commercial banks, are tapping into emerging

opportunities.
Fresh from an enforced round of consolidation in 2005/2006, Nigeria’s lenders are

rapidly growing into the macro opportunities in the market. There are now 11
Nigerian banks in the ranks of the top 1000 in the world (according to The Banker
magazine, measured by Tier 1 Capital), up from only 7 in 2006. Nigeria’s banks are
achieving greater scale and profitability from lending to large corporates and
institutions, as well as a fast growing consumer market. Total banking sector deposits
have doubled during 2007, with credit to private sector growing at an annualized
rate of 72% (to Q1 2007). By year end 2007, up to 7 Nigerian banks had more than
US$1bn in capital; and more than 10 banks had a total market value in excess of
US$2bn each. Credit to retail consumers is becoming increasingly available, with most
banks reporting the fastest loan book growth rates in their consumer loan portfolios.
Of crucial significance, growth has not occurred at the expense of credit quality, with
total bad loans (Non-Performing Loans, NPL) as a share of total loans declining to an
average of less than 8% for the entire industry (down from over 20% prior to
commencement of sector consolidation).
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Chart 7: Total Banking Sector Assets, 2002-2007 (Naira, bn) Chart 8: Total Banking Sector Loans, 2002 - 2007 (Naira, bn)
10,000 Naira, Billions 2,500 Naira, Billions
8,000 2,000
6,000 1,500
4,000 1,000
2,000 500
0 0
2002 2003 2004 2005 2006 2007 2002 2003 2004 2005 2006 2007
Source: Afrinvest Research Source: Afrinvest Research
Commercial realities appear to be driving a new round of capital raising.
Capital raising was the dominant theme for 2007. Nigeria’s banks, immediate
beneficiaries of macro-economic growth are seeing various new opportunities for
deploying capital to capture market share. However, specific market opportunities
aside, some of the banks appear to be raising capital merely to stay abreast with the
competition and to tap into auspicious equity market conditions. In 2007 alone, up to
15 of the 24 surviving banks in Nigeria made arrangements to raise new money, with
average deal sizes within the US$250m to US$300m range, and a number of banks
doing deals in the US$750m to US$1bn range. Capital raising is expected to continue
well into Q1 2008. Afrinvest Research estimates that about US$15.1bn would have
been raised in new debt/equity by a total of 19 banks by early 2008 (based on
announced and completed deals since Q3 2006).
While M&A speculation continues to be rife.
2007 has seen intense Aggressive capital raising aside, 2007 was also a year of intense speculation and
speculation regarding several failures as far as mergers and acquisitions are concerned. There have however
potential mergers between been a number of successes, notably the landmark Standard Bank merger of its
several Nigerian banks. Only Nigeria operations into IBTC Chartered; and simultaneous Tender Offer to acquire
one deal was completed shares leading to a 50.1% stake in the new entity. More recently, we have seen board
during the year: IBTC/Stanbic level announcements of on-going discussions towards a merger between Sterling
Bank and Ecobank. There is also news that one of the country’s largest banks may be
successfully closing on a deal to acquire the last remaining privately owned bank.
Aside from the one successfully completed transaction therefore, 2007 has been
notable for unconsummated deals. Among others, we saw intense public speculation
regarding a potential First Bank-ETI combination; indiscreet moves by an aggressive
mid-tier bank to acquire one of Nigeria’s oldest banks; as well as speculation
regarding a tie-up between two banks, both of whom have since gone their separate
ways to seek new capital from the equity market. We expect that 2008 will see a
number of M&A deals that commenced in 2007 reaching closure. Following on those
closures, we anticipate that talks will continue between the ownership and
management of various banks during 2008 and profile in this report the nature of
transactions that we think could feasibly occur, and their potential impact on industry
structure.
13
Afrinvest banking universe
For the purposes of our analysis, we have relied on operating and valuation statistics
Afrinvest Research actively
covers a group of 15 publicly for publicly traded banks in Nigeria. Our calculations are based on operating
traded commercial banks, performance, current market valuation, and forecast financial performance for these
segregated into top-tier and banks. Our data is based on most recently published financial statements for the
mid-tier banks by banks, and in some cases, Afrinvest estimates. Financial forecasts for the banks are
shareholders funds, total based on management discussions and our view of the banks’ most recent
assets and profits. performance and future outlook. Share price information is as at 5th December 2007.
Afrinvest Research segregates between top and middle-tier banks using three criteria:
Shareholders Funds, Total Assets and After Tax Profits. The banks in our top-tier
comparables universe are currently the largest by two or more of these criteria. The
rest of the banks in the industry make up the middle-tier universe of comparables. At
present, our top tier comparables universe includes: First Bank, GTBank, Interconti-
nental, Oceanic Bank, UBA, Union Bank, and Zenith Bank. Our middle-tier peer group
includes: Access, Afribank, Diamond, Ecobank, FCMB, Fidelity Bank, IBTC (pre-merger),
Bank PHB, Skye and Sterling Bank.
Chart 9: Top Tier 1 vs Mid Tier Banks 2 vs. NSE (Rebased)
350%
31 October 2006 = 0 NSE Top Tier Mid-Tier
300%
250%
200%
150%
100%
50%
0%
-50%
Oct-06 Dec-06 Jan-07 Mar-07 May-07 Jun-07 Jul-07 Sep-07 Oct-07
1Mid Tier Banks: Access, Afribank, Diamond, FCMB, Fidelity, Bank PHB, Skye Bank, IBTC, Sterling, Ecobank
2Top Tier Banks: First, GTBank, Intercontinental, Oceanic, UBA, Union, Zenith Bank
14
January 2008
Section 2 Political and Socio-Economic Update
2007 Elections: More of the Same
Stable Politics, Better Economics
Key Risks: Infrastructure, Security, Corruption
15
Political and Socio-Economic Update January 2008
Political and Socio-Economic Update

Nigeria’s ruling Peoples
Democratic Party remains
2007 Elections: More of the same (ruling PDP still in charge).
controversially in charge of
national affairs, continuing a As widely anticipated, local, federal and state elections held in early 2007 produced
winning streak that has overwhelming victories for the ruling Peoples Democratic Party (PDP) in both the
lasted since the return to executive and legislative arms of government, amid near universal condemnation of
democracy in 1999. the conduct of the elections. Former Katsina State Governor Umar Yar’Adua, strongly
backed by former President Olusegun Obasanjo emerged as the winner of the
elections, capturing 70% of total votes cast in a race that included former Vice
President, Atiku Abubakar and Muhammadu Buhari, a former military ruler.
Consensus opinion from local and international observers was that the elections were
severely flawed and witnessed sufficiently widespread and flagrant irregularities as to
question the validity of the results. Notwithstanding this criticism, a new leadership
has emerged at all levels of government in the country. However, supreme court and
state election tribunal rulings have led to the overturn of elections in as many as five
of Nigeria’s thirty-six states, with five PDP Governors losing their seats over the last six
months. While there continues to be speculation that the presidential election
tribunal could overturn the national elections, it is thought that this will not be the
case and even then, that Yar’Adua would win any election re-runs, reinforcing the
view that the current administration will govern the country for the next 4 years.
An independent President?
Incoming President Musa Early criticism of the new leadership has centred on the view that the new
Yar’Adua has been criticized government may not be independent of the powerful former President, now firmly
for being dependent on established as leader of the ruling PDP. Consensus opinion is that President Umaru
former President Olusegun Musa Yar’Adua, former governor of the Muslim northern state of Katsina, was
Obasanjo for his position and handpicked by former President Olusegun Obasanjo. Yar’Adua has struggled to
influence, and is only
establish his independence from the powerful former leader, with much of the
beginning to assert his
country scrutinizing his every pronouncement for evidence of bias in favour of
independence of thought and
Obasanjo. In addition, there is a widely held view that the new President commands
action.
neither the respect that Obasanjo (a former military ruler between 1979 and 1983)
exuded nor sufficient will to stamp his authority and push through reforms. In his
first few months in office, President Yar’Adua has seized and missed several
opportunities to establish his authority and independence, thus, giving voice to critics
of his ability to run Nigeria.
There have been early challenges for the new President

Early challenges for Yar’Adua
has included a stand-off with
Among other early challenges, Yar’Adua has had to face a stand-off with organized
organized labour, violent
Labour over tax and fuel price increases instituted by for President Obasanjo. The
crises in the Niger-Delta, and
corruption scandals involving increases were rescinded after three days of nationwide industrial action that
senior party and legislative threatened to bring the economy to its knees. President Yar’Adua was widely
officers. criticized for his handling of the grievances of Labour.
Incessant crises in the Niger Delta region
Yar’Adua has also had to contend with the continuing crisis, in the oil-rich Niger-
Delta region. With continued unrest, incessant kidnappings, violence and disruptions
to oil output, putting a definitive end to the Niger-Delta crisis will be a major issue
16
for the new President. Yar’Adua has not heeded to calls to declare a state of
emergency in Port Harcourt, the largest city in the region (where the safety of
foreign nationals’ remains a concern). This has been in spite of an almost 25% loss in
daily crude oil output (2007 output forecast to drop to 2.2mbpd), and an escalation in
militant insurgency from violent political agitation to armed, organized crime.
Squabbles over key appointments and positions
Yar’Adua has also had to deal with internal wrangling within the PDP over selection
of ministers and key advisers. The President ended the speculation on these key
appointments with the announcement of a full list of ministers and advisers on July
26th, two months after assuming office on the 29th of May. In what appeared to be a
strong statement of his independence, the list did not include any member of the
Obasanjo cabinet.
Friction over macro-economic and monetary policy
A recent mis-understanding with the reform minded Central Bank Governor,

Professor Chukwuma Soludo over a proposed currency redenomination policy has
provided further opportunity for the President to demonstrate independence of
More recently, the new
President has had to make action. However, the Governor and President appear to have since closed ranks on
strong decisions regarding matters of monetary and fiscal policy, with several other CBN initiatives receiving
monetary policy reforms, Presidential support and approval.
briefly appearing to be at
odds with his internationally Yar’Adua is making the effort to live up to expectations...
respected reformist Central
Bank Governor.
In the aftermath of the controversial elections of 2007, it is expected that President
Yar’Adua will make significant efforts to win the confidence of a deeply skeptical
populace by making political and economic decisions that demonstrate his stated
desire to be a unifying “servant leader”. Already, the President has shown
commitment to this course of action on a number of occasions. He has set-up a high
powered committee of well respected, bipartisan citizens to undertake a review of
the nation’s electoral system.
Espousing a policy of “zero tolerance” for corruption...
The President continues to express a strong distaste for corruption and to lead by
example, recently making a public declaration of his total net worth upon assuming
office, an unprecedented move in the nation’s history. Recent happenings in the
political terrain have also confirmed there will be no sacred cows. President Yar’Adua
remained pointedly uninvolved in a recent scandal in the nations lower legislative
house. More recently, the President has cancelled a large foreign telecoms equipment
supply contract, dubiously awarded after alleged bribes to senior government
officials.
Despite early legislative turmoil...
On 30th October 2007 deposed Speaker of the House of Representatives, Patricia

Etteh and her deputy, Babangida Nguroje, were finally forced out of office over a
corruption scandal that had run for months. An investigation in August found that
the Speaker and her deputy had breached House rules in awarding contracts worth
17
US$5 million for the renovation of their official homes and the purchase of ten cars.
Etteh’s refusal to step down had prevented the legislature from debating any bills
since it was inaugurated in June, including the presentation by the President of the
federal budget for 2008, and caused brawls on the floor of the house between her
opponents and supporters. A new speaker, Oladimeji Bankole, was elected on 1st of
November by 304 votes against 20 to the candidate backed by the PDP party
leadership. The choice of Bankole has been interpreted as a signal that the PDP
dominated House of Representatives wants to assert its independence from the party
hierarchy.
Upholding the rule of law
Yar’Adua has also demonstrated a keenness to observe court injunctions and adhere
to judicial rulings, keeping to an early Supreme Court ruling directing the re-
instatement of an opposition party Governor in the contentious south eastern state
of Anambra, as well as a number of more recent rulings by electoral panels, reversing
election results in some states of the country.
Yar’Adua has made efforts to reconcile rival political groups...
Yar’Adua continues to display The new President received mixed reactions to his conciliatory offer to form a
a conciliatory approach to government of national unity encompassing the major opposition parties from the
governance, seeking to 2007 elections. The plans were rejected by several leading opposition figures, many
bridge political gaps and of whom commenced legal action challenging the results of the election.
engage opposition leaders in
his government.
Sorely needed constitutional reforms now possible...
Long sought after constitutional reform appears to be a front burner issue for the
new leader. Current expectations are for a process leading to the emergence of a new
constitution by as early as 2008. One key change expected to be captured in the new
constitution will be an amendment of the controversial Land Use Act, which vests
ownership of all land title in the state governments and thus constitutes a major
impediment to private land ownership. The new constitution may also provide for
This new approach to greater autonomy for the national electoral body and may also contain resource
governance is in sharp control provisions to assuage much of the ill will that has been generated in the
contrast to the single-minded Niger Delta region.
determination of his
predecessor, and leads many Financial services reforms continue...
to believe that there may
finally be hope for long
In the financial services sector, many of the benefits of the growing economy are
awaited constitutional
beginning to emerge. Government reform policies in the banking, insurance, pension
reforms in the country.
and fixed income areas are combining to create real opportunities in the market.
Banking and insurance companies are already some of the largest drivers of equity
market appreciation. In the fixed income market, sovereign issuance by the Federal
Government continues to be the major driver of activity.
Prospects for financial market growth still exist
Despite the emergence of a long tenored (10 year) benchmark yield curve against
which corporate issuances may be priced, there is yet to be any significant offering in
the corporate bond market. There is however a CBN supported plan in the offing for
18
long term bond issuances by Nigerian commercial banks. It is expected that

In financial services, the
constitutional reform of the Land Use Act, together with the passage of a new
government has expressed a
strong commitment to securitization law will eliminate some of the key obstacles to mortgage origination
transforming Nigeria into a and the emergence of a Mortgage Backed Securities (MBS) market, estimated to have
hub for sub-regional a potential size of up to N1 trillion (US$8 billion).
transactions.
Sustained macro-economic growth...
Under Governor Soludo’s management, the Nigerian economy has achieved

significant growth in recent years. Real GDP growth has averaged 6.0% p.a since 2004,
up from 3.8% in 2002, to N18.2 trillion (US$148 billion) as at Q3 2006. Over the same
period, headline Consumer Price Inflation (CPI) has declined to single digit levels
(8.5% in 2006 according to the CBN). Not surprisingly, much of the recent growth in
output has occurred in the non-oil sectors of the economy (according to the CBN,
8.9% in 2006 versus oil sector decline of 4.7%). However, oil continues to play a major
part in the politics and economics of Nigeria (90% of government revenue is from oil
exports). A positive external balance of payments, caused in part by globally high oil
prices, has helped maintain a relatively stable exchange rate, with the naira
appreciating against the greenback for much of the last two years; though
performing less favourably against the euro and the sterling over the same period.
Buoyed by lower debt and improved sovereign risk ratings.
Nigeria’s external debt repayment continues to be a primary factor driving

international interest in the local markets. With just under US$6bn in external debt in
2007, down from over US$30bn in 2006, and with about US$50bn in external reserves,
Nigeria has moved rapidly from being a highly indebted poor country to a new
emerging market opportunity. Coupled with a rapidly growing middle class
population, government commitment to continued spending on security and
infrastructure, and real sector production directed at over 140 million people; there
appears to be significant room for further economic growth in a stable Nigeria.
Chart 10: High Oil Prices, Growing National Output Chart 11: Erasing External Debt, Building Foreign Reserves
160 Nominal GDP, in US$ (bn) Oil Prices, in US$ 70 90 Debt and Reserves, in US$ (bn)
140 80
60
120 70
s
50
ve
60
er
es
100
lR
40
na
50
r
te
80
Ex
30 40
60 External Debt
30
20
40 20
20 10
10
0 0 0
)
)
00
01
02
03
04
05
06
00
01
02
03
05
06
04
(f
(f
(f
(f
20
20
20
20
20
20
20
20
20
20
20
20
20
20
07
08
07
08
20
20
20
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19
But there are risks to the macro-economic upside...
We see key structural risks to The economy continues to suffer from various structural deficiencies including acute
the Nigeria macro story, infrastructural inadequacy and lapses in security of lives and property. These
particularly in the areas of inadequacies constitute both a drag on growth and a source of potential opportunity.
infrastructure, security and The large and difficult to quantify informal economy of artisans, traders and other
corruption. These factors, self employed persons are the major losers from the nation’s deficiencies as they are
together with any significant unable to grow as fast as they would under more conducive economic circumstances.
downward trends in global The continued infrastructure, power and energy sector crises (bad roads, incessant
oil prices could very quickly
power cuts and persistent fuel shortages) inhibit growth at all levels of the economy.
combine to halt much of the
They are also major contributors (together with profligate government spending) to
progress that we are seeing
consumer price inflation. In the formal sectors of the economy, there is a greater
in the country.
ability to withstand these deficiencies, albeit at great cost. Overall industrial output
declined by 2.6% in 2006 with other sectors driving growth, including: agriculture
(7.2%), wholesale/retail trading (13.7%), building and construction (12.1%), and
services (8.9%). Manufacturing capacity utilization increased to 53.3%, but remained
below the 2003 high of 56.5%. However, for the first time in the last five years,
Federal Government expenditure declined as a contributor to growth (10.6% of GDP
in 2006, versus 12% p.a average since 2002).
Government’s response has been painfully slow
Nigeria’s government has The Government’s responses to these challenges have in part been encouraging.
thus far been slow to respond However, aside from positive policy pronouncements, there is yet to be substantial
to tackling these risks and action towards addressing many of the problems. President Yar’Adua has vowed to
putting in place a cohesive declare a “state of emergency” in the power sector and has announced an
strategy for the future post- acceleration of plans to increase electricity output to 10,000 MW by 2010. However,
Obasanjo. It is expected that the planned unbundling and privatization of the incumbent state-owned power
2008 will see bolder policy
monopoly continues to be stalled. In sharp contrast, the government has moved
decisions, beyond the
swiftly to dismantle the state oil corporation, the Nigeria National Petroleum
current strategy of cautiously
Corporation (NNPC) into several different agencies and companies. The NNPC
building on recent successes.
unbundling is said to be aimed at achieving greater efficiencies in the management
of the nation’s energy resources. This is despite a government sanctioned overturn of
the hurriedly arranged privatisation of the state-owned petroleum refineries,
achieved during the last few weeks of the Obasanjo administration. In other areas,
government maintains that its approach is to seek private sector-led solutions and to
focus on building institutions that will provide the necessary environment for reforms
to thrive. As always, the devil will be in the details of implementing these much
needed changes.
20
January 2008
Section 3 Nigerian Banking Sector
Nigerian banks have arrived
Trading Places: Old generation makes way for new
Key growth drivers
Game changed: Bigger appears to be better
21
Nigerian Banking Sector Overview January 2008
Nigerian Banks have arrived on the sub-Saharan Africa scene.
Of the 18 African institutions In 2006, five South African banks constituted 83.9% of the largest 15 banks in Africa
profiled in the 2007 The and the Top 1000 banks in the world (measured by Tier 1 capital). By 2007, 11
Banker Top 1000 banks, there Nigerian banks had emerged among the ranks of the Top 1000 banks in the world, of
are now 7 Nigerian banks, which 18 were African. Of this group of 18, South African institutions have shrunk to
together constituting over only 72.1% of the total (from 83.9% in 2006), while Nigeria’s 11 leading banks now
25% of the top African group. constitute 25.4% of the group.
Growth in the underlying Nigerian market has played as much of a role as sector
consolidation in achieving this emergence. Total assets in the Nigeria banking sector
have increased by 88% from N4.2 trillion (US$34 billion) in 2006 to N7.9trillion (US$64
billion) in 2007, with shareholders funds climbing 134% to approximately N1.7 trillion
(US$13 billion). Industry total loans and advances grew 33%, to N2.0 trillion (US$16
billion), a significant improvement over the 14% increase in the previous year. Loan
growth had stalled in 2005 as most banks focused on raising capital or merging to
meet new CBN capitalization guidelines. Of great importance, this growth has not
been achieved at the expense of asset quality, with non-performing loans declining as
a proportion of total loans from 16% in 2005 to 10% during 2006, and further down
to about 8% in 2007.
Substantial scope for growth remains.
Despite this remarkable growth story, banking penetration in Nigeria remains at a

very low level relative to other emerging market economies. Total loans as a share of
Despite this rise to
prominence on the African GDP, 10.9% in 2006 is low when compared against a global average of over 130%, as
scene, Nigeria continues to be much as 50% in countries like Ukraine and Kazakhstan, and over 75% in South Africa.
a remarkably under- Retail loans to GDP are at an even lower level as most Nigerian banks are only now
penetrated market for beginning to originate (or set up systems to facilitate) consumer credits. With rising
commercial banking products global commodity prices; in particular, sustained high crude oil price levels, mineral
and services. rich Nigeria offers significant potential for increased corporate and retail lending.
These credits are required to meet the demands of a fast growing population (2007:
140m people), and the expanding corporate community. Already, several of the
leading players in the sector have begun to implement plans to expand lending
aggressively, with key targets being large ticket corporate transactions,
infrastructure/project finance and consumer lending. Nigeria’s banking sector and its
key participants appear well poised to shape the competition for sub-Saharan African
dominance over the next decade.
22
Nigeria’s banks have seen tremendous recent growth...
Nigerian banks have grown Chart 12: Nigeria Banking Sector, by Tier 1 Capital (Naira, bn)
Tier 1 capital from N187.2 2000 Tier 1 Capital, Naira (bn)
billion spread across over 80 1,722.4
banks in 2003, to N1.7 trillion
1600
contributed by less than 25
banks in 2007.
1200
800 738.1
501.5
400 249.2 292.9
187.2
0
2002 2003 2004 2005 2006 2007
...yet penetration remains low
At just over 10% of 2006 GDP, loan penetration in Nigeria remains low relative to
other emerging market and developed countries. With credit to the private sector
showing a more than 70% increase to Q1 2007, loans to GDP, accelerating from a
31% growth in 2005, the loan penetration rate is expected to improve in the near
future.
Chart 13: Loans to GDP (2006, %)

Despite this rapid growth in
160
capital, banking penetration
remains remarkably low in
the country, as less than 10%
120
of total loans to GDP,
measured against a median
of 50% for a group of
80
emerging market and
Median = 50%
developed economies we
surveyed.
40
0
Ukraine
Turkey
Kazakhs tan
Poland
UK
C zec h Rep
Germany
Hungary
Georgia
Nigeria
R uss ia
South Africa
23
Nigeria’s banks remain significantly underleveraged...
Chart 14: Deposits to GDP (2006, %)

Even though Nigerian banks
have achieved impressive 160
Tier 1 Capital, Naira (bn)
growth in distribution
capacity and geographic
120
spread over the last five years,
they continue to lag the rest
of the world in deposit 80
generation: just over 11% of Median = 49%
GDP in 2006 versus a median
40
of 49% for the rest of the
world.
0
UK
Africa
Hungary
Ukraine
Turkey
Georgia
Nigeria
Kazakhstan
Czech Rep
Poland
Germany
Russia
South
...and the country’s consumer credit market remains in its infancy
With retail loans at about 0.1% of 2006 GDP, Nigeria’s lenders have not even begun
to scratch the surface of lending to the country’s estimated 140m people. Other
emerging and developed markets we have surveyed report a 19% median retail loans
to GDP ratio, and up to 100% in markets like the UK, indicating the scope that exists
for growth in retail business.
Chart 15: Retail Loans to GDP (2006, %)

The lowest levels of
penetration are in the 100
consumer loan segment,
where Nigeria trails virtually 80
every other emerging market
country with a 0.1% retail 60
loans to GDP ratio. This is
clearly a sector still in infancy. 40
20 Median = 19%
0
UK
Germany
Africa
Hungary
Ukraine
Russia
Turkey
Georgia
Nigeria
South
Kazakhstan
Poland
Czech Rep
24
Trading Places: Old generation makes way for the new
Within the sector, there has been a gradual displacement of traditional, “old
generation” banks (generally regarded as banks founded before the 19891990
banking sector liberalization) by the ambitious, “new generation” institutions.
Nigeria’s “new generation”
Ranked by total assets, in 2004 Union Bank was the undisputed giant of the Nigeria
banks, mostly established
during the 1989/1990 banking banking market, closely followed by the self re-engineering First Bank. Zenith Bank,
sector liberalization have UBA and Intercontinental Bank made up the pack of top five banks. Wema Bank and
now completed the process of Afribank, veritable old institutions, were proud members of the 2004 elite class of
usurping the industry’s “old Top 10 banks.
generation” stalwarts.
Three years later, in 2007, there has been a remarkable trading of places. Afribank
and Wema are no longer in the Top 10. UBA (buoyed by its merger with Standard
Trust Bank) has become the largest bank in Nigeria by total assets (and largest
company by market capitalization). Union Bank is now a lowly fifth. The re-
engineered First Bank continues to enjoy a prominent position, a testament to the
bank’s ability to re-invent itself and remain competitive in the new market. GTBank,
Oceanic, Access, Diamond and Bank PHB (all new generation banks) now make up
the bottom half of the Top 10, all but Oceanic being new entrants to the Top 10
category from 2004. Yet the changes appear to have only begun. With continued
growth in the market, increased interest from foreign investors, and continued
prodding by the CBN; it is expected that there will be further consolidation, leading
to potentially industry defining switches in market leadership.
Chart 16: The Old. 2004 Top 10 Banks, descending order Chart 17: The New. 2007 Top 10 Banks, descending order
Total Assets Total Assets Total Assets Total Assets

Bank Bank
(Naira, bn) (US$, bn) (Naira, bn) (US$, bn)
Union Bank 418.0 3.3 UBA 1,191.0 9.5
First Bank 364.0 2.9 Zenith Bank 972.8 7.7
Zenith Bank 215.0 1.7 First Bank 884.6 7.0
UBA 212.0 1.7 Intercontinental 704.8 5.6
Intercontinental 203.0 1.6 Union Bank 667.8 5.3
GTBank 185.0 1.5 GTBank 552.0 4.4
Standard Trust 136.0 1.1 Bank PHB 382.0 3.0
Afribank 86.0 0.7 Oceanic Bank 371.6 2.9
Oceanic Bank 86.0 0.7 Access Bank 328.6 2.6
Wema Bank 71.0 0.6 Diamond Bank 320.4 2.5
Top 10 Total 1,976.0 15.6 Top 10 Total 6,375.6 50.5

25
Then and Now: 2004 Versus 2007. Trading Places...
Chart 18: 2004 Market Share Rankings, by Total Assets
450 Total Assets, Naira Billions Old Generation New Generation

400
350
300
250
200 Median = N194bn
150
100
50
0
Standard Trust
Intercontinental
Union Bank
First Bank
Zenith Bank
GTBank
Afribank
Oceanic Bank
Wema Bank
UBA
Chart 19: 2007 Market Share Rankings, by Total Assets
1,400.0 Total Assets, Naira Billions New Generation Old Generation

1,200.0
1,000.0
800.0
Median = N610bn
600.0
400.0
200.0
-
UBA*
Zenith Bank
First Bank
GTBank
Oceanic Bank
Access Bank
Diamond Bank
Bank PHB
Union Bank
Intercontinental
*UBA is a “mixed generation” bank, following its 2005 merger with new generation Standard Trust Bank
26
Enormous scope exists for growth in the Nigerian banking sector
Economic growth is opening As we have seen, Nigeria’s financial sector remains severely under-intermediated.
up new markets beyond Broad money supply (M2) is estimated at only 25% of 2006 GDP, versus an average of
traditional currency arbitrage 250% of output in the developed and industrialized world. With a domestic savings
and yield curve exploitation, rate of 25.7% of GDP, there is significant scope for growth in provision of banking
historical sources of much of services to the Nigerian economy. Traditionally, banks in Nigeria had focused on
the sectors profitability. capturing lucrative, low cost government deposits, and lending to low risk large
corporates. Alternatively, most banks focused on highly profitable foreign currency
arbitrage, exploiting pricing distortions between the official and parallel foreign
exchange markets. In recent times however, rapid growth in the underlying market
for credit has opened up a new vista for Nigerian commercial banks.
Key growth drivers: infrastructure and the consumer
An immediate source of We see key growth drivers in the areas of infrastructure finance, corporate finance
opportunity appears to be in and consumer lending. Much of the immediate new market opportunity lies in
intermediating excess expanding current business with large, structured corporates across various growth
national reserves and new sectors, and developing new products for the burgeoning retail market. Most
found banking capital into Nigerian banks currently have loans books dominated by corporate business, with
financing to bridge Nigeria’s only a small (but fast growing) fraction taken up by retail loans. In corporate lending,
huge infrastructure deficit. general consensus is that banks need to scale up to be able to break into the
potentially lucrative, enclave oil economy. Already, government efforts to enforce
local participation in this foreign dominated sector is underway. Various initiatives,
including mandatory local content limits and marginal field concessions to indigenous
operators are creating entry opportunities for well prepared financiers into this
lucrative market segment.
Interestingly, much of the talk among business leaders in Nigerian banking today is
Nigeria’s untapped retail
about the huge, untapped retail market opportunity. Senior bankers speak about the
market is considered to be
the primary, long term
barely 15 million people estimated to have bank accounts in Nigeria (out of a
market opportunity; with population of over 140 million), and the fact that only a small proportion of these
most industry players now ever use those accounts. A lot of emphasis is put on the abysmally low levels of
setting up systems to leverage currently being taken up, even by employed professionals with steady
originate higher yielding income streams. More recent numbers relating to mobile density and mobile phone
consumer risk assets. usage (currently almost 40 million subscribers) point to an active underlying retail
market. Finally, the recent explosion in retail demand for equity securities (1.2 million
applications in one recent public offer, and an even larger secondary market
participation) indicate that the Nigerian consumer is now a potentially lucrative
banking customer.
Banks are now redefining their business focus...
With interest rates continuing their steady decline, and inflation reasonably under
control, banks have ventured boldly into the business of risk asset origination across
various sectors and tiers. Of note in this regard has been the surge in securities-
backed lending. A rising stock market has led to a surge in margin loans to stock
investors. Retail loans are also a new source of opportunity from an emerging middle
class, on the back of increased distribution capacity (in 2006-2007, bank branches
increased by 11%, from 3120 to 3460), and the development of new retail lending
products. Consumer finance for automobile and household purchases are a popular
new innovation, as are debit and credit card products. Bank distribution is further
27
enhanced by the creation of mini branches and the proliferation of ATMs and other
Already, we are seeing that e-banking channels. At the highly competitive corporate end of the spectrum, banks
market conditions and are still able to generate new business: financing large ticket transactions that had
investor demands for returns
hitherto been the near exclusive province of international banks. Various large ticket
to invested capital are driving
syndications in the telecoms, cement, oil and gas, industrial chemicals, maritime and
an increasing redefinition of
power sectors have provided opportunities for the banks to put their newly acquired
banking focus to long term
risk origination versus short balance sheet muscle to work.
term market trading.
….and battling to raise new capital: to finance growth
Capital raising was the dominant theme of 2007. Consensus opinion in the banking
sector is that size is imperative, and that the largest players will be the leading players.
Further, Nigeria’s banks are This view has set about a scramble to raise capital, across the balance sheet
aggressively tapping into (debt/equity) and from various sources (domestic/international) utilizing different
auspicious market conditions instruments (Ordinary Shares, Eurobonds, OTC and listed Global Depository Receipts,
to raise capital, ostensibly to
Multi-lateral Loans, Equity linked Notes among others). This quest for capital has
finance growth into these
coincided with the 2007 global liquidity glut, and heightened local awareness about
market opportunities.
capital market opportunities. This fortuitous series of events has allowed virtually
every major bank in Nigeria to arrange a capital raise in 2007. At last count, 15 of the
24 banks had made arrangements to raise new money, with average deal sizes in the
US$250 million to US$300 million range, and a number of banks doing deals in the
US$750 million to US$1billion range. As at December 2007, 13 banks had raised or
were completing transactions to raise over US$12 billion from the capital markets.
28
A further US$3 billion in new capital remains to be raised from already announced
equity placements and public offerings by 3 banks. In total, the 15 banks shown in Chart
20 will have raised a total of US$15 billion in new debt/equity capital from the domestic
and international capital markets in the 16 months between December 2006 and March
2008.
Chart 20: 2006/2007 Capital Raising by Nigerian Banks
Deal Size Deal Size

Company Deal Type Date Status
(N, bn) (US$, bn)
Intercontinental Public Share Offering Dec-06 95.0 0.80 Completed
GTBank Eurobond Jan-07 43.4 0.35 Completed
First Bank Eurobond Mar-07 21.7 0.18 Completed
Oceanic Public Share Offering Apr-07 175.0 1.40 Completed
UBA Public Share Offering Apr-07 92.0 0.70 Completed
Diamond Private Placement Jun-07 16.6 0.13 Completed
First Bank Public Share Offering Jun-07 470.0 3.80 Completed
GTBank Public Share Offering July-07 99.2 0.80 Completed
Access Public Share Offering Aug-07 70.0 0.60 Completed
Skye Private Debt Aug-07 12.5 0.10 Completed
Diamond Public Share Offering Nov-07 62.0 0.50 Completed
FCMB Public Share Offering Nov-07 70.0 0.60 Completed
Fidelity Public Share Offering Nov-07 48.0 0.40 Completed
Afribank Public Share Offering Dec-07 100.0 0.80 In Process
Bank PHB Public Share Offering Dec-07 85.0 0.70 In Process
Zenith Public Share Offering Dec-07 130.0 1.00 In Process
First Inland Public Share Offering Jan-08 100.0 0.80 In Process
Union Private Placement TBC 180.0 1.40 In Process
Total Debt/Equity 1,870.4 15.06

Source: Afrinvest Research, based on publicly available deal data as at December 2007
29
Second round consolidation off to a fine start.
2007 was also notable for the completion of the first post-CBN mandated
With two M&A transactions
achieving some measure of consolidation, with the merger of Stanbic Bank Nigeria (a fully owned subsidiary of
success during 2007, the Standard Bank of South Africa) with IBTC Chartered Bank. Standard Bank is expected
sector looks sets to shrink to to retain at least a 50.1% stake in the resulting entity, Stanbic IBTC Plc. There are also
no more than 23 players in strong indications that two other banks (Ecobank and Sterling Bank) have reached
early 2008 (from 25 in advanced stages in merger discussions. In addition to these, there continue to be
2006/2007); with potential rumours of several other potential combinations. We predict that this second phase
for further consolidation of consolidation will herald a new era of competition in the sector, and may result in
before the end of 2008. no more than 15 surviving banks in Nigeria by the end of 2009.
Opportunities abound, but size matters...
With 75% of September 2007 market share (measured by total assets) held by the top
The desire to remain in the
leading category of market 10 Banks in the industry, the Nigeria banking sector is becoming an increasingly
share owners will be a key consolidated one, with size being a critical determinant of market success. Current
driver of further mergers, as trends are for the largest banks to work closely together in “club” deals, ranging
banks compete to b e in the from large ticket syndications to overnight inter-bank lending. Very often, these top
crucial top 10 group banks are able to gain access to the largest corporates and to command lowest cost
deposit liabilities. Market opinion of the top 10 is also markedly different from that
of the trailing pack, with the larger banks often receiving more favorable coverage.
...but challenges await the post-consolidation mega banks.
Notwithstanding any revenue When the dust settles on all the capital raising, attention will turn to the onerous
gains from consolidation; or task of achieving return on capital levels that will justify the huge investor interest
new market access provided that has been generated in the sector. Valuations in the sector are (in many cases) rich
by greater amounts of capital, and have priced in much of the expected returns in the industry. It will thus take
Nigeria’s banks will now be exceptional earnings growth to generate any price performance that compares to the
pressed to deliver on appreciation of the last two years. Already, the industry is trading at an average 2008
aggressive market
forward P/E multiple of 21.4x, with the mid-tier banks trading slightly higher on a
expectations of profit growth.
forward basis (21.6x) than the top-tier banks (21.1x).
While the recent scorecard for Nigeria’s banks is impressive...
Overall banking sector price performance has been outstanding in the last 12 months.
Rebased to zero on 31st October 2006, Nigeria’s banking sector stocks had
Nigeria’s banks have
performed spectacularly in appreciated 192.1% by 31st October 2007. This price growth has been more
terms of operations and prominent for the mid tier group (284.9%) than for the top tier group (99.4%). For
valuations over the last few Nigeria’s banks to deliver similar levels of value to shareholders over the next 12 to 24
years, with early investors months, significant efforts will be needed to put capital to work, capture market
reaping great rewards. share, manage emergent credit risks, and generate greater earnings.
Future emphasis will be on increased competition, return on capital, asset

quality, earnings growth and staff quality
There will be challenges to achieving these objectives. Amongst others, increased

competition from foreign banks, particularly in the corporate banking, project
finance and corporate finance arena will put pressure on these attractive sources of
earnings growth. Similarly, competition from other local players in the financial
30
services sector (insurance companies, investment banking firms and asset managers)
will restrict earnings growth for the commercial banks in these other lucrative growth
areas. In more traditional areas, banks continue to face challenges with a large skills
gap for executing new product initiatives. In areas such as mortgage origination,
However, achieving future consumer finance products, structured finance and margin lending, banks are in
results of similar magnitude
danger of putting large amounts of value at risk with insufficient knowledge to
will require significant more
manage these risks. In sophisticated areas such as currency and fixed income trading,
effort and ingenuity in a
where banks have discovered new ways to generate income, there is a dearth of
more sophisticated and
competitive market. skilled personnel, and attrition levels are high.
Risk management has become a crucial consideration.
Most importantly, as banks begin to put larger amounts of capital at risk in the
origination of unfamiliar risk assets; there is insufficient experience or data with
which to effectively assess and manage these risks. In the rush to grab market share,
there is a very real risk that the industry ratio of non-performing loans to total loans
may see an upward spike. Further, with new found liquidity and access to large
amounts of capital, management of Nigerian banks will be challenged to apply
rigour and due care in capital allocation and investment decision making. To this
extent, continued regulatory vigilance will be an important element of maintaining
We see risk management as industry attractiveness. Already, indications are that new foreign and domestic
the key new area of
investors alike are paying close attention to banks’ performance and are likely to
competence that will define
react negatively to unfavourable news and/or earnings releases.
winners and losers in this
new, complex environment.
Managing consumer credit,
treasury and other emergent
risks will be a key business
imperative, now more than
ever.
31
32
January 2008
Section 4 Post-consolidation Scenario
New Rules: Size is Imperative
New Entrants: Top Dollar, Tougher Market
Grand Ambitions: Expansion and Diversification
Consolidation Endgame: Our Crystal Ball
33
Post-consolidation Scenario January 2008
New rules: Size is imperative
Nigeria’s ten largest banks Consolidation has been quick and decisive. From 89 banks in 2004, we have seen a
control the lion share of the rapid decline in the number of banks in Nigeria to 24 as at last count. Going further,
market (over 75% of total we have also seen a consolidation in market share within the industry. Nigeria’s top
assets), and have preferential ten banks now control over 75% of market share (measured by total assets) leaving
access to the largest
barely 20% to the next group of ten banks. This consolidation in market share is the
corporates and transactions.
result of an intensely competitive environment that we anticipate will continue well
into the future. Larger banks in Nigeria have inherent advantages relating to access
to the largest quality deals and clientele, lowest cost retail deposits, ability to attract
scarce management talent, public perception and access to government and
international financial groups. Larger banks are also better able to access the capital
markets, enjoy lower cost corporate financing, and participate in lucrative, exclusive
“club” deals (both in the overnight trading market and in the large ticket project
finance market). Consensus opinion in the industry is that to be relevant, a bank
needs to be in, or within punching distance of the top ten.
To achieve this, Nigeria’s banks have found it imperative to further capitalize, merge,
Chart 21: Nigerian Banks by Total Assets, September 2007
1,400.0 Naira, Billions Top Ten Next Ten
1,200.0
1,000.0
800.0
600.0 Median = N577.2bn
400.0
Median = N148.5bn
200.0
-
Zenith Bank
First Bank
Union Bank
GTBank
Diamond Bank
Afribank
Skye
Fidelity
Wema
Ecobank
Intercontinental
UBA
Bank PHB
FCMB
First Inland
IBTC
Spring
Oceanic Bank
Access Bank
Sterling
Source: Afrinvest Research, based on recently available audited company data
or acquire another bank. In 2004/2005, a bank with a capital base in the region of
N25bn was generally considered safe, large and competitive. Today, with total
industry Tier 1 Capital at N1.7 trillion (US$ 14 billion), the average Nigerian bank has
over N60bn in shareholders funds. Indeed, amongst the largest seven banks are up to
three banks with total capital in excess of N125 billion (US$1 billion). This number is
expected to increase to at least five banks before the end of 2008. Clearly, the stakes
are higher, and the larger banks have every intention of dominating the market.
34
New entrants: top dollar, tougher market
Despite numerous inquiries New entrants (primarily offshore financial institutions) seeking to establish a presence
from offshore institutional in Nigerian commercial banking will find this a challenging proposition. During
investors, we have seen 2006/2007, we saw a great deal of interest in Nigerian bank acquisitions. Emerging
limited success with bank market private equity investor, Actis was first of the block paying US$134 million to
acquisitions in Nigeria, with acquire a 19.1% stake in Diamond Bank in a deal that was done at a healthy discount
Actis and Standard Bank
to market (9.5x 2008E P/E and 2.3x 2007 P/BV). Standard Bank of South Africa was
being early winners in this
also able to conclude a transaction, albeit at a higher entry price. In September 2007,
regard.
the largest bank in Africa crossed the last regulatory hurdle for its US$1.6 billion
merger and tender offer transaction involving Stanbic Bank Nigeria Limited and IBTC
Chartered Bank. The transaction was completed at steep valuation multiples (P/E of
28.6x 2008E earnings). Furthermore, the tender offer price required a 45.4% premium
to the share price of IBTC at the time of completing the transaction, a hefty sum,
even in Nigeria’s high growth market. In both instances (IBTC and Diamond), the
banks’ share prices have remained steadily above the levels at which the transactions
were completed. Afrinvest acted as financial advisers to Actis and to Standard Bank
on their respective transaction.
It is expected that any further transactions will be done at generous multiples.

We expect that prohibitive Already, Union Bank has received shareholder approval to place up to 30% of its
valuations and regulations share capital for sale to a strategic, international investor. While there are indications
will pose major hurdles to that a suitor may have been pre-selected that opportunity could well turn into an
any further large scale auction for one of Nigeria’s most underperforming banks. It is clear that bank
strategic acquisitions by acquisitions will not come cheap in the Nigerian market. The CBN has indicated that
international groups. it may not be supportive of further acquisitions of Nigerian banks by international
players, a factor that could further complicate any potential deal. However, it is also
clear that organic expansion to achieve the competitive scale required to do business
in Nigeria may be an even more expensive route to establishing market presence.
Our take therefore, is that much of the M&A action we may see in the near future
will involve mergers of domestic and regional players, supported by strong capital
Further consolidation is likely market conditions. Already, several domestic players, having successfully completed
to be driven by combinations capital raising in 2007, are seeking new national and regional expansion
of local players, supported by opportunities via acquisitions. Other marginal players, having determined that it
strong capital market would be best not to compete, are seeking merger opportunities, at valuation and
conditions. control thresholds that would satisfy their investors. We expect that these trends will
continue, and in the next two years will result in a Nigerian banking sector that
consists of no more than fifteen domestically strong, regionally dominant and
globally connected institutions.
35
Grand ambitions: expansion and diversification
We have observed a lack of One sour point in our assessment of Nigerian banks in 2007 is the lack of different-
differentiation in strategic iation in the banks’ strategies for winning in this fast growth market. As far as
approaches to the Nigeria understanding the market opportunity is concerned, senior bankers are almost
market opportunity by most unanimous in their assessment of where the money is - (1) Consumer finance,
of the banks in the country. infrastructure and corporate finance; (2) oil and gas lending, project finance and real
estate; (3) mortgage finance and securitizations; (4) fixed income and equity
issuance/trading; and (5) continued growth in corporate lending.
While we share this view of the market opportunity, we observe striking similarities
in the banks’ approaches to tapping the market. Each claims to be working hard at
branch expansion and strategies for capturing retail market share. Each claims to be
raising capital and strengthening their balance sheet to be able to take part in large
ticket financings. Further, each claims to be hiring the best people and setting up the
Despite the clear market
potential, we are convinced
systems to be number one in investment banking.
that only a few will be
capable of executing on the Our view is that not all the banks will be able to execute on the Nigeria market
Nigeria market opportunity. opportunity. In particular, the key requirements for success in the more specialized
emerging areas may not be accessible to all the banks. Management expertise, risk
management systems, customer knowledge and market intelligence are only a few of
the critical requirements. Talent in particular continues to be a scarce commodity in
the local market, with most banks resorting to hiring expatriates and Nigerians from
abroad. Attrition rates are high in the more specialized areas, compensation levels
are extremely competitive, and in some cases are fast approaching Wall Street
standards.
Already, a number of banks are demonstrating competence at tackling these new

businesses. In some cases, the results are beginning to show. Earnings growth rates
remain remarkably high, with even large, established banks posting year-on-year
We see loan growth in turnover growth of 30-50% during 2007. For the smaller, faster growing banks,
higher margin risk products; growth rates of 100% and above have not been rare and may continue for at least
and the effective
the next 12 to 18 months. Loan growth is a strong driver across sectors (81.2%
management of these risks
growth in banking credit to the economy as at Q3 2007). Consumer loan penetration
as the primary driver of long
is a primary driver on the retail side; particularly for financing automobiles and other
term success.
durable goods. Corporate lending remains a growth area in the near term, but is a
highly competitive and low margin business. Capital markets provide another area of
opportunity, with fixed income and equity trading helping drive growth. Most banks
are licensed market makers in government bonds, as well as active lenders to stock
market investors.
36
Consolidation Endgame: Our Crystal Ball.
Afrinvest Research believes that cost reduction and efficient resource allocation will
Despite comfortable access
be key elements of any winning strategy going into the future. While much of the
to capital, and the clear
market potential; there is talk in the industry is of increased revenue opportunities, and many of the banks are
potentially greater upside to awash with capital - and hence somewhat spendthrift, we believe that the real
banks that are able to utilize winners will be banks that are best able to manage costs and resources. Already, it is
and manage resources cost clear that significant opportunities exist for banks to more efficiently utilize resources
effectively. by deploying services on the back of common platforms. Our analysis reveals that the
single largest cost element for commercial banks in Nigeria is electric power
generation across branches. This is one cost that could very easily be reduced by
consolidating branches across merging or partnering banks. We believe that the
greater the cost synergies and the smarter the capital and resource allocation, the
better the chances of winning in the future. We offer three M&A related scenarios to
achieving these objectives.
Scenario I: Mid-tier banks consolidate to achieve top-tier status.
A merger of two mid-tier We see possibilities for two or more mid-tier banks to merge, with the objective of
banks, while creating a more rapidly achieving top-tier status, while current shareholders retain a relatively
larger and more competitive healthy balance of ownership and control in the new institution. Already, Ecobank
top-tier institution, could be and Sterling Bank shareholders have elected to go this route. While this is a move
troubled by integration, that could achieve a degree of cost/resource allocation synergies across the banks
management and board involved, we foresee challenges integrating legacy technology platforms and loan
control crises. books, as well as potential conflicts relating to management control and strategic
direction. To that extent, this means of consolidation may not be one that would lead
to the emergence of an industry redefining competitor.
Scenario II: Top-tier bank acquires mid-tier target.
A top-tier acquisition of a Similarly, we see opportunities for a large, top-tier bank to deploy the enormous
mid-tier target could, in our amounts of capital available under currently favourable equity market conditions to
view, constitute more a acquire a willing mid-tier player. While a move of this nature would be favourable to
management distraction the target bank, and would enable the combined institution achieve some level of
than a chance to leap-frog synergy and competitive advantage; we suspect that the arising management, control,
the top-tier opposition. technology and balance sheet integration challenges could potentially defeat the
rationale for the combination. In our view, a merger of this nature could constitute
management distraction to a top-tier player, and could lead to a loss of market share
during a difficult negotiation/integration period. We do not believe that this manner
of combination would be capable of producing an industry redefining market leader.
Scenario III: Top-tier banks combine to become undisputed leader.
The third scenario in the emerging consolidation endgame is a potential merger of

However, a merger of two two top-tier banks to produce an undisputed market leader. As previously discussed,
top-tier institutions would Nigeria’s top ten banks control over 75% of market share, with further market
potentially create an
dominance among the leading seven. Any combination of two of these top-tier
undisputed market leader;
players would, in our opinion, be industry redefining.
well ahead of the rest of the
market, and with the best
chance of dominating the Top-tier banks boast better quality loan books, more robust technology platforms,
Nigeria space. and competing branch distribution networks: key considerations for post-merger
integration and synergy. A successfully negotiated merger could therefore result in a
37
quicker turnaround to achieving the revenue and cost synergies required for
operational success. In addition, top-tier banks currently deploy significantly more
resources towards branch network expansion in competing locations. Similarly, old
The emergent bank would generation banks boast geographic distribution networks in rural, up-country areas
boast a combination of two that complement the extensive urban and metropolitan concentration of most new
already strong systems, generation, top-tier bank branches. The emerging institution would stand head and
enviable market access, and shoulders above the rest of the industry in terms of market share, operating cost and
greatest opportunities for ability to attract lowest cost deposits. The resulting bank would potentially be
economies of scale. capable of achieving an industry leading cost/income ratio, with significantly reduced
costs resulting from shared infrastructure and technology platforms. A combination
of this sort could further provide a platform for a truly competitive pan-African
strategy, with the resulting bank (now dominant in Nigeria) potentially able to
challenge international banks in lucrative markets across sub-Saharan Africa.
While a merger of this nature could lead to significantly improved returns for
shareholders of both banks, we believe that successfully negotiating a transaction of
this scale may prove to be a daunting task. We anticipate that key, large shareholders
in these institutions may not be favourably disposed to a merger that would
potentially reduce their stake/influence in the banks. Key issues will relate to
valuation, ownership and control of the surviving entity, with discussions relating to
any potential deal likely to drag on for a sufficiently long period as to potentially
serve as a disincentive to commencing talks at all. We have already seen discussions
A combination of this nature between First Bank and Ecobank Transnational (ETI) drag on for nearly two years and
would however be preceded
Stanbic/IBTC deal taking 18 months from commencement of discussion to deal closure.
by lengthy negotiations
Nevertheless, we see a top-tier combination as the most desirable of M&A
relating to valuation,
alternatives under current industry conditions, and would lead to an industry
ownership and control.
redefining shift in competitive structure.
38
January 2008
Section 5 Bank Profiles: Top Fifteen Banks
Access Bank
Afribank
Diamond Bank
FCMB
Fidelity Bank
First Bank
Guaranty Trust Bank
IBTC Chartered Bank
Intercontinental Bank
Oceanic Bank
Bank PHB
Skye Bank
UBA
Union Bank
Zenith Bank
39
Bank Profiles: Top Fifteen Banks January 2008
1. Access Bank
History and Background

Company Data
Access Bank was incorporated as a public limited liability company in February 1989
Price (N) 19.19
and commenced banking business in May 1989. It was listed on the Nigerian Stock
LTM Price % (+/-) +39%
Exchange on November 18, 1998. Current leadership assumed the helm of affairs at
Market Cap. (US$, m) 1,098 the bank following its successful recapitalization in March 2002. The current
Avg. Daily Value (US$, m) 2.24m management team has reportedly been tasked with a clear mandate to reposition
the bank as one of Nigeria’s top 3 banking groups by the year 2012, with a presence
Shares Outstanding (bn) 7.0
in at least one key international financial centre. Since 2002, the bank has witnessed
Est. Free Float (%) 88% significant changes in all areas of its operations, led by a young, aggressive and
P/E 2008E (x) 18.5x ambitious duo of former senior bankers from Guaranty Trust Bank.
P/BV 2007 (x) 5.1x
LTM ROAE 21.2% A rapidly growing bank powered by young and dynamic management
2008E PAT Growth 95%
Access Bank is one of Nigeria’s fastest growing banks. A marginal player five short
years ago, Access Bank is now one of Nigeria’s largest lenders with a N118.3billion
(US$ 962 million) loan portfolio. Over the last 24 months, Access Bank has achieved
phenomenal growth in its capital base from about N3 billion (US$ 24 million) in 2004
to N28 billion (US$ 228 million) in 2007, even after writing off goodwill and merger
expenses from its acquisitive growth strategy. Recent growth has largely been
achieved using proceeds from a successful capital raising exercise in October 2004, the
acquisition of Capital Bank International Limited and Marina International Bank
Limited as well as recent strengthened profitability.
Business, Products and Services
With 70% of revenues attributed to corporate banking, treasury operations and

trade finance, Access Bank is emerging as a major player in the corporate banking
arena. The bank has also developed strong competencies in currency trading and
project finance. Over the last 12 months, it has strengthened this capacity with
strategic new hires at the executive management level to drive the growth of its
commercial and investment banking operations. However, the bank has commenced
a retail market drive, aimed at tapping into lucrative consumer finance opportunities.
Access Bank has plans to set up 100 new branches by April 2008 (in addition to the 80
it currently operates), as part of an aggressive expansion into the consumer banking
business. It is currently partnering with the Dutch-based ING group to build up its
retail operations. The bank launched a car loan product in early 2007. The total loan
book for this product is said to have grown to N1 billion in six months with very
limited advertising. There are plans to push this and other consumer loan products
more aggressively during 2008.
An early starter in the second round of capital raising...
Access Bank was quick off the blocks in the 2007 race by Nigerian banks to raise new
capital, with a N70 billion (US$ 570 million) offering in Q2 2007. The Access Bank
deal was one of the first to include an offshore offering of Over-The-Counter (OTC)
Global Depositary Receipts (GDRs). Access Bank’s US$300m OTC GDR placement was
successful, setting the pace for several more such deals during 2007. The bank laid
40
out plans to deploy its new capital in branch expansion, technology upgrades and
working capital for business expansion.
Forecasts and Valuation
Access Bank is currently trading at a Last Twelve Months (LTM) P/E multiple of 19.1x,
lower than its peer average of 27.4x. Its 2008 forward P/E of 19.0x (after considering
additional shares issued from recent capital raising) is also lower than its peer
average of 21.6x. PAT is projected to appreciate at a Compounded Annual Growth
Rate (CAGR) of 57% over the next 3 years.
Conclusion and Outlook
Access Bank is best described in the following terms: ambitious, aggressive and fast
growing. The bank’s management has indeed received as much praise for growing
the bank aggressively, as it has received censure for attempting to grow too fast.
Among other reasons for this criticism, Access Bank is said to be attempting inorganic
growth through potential acquisitions of a scale that could harm the business. More
recent critics have included analysts who have espoused negative views of the banks
internal controls and financial reporting. In our opinion, there is no reason to have
any different view of the bank’s financial reporting than for any other bank in
Nigeria. We however agree with the consensus that Access Bank is ambitious and
aggressive, and will potentially continue to grow at rates that match or outpace the
rest of the Nigerian banking sector.
Chart 22: Access Bank versus NSE, rebased, October 2006-October 2007
250%
NSE Access Technical suspension for capital raise
200%
150%
100%
50%
0%
-50%
Oct-06
Dec-06
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41
2. Afribank

Company Data
Price (N)
Afribank received its banking license in 1959, and commenced operations in 1960.
30.49
The bank subsequently converted to a public company in 1992. The core business of
LTM Price % (+/-) +218%
Afribank revolves around commercial and retail banking. The bank is nevertheless
Market Cap. (US$, m) 1,532 engaged in the provision of universal banking services to corporate, commercial and
Avg. Daily Value (US$, m) 2.67m individual customers. Afribank stands out as one of the more diversified in the
Shares Outstanding
Nigerian banking sector, with subsidiaries including an offshore finance company, a
6.1
securities brokerage firm, an insurance brokerage company, a trustees and
Est. Free Float (%) 65%
investments company, and an estate development business.
P/E 2008E (x) 28.0x
P/BV 2006 (x) 6.1x Seeking to reclaim past glory...
LTM ROAE 17.5%
2008E PAT Growth 43% Afribank is one of Nigeria’s old generation of “fallen angels”. The bank has come
down significantly from its position as one of the top ten banks in Nigeria (by total
assets). This loss of market share has been exacerbated by recent internal crisis,
including some controversy over the veracity of published, audited accounts, and the
resulting departure of the bank’s former chief executive. With consolidation, the
bank is attempting to regain lost market share through aggressive marketing,
proactive management, increased visibility, strategic acquisition and innovative
product development. Afribank has as its major focus, a drive to achieve similar levels
of performance as its peers on certain key metrics: capital and asset base, branch
network and profitability. The bank aims to be a dominant player in the emerging
non-bank financial services sector by aggressively expanding into other areas of the
financial services market, including investment management, mortgage finance and
securities trading. This strategy is said to be aimed at growing and diversifying the
banks’ income base in an era of shrinking interest margins on core corporate banking
activities. Afribank says it will invest significantly in its brokerage and capital
markets subsidiaries, as a way to expand into higher margin opportunities for long
term growth.
But Afribank may still be “in play”...
Afribank has been the subject of intense M&A speculation in the last 12 months.
There have been unsuccessful attempts by a leading mid - tier bank in the country to
carry out a hostile takeover of the bank. While those attempts have since been foiled,
there are indications that the bank may yet see a change of ownership sometime in
the near future. Afribank is currently in the middle of a public offering of new shares
that is meant to provide the capital and ownership stability for the bank going into
the future.
Targeting the US$1 billion mark?
Following its on-going capital raise, Afribank may become the next Nigerian bank to
scale the US$1bn hurdle in shareholders funds. A fully subscribed offer would see
Afribank meeting this target in early 2008, joining the elite group of banks who will
be able to manage Nigeria’s foreign reserves, having met the CBN’s requirement in
terms of minimum capitalization required to earn that right.
42
Results and Forecasts
Result for the year ended 31st March, 2007 showed that the bank’s Gross Earnings
increased by 76% from N15.6 billion (US$127 million) in 2006 to N27.53 billion
(US$227 million) in 2007. The bank was also able to sustain the trend in PAT, as it
grew its earnings by 94% from N2.68 billion (US$22 million) in 2006 to N5.20 billion
(US$42 million) in 2007. The bank’s PAT has grown at a CAGR of 182% over the last 3
years; an impressive performance for a recuperating bank. This makes Afribank one
of the fastest growing banks in Nigeria in terms of profitability. The bank continued
with the impressive performance to the second quarter of 2007. Gross Earnings leapt
during the period, up to about N19.48 billion (US$158 million) from about N9.66
billion (US$78 million) realized in the comparable period of 2007. Pre-tax profit stood
at N8.1 billion (US$66 million) against N2.8 billion made in the previous year,
indicating a 187% increase in profits. If the bank can sustain this trend in profit
growth we anticipate PAT forecasts of N11 billion and N17 billion for full year 2008E
and 2009E respectively.
Afribank has successfully proven its readiness to reclaim its position as one of the
leading financial institutions in Nigeria. To achieve this goal, the bank has launched a
strategic business developmental restructuring program that is aimed at improving
the productivity of its work force, eliminating impediments to effective service
delivery, achieving continued network expansion, and accelerating the growth rate
of revenues and profitability. Afribank management is confident that these objectives
are achievable, and will see the bank regain a top spot in the ranks of Nigerian banks.
Chart 23: Afribank versus NSE, rebased, October 2006-October 2007

250% NSE Afribank
200%
150%
100%
Technical suspension for capital raise
50%
0%
-50%
Oct-06
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43
3. Diamond Bank
Solid Commercial Banker...
Company Data Diamond Bank is one of Nigeria’s larger middle tier banks, hot on the heels of the top
Price (N) 18.70 7 banks in the country. A “new generation” bank, Diamond Bank is managing to
LTM Price % (+/-) +217% keep up with the rapid pace of growth and expansion in the industry. Diamond is the
Market Cap. (US$, m) 1,441 tenth largest bank in terms of assets (N320 billion, US$2.5billion) and seventh largest
Avg. Daily Value (US$, m) 1.08m in terms of shareholders’ funds (N54 billion, US$427 million). The bank has focused on
Shares Outstanding (bn)
commercial banking activities since commencement in 1991. A well known lender to
9.4
medium sized corporate and trading accounts, the bank’s primary focus is to service
the needs of companies in the medium to large size category of the corporate market.
P/E 2008E (x) 19.0x
In 2005, Diamond acquired Lion Bank of Nigeria - a strategic integration, bringing
P/BV 2007 (x) 5.1x
together the geographic benefits of Lion Bank’s presence in the Middle Belt region
LTM ROAE 15.9% with the commercially oriented Diamond Bank.
...Expanding retail banking focus to improve margins
In line with current strategic trends in the sector, the bank is looking to expand its
retail banking business by increasing the size of its branch network. Diamond
currently has 115 branches, with a target of 300 branches by 2010. In 2005, the bank
pioneered the deployment of an innovative new concept in retail distribution
Diamond Minis; customer service outlets arranged in a hub and spoke system, to
support main branches and reduce banking hall congestion. One clear attraction to
retail banking is low cost deposits. With commercial banking business faced with
shrinking margins as competition intensifies, the bank’s net interest margins have
shrunk from 23.5% in 2003 to 17.0% in 2007. In order to improve these numbers, the
bank is looking to move its deposit base (currently skewed towards the more
expensive term and savings deposits) towards current account deposits, which
command lower deposit/interest charges. Already, Diamond Bank’s deposit base has
grown at a CAGR of 65% over the last 3 years, with total number of customers
doubling year-on-year in the last two years to 700,000 by 2006. Current forecasts are
for growth to continue at a similar pace, at least till YE 2008.
Partnership with Actis
Thus far, the bank has looked to international financial institutions for capital.
Among others, the bank has secured an on-lending facility from Netherlands
Development Finance Company (FMO) and a loan facility of up to US$70 million from
International Finance Corporation (IFC). In early 2007, Actis Capital LLP injected
US$134 million (N17 billion) in equity capital into the bank, acquiring a 19.1% stake
and with it, two seats on the board. The equity partnership with Actis aims to bring
the private equity group’s international experience in emerging markets to develop
the bank’s retail banking business and also impart international corporate
governance standards at board level.
Operational Efficiency
Diamond Bank over the years has focused on continuous improvement in its
operational efficiency. Much of this is being driven by improved service delivery
44
through technology, creative solutions to customers’ business problems and

investments in trade and project finance operations. The bank has earned strong
credit ratings from Fitch (A), Agusto & Co. (A+) and Global Credit Rating (AA-) in
recent times. Foreign confidence in the bank’s management is evident in its ability to
acquire credit facilities from international financial institutions due to its cautious
lending policy. The benefit of this policy translates to a non-performing loans ratio of
7.4%, which is among the lowest in the industry’s middle tier group of banks (top tier
average: 7.5%; middle tier average: 14.1%). However, the bank’s loans to deposits
ratio of 49.5% is lower than the average for the middle tier banks (60.6%); and the
cost of not fully utilising these deposits is apparent in a below average net margin
ratio of 17.9% (middle tier average: 20.1%). The bank has made moves to further
strengthen its capital base, with a US$500m offering of Global Depositary Receipts,
which were listed on the professional securities market of the London Stock
Exchanges in January 2008..
Diamond bank’s shares over the last 12 months have appreciated by over 220%. The
bank currently trades at a multiple of 26.6x Last Twelve Months (LTM) earnings, a
discount to the middle tier peer average of 27.4x. With a 2008E forward P/E multiple
of 19.0x, Diamond Bank is one of the more attractively valued stocks in the sector.
Comparable mid-tier banks currently trade at about 21.6x forward earnings, while
top-tier banks trade at 21.1x 2008 earnings.
Chart 24: Diamond Bank versus NSE, rebased, October 2006 - October 2007
300%
NSE Diamond
250%
200%
Technical suspension for Actis deal
150%
100%
50%
0%
-50%
Oct-06
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45
4. FCMB
Background
FCMB commenced operations in August 1983 as a privately owned merchant bank,

Company Data
building on the success of City Securities Limited (CSL) its predecessor company. CSL
Price (N) 17.45 was founded in 1977 as one of Nigeria’s pioneer securities firms. Early successes
LTM Price % (+/-) +311% included the N70 million (US$75 million) public loan syndication deal for the
Market Cap. (US$, m) 1,359 government owned Fertilizer Corporation (in 1986, the largest ever such deal). FCMB
Avg. Daily Value (US$, m) 1.8m has grown largely by organic expansion, and more recently by mergers and
Shares Outstanding (bn)
acquisitions.
9.5
Investment Bank, Now Expanding Down-Market
P/E 2008E (x) 15.6x
P/BV 2007 (x) 5.3x
A pioneer investment bank, with a strong tradition and franchise as a corporate
LTM ROAE 20.7% finance, merchant banking and securities trading house, FCMB now ranks just outside
2008E PAT Growth 141% the largest ten banks in Nigeria (measured by total assets). The bank continues to
have a strong presence in the domestic capital markets; participating actively in the
equity markets (largely through its brokerage affiliate) and fixed income trading (as a
federal government mandated market maker). FCMB continues to generate fees
from acting as advisers on numerous large ticket capital raising transactions, and
much of the bank’s future plans are built around further growth in the securities
market. However, as with the rest of the industry, the bank has demonstrated a
strong appetite for the retail sector and is currently developing processes, people and
technology for the impending retail land grab.
Business Focus
FCMB is a corporate and investment bank with a growing commercial and retail
banking business. The bank is structured along five business lines: Consumer Banking,
Commercial Banking, Investment Banking, Corporate Banking and Public Sector. The
bank provides these services through subsidiary companies FCMB Capital Markets
Limited and recently commissioned Direct Credit Limited. FCMB’s core focus is on
investment banking, securities brokerage and consumer banking operations.
Outstanding growth
FCMB has a fast growing balance sheet, with total assets appreciating at a CAGR of
over 100% between 2003 and FY 2007. This growth has been across asset classes, with
much of the bank’s asset base consistently comprising of amounts due from other
banks (mainly inter-bank placements and some cash reserves with CBN). FCMB has
expanded its deposit liabilities base at a similar pace to total assets: over 70% CAGR
from 2003 to FY 2007.
Quality loan portfolio
The Bank’s loan book is a healthy one: only 3.3% in non-performing loans, measured
against a peer average of 14% for comparably sized banks, and almost 7% for larger
banks. Despite this situation, the bank earns roughly equal amounts in interest
income from short term placements and loans (approximately N7 billion or US$55
million each in 2007). FCMB is thus in a unique position: earning 50% of its interest
46
income from risk assets that make up only 32% of its total assets, and another 50% of
income from low risk short term placements (which make up 53% of assets). While
this provides a unique mix of safety and profitability, it also highlights a market
opportunity for improved earnings on the back of continued healthy expansion of
the bank’s loan book.
Future Strategic Focus
FCMB aims to focus on the high growth and higher margin segments of the market,
particularly areas in which it has or is in the process of acquiring superior execution
abilities. These segments are consumer and investment banking. In Investment
Banking, the bank plans to acquire CSL Stockbrokers, its affiliate firm, with a view to
consolidating the FCMB Capital Market franchise. FCMB hopes to use this platform to
achieve market dominance in the fast growing Nigeria capital markets sector. In
consumer banking, the bank aims to build on its management services agreement
with Sabre Capital (a global private equity group) and is currently setting up
processes, controls and systems to help execute a successful retail roll-out.
FCMB is best positioned in the banking industry today to tap into growth in capital
markets business. The CSL acquisition is expected to provide the bank with a robust
equities platform to complement its fixed income and currency trading capabilities. In
addition, FCMB’s fast growing consumer loan business creates a further opportunity
for tapping into a segment of the market where we expect to see long term business
growth.
Chart 25: FCMB versus NSE, rebased, October 2006 - October 2007
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47
5. Fidelity Bank
Background
Company Data Fidelity Bank was incorporated solely as a merchant banking business in 1987. The
bank has since grown into a full-service commercial bank, particularly since receiving
Price (N) 11.99
its commercial banking license in July 1999. Simultaneous with its Initial Public Offer
LTM Price % (+/-) +460% (IPO) and listing on the Nigerian Stock Exchange (NSE) in December 2005, the bank
Market Cap. (US$, m) 1,618 concluded a merger with FSB International Bank and Manny Bank Plc. These
Avg. Daily Value (US$, m) 2.19m combinations have broadened its franchise: from a mid-market focused corporate
Shares Outstanding (bn) 16.5 bank, to one with a highly regarded oil and gas franchise (developed by the former
FSB), and a niche international clients business. Further, the combinations have
helped achieve rapid growth in the bank: increasing shareholders funds from N9.72
P/E 2008E (x) 23.4x
billion (US$ 79 million) in 2005 to N25.6 billion (US$ 208 million) in 2006.
P/BV 2007 (x) 6.7x
LTM ROAE 16.6% Mid market franchise, with a strong public sector history
The bank has long been associated with the Nigerian government. Fidelity Bank was
appointed as a Primary Dealer/Market Maker (PDMM) in fixed income securities
issued by the Federal Government through the Debt Management Office (DMO) in
2006. Its reputation as a lender particularly to the wholesale trading sector and
leading entrepreneurs still stand. Going forward, the bank plans to expand its oil and
gas franchise towards positioning itself as a leader in solid minerals financing. Further,
as one of two financial institutions appointed to help manage the ongoing reforms in
the mining sector, the bank has commenced work towards developing a number of
mining related funds.
Currently raising new capital
Fidelity Bank is currently concluding its offering of 6 billion new shares which is
expected to raise at least N48 billion (US$ 390 million). Proceeds will be used for
extensive branch expansion, ATM Roll-out, and investments in subsidiaries. With
21.1% average annual returns to equity over the last five years, and 43.9% CAGR in
Gross Earnings, the bank seems to be well on its way to deliver even greater results
going forward.
Future business focus and strategy
The bank’s future strategy is targeted at attaining market leadership in retail banking,
oil and gas (upstream and downstream), real estate, telecoms and energy. The bank
also aims to build on its core corporate banking franchise and the strengths of its
securities brokerage subsidiary to build a strong investment banking business in
Nigeria’s rapidly expanding securities market.
Red flag: Challenges with loan book quality…
Though Fidelity Bank surpasses its peers on some fronts, it ranks low in loan book
quality. Its NPL/Total Loans ratio stands at 17.1%, high compared to the average of
14.1% among its peers. The bank will need to address this red flag particularly in the
light of plans to expand into the retail market.
48
Recent results
Fidelity Bank’s nine-month results ended March 2007 show a 52% increase in gross
earnings to N17.5bn. PAT more than doubled, with a 216% rise to N3.1bn. The bank’s
balance sheet has expanded rapidly since 2002. From less than N16bn in assets in 2002,
to almost N140bn for the nine months to March 2007 (a 78.9% CAGR). The bank has
managed to match much of its growth in assets by growing its deposit liabilities base
(55.4% CAGR, 2002 - 2007).
Fidelity Bank operates a solid mid - market franchise, but one with the attendant
credit risks of operating in that sector (high NPL ratio). The bank aims to expand into
the consumer and investment banking segments of the market, investing
simultaneously in retail and securities distribution platforms. A key consideration for
success will be the bank’s ability to develop risk management systems to ensure high
quality loan origination as this expansion commences.
Chart 26: Fidelity Bank versus NSE, rebased, October 2006 - October 2007
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6. First Bank of Nigeria

A History of Self-Reinvention
First Bank of Nigeria (First Bank) is Nigeria’s oldest bank, and remains a leading
Company Data
institution in the new Nigerian banking order. Prior to 2006, First Bank dominated
Price (N) 43.15 the Nigerian financial landscape on most key fronts, and was particularly well known
LTM Price % (+/-) +22% as the most profitable bank in the country. In recent times, the bank is beginning to
Market Cap. (US$, m) 3,852 reinvent itself, following intense competition from the aggressive “new generation”
Avg. Daily Value (US$, m) 3.1m banks. However, current market realities are that First Bank is no longer Nigeria’s
largest bank by assets, deposits or loans. However, First Bank remains the most
Est. Free Float (%)
profitable bank in the country. While the bank continues to demonstrate an ability to
70%
resurface as a market leader, it now has to contend with several equally large
P/E 2008E (x) 28.6x
competitors, with access to the same sources of financing and similar ability to
P/BV 2007 (x) 6.3x
execute large projects and mobilize retail deposits.
LTM ROAE 27.6%
2008E PAT Growth 39% Strong Profitability, Strong Brand...
With N20.3billion (US$161million) in Profits After Tax for the Last Twelve Months
(LTM) to September 2006, First Bank remains Nigeria’s most profitable bank by a slim
margin. A competitive cost structure (63.6% cost/income ratio versus 66.7% mean for
top tier group), and the ability to attract low cost retail deposits allows the bank take
advantage of lending opportunities in both the corporate and retail segments of the
market. The bank’s ability to capture retail market share is on account of its
historically strong brand and distribution network. Among the “old generation”
banks, First Bank was quick to realize the importance of automated systems at
branches and network systems to allow banking across branches. The bank currently
has 523 ATMs along with 414 branches spread across the country. First Bank has also
invested heavily in re-positioning its brand, with the emphasis being on size and
modernity.
...And an opportunity to lead the retail market charge
First Bank’s wide distribution network, long experience with retail customers, and
wide brand recognition puts it in a strong position to lead the expected industry-
wide charge into higher margin retail lending. As opportunities for profiteering off a
favourable yield curve, or selectively lending to large corporates continue to thin out,
the bank is in pole position to lead the downmarket charge. However, operational
inefficiencies and bureaucracy across the large organization may pose a challenge to
the company’s ability to win market share in the unfolding retail land grab. The bank
has also not demonstrated the drive and innovation required to lead in this new and
high risk market segment. Continued challenges with asset quality are also a cause
for concern, though Non-Performing Loans (NPL) to total loans remain lower (at 3%)
than the average for top tier banks (6.7% mean, 4.1% median).
Recapitalized for growth...
In a bid to consolidate its leadership in the banking industry, First Bank approached
the capital market to raise N100 billion in May 2007, to shore up working capital and
consolidate its asset base. The offer was part of the long term strategic plan to
strengthen the position of the bank and put it in a good place to surmount the
50
challenges of the evolving banking industry both locally and internationally. The
exercise was a huge success as the offer was oversubscribed by 640% with a record
breaking of 1.2 million applications, offer proceeds of N740 billion from which the
bank absorbed only N250 billion (US$1.98b). The bank is expected to deploy about
20% of the recently raised capital into nine local subsidiaries, a full-fledged bank in
the United Kingdom, and a representative office in South Africa. About 30% will be
used for working capital, while 23% of the proceeds will be applied expand the
bank’s branch network.
At a market capitalization of N475.5bn (US$3.8bn), First Bank currently trades at a

multiple of 21.8x LTM earnings, a slight discount to the top tier average of 26.4x. The
stock remains one of the most widely held by domestic investors and is consistently
one of the most liquid securities on the NSE. With a 2008 forecast P/E multiple of
28.6x (based on N30.1bn expected profits after tax for that year), First Bank would
seem an attractive opportunity given the bank’s industry leadership on Return on
Average Equity (ROAE): currently 27.6% versus a top-tier average of 16.6%, and mid-
tier peer average of 19.6%.
While First Bank continues to be considered a key component of any Nigeria banking
sector investment portfolio, the bank’s share price has performed poorly in the last
12-18 months, and is strongly correlated with the larger Nigeria market. Investors
have nonetheless benefited from a generous dividend and bonus policy.
Management will be under pressure to translate market confidence to growth and
valuation appreciation, as well as dividends.
Chart 27: First Bank versus NSE, rebased, October 2006 - October 2007
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51
7. Guaranty Trust Bank
Company Data Guaranty Trust Bank (GTBank) was incorporated in 1990. It began operations in 1991
Price (N) 29.99 and was converted to a public company and listed on the Nigerian Stock Exchange in
LTM Price % (+/-) +117% 1996. The bank has experienced sustained and significant growth over the last few
Market Cap. (US$, m) 2,360m years and has thus launched itself into the top tier league of players in the Nigerian
Avg. Daily Value (US$, m) 3.0m banking sector. In addition, GTBank has pioneered a West African regional strategy,
Shares Outstanding (bn 13.7
with three subsidiaries in Gambia, Sierra Leone and Ghana. GTBank also has three
non-banking subsidiaries - Guaranty Trust Assurance Plc, which provides insurance
services in Nigeria; GTBank Registrars Limited, a securities registrar; and GTBank
P/E 2008E (x) 21.0x
Finance B.V., a special purpose vehicle incorporated in the Netherlands as part of the
P/BV 2007 (x) 2.7x
bank’s debut Eurobond issue in January 2007.
LTM ROAE 13.1%
2008E PAT Growth 43% Business Focus
The bank’s core business is retail and corporate banking including collecting deposits,
lending, electronic banking services, corporate finance and foreign exchange
operations. Initially, the bank’s primary business focus was on institutional banking;
however, since 2005, it has placed an increasing emphasis on expanding its retail
business. Over the last two years, GTBank has rolled out 47 new branches and has
grown its retail customer base from 139,000 in 2005 to over 500,000 as at June 2007
(including over 260 large institutional clients). Significant investments have been
made in deploying electronic banking platforms, including Automated Teller
Machines (ATMs) as well as internet and SMS banking products. GT Connect was also
launched in 2006 as Nigeria’s first interactive, self-service telephone banking centre.
Growing International Recognition
GTBank is one of few Nigerian banks to place emphasis on international recognition

and world standards in corporate governance as a deliberate corporate strategy. The
bank’s management has consciously set out to establish GTBank as a best-in-class case
of a well run financial institution out of Africa. In July 2007, GTBank became the first
Nigerian and African bank to be listed on the London Stock Exchange (LSE) when it
raised US$750 million through the issuance of Global Depositary Receipts. Earlier in
the year, the bank had made a similarly innovative incursion into the international
debt markets with a successful US$350m Eurobond issue, priced on the back of its
impressive international credit ratings (BB-, equivalent to Nigeria’s sovereign risk
2007 was thus been a year of careful, strategic expansion into new markets locally,
and deliberate entry into the international capital markets. The bank aims to bring all
of these strategic initiatives to bear in establishing itself as a niche leader in foreign
currency lending to domestic corporates, and the first port of call for international
institutions seeking to do business in Nigeria.
Strengthening Domestic Reputation
Recently adjudged the most respected company in Nigeria (in an annual independent
survey by PricewaterhouseCoopers), GTBank continues to garner local brand
recognition and a reputation for being above board in all areas of its operations. This
52
is a key positive brand attribute in a country where perceptions of bankers are not
always favorable.
Ambitious growth targets...
GTBank has designed a broad strategy aimed at accelerating the pace of current
growth with a view to becoming Nigeria’s third largest bank by assets, with over
2.5million customers by 2012. The bank intends to grow its asset base (N487billion in
2007) at a CAGR of 40% to N2.6 trillion by 2012 and total loans (N116bn in February
2007) at a 65% CAGR to N880 billion over the same period. PBT is forecast to grow at
a 40% CAGR to N84.5 billion. In addition, GTBank aims to keep its cost to income
ratio between 55% and 60% and its non-performing loans at less than 5% of total
loans. Return on Equity is forecast to remain between 25% and 30% over the same
period.
Efficiency & Profitability
Healthy net margins; at 26.5%, the highest among the top tier banks (who have an
average net margin of 17.9%). As far as costs are concerned, the bank maintains a
similar leadership position among top tier peers (cost to income ratio of 59.2% versus
top tier average of 66.7%). On asset quality, the bank is also strong (2%, NPL ratio,
second only to Zenith Bank, and well below the industry average of 9.5%).
While GTBank continues to be considered a strong, stable component of any Nigeria

banking portfolio mix, the bank’s management is yet to show indications that it is
able to grow earnings and capture new markets at rates similar to aggressive
competitors, particularly in retail banking. That said, the stock is often considered a
safe, stable, long term bet, even despite recent poor performance (post LSE IPO).
Chart 28: GTBank versus NSE, rebased, October 2006 - October 2007
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8. IBTC Chartered Bank Plc
No.1 Investment Banker, Asset Manager
Company Data Investment Banking & Trust Company (IBTC) commenced operations on March 1, 1989.
Price (N) 17.28 For many years, the bank operated in a niche market, concentrating on investment
LTM Price % (+/-) +150% banking and asset management activities; building a franchise known for expertise
Market Cap. (US$, m) 1,770m and professionalism. It adopted the new name, IBTC Chartered Bank Plc, following
Avg. Daily Value (US$, m) 0.73m the deals with Chartered Bank and Regent Bank in December 2005. The mergers
Shares Outstanding (bn) 12.5 brought together IBTC’s corporate and investment banking/wealth creation
Est. Free Float (%)
capabilities with the retail and commercial banking business and branch networks of
80%
Chartered Bank and Regent Bank.
P/E 2008E (x) 27.6x
P/BV 2007 (x) 10.6x
Now a member of Africa’s largest banking group
LTM ROAE 16.5%
2008E PAT Growth 58.9%

In March 2007, IBTC announced a merger with Stanbic Bank (a subsidiary of Standard
Bank of South Africa), establishing a 33.33% shareholding for Standard Bank in IBTC.
Standard Bank then increased its stake in IBTC to 50.1% through a Tender Offer
transaction. Standard Bank is expected to help bring about improved operational
efficiencies, better risk management, stronger corporate governance and access to a
strong regional and international business network and capital flows. In addition, the
capital base of the post-merger IBTC should increase its competitiveness and enhance
its chances of emerging as one of the leading banks in Nigeria.
Solid Investment Banking Franchise…
IBTC has succeeded in building arguably the most recognised investment banking
franchise in Nigeria, handling some of the largest equity capital raising transactions
in the country. Investment banking fees and commissions constitutes about 30% of
the bank’s gross earnings, which is significantly different from other banks in the
sector. It is the most cost efficient bank among its middle tier peers and also the top
tier banks with cost to income ratio and net profit margins of 34.65% and 35.3%
respectively compared to its peer averages of 62.7% and 20.1% respectively.
With Strong Subsidiaries in Investment Management
IBTC has four (4) subsidiary companies namely, IBTC Asset Management Limited
(99.99%), IBTC Ventures Limited (99.99%), R.B. Resources Limited (99.99%) and Britex
Nigeria Limited (55.00%) as well as two associate companies First SMI Limited(25%)
and IBTC Pension Managers Limited (indirect holding). IBTC Asset Management
Limited (IAML) manages two funds; a quoted fund - IBTC Nigerian Equity Fund (the
largest mutual fund in Nigeria with assets in excess of N20bn) and ‘IBTC Ethical Fund’,
which is an open-ended mutual fund.
Red Flag: Challenges with managing growth and commercial banking

expansion...
Growth in domestic capital markets has driven IBTC to offer margin facilities more
aggressively to brokerage clients. Demand for these facilities has forced the bank to
fall back on equity capital to support lending; with loans to deposit ratio routinely
54
exceeding the 100% mark. This practise has impacted the banks profitability, with net
interest margins at 13.6%, now below the peer average of 15.2%. Furthermore, the
bank’s total non-performing loans have increased from N12.3bn in 2005 to N44.1bn
in 2006, triggering a deterioration in the bank’s NPL ratio from 0.4% to 21.6% over
the same period.
Forecast and Valuation
IBTC has one of the best Return on Asset ratios in the banking industry at 5.2%. With
2008 year-end earnings set to grow post-Stanbic merger by 77% to N7.04bn, return
to shareholders’ is also expected to improve (year end 2008 ROE:18.6%). Forecast EPS
is expected to improve from historic N0.46 to N0.72(2008) and N0.87 (2009), we
expect fully diluted forecast P/E of 27.6x (2008) and 23.0x (2009).
IBTC has performed impressively as a niche player in the investment banking segment
of the industry. However, with the recent changes in the sector, for the bank to
compete aggressively, it needs to utilise its new capital base and develop its
commercial and retail businesses. The recent merger with the Standard Bank Group
should provide the expertise to roll out a commercial banking business in Nigeria.
Chart 29: IBTC Chartered Bank versus NSE, rebased, October 2006 - October 2007
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9. Intercontinental Bank
Background
Company Data Intercontinental Bank Plc was established in 1989 as a pure play merchant bank
Price (N) 27.00 before converting to commercial banking in 2000. In 2002, the bank became a
LTM Price % (+/-) +67% publicly quoted company, listed on the Nigerian Stock Exchange. The bank has
Market Cap. (US$, m) 3,980m
succeeded in competing aggressively with the traditionally dominant players in the
Avg. Daily Value (US$, m)
industry. This has resulted in impressive growth, particularly since 2005 following its
2.8m
merger with three other banks; Equity, Global and Gateway. This phenomenal growth
has not gone unnoticed as the Financial Times of London recently rated the bank as
16th largest bank in Africa and among the 1000 largest banks in the world. The bank
P/E 2008E (x) 28.2x
was also the first Nigerian Bank to cross the US$1bn mark in Tier 1 Capital, thus
P/BV 2007 (x) 3.8x
confirming its status as a top tier player in the Nigerian market.
LTM ROE 14.6%
2008E Growth, PAT 59% Global Ambitions...
The bank has recently entered into a technical partnership with BNP Paribas, one of
the ten largest banks in the world to help further the bank’s ambitions in global
banking. Both banks will cooperate extensively in the areas of trade finance, asset
management and product innovation as well as participate in the management of
Nigeria’s foreign reserves. The bank also unfolded global expansion plans that kicked
off with its first offshore subsidiary: Intercontinental Bank Ghana Limited which
commenced operations in 2006 with five branches and a head office in Accra. The
bank hopes to exploit business opportunities in other parts of Africa, America,
Europe (UK), Middle East (Dubai) and the Far East (China).
Business Strategy and Focus
Intercontinental Bank is focusing on making its service delivery consistent with global
best practices and has embarked on a strategic repositioning drive to dominate retail
markets across Nigeria. Management believes that the bank has a competitive edge
in the area of business development and product innovation. The bank has also
positioned itself as a major player in commercial banking especially in the oil and gas
and telecommunications sectors, and intends to move into the agricultural and
manufacturing sector in the near future.
Too much capital?
Intercontinental is proud of its ranking as (until recently) the largest Nigerian bank by
Tier 1 Capital. The bank has established a reputation for large capital raises,
ostensibly to finance new business opportunities. The question remains as to how fast
earnings can grow to justify current levels of equity capital. Is the bank over-
capitalized? We continue to keep a close watch on earnings and/or
acquisition/expansion strategies.
Results and Forecast
Following on its impressive February 2007 financial performance (gross earnings and
PAT were up by 115% and 105% respectively compared to the same period in 2006),
56
Intercontinental Bank has maintained this impressive trend, declaring a PAT of

N4.7bn for the Q1 2007, representing a 111% increase from the corresponding
quarter of 2006. We expect that the bank will continue to grow at healthy rates in
the near term, but will face challenges doubling the size of its earnings, as it becomes
a larger business. Assuming current trends are sustained, we anticipate Gross Earnings
of N115 billion and PAT of N19 billion for year end 2008.
Intercontinental Bank has successfully launched itself into the top tier league of
banks in Nigeria and has restated its objective to be the number one financial
institution both in Nigeria and Africa. Management also claims to be focused on
becoming one of the 100 largest banks in the world, with a strong global presence.
How far this can be achieved will depend on how the bank deploys its newly acquired
financial and operational scale. The bank only recently commenced a re-branding
exercise, aimed at redefining its market perception. Intercontinental Bank would like
to be perceived as large, dominant, safe and friendly; remarkable associative
attributes for a new generation bank in Nigeria. A final consideration, particularly for
portfolio investors will be the strong positive correlation of the bank’s share price to
the larger Nigeria market.
Chart 30: Intercontinental Bank versus NSE, rebased, October 2006 - October 2007
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57
10. Oceanic Bank

Background
Oceanic Bank commenced business in 1990 as a private limited liability company and
Company Data was listed on the Nigerian Stock Exchange in 2004. The bank is one of the few ‘new
Price (N) 28.50 generation’ banks that have succeeded in competing favourably with old generation
LTM Price % (+/-) +151% banks. The bank has thus, risen to the top tier from the middle tier category within a
Market Cap. (US$, m) 2,720m relatively short time frame and in the process, shed its traditional image as a
Avg. Daily Value (US$, m) 1.7m closeted family ownership and control.
Shares Outstanding (b) 11.6
Est. Free Float (%) 25% Business Focus
P/E 2008E (x) 18.3x
P/BV 2007 (x) 9.3x Oceanic Bank’s business focus is core retail banking, attracting cheap deposits and
LTM ROAE 27.8% lending to traders and consumers. The bank’s consumer product offerings have
competed strongly in the industry, including products such as the Pay Advance Salary
Scheme (PASS) which allows salary account holders a loan of up to 50% of their
monthly salary. The bank is gradually evolving into a one-stop financial hub, offering
a broad spectrum of financial services through its subsidiaries. These include Oceanic
Registrars Limited (99% holding), Oceanic Insurance Limited (100% holding), Oceanic
Trustees Limited (75% holding) and Oceanic Securities Limited (100% holding). The
bank’s lending portfolio is weighted towards the real sector of the economy with a
strong bias for manufacturing, mining and small and medium scale enterprises.
Unprecedented growth in capital base
Oceanic Bank is now the second most capitalized bank in Nigeria and the first bank
to cross the N200 billion Shareholders’ funds mark following announcement of
results from the bank’s recently concluded public offer. The offering was over-
subscribed by 215%. The bank raked in a record N175 billion in proceeds from the
offer. This, in addition to its initial capital base of N38 billion has raised the bank’s
shareholders funds to N213 billion (US$1.68 billion), representing a growth of 461%
within a year. The bank’s capital base is expected to grow further when the results of
its 2007 financial year are announced in early 2008. In effect, this quantum leap in
capital will further consolidate the bank’s position in the league of contenders to
manage the country’s foreign reserves. Having said this, we expect Oceanic Banks’
position at the top of this league to be short-lived, particularly with expected
announcements of the results of recent offerings by several other banks
Management Efficiency
Oceanic Bank reports above average Return on Average Equity (ROAE). Based on its
most recent results, the bank’s ROAE of 27.8% compares favourably to the 16.6%
average for the top tier and 19.6% for the middle tier banks. The bank’s Return on
Average Assets (ROAA) of 3.2% is also higher when compared with the top tier
average of 2.2% and middle tier average of 3.0%.
Results and Forecast
Oceanic Bank’s nine months results to June 30 2007 indicate a 55% rise in gross
earnings to N46 billion from the N 29.3 billion it recorded for the same period in
58
2006. Profit Before Tax also rose by 53% to N 16.2 billion from N 10.6 billion earned
for the same period in 2006, while Profit After Tax also rose 54% from N8.7 billion to
13.4 billion. The third quarter result has further consolidated Oceanic Bank’s position
as a competitive financial institution, buoyed by its aggressive business penetration
strategy and efficient cost management.
Outlook and Conclusion
One of the elite seven top-tier banks in our comparables universe, Oceanic Bank is
delivering competitive earnings and market share growth. Further, with over N200bn
(US$1.6bn) in Tier 1 Capital, the bank is well able to finance continued growth and
expansion into new markets. Now trading at 18.3x forward (2008) earnings, the bank
is valued very much in line with the rest of the banking sector.
Chart 31: Oceanic Bank versus NSE, rebased, October 2006 - October 2007
200% NSE Oceanic
150% Technical suspension for capital raise
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Oct-06 Dec-06 Jan-07 Mar-07 May-07 Jun-07 Jul-07 Sep-07 Oct-07
59
11. Bank PHB

Strange bedfellows, getting along very well...
The 2005 merger between Platinum Bank Plc and Habib Nigeria Bank gave birth to
Company Data the rechristened Bank PHB. Platinum Bank was a five-year banking turnaround
Price (N) 25:51 miracle, while Habib Bank was the leading bank in Northern Nigeria. The merger, at
LTM Price % (+/-) +48% inception, resulted in a bank with total assets in excess of N120 billion, capital base in
Market Cap. (US$, m) 1,346 excess of N26 billion, total deposit base of over N70 billion and 105 branches
Avg. Daily Value (US$, m) 1.5m nationwide. After a successful re-branding campaign in early 2006, the bank emerged
Shares Outstanding (b) 6.4 as a mid-tier commercial bank with significant market share in public sector banking
Est. Free Float (%) 85% and a foothold in retail banking.
P/E 2008E (x) 15.13x
P/BV 2007 (x) 4.5x
Phenomenal post-merger growth
LTM ROE 7.6%
Bank PHB is now one of the largest banks in Nigeria. Strong advertising and
2008E Growth 94%
promotional campaigns by the bank have reaped bountiful rewards as customer
accounts grew by 400% from 80,000 as at June 2006 to 400,000 by financial year end
2007. In line with this growth, total deposits have gone from N109.3bn in 2006 to
N307.0bn as at June 30, 2007, an increase of 180.9%. In the 18 month period post-
merger, total assets have grown by a CAGR of 116% to N382.0bn with risk assets
constituting over 26% of total assets.
Strong Management, Strong Relationships...
The management of the bank is made up of experienced local bankers with

international exposure. Current management focus is on changing the new
organization’s mindset away from public sector, corporate and wholesale business to
the retail sector. This new business focus is changing the business culture within the
bank and may have turned Bank PHB’s fortunes around for good. The management
has also breathed life into the PHB brand through aggressive and good management
of its public image, creating a dynamic identity, capable of executing its aggressive
business plans. The bank has also established an asset management partnership with
Fortis Bank of Belgium to manage Federal Government reserves. This collaboration
has brought about an influx of international banking standards and processes to the
bank.
Red Flag: Large unsecured loan book and poor asset quality
Pre-merger, the loan book for both Habib and Platinum banks consisted mainly of
loans to corporate customers, a portfolio structure maintained in the new bank.
Corporate loans constitute approximately 70% of the bank’s loan book, with the rest
to retail customers. The bank has one of the highest proportion (42%) of unsecured
loans in the industry and an above average NPL ratio. We expect this challenging
trend to continue as the bank moves to aggressively develop its retail franchise.
Retail Banking focus going forward…
Bank PHB has a branch network of 118 branches situated in most state capitals,
comparable in size to its mid-tier peers. The bank aims to increase its branch network
to 200 by June 2008 with a target of opening over 500,000 additional accounts by
60
June 2008 (a 125% increase). As part of its retail banking strategy, Bank PHB plans to
roll out a number of banking products, including Islamic banking accounts,
mortgages, insurance policies as well as consumer loans. In order to support this
growth, the bank is in the process of building a central service centre (estimated cost
of N1bn) to improve service delivery as well as facilitate effortless management of
consumer loans. The centralised credit system is expected to limit loan loss experience
of the bank, which is important as the bank move to restructure its loan book to a
50:50 split between corporate and retail clients.
Result and Forecasts
Bank PHB result’s for the year ended 30 June 2007 shows a Profit Before Tax of N10.3
billion representing an increase of 194% over PBT of N3.5 billion in June 2006. Profit
After Tax at N7.8 billion was also an impressive 225% higher than the N2.4 billion
within the same period. Riding on this impressive performance, the three months
results to 30 September 2007 showed a 250% appreciation in PBT from N1.3 billion in
2006 to N4.6 billion in 2007 while PAT was up 227% from N1.1 billion in 2006 to N3.6
billion in 2007.
Bank PHB has developed a great retail banking model based on quality of service
which could become very profitable going forward, depending on the bank’s ability
to generate high quality loans as well as minimise its loan losses.
Chart 32: Bank PHB versus NSE, rebased, October 2006 - October 2007
400%
NSE PHB
350%
Technical Suspension for
300%
share reconstruction exercise
250%
200%
150%
100%
50%
0%
-50%
Oct-06
Dec-06
Jan-07
Mar-07
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12. Skye Bank

Following the banking sector consolidation directive of 2004, five banks (Prudent
Company Data Bank, Eko International Bank, Bond Bank, Reliance Bank and Cooperative bank)
Price (N) 15.30 merged to form a new entity - Skye Bank Plc, with total assets of N94.4 billion as at
LTM Price % (+/-) +150% commencement in January 2006. Remarkably, the bank has since been able to
Market Cap. (US$, m) 941m develop a single recognizable brand and consolidate its position as a real estate
Avg. Daily Value (US$, m) 1.1m development financier (a legacy of the former Prudent bank) and public sector
Shares Outstanding (b) 7.5
banker (EIB legacy).
P/E 2008E (x)
Competitive corporate bank...
16.9x
P/BV 2006 (x) 5.0x
Skye bank has been developing its corporate banking business with a focus on the
LTM ROAE 13.1%
highly competitive oil & gas and telecoms sectors. Corporate banking accounts for
2008E PAT Growth 31.0% 25% of 2006 pre-tax profits and less than 20% of the bank’s loan book. With new
funding from multilateral and other foreign lending institutions, the bank aims to be
a major industry player and hopefully improve its loan book profile in the process. In
line with the current trend in the industry to roll out bancassurance products, the
bank has strengthened its presence in the insurance sector by acquiring interests in
Law Union & Rock and Equity Life Insurance. It has also decided to divest its
investment banking division and incorporate it as Skye Financial Services Limited,
providing project financing (real estate projects and public - private sector
partnerships), asset management and issuing house services.
Public sector leadership, with a growing retail orientation
Skye Bank has been able to leverage its Lagos State Government ownership (6%
stake) to become arguably the dominant public sector bank for the Lagos commercial
business area. Management plans to offer more retail banking services to civil
servants, through deposit accounts, consumer lending products, mortgages, as well as
insurance products. The bank plans to build on its public sector legacy to grow a
sustainable retail business.
Red Flag: High costs and bad loans
Post-merger consolidation costs had an adverse effect on the bank’s 2006

performance; it has the highest operating cost margin and lowest profit margin
among its peers, 80.1% and 9.3% respectively compared with a mid-tier average of
62.7% and 20.1%. Despite an impressive risk asset origination profile (its loans to
deposit ratio of 69.6% compared to a mid-tier average of 60.7% and top-tier average
of 38.3%) asset quality remains a challenge. Presently 22.6% of its N87.4 billion loan
book are non-performing loans, a ratio far above the entire market. Most of the non
performing loans were inherited from former Bond Bank and Cooperative Bank but
the bank is making active strides to recover bad loans. Additionally, the bank made a
loan loss provision for 75% of total non-performing loans with an aim to reduce its
NPL ratio to less than 5% by 2009.
62
Forecast and Valuation
For the period ended 30th June 2007, the bank’s pre-tax profit stood at N4.5bn. The
bank hopes to achieve a year-end PBT of N7 billion, which translates to an EPS of
N0.65 with a YE P/E multiple of 22.9x. With the possibility of a public offering in the
pipeline, we expect earnings for the bank to grow but not at an exponential rate as
competition is stiff and the bank’s ability to win big ticket transactions remain
uncertain. We forecast 2008 and 2009 forward P/E at 16.9x and 13.0x respectively,
relatively attractive valuation multiples in comparison to a mid-tier peer average of
21.6x (2008) and 15.1x (2009).
Conclusion
Skye Bank is a solid public sector and real estate operator with a clearly stated retail
market intent. The bank’s ability to execute on this retail market strategy while
clearing up legacy challenges with asset quality will be key to its near term success.
Chart 33: Skye Bank versus NSE, rebased, October 2006 - October 2007
450%
NSE Skye
400%
350%
300%
250%
200%
150%
100%
50%
0%
-50%
Oct-06
Dec-06
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63
13. United Bank for Africa

Large, Loud and Ambitious
United Bank for Africa (UBA) has as its stated objective: “to become the undisputed
Company Data leading financial services institution in Africa”. Much of the bank’s public displays and
Price (N) 50.11 assertions reflect this tall ambition, as does its efforts in all markets where it plays. In
LTM Price % (+/-) +127% investment banking, the bank’s UBA Global Markets subsidiary continues to be one of
Market Cap. (US$, m) 4,638m the more aggressive originators and traders of fixed income securities in the
Avg. Daily Value (US$, m) 3.2m Nigerian market. In consumer lending, UBA has set the pace with a roll out of
Shares Outstanding (b) 8.58 numerous product offerings, with a simultaneous deployment of people, systems and
Est. Free Float (%) 65% technology to support consumer loan origination, management and control. In the
P/E 2008E (x)
capital markets, the UBA stock has seen robust performance in 2007, with the bank
18.5x
undertaking a successful equity capital raise that included a US$300m placement of
P/BV 2007 (x) 3.3x
Over-The-Counter (OTC) Global Depositary Receipts (GDRs). UBA has sought entry
LTM ROAE 7.2%
into virtually every space in financial services, in continuation of its “financial
2008E PAT Growth 31% supermarket” business model.
Undisputed Leader? Not Yet
Notwithstanding the bank’s public assertions to the contrary, much work remains to
be done to transform UBA into the undisputed financial services leader in Nigeria.
Despite aggressive growth that has seen the bank become the largest by total assets
and second largest by gross revenues, UBA’s operating performance is yet to provide
comfort that growth is not being pursued at all costs. With a 77.9% cost/income ratio,
and 12.6% NPL ratio, there is cause for concern about costs and asset quality.
Furthermore, UBA has a significantly underutilized balance sheet (15.4% loans to
deposits ratio), the lowest of any bank in Nigeria (top tier average: 40%; middle tier
average: 60.6%). In other words, the exponential growth in deposit liabilities is not
being converted into quality, high yielding risk assets. This is as much an opportunity
as it is a challenge for the bank. Net interest margins are some of the highest in the
industry (32.4% versus top tier mean of 20.7%).
Strategic Asset Acquisition...
The bank has also invested in “cherrypicking” assets of various banks that were
unable to successfully scale the CBN recapitalization exercise of 20052006. The new
character of the bank has evolved following the July 2005 merger with the fast
growing new generation bank: Standard Trust Bank (STB). STB management has
taken a leadership role in the new UBA and is largely responsible for the rapid
change in the culture and focus of the bank from a conservative old generation
institution, to a key player in the Nigerian banking renaissance. UBA is thus, uniquely
positioned as an old generation bank, with a new generation identity and growth
profile.
Can Market Dominance be achieved?
UBA has the potential to achieve the results that it seeks. The bank continues to
exhibit a superior understanding and risk appetite for the Nigeria consumer market
which is expected to drive long term growth. Following its recent capital raise, the
bank’s management has embarked on an elaborate project to hire people and
64
acquire the technology to make consumer lending a success. The bank is also active in
other potential areas of long term growth, including mortgage origination and
securitization, debt and equity capital markets, trade and project finance, regional
expansion (West and sub-Saharan Africa), infrastructure and oil and gas finance. The
banks’ recent results show an undisputed ability to capture market share in Nigeria,
with total assets more than doubling (253% year-on-year growth) to N884bn
(US$7.0bn) in 2007. Growth in gross revenues has been similarly phenomenal (181%
in 2006). This focused market knowledge and commitment to deploying world class
people and systems across its business will be crucial to helping UBA establish itself as
a leader in Nigeria, and expand its footprint across sub-Saharan Africa.
At a current market capitalization of N459.9bn (US$3.6bn), UBA trades at a P/E of

23.1x LTM earnings. This multiple is in line with the LTM P/E valuation range for top
tier banks in Nigeria (average of 25.3x). However, UBA remains perhaps the most
underleveraged bank in the Nigeria banking sector. Our forecast earnings estimates
for the bank indicate that earnings per share (EPS) will grow 16.5% to N2.22 in 2008,
up from N1.94 for the last twelve months to June 2007. This earnings performance
yields a 2008E forward P/E valuation of 18.5x for UBA, a discount to the top tier
forward range of 18.8x to 21.1x 2008E earnings.
Opportunities exist for UBA to continue to put its expanded capital base to work, by
focusing on improving the size and quality of its loan book and taking advantage of
its wide distribution network (over 500 branches nationwide) to capture new
opportunities in the retail market. The bank is also well positioned to benefit from
any growth in Nigeria’s debt capital markets, as the single largest dealer in fixed
income securities and leading originator of new issues through its UBA Global
Markets subsidiary.
Chart 34: UBA versus NSE, rebased, October 2006 - October 2007
200%
NSE UBA
150%
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50%
0%
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Oct-06
Jan-07
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65
14. Union Bank of Nigeria

Slow, but Steady
One of Nigeria’s oldest banks (established 1917), and previously owned and operated
Company Data
by Barclays Bank, Union Bank has seen a steady erosion in its market share under
Price (N) 42.00
intense competition from younger players. Of the big three traditional “old
LTM Price % (+/-) +72% generation” banks in the country, Union Bank has been slowest to respond to new
Market Cap. (US$, m) 3,322 market realities. The bank continues to post below average operating performance,
Avg. Daily Value (US$, m) 5.1m despite being one of the largest banks by asset base, distribution network and
Shares Outstanding (b) 9.65 shareholders capital. Historically well regarded as a stable Nigerian financial
institution, Union Bank has also been late in adopting technology, particularly branch
network upgrades and service automation. Nonetheless, continues to hold on to
P/E 2008E (x) 14.5x
many of its long term, loyal customers, who contributed much of its significant long
P/BV 2007 (x) 3.8x
tenured term deposits. The banks reputation for safety and continuity ensures that
LTM ROAE 15.0% this group of risk averse customers remain a major source of opportunity on the
2008E PAT Growth 27.0% liabilities side. The banks’ business model remains mainly to generate retail deposits
from its large and widely distributed customer base, and lend largely to institutions.
However, as with many other players in the sector, the bank reports a growing
consumer loan book.
Significant Potential for Improved Performance
Union Bank is an opportunity waiting to be tapped. Return on Average Assets and

Equity (ROAA and ROAE): currently15.0% and 1.8% respectively are low when
measured against top tier averages of 22.6% and 2.5%. The bank is presently the 5th
largest by total assets in the country (2006: N668bn, US$5.3bn), and 4th largest by
shareholders’ funds. Clearly, marginal improvements in asset utilization and market
share will create outsized potential upside for the bank. These improvements will
need to occur across the board: Cost/Income ratios for the bank are among the
highest in the industry at 70.3%, well above the 67.0% mean for top tier peers, and
62.7% for middle tier banks. NPL ratios are also at alarming levels: 19% for a bank
with supposedly conservative lending policies. The potential combined effect of
lowering such a high cost structure and raising asset management to peer averages
will be crucial to unlocking the value inherent in Union Bank.
Will Barclays Return?
Realizing that current market conditions necessitate quick action to halt the decline
in market position, the board and management of Union Bank has put in place a
process that will lead to the emergence of a multinational strategic investor in the
bank. The new investor is expected to own up to 30% of the bank, and lead an effort
to bring the bank up to speed with industry global best practises. Already,
speculation is rife that Barclays will be the new investor. However, as several other
global banks are rumoured to have expressed formal interest in the Union Bank
opportunity, there is a good chance of an auction before the dust settles.
Union Bank has a current market capitalization of N414.9bn (US$3.28bn). At current

market price, the bank trades at an 18.9x LTM earnings, in tandem with the top tier
66
pier average. 2008 Forward P/E multiples for the bank, based on earnings growth
under current management yields valuation multiples that are at a discount to similar
sized peers (14.5x versus 21.1x). Potential improvements in asset management,
earnings and market share resulting from the emergence of a multinational strategic
partner could greatly improve the upside on our forecast valuations.
Despite stiff competition and recent market declines, Union Bank continues to
surprise the market with results that reflect the bank’s strength in depth. The bank’s
lethargic pace belies the sheer extent of the opportunity that exists for a bank of this
scale in Nigeria. An injection of new capital and managerial expertise, either from a
foreign strategic investor or a domestic merger/acquisition partner could be the
catalyst to awakening the sleeping giant. An awakened Union Bank would
undoubtedly be a tough competitor in all segments of the Nigerian banking market.
Chart 35: Union Bank versus NSE, rebased, October 2006 - October 2007
120% NSE Union Bank
100%
80%
60%
40%
20%
0%
-20%
Oct-06
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67
15. Zenith Bank

Size and Efficiency
Two words best accurately describe the Zenith juggernaut: Size and Efficiency. Zenith
Company Data
Bank is one of Nigeria’s largest banks (and companies) by market capitalization,
Price (N) 46.09 currently valued at N514bn (US$4.1bn). The bank is Nigeria’s largest by total loans
LTM Price % (+/-) +141% (N288bn, US$2.3bn) and second largest by total assets (N973bn, US$7.0bn). Zenith is
Market Cap. (US$, m) 4,375m also the second largest Nigerian bank by total deposits (N635bn, US$5.0bn) and the
Avg. Daily Value (US$, m) 3.4m fifth largest by Tier 1 capital (N117bn, US$925m). Zenith’s emergence as a market
Shares Outstanding (b) 11.58 leader in Nigeria’s banking sector has been achieved with remarkable attention to
Est. Free Float (%) 60% costs and asset quality. In this regard, an impressive statistic is the bank’s NPL/Total
P/E 2008E (x)
Loans ratio (which is 1.4% for year ending June 2007). This is an enviable statistic in
18.8x
an industry where top tier banks post between 4.6% to 7.5% in bad loans and middle
P/BV 2007 (x) 4.7x
tier banks report as much as 14.7% to 15.7% of non performing loans. Zenith’s focus
LTM ROAE 10.9%
on efficiency extends also to operating costs (65.3% Cost / Income ratio versus peer
2008E PAT Growth 35.0% average of 67%). The bank appears to have perfected the twin acts of rapidly and
efficiently replicating products and strategies found to be successful elsewhere in the
market; and developing a highly driven culture to deliver results at the lowest
possible costs.
Low Risk profile
Zenith Bank operates a classic low risk banking model. At the heart of the bank’s
strategy is a focus on mobilizing low cost deposits (corporate, public sector and retail)
and lending to low risk, large corporate customers. The bank aims to achieve this
objective at the lowest possible cost, with great attention to scale and efficiency. This
strategy has largely been successful to date, and the bank has managed to keep asset
quality high, grow earnings at an acceptable pace, and achieve balance sheet scale
quite rapidly. However, this low risk strategy comes at a cost to returns. Zenith Bank’s
profit margins are low by top tier peer standards. Net margins are at 12.2% (versus
17.9% top tier mean and 21.6% for middle tier banks). ROAE is also low at 10.7%
(based on latest FY earnings), versus 19.3% average for top tier banks. Zenith Bank
also posts low net interest margins when compared with banks in its peer group
(18.3% versus 20.7% peer average). Thus, while the bank has proven to be very
successful at expanding its balance sheet and market share on the basis of a low risk
corporate banking strategy, this has been achieved at some expense to yields on risk
assets and returns to equity holders.
Going forward: More of the same?
Of all the Nigerian banks, Zenith stands alone in expressing no desire to become a
first mover or dominant player in consumer/retail banking (at least in the short to
medium term).
Efficient management and high asset quality continue to be key objectives.

Additionally, the banks momentum of branch roll-out in urban and commercial
centres continues unabated. Zenith also has plans to become a major player in
securities business, with Zenith Capital, its investment banking subsidiary already
playing an important roles in equities origination and trading of shares on the NSE.
The bank is actively seeking opportunities in large scale project and infrastructure
68
finance, as well as large ticket lending in oil and gas, construction and real estate.
It appears that the bank will continue with its corporate focus, at least in the short to
medium term. Being a management majority owned institution; Zenith may be in a
better position to maintain this contrarian strategy in a sector where the retail
market is now considered the next frontier.
Zenith has put up a spectacular performance in recent times, returning over 125% in
the twelve months to October 2007. It is a very widely held stock in the Nigeria
market, with a strong base of followers who constantly seek to have a Zenith position
in their portfolios. Currently trading at 27.8x LTM earnings, this strong reputation for
market performance has created a premium in the price (compared against the 26.4x
average for top-tier banks). Zenith’s P/E valuation appears more in line with the mid-
tier group of banks, where expected earnings growth (from a lower base) is much
higher. Forward (2008E) P/E multiples for the bank remain slightly below the toptier
average (18.8x versus 21.1x), but less in line with midtier forward multiples (21.6x).
Positively correlated to the larger Nigeria market, Zenith is a very popular stock
among equity investors. The Zenith brand continues to inspire a sense of awe in many
investors and is a very widely held investment. Future success will depend largely on
the banks focused corporate sector bet. However, Zenith is well known to be able to
replicate competitors’ successes very rapidly, and could yet do the same as a late
entrant to retail business.
Chart 36: Zenith Bank versus NSE, rebased, October 2006 - October
- 2007
200%
NSE Zenith
150%
100%
50%
0%
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Jul-07
Oct-06
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69
70
January 2008
Section 6 Operating and Valuation Statistics
Macro-economic and General Statistics
Fifteen Banks: Financial Forecasts
Public Market Operating Comps, Part I
Public Market Operating Comps, Part II
Public Market Valuation Comps
71
Chart 37 Nigeria general macro-economic statistics, Part 1
National Income 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
GDP US$ bn 38.5 40.1 46.1 57.6 71.5 98.7 115.8 130.6 147.5
Real GDP growth (%) 5.4% 4.6% 3.5% 10.2% 6.1% 7.2% 5.1% 7.3% 7.0%
Oil GDP growth (%) 11.3% 5.2% 5.7%

- 23.9% 3.5% 4.2% 1.6%
- 9.3% 8.0%
Non oil GDP growth (%) 2.9% 4.3% 7.9% 4.5% 7.4% 8.6% 8.2% 6.5% 6.5%
Population (m) 125 127 130 133 143 146 150 154 157
GDP/capita US$ 327 362 341 415 501 675 773 850 937
Oil production (m barrels/day) 2.04 2.083 1.96 2.45 2.5 2.51 2.35 2.53 2.71
Bonny light crude oil price ($/barrel y/e) 28.6 24.5 25.0 29.2 38.3 55.3 64.4 63.3 64.3
Macro-economic and General Statistics I
Money & Credit 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
Annual average CPI inflation (%) 6.9% 18.9% 12.9% 14.0% 15.0% 17.9% 9.0% 10.3% 8.6%
CBN discount rate (%) 14.0% 20.5% 16.5% 15.0% 15.0% 13.0% 10.0% 8.0% 10.0%
Commercial prime bank lending (%) 21.3% 26.0% 20.6% 19.6% 18.9% 17.9% 16.9% 15.8% 13.3%
M2 growth % change 48.1% 27.0% 21.5% 24.1% 14.0% 16.0% 28.4% 11.8% 18.9%
Annual average Interbank FX N/$ (CBN) 101.7 111.9 121.0 129.3 134.3 131.0 128.0 127.0 126.5
Annual average parallel FX N/$ 111.1 133.0 137.8 141.4 140.8 142.6 130.0 127.0 126.5
External and Domestic Debt 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
External debt ($bn) 28.3 28.3 31.0 32.9 35.9 20.5 3.5 3.7 4.1
External Debt % GDP 73% 71% 67% 57% 50% 21% 3% 3% 3%
External Debt (P&I) Service Payments US$ bn 1.7 2.1 1.2 1.8 1.8 7.8 0.3 0.2 0.2
External Debt Service % Exports 7% 11% 7% 7% 5% 15% 1% 0% 0%
Total Domestic Debt US$ bn 8.8 9.1 9.6 10.3 10.3 10.5 12.1 14.0 15.0
Total Domestic Debt % GDP 23% 23% 21% 18% 14% 11% 10% 11% 10%
Total External & Domestic Government Debt 37.1 37.4 40.6 43.2 46.2 31.0 15.6 17.7 19.1
Total Government Debt % GDP 96% 93% 88% 75% 65% 31% 13% 14% 13%
January 2008
Source: WEO, IMF, Afrinvest Research
72
Chart 38: Nigeria general macro-economic statistics, Part 2
External Balance 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
Exports fob (US.$ bn) 23.8 19.6 17.7 27.3 37.3 52.7 58.7 63.7 70.3
Oil/gas 18.9 17.6 16.9 26.5 36.4 52.0 57.9 62.8 69.4
% total 79% 90% 96% 97% 98% 99% 99% 99% 99%
Imports f.o.b. $bn -10.6 -11.5 -13.6 -17.2 -19.4 -25.4 -30.4 -36.6 -42.0
Trade Balance $bn 13.3 8.1 4.0 10.1 17.9 27.3 28.3 27.1 28.3
Trade Balance % GDP 34% 20% 9% 17% 25% 28% 24% 21% 19%
Services (net) $bn -6.3 -4.3 -4.4 -5.3 -5.9 -6.7 -5.9 -6.4 -8.1
Income (net) $bn -3.8 -3.9 -6.4 -8.4 -11.7 -12.1 -11.4 -10.4 -10.8
Transfers (net) $bn 1.6 1.3 1.4 2.1 2.8 3.4 3.4 3.4 3.4
Macro-economic and General Statistics I
Current Account Balance (US$ bn) 4.7 1.3 -5.4 -1.6 3.1 11.9 14.4 13.7 12.8
Current Account Balance % GDP 12% 3% -12% -3% 4% 12% 12% 10% 9%
Foreign reserves (US$ bn) 9.9 10.4 7.7 7.5 17.0 28.3 46.5 62.4 83.7
Import cover (months) 11.3 10.9 6.8 5.2 10.5 13.4 18.4 20.5 23.9
External Debt (P&I) Service Payments
1.7 2.1 1.2 1.8 1.8 7.8 0.3 0.2 0.2
US$ (bn)
External Debt Service % Exports 7% 11% 7% 7% 5% 15% 1% 0% 0%
FDI & portfolio investment (US$ bn) 1.2 2.1 2.5 2.9 4.4 6.4 7.4 2.2 8.1
Foreign Direct Investment % GDP 3% 5% 5% 5% 6% 6% 6% 2% 5%
Fiscal Accounts 2000 2001 2002 2003 2004 2005 2006 2007E 2008F
Total Fiscal Receipts US$ bn 18.7 19.9 17.0 21.6 30.7 42.9 52.6 60.3 64.9
Oil & Gas revenue 15.6 15.3 12.2 16.3 25.0 36.3 45.1 51.3 54.0
Oil receipts % total revenue 84% 77% 72% 75% 81% 85% 86% 85% 83%
Non-oil revenue 3.1 4.7 4.8 5.3 5.8 6.6 7.5 9.1 10.9
Non-oil receipts % total revenue 16% 23% 28% 25% 19% 15% 14% 15% 17%
Non-oil primary balance % non oil GDP n/a n/a -29.9% -33.8% -34.2% -38.9% -42.0% -40.0% -40.8%
Total Expenditure $bn -19.6 -21.5 -18.9 -22.4 -23.7 -31.9 -35.3 -45.6 -43.5
Overall Balance $bn n/a n/a -2.0 -0.7 7.1 11.0 17.2 14.7 21.4
Fiscal Receipts % GDP 44.5% 41.8% 36.5% 37.0% 43.0% 43.5% 45.4% 46.2% 44.0%
Fiscal Expenditure % GDP -46.7% -45.0% -40.7% -38.3% -33.1% -32.4% -30.5% -34.9% -29.5%
Consolidated fiscal balance (% GDP) -2.1% -3.2% -4.2% -1.3% 9.9% 11.1% 14.9% 11.2% 14.5%
January 2008
Source: WEO, IMF, Afrinvest Research
73
Financial Forecasts January 2008
Chart 39: Access Bank, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 2,693.4 5,264.5 7,777.0
Loans (US$ m) 969.6 2,022.2 3,119.7
Deposits (US$ m) 1,682.0 3,285.0 4,850.4
Shareholders Funds 232.8 859.8 939.6
Gross Earnings 228.7 447.0 660.3
Profit After Tax (US$ m) 50.0 99.4 124.3
Chart 40:Afribank, Financial Forecasts
2007A 2008E 2009F
Assets (US$ m) 187.1 267.6 323.8
Loans (US$ m) 61.4 100.1 131.1
Deposits (US$ m) 135.6 192.9 233.4
Chart 41: Diamond Bank, Financial Forecasts
2007A 2008E 2009F
Assets (US$ m) 2,626.4 5,133.4 7,583.4
Loans (US$ m) 827.3 1,725.3 2,958.6
Deposits (US$ m) 1,780.5 3,477.4 5,134.5

74
Chart 42: Fidelity Bank, Financial Forecasts
2007A 2008E 2009F
Assets (US$ m) 1,529.0 2,881.7 4,156.4
Loans (US$ m) 617.4 987.8 1,284.1

Deposits (US$ m) 1,051.8 1,967.8 2,824.7

Chart 43: First Bank, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 7,251 10,076 11,940
Loans (US$ m) 1,840 2,439 3,048

Deposits (US$ m) 4,903 7,091 8,687
Shareholders Funds 683 4,366 4,614
Gross Earnings 740 1,029 1,219

Chart 44: FCMB, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 2,136.9 3,419.1 4,786.7
Loans (US$ m) 679.4 1,155.0 1,559.3
Deposits (US$ m) 1,525.8 2,288.7 2,860.8

75
Chart 45: Guaranty Trust Bank, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 3,987.6 5,701.3 7,411.7
Loans (US$ m) 973.9 1,583.2 2,073.9
Deposits (US$ m) 2,414.3 3,531.4 4,590.8

Shareholders Funds 387.9 1,235.5 1,317.0
Chart 46: Intercontinental Bank, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 5,776.9 9,205.9 11,967.6
Loans (US$ m) 2,151.9 3,302.2 4,193.8
Deposits (US$ m) 3,935.5 6,422.2 8,413.1
Shareholders Funds 1,286.0 1,356.4 1,448.0
Chart 47: IBTC, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 1226.5 1852.9 2445.9
Loans (US$ m) 469.7 740.0 954.6

Deposits (US$ m) 629.9 1087.8 1479.4
76
Chart 48: Oceanic Bank, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 6,393.4 7,441.8 8,615.1
Loans (US$ m) 1,221.3 1,660.3 1,950.9
Deposits (US$ m) 4,088.0 5,142.9 6,428.6
Chart 49: BankPHB, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 3,131.4 4,697.1 5,871.4
Loans (US$ m) 821.0 1,231.5 1,539.3
Deposits (US$ m) 2,516.1 3,774.1 4,717.6

Chart 50: Skye Bank, Financial Forecasts
2007A 2008E 2009F
Assets (US$ m) 2541.8 3558.8 4626.1
Loans (US$ m) 1078.6 1537.1 2075.1
Deposits (US$ m) 1836.2 2570.6 3341.8
77
Chart 51: Union Bank of Nigeria, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 6,393.4 7,441.8 8,615.1
Loans (US$ m) 1,221.3 1,660.3 1,950.9

Deposits (US$ m)
4,088.0 5,142.9 6,428.6
Chart 52: United Bank for Africa, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 9,016.4 10,530.0 12,297.7
Loans (US$ m) 1,639.3 2,579.4 3,319.0
Deposits (US$ m) 6,361.5 7,547.5 9,434.4
Shareholders Funds 880.0 985.0 1,111.0
Gross Earnings 822.4 960.4 1,121.7
Chart 53: Zenith Bank, Financial Forecasts
2007A 2008E 2009F

Assets (US$ m) 7,690 10,372 12,965
Loans (US$ m) 2,326 3,261 3,979
Deposits (US$ m) 5,016 7,562 9,452
Shareholders Funds 920 1,012 1,127
Gross Earnings 750 1,012 1,264
78
Chart 54: Nigerian Banking Sector Public Market Comparables Operating Statistics
(all figures in billions Naira unless otherwise stated)
Latest
Total Capital/ Gross Cost/ LTM 2008E 2009E PAT/
Company SHF FY ROAE ROAA
Assets Assets Revenues Income PAT PAT PAT Revenue
PAT
Top Tier
First Bank of Nigeria 83.4 884.6 9.4% 90.3 63.6% 20.37 24.23 30.00 39.00 27.6% 2.7% 22.5%
Union Bank of Nigeria 100.5 667.8 15.1% 66.6 70.3% 10.80 20.40 26.52 34.48 15.0% 1.8% 16.2%
United Bank for Africa 167.4 1191.0 14.1% 90.4 77.9% 7.73 21.44 33.87 44.03 7.2% 0.7% 8.5%
Zenith Bank 112.7 972.8 11.6% 94.9 65.3% 11.60 22.09 32.73 42.54 10.9% 1.5% 12.2%
Intercontinental Bank 156.9 704.8 22.3% 87.4 65.8% 15.48 16.02 21.17 27.52 14.6% 2.9% 17.7%
GTBank 150.5 552.0 27.3% 49.1 59.2% 12.99 13.21 19.49 25.34 13.1% 2.5% 26.5%
Oceanic Bank 37.7 371.6 10.1% 44.7 64.7% 9.55 15.82 24.60 31.98 27.8% 3.2% 21.4%
Mean 15.7% 66.7% 16.6% 2.2% 17.9%

Comparable Banking Sector Operating Statistics - Part 1
Median 14.1% 65.3% 14.6% 2.5% 17.7%
Middle Tier
Diamond Bank 54.1 320.4 16.9% 39.5 67.9% 7.09 9.31 13.04 16.95 15.9% 2.6% 17.9%
Access Bank 28.4 328.6 8.6% 27.9 62.0% 6.08 7.64 12.23 15.29 21.2% 2.4% 21.8%
Ecobank 29.3 132.1 22.2% 17.3 68.6% 3.56 5.19 6.82 16.95 12.7% 3.6% 20.6%
IBTC 32.7 113.2 28.9% 11.3 34.6% 3.99 7.36 9.05 11.76 16.5% 5.2% 35.3%
Fidelity Bank 31.1 220.0 14.1% 24.9 80.8% 4.71 6.18 11.12 18.91 16.6% 2.8% 19.0%
PlatinumHabib 36.2 382.0 9.5% 36.2 57.1% 2.45 9.35 16.14 28.22 24.0% 2.9% 21.4%
FCMB 31.1 262.8 11.8% 25.0 58.9% 5.95 8.32 15.11 18.13 20.7% 3.2% 23.8%
Skye Bank 25.6 173.7 14.7% 21.1 80.1% 1.96 3.74 7.65 9.94 13.1% 1.9% 9.3%
Afribank 30.8 187.1 16.4% 27.5 55.5% 5.10 8.06 11.03 15.44 17.5% 3.2% 18.5%
Sterling Bank 25.9 113.3 22.9% 12.9 85.4% 1.05 2.76 3.50 4.20 7.4% 1.6% 8.2%
Mean 15.9% 69.6% 19.6% 3.0% 21.1%

Median 14.7% 68.6% 16.6% 2.9% 20.6%
January 2008
79
Comparable Banking Sector Operating Statistics - Part 2 January 2008
Chart 55: Nigerian Banking Sector Public Market Comparables Operating Statistics
Net Net NPL/

Total Total Interest Interest Loans/
Company Interest Interest Total
Loans Deposits Income Expense Deposits
Income Margin Loans
Top Tier
First Bank of Nigeria 224.5 598.2 58.4 18.2 40.2 37.5% 19.3% 3.0%
Union Bank of Nigeria 149.4 411.5 47.2 16.3 30.8 36.3% 23.6% 19.0%
United Bank for Africa 119.7 776.1 57.7 27.0 30.7 15.4% 32.4% 12.6%
Zenith Bank 288.1 634.5 63.6 19.0 44.6 45.4% 18.3% 1.4%
Intercontinental 277.1 467.9 51.7 17.2 34.5 59.2% 15.3% 4.6%
GTBank 118.8 294.5 32.0 13.3 18.7 40.3% 18.1% 2.0%
Oceanic Bank 105.8 310.3 28.9 12.5 16.4 34.1% 17.7% 4.1%
Mean 183.4 499.0 48.5 17.6 30.9 38.3% 20.7% 6.7%
Median 149.4 467.9 51.7 17.2 30.8 37.5% 18.3% 4.1%
Middle Tier
Diamond Bank 107.6 217.2 25.3 9.0 16.3 49.5% 17.0% 7.4%
Access Bank 118.3 205.2 16.9 5.0 11.9 57.6% 13.3% 9.1%
Ecobank 54.7 84.0 11.1 2.9 8.2 65.1% 21.3% 3.1%
IBTC Chartered 56.2 55.5 7.1 2.4 4.7 101.3% 13.6% 21.6%
Fidelity 77.4 176.4 16.3 7.4 8.9 43.9% 14.3% 6.3%
Bank PHB 106.2 307.0 18.7 9.3 9.4 34.6% 12.7% 6.1%
FCMB 83.6 187.7 14.6 5.1 9.6 44.5% 18.7% 3.3%
Skye Bank 87.4 125.5 14.3 6.1 8.2 69.6% 16.3% 22.6%
Afribank 73.7 135.6 15.1 4.7 10.4 54.4% 18.1% 17.6%
Sterling Bank 47.7 68.9 7.2 3.9 3.3 69.2% 12.0% 24.8%
Mean 86.9 159.9 15.1 5.6 9.5 60.2% 15.2% 12.4%

Median 83.6 176.4 15.1 5.1 9.4 57.6% 14.3% 9.1%
80
Chart 56: Nigerian Banking Sector Public Market Comparables Valuation Analysis
Share No. of Mkt. LTM 2008E 2009E LTM 2008E 2009E LTM 2008E 2009E
EPS P/BV
Price Shares Cap. PAT PAT PAT EPS EPS P/E P/E P/E
Top Tier
First Bank 43.15 12.2 527.4 24.2 30.0 39.0 1.98 1.51 1.96 21.8x 28.6x 22.0x 6.3x
Union Bank of Nigeria 39.97 9.6 385.7 20.4 26.5 34.5 2.11 2.75 3.57 18.9x 14.5x 11.2x 3.8x
United Bank for Africa 48.85 11.3 551.5 21.4 33.9 44.0 1.90 2.64 3.43 25.7x 18.5x 14.2x 3.3x
Zenith Bank 46.09 11.6 533.8 22.1 32.7 42.5 1.66 2.45 3.67 27.8x 18.8x 12.5x 4.7x
Intercontinental Bank 32.25 18.5 597.8 16.0 21.2 27.5 0.86 1.14 1.48 37.3x 28.2x 21.7x 3.8x
GTBank 29.99 13.7 410.2 13.2 19.5 25.3 0.97 1.42 1.85 31.1x 21.0x 16.2x 2.7x
Oceanic Bank 29.99 11.6 349.1 15.8 24.6 32.0 1.36 1.64 2.13 22.1x 18.3x 14.1x 9.3x
Comparable Banking Sector Valuation Statistics
Mean 1.55 1.94 2.59 26.4x 21.1x 16.0x 4.9x

Median 1.66 1.64 2.13 25.7x 18.8x 14.2x 3.8x
Middle Tier
Diamond Bank 19.00 13.0 247.7 9.3 13.0 16.9 0.71 1.00 1.30 26.6x 19.0x 14.6x 4.6x
Access Bank 20.92 7.0 146.0 7.6 13.2 18.1 1.10 1.13 1.55 19.1x 18.5x 13.5x 5.1x
Ecobank 7.95 21.7 172.2 5.2 6.8 16.9 0.24 0.31 0.78 33.2x 25.2x 10.2x 5.9x
IBTC 18.56 18.8 348.0 7.4 9.0 11.8 0.39 0.48 0.63 47.3x 38.5x 29.6x 10.6x
Fidelity Bank 11.83 16.5 194.8 6.2 11.1 18.9 0.38 0.51 0.86 31.5x 23.4x 13.7x 6.7x
ETI 199.59 1.3 268.3 12.8 21.6 28.0 9.50 16.04 20.85 21.0x 12.4x 9.6x 9.5x
PlatinumHabib Bank 25.51 6.4 164.2 7.8 16.1 28.2 1.45 1.41 2.47 17.6x 18.1x 10.3x 4.5x
FCMB 17.45 9.5 165.8 5.9 15.1 18.1 0.88 1.12 1.34 19.9x 15.6x 13.0x 5.3x
Skye Bank 17.19 7.5 129.0 3.7 7.6 9.9 0.50 1.02 1.33 34.5x 16.9x 13.0x 5.0x
Afribank 30.49 6.1 186.9 8.1 11.0 15.4 1.32 1.09 1.52 23.2x 28.0x 20.0x 6.1x
Sterling Bank 7.28 10.6 76.8 2.8 3.5 4.2 0.26 0.33 0.40 27.8x 21.9x 18.3x 3.0x
Mean 1.52 2.22 3.00 27.4x 21.6x 15.1x 6.0x

Median 0.71 1.02 1.33 26.6x 19.0x 13.5x 5.3x
January 2008
81
List of Charts January 2008
List of Charts
CHART NO. CHART TITLE PAGE NO.

Chart 1 Underlying Market Demand in Nigeria 7
Chart 2 Sovereign Risk Indicators, Nigeria versus Africa 8
Chart 3 Nigeria Market Capitalization, Index 10
Chart 4 Nigeria Sovereign Yield Curve 10
Chart 5 Stable Non-Oil Related Growth, Volatile Oil-based Growth 11
Chart 6 Growing Reserves, Stable Currency 12
Chart 7 Total Banking Sector Assets 13
Chart 8 Total Banking Sector Loans 13
Chart 9 Nigeria's Top Tier and Mid Tier Banks versus NSE (Rebased) 14
Chart 10 High Oil Prices, Growing National Output 19
Chart 11 Erasing External Debt, Building Foreign Reserves 19
Chart 12 Nigeria Banking Sector by Tier 1 Capital 23
Chart 13 Loans to GDP 23
Chart 14 Deposits to GDP 24
Chart 15 Retail Loans to GDP 24
Chart 16 The Old. 2004 Top 10 Banks 25
Chart 17 The New. 2007 Top 10 Banks 25
Chart 18 2004 Market Share Rankings by Total Assets 26
Chart 19 2007 Market Share Rankings by Total Assets 26
Chart 20 2006/2007 Capital Raising by Nigerian Banks 29
Chart 21 Nigerian Banks by Total Assets 34
Chart 22 Access Bank versus NSE, Rebased 41
Chart 23 Afribank versus NSE, Rebased 43
Chart 24 Diamond Bank versus NSE, Rebased 45
Chart 25 FCMB versus NSE, Rebased 47
Chart 26 Fidelity Bank versus NSE, Rebased 49
Chart 27 First Bank versus NSE, Rebased 51
Chart 28 GTBank versus NSE, Rebased 53
Chart 29 IBTC Chartered versus NSE, Rebased 55
Chart 30 Intercontinental Bank versus NSE, Rebased 57
Chart 31 Oceanic Bank versus NSE, Rebased 59
Chart 32 Bank PHB versus NSE, Rebased 61
Chart 33 Skye Bank versus NSE, Rebased 63
Chart 34 UBA versus NSE, Rebased 65
Chart 35 Union Bank versus NSE, Rebased 67
Chart 36 Zenith Bank versus NSE, Rebased 69
Chart 37 Nigeria General Macro-Economic Statistics, Part 1 72
Chart 38 Nigeria General Macro-Economic Statistics, Part 2 73
Chart 39 Access Bank, Financial Forecasts 74
82
List of Charts January 2008
List of Charts
CHART NO. CHART TITLE PAGE NO.
Chart 40 Afribank, Financial Forecasts 74
Chart 41 Diamond Bank, Financial Forecasts 74
Chart 42 Fidelity Bank, Financial Forecasts 75
Chart 43 First Bank, Financial Forecasts 75
Chart 44 FCMB, Financial Forecasts 75
Chart 45 GT Bank, Financial Forecasts 76
Chart 46 Intercontinental Bank, Financial Forecasts 76
Chart 47 IBTC Chartered Bank, Financial Forecasts 76
Chart 48 Oceanic Bank, Financial Forecasts 77
Chart 49 Bank PHB, Financial Forecasts 77
Chart 50 Skye Bank, Financial Forecasts 77
Chart 51 Union Bank of Nigeria, Financial Forecasts 78
Chart 52 UBA, Financial Forecasts 78
Chart 53 Zenith Bank, Financial Forecasts 78
Chart 54 Nigerian Banking Sector Public Market Comparables Operating Statistics, Part 1 79
Chart 55 Nigerian Banking Sector Public Market Comparables Operating Statistics, Part 2 80
Chart 56 Nigerian Banking Sector Public Market Comparables Valuation Analysis 81
83
January 2008
84
Afrinvest (West Africa) Limited January 2008
Section 7 Afrinvest (West Africa) Limited
Investment Research
Sales and Trading
Investment Banking
Disclaimer
85
Contacts
Investment Research
Fola Fagbule ffagbule@afrinvestwa.com

Pabina Yinkere pyinkere@afrinvestwa.com
Olatorera Omilani oomilani@afrinvestwa.com
Esohe Alile ealile@afrinvestwa.com
Babatunde Obaniyi bobaniyi@afrinvestwa.com
Sales and Trading
Jude Chiemeka jchiemeka@afrinvestwa.com
Yemi Sadiku asadiku@afrinvestwa.com
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Investment Banking
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Boye Olawoye bolawoye@afrinvestwa.com
For further information, please contact:
Afrinvest (West Africa) Limited

Foreshore Towers, 11th & 12th Floor
2A, Osborne Road, Ikoyi,
Lagos,
Nigeria.
Tel: +234 1 2701680 - 8

Fax: +234 1 2694392
www.afrinvestwa.com
86
IMPORTANT DISCLOSURES AND DISCLAIMERS
This report has been issued and approved by Afrinvest West Africa Limited (“Afrinvest”). This
report is based on information from various sources that we believe are reliable; however, no
representation is made that it is accurate or complete. While reasonable care has been taken in
preparing this document no responsibility or liability is accepted for errors or fact or for any
opinion expressed herein. This document is for information purposes only. It does not constitute
any offer or solicitation to any person to enter into any trading transaction. Any investment
discussed may not be suitable for all investors. This report is provided solely for the information
of clients of Afrinvest who are expected to make there own investment decisions. Afrinvest
conducts designated investment business with market counter parties and intermediate
customers and this document is directed only at such persons. Other persons should not rely on
this document. Afrinvest accepts no liability whatsoever for any direct or consequential loss
arising from any use of this report or its contents. This report is for private circulation only. This
report may not reproduced distributed or published by any recipient for any purpose without
prior express consent of Afrinvest. Investments can fluctuate in price and value and the investor
might get back less than was originally invested. Past performance is not necessarily a guide to
future performance. It may difficult for the investor to realize an investment. Afrinvest and/or a
connected company may have a position in any of the instruments mentioned in this document.
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regulated by the Securities and Exchange Commission to conduct investment business in Nigeria.
AFRINVEST (WEST AFRICA) LIMITED. 11TH -12TH FLOORS, FORESHORE TOWERS,

2A OSBORNE ROAD, IKOYI, LAGOS, NIGERIA. PHONE NO: 2701680 88, 269 5479-81, 269 4005,
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Afrinvest (West Africa) Limited
Foreshore Towers, 11th & 12th Floor
2A, Osborne Road, Ikoyi,
Lagos,
Nigeria.
Tel: +234 1 2701680 - 8

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Afrinvest Nigeria Banking Report 2008

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Nigerian Banking Sector

Macro-economic play on Africa’s largest emerging market

Table of Contents January 2008

Section 1 Executive Summary

Section 2 Political and Socio-Economic Update

Section 3 Nigerian Banking Sector

Section 4 Post-Consolidation Scenario

Section 5 Bank Profile: Fifteen Banks

Section 6 Operating and Valuation Statistics

Section 1 Executive Summary

Executive Summary January 2008

Independent assessment of Nigeria’s macro-economic performance

In many ways, Nigeria’s story mirrors a wider African renaissance.

Executive Summary January 2008

The wealthiest 20% of Nigeria’s population accounts for 80% of national

Chart 1: Underlying market demand in Nigeria

Nigeria (Select) 28.0 4,000.0 N/A

Tunisia 10.3 3,226.0 6.00%

Morocco 33.8 2,264.0 4.31%

Egypt 80.4 1,577.0 5.88%

Nigeria (Nationwide) 140.0 1,000.0 7.58%

Source: Standard and Poor’s, Afrinvest Research

Chart 2: Sovereign Risk Indicators, Nigeria Versus Africa I

RSA Morocco Nigeria Egypt Tunisia Kenya Senegal Ghana

Long Term Foreign Currency Rating BBB+ BB+ -

Source: Standard and Poor’s, Afrinvest Research

Executive Summary January 2008

Democracy has come to stay in Nigeria...

…and stability is spurring economic growth: a boom for banks.

A combination of robust economic growth, an ambitious government initiative to

Industry regulation is strong and forward-looking...

Executive Summary January 2008

The international investment community has continued to endorse the emergence of

...translating to accelerated development of the local financial markets.

Chart 3: NSE Market Capitalization (Trillions, Naira), Index (100=1984)

Source: Afrinvest Research

Chart 4: Sovereign Yield Curve (November 12, 2007)

Source: Financial Datanet House Limited (FDHL), Afrinvest Research

Executive Summary January 2008

Growth is broadly distributed across sectors, and primarily non-oil related.

15% Non- Oil based Growth

Source: Afrinvest Research

Executive Summary January 2008

Chart 6: Growing Reserves, Stable Currency

70 Nigeria Foreign Reserves, US$ bn Naira-USD Exchange, Naira = 1USD 160

Foreign Reserves (US$bn) Annual Average Interbank FX Rate N/$

Source: Afrinvest Research

Nigeria’s newly capitalized commercial banks, are tapping into emerging

Fresh from an enforced round of consolidation in 2005/2006, Nigeria’s lenders are

Executive Summary January 2008

Commercial realities appear to be driving a new round of capital raising.

While M&A speculation continues to be rife.

Executive Summary January 2008

Afrinvest banking universe

Chart 9: Top Tier 1 vs Mid Tier Banks 2 vs. NSE (Rebased)

Section 2 Political and Socio-Economic Update

2007 Elections: More of the Same

Stable Politics, Better Economics

Key Risks: Infrastructure, Security, Corruption

Political and Socio-Economic Update January 2008

Political and Socio-Economic Update

There have been early challenges for the new President