3. From the Group
Managing Director/CEO
I
I am pleased to present to you the maiden edition of our As the nation’s largest and most respected financial
semi-annual publication, the FirstBank Review. Through the institution with over N2.5 trillion in assets, 5 million
FirstBank Review, we seek to shed light on contemporary customers and 1.3 million shareholders, we remain
economic and business issues in a practical and readable committed at FirstBank to the development of Nigeria. One
fashion. The publication is targeted at business leaders, of the means by which we hope to do this is by stimulating
policy makers, legislators, academics, enthusiasts, and of intelligent fact-based discourse on salient business and
course, our valued customers. It will be widely distributed economic issues of our times amongst decision makers and
amongst professional organisations, blue-chip institutions, opinion leaders. It should therefore come as no surprise that
growing businesses, government agencies, as well as local we have chosen “Unlocking the Domestic Credit Market”
and international investors. as the theme for the maiden edition of our publication.
This journal is enriched with well-researched articles from We hope that you find this publication stimulating and
our Research and Economic intelligence team, respected informative, and we welcome any feedback that you might
economic and financial analysts, seasoned business have.
commentators, and is supported by an experienced editorial
team. The scope of the Review will cover an assortment of
topics over time, including recent economic developments, Bisi Onasanya
government policy pronouncements, local and global Group Managing Director/CEO
market updates, and perspectives on promising business First Bank of Nigeria Plc
opportunities within the Nigerian economy.
FirstBank Review | 1st Half 2011 3

4. Contents
VOL 1 ISSUE 1 | 2011
06 Editorial Note
10 The Economy at a
Glance
12 The Nigerian Credit
Conundrum
Tackles the question why banks with excess
liquidity do not lend more.
FirstBank Economic Intelligence
14 Regulatory Intervention:
Towards Unlocking the
Domestic Credit Market
Highlights the recent Federal Government’s
assisted funds, directed at some key sectors of
the economy.
FirstBank Research
Cover Image: YINKA OBEBE 32 Credit Growth in Africa
Examines the potential bargains implicit in the credit
markets across a number of African countries.
Razia Khan

5. 36 Sectoral
Perspectives
Outlines emerging
business opportunities
across sectors.
18 Syndicated Loans Gaining FirstBank Research
Popularity in Nigeria
Profiles the domestic syndicated credit market in the
past few years.
FirstBank Research
22 Definitive SME Guide to Getting
A Bank Loan
Provides practical tips for small business owners who
desire to secure a bank loan.
Patrick Akhidenor
26 Nigerian Banking Sector – Set to
‘Resume’ Lending?
Provides useful analysis on key policies/activities that
will influence the dynamics of banks’ intermediation
role in 2011.
47 About
FirstBank
FirstBank Research
30 Credit Dynamics: Is It Better to
Borrow in Naira or in Dollars?
Describes the root cause of credit problem/
conundrum.
Financial Derivatives Company

6. Editorial Note
F
Getting Banks to Lend Again
Financial intermediation is fundamental affected. When whole sectors of the productively. The regulator also adopted
to the success of market economies. economy are denied capital, the social several measures to promote lending to
The reason banks in particular have such and frequently political consequences of critical sectors of the real economy such
pronounced influence on economic such are enough to make governments as agriculture, manufacturing, power,
growth and development is simple: all very interested in ensuring the free flow and transportation. Notwithstanding,
businesses require financing. Financing of capital within a nation, and particularly many of the healthy banks were slow to
is to any business venture what food is in times of a recession when investments respond and individuals and businesses
to the body – a source of energy that are required to create jobs, generate did not fare much better in trying to get
allows the consuming entity to conduct stronger economic output, and ultimately bank loans. In fact, in the year ended
its activities profitably and to grow – lead to recovery. December 2010, total credit to the private
and without which it would cease to sector actually declined relative to the
be alive. And financing can come from Against this backdrop, the actions of the prior year!
multiple sources. As a child might drink Central Bank of Nigeria in the wake of
milk until it is weaned and then eat our recent homegrown banking crisis are In the same year, we as the FirstBank
solid foods, a business in its early stages very understandable. When ten banks Group (the largest banking group and
typically requires startup equity capital were deemed to be in grave condition in lender in Nigeria) grew loans at face value
and at a later stage expansion capital in 2009, the Central Bank pumped in N620 by 6%. However, because we wound
larger portions and potentially different billion to stabilize the financial sector and down nearly N150bn in loans to our
forms, and over the course of its life it went on to champion the establishment subsidiaries and replaced them with loans
may consume daily increasing rations of the Asset Management Corporation of to customers, our actual loan growth
of working capital which it continually Nigeria to purchase ‘toxic’ assets off the to customers was much closer to 20%.
replenishes to fund general activities as balance sheets of banks. It additionally We remain intrigued, notwithstanding,
it grows. When a business is in poor guaranteed creditors who had lent to by this phenomenon which we call the
financial health, it may require emergency these banks and depositors who had ‘credit conundrum’. Why are banks who
infusions of capital to keep it alive, and placed their funds with them. The are awash with liquidity so reluctant
conversely when it is doing well, it can government could not afford a situation to lend? Are the reasons to be found
also suffer from an excess of capital, when in which the failure of a few banks might within the banking system, the broader
it consumes much more than it requires, bring down healthy banks and grind the economy or with the potential borrowers
and in forms and under terms that may financial sector and economy to a halt. themselves? And what can be done to
not be the best for its long-term health. restore the vital flow of credit in the
Paradoxically, in the wake of the economy? In this edition of the FirstBank
Without over-emphasizing the metaphor, interventions, the industry found itself Review, we explore this topic and we
it becomes apparent why regulators and awash with liquidity and interest rates hope that the ensuing pages will not just
governments are so interested in keeping dropped dramatically with the benchmark elucidate the causes but will also offer
the flow of credit going. When companies NIBOR overnight rate (the rate at which practical advice and knowledge to those
become ‘starved’ of credit (and are not banks lend to and borrow from each who seek to take advantage of bank
able to finance their operations internally other) averaging 2% in the first quarter financing opportunities.
or via other means), they run the risk of 2010 (it has since shot up again). In an
of shrinking and eventually dying out effort to stimulate lending and jumpstart
- which in turn has broader social and the economy, the CBN attempted during Onche R. Ugbabe
economic implications as their employees 2010 to maintain low interest rates which Chief Strategy Officer, FirstBank
find themselves out of work and as their would theoretically allow bank customers Editor-in-Chief
creditors, suppliers, and customers are to access cheap funds and deploy them
6 FirstBank Review | 1st Half 2011

7. EDITORIAL COMMITTEE
Bayo Adelabu
Chief Financial Officer
Onche Ugbabe
Chief Strategy Officer
Morohunke Bammeke
Group Head, Operations
Richard Ogunmodede
Head, Business Performance Management
Folake Ani-Mumuney
Head, Marketing & Corporate Communications
Bismarck Rewane
MD/CEO, Financial Derivatives Company Limited
(External Reviewer)
Dr. Yomi Makanjuola
Principal Partner, Thinck Metrics (External Reviewer)
Renuka Rayasam
Roland Berger Strategy Consultants
RESEARCh/PRODUCTION TEAM
Vincent Nwani – Head, Research Unit
Tunji Inaolaji – Research Associate
Saheed Olajide – Research Analyst
INTERNAL REVIEWERS
Babatunde Salami
Head, Local Currency, Treasury
Godspower I. Nkwopara
Head, HR Strategy
Eloho Omame
Head, Corporate Development
Akeem Oladele
Head, Group Coordination
Ifeanyi Uddin
Chief Economist
Kayode Osolaja
Head, Special Projects
Oze K. Oze
Head, Publications & Conferences
CREATIVE DIRECTION/DESIGN
Symon Adeji, Sleek Media
Ayoade Ojo, DesignCave
PROPRIETARY & ENQUIRIES
FirstBank Review is a publication of the Strategy
& Corporate Development department, produced
within the Research Unit. Further enquiries/comments
and submission of articles should be directed to
Research@firstbanknigeria.com
REPRODUCTION
Copyright © 2011 First Bank of Nigeria Plc. All rights reserved.
No part of this publication may be reproduced or transmitted in
any form or by any means, electronic or mechanical, including NOTE TO READERS
photocopying, recording or any information storage device
without written permission. The views expressed in the articles are the authors’ and not necessarily those of First Bank of
Nigeria Plc. Whilst reasonable care has been taken in packaging this report, no responsibility
or liability is accepted for errors or fact or for any views expressed herein by any member of
the FirstBank Group for actions taken as a result of information provided in this publication.
FirstBank Review | 1st Half 2011 7

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10. The Economy GDP Growth
9.0 9.0
7.4
7.0 7.0 6.6 6.9 7.0 7.0 ?
6.2 2011 may mark the second
5.0 5.0 time in six years that
4.6
actual GDP exceeds the
Federal Government's
budgetary target for GDP.
? 1Q2011 figures already
appear promising at 7.4%
(in line with 2010 actual).
Outcome
Outcome
Outcome
Outcome
Outcome
Outcome
Outcome
Target
Target
Target
Target
Target
Target
Target
2005 2006 2007 2008 2009 2010 2011
2.5m bpd Crude Oil Production
2011 Daily Average
(YTD June 2011) Daily crude oil production is at its highest sustained level
since 2006. We expect strong continued production given
1.8m bpd the success of the recently-concluded general elections
and sustained peace in the Niger Delta.
2008 July
n
(Ja
et h
ark hig
X m nd to
k F isk a r FX
an r fo
US$ 153 2011 Daily Average
terb itical and
e In pol dem
t th ut
as at Jan 2011 2011) t es 2 a s abo xpec
t
(YTD June Ra N
by cern We e r.
ge ed n .
iat y co evels uarte
an rec
xch
b l
ep iven tion ing q
E ad r a
air 1) d port e com
e N 01 h
Th ne 2 ity im in t
g
- Ju mod tron
s
com ain
rem
8.0% MPR (as at June 30, 2011) Interest Rates
@ 2 year high
Interest rates have risen steeply since September 2010. Changes in
10.92% Interbank rate (overnight) the MPR and its corridors will continue to influence the direction of
(as at June 30, 2011) deposit and lending rates.
Down 2.5% from high of 13.46% in Nov. 2010
Was as low as 1.15% in June 2010
Where
are the
jobs?
19.7%
Official Une
m ployment Ra
te
12.4%
Nigeria's of
ficial unem Inflation - May
rate is high
Middle East
er than that
and North
ployment
of most of
the
2011
African nati As econo
currently w on mic activ
itnessing re ity
Nigeria ha volutions an s the chall
enge to in rallies on post ele
sa d aggregate flati ction resu
Unemploym larger proportion of expendit on control lies in lts,
ent (which youth. of inflati u
understate is likely on in imp re and moderati containing
d) remains orted go ng the im
of the gove in our view ods. pact
rnment's to one
p five priori
10 FirstBank Review | 1st Half 2011 ties.

11. at a Glance
Private Sector Credit Growth
Private sector credit growth declined from an
97% 59% 27% -5%
astronomical 97% in 2007 to a contraction of
5% in 2010. However, we expect gradual credit
growth in 2011.
Non Performing Loans (N billion)
2,922
Non Performing Loans
Nigerian Banks’ non-performing loans (NPLs) which
869 ballooned from N151 billion in 2006 (shortly after
the regulatory-induced recapitalization exercise) to
272
N2.9 trillion in 2009 reduced significantly in 2010.
209
151 Available data (for 13 banks) shows that NPLs have
declined to N869 billion in 2010 – in part due to
write-offs and the interventions of the
2006 2007 2008 2009 2010
Asset Management Corporation of Nigeria.
an Market
Syndicated Lo
e syndicated
and 2009, th e value of
owdo wn of 2008 enin g. Th
After the sl be reawak e
t appears to 2011 is greater than th
loan marke als in 09.
the tw o biggest de ecuted in 2008 and 20
of deals ex
total value
Sectoral Share of Bank Loan
The agricultural sector which contributes over
40% to the nation's GDP accounts for less than 1%
of total bank lending while telecommunications
which contributes 4% of GDP accounted for over 12%
of total bank loans in 2010.
FirstBank Review | 1st Half 2011 11

12. The Nigerian
Credit Conundrum
FirstBank Economic Intelligence
T
The larger context for the ongoing debate With the banks awash with new liquidity,
about current constraints in the domestic questions have inevitably been raised
credit market is the astronomical growth about a credit squeeze, and much effort
in credit to the private sector, which spent trying to device new approaches to
occurred between 2006 and 2008. In unlocking the domestic market for credit.
excess of 100% per annum within this Again, the CBN’s intervention in this
period, it is worth recalling that the bulk regard has been the most noticeable. The
of this credit growth fuelled speculative jury is not yet in on the extent to which
activity in non-productive sectors of the apex bank’s quasi-fiscal operations
the economy, especially connected may have helped to improve credit flow
party lending, margin lending, and oil to the real sectors of the economy, but
importation. it is hard not to commend much of what
the CBN has done thus far.
It was inevitable therefore, that the Central
Bank of Nigeria’s (CBN) intervention to Nevertheless, success in unlocking the
reform and repair the sector would lead domestic market for credit will however
to an attenuation of domestic credit depend on getting the right mix along
growth. The latter consequence has four interconnected dimensions of the
been the main upshot of stronger risk economy. First, the banks. Traditionally,
management frameworks, and improved their business model has focused on
governance arrangements. However, it generating retail liabilities and on-lending
is hard to ignore another effect of the these to the top corporate names. As the
apex bank’s attempts at cleaning up the structure of the economy has changed
industry’s balance sheets. Along with the with successive reforms, this model has
Asset Management Company of Nigeria’s been challenged by a noticeable bulge
(AMCON) purchase of the industry’s in the middle of the economy. Along
non-performing loan portfolio, the CBN’s with the transition in the trend growth
guarantee on interbank transactions rate of the economy from around 4%
helped push up bank liquidity beginning prevalent in the late 1990s to around
2011.
12 FirstBank Review | 1st Half 2011

13. 7% today, there has emerged a new which ensure that the landing cost of noticed attempts by policy makers to
middle class in the country with financing imports is cheaper than for domestic stimulate credit growth by lowering
needs which the banks are ill-prepared production have helped contract the interest rates to near zero. LIBOR which
to serve. Change would thus see the manufacturing sector. The challenge here came down to 0.5% per annum combined
banks re-appraise their pricing models, is to reduce the cost of doing business with huge doses of quantitative easing
risk acceptance criteria, and the size of in the economy, including the provision did little to motivate banks into a bullish
their loan packages if they are to take of infrastructure through the public- lending mode. The same happened in
advantage of the new vistas opening up private partnership, in the expectation Nigeria (March-June 2010) when OBB and
in this sector. that growth in the manufacturing sector T/Bill rates declined to 3% per annum,
will drive a resurgence in the demand and we did not notice a spike in lending.
Much of the rest of what has to be for credit. This means that low interest rates and
done though is completely beyond the liquidity saturation do not on their own
banks’ ken. Emergent sectors of the This latter challenge is a fiscal one. alter banking and lending behaviour.
economy demand specific responses, Government must create the environment It is the perception of risk that makes
stemming, among others, from the fact for this to happen. Government though, the difference. In the U.K. like other
that they still suffer from a narrowness of has an added task: fiscal consolidation. advanced markets, it took approximately
entrepreneurial competences. Most small Since 2006 and on the back of revenue 24 months after the stimulus before we
and medium sized enterprises operating over-performance from elevated crude noticed any substantial increase in credit
in the economy today still do not know oil prices, government spending has extension and flows to the market. One
how to optimise their capital mix, cannot grown steadily. Government debt has thing that is common between lenders
put coherent business plans together, grown too. And as banks have dealt with response to policy incentives across
and often do not keep adequate books net interest margin pressure through various markets is that the trauma of the
of accounts. So, even to the most increasing their holding of government financial crisis led to a high level of risk
entrepreneurial of this class, it would be instruments, government has contributed aversion which takes time to thaw.
hard to see much credit flowing their significantly to crowding out private
way unaided. sector borrowing. Adjusting the public All told, it would be necessary, in light
expenditure management framework to of the feedback between these diverse
In spite of this, credit opportunities were take cognisance of this would thus be dimensions of the economy that a
always going to be constrained by the a useful contribution to the process of solution to the credit problem be all
fact that manufacturing contributed unlocking the domestic credit market. inclusive. This was always going to be a
4.19% of GDP in 2009. Ideally, one of challenge to be solved over the medium,
the areas in which net capital formation As an international bank, there are certain and not the short term.
should take place in the economy, and to characteristics of the global recovery
which credit should flow for this purpose, which we noticed in the various markets
structural constraints in the economy, where we operate. For example, we
FirstBank Review | 1st Half 2011 13

14. Regulatory
Interventions:
Towards Unlocking the Domestic Credit Market
FirstBank Research
E
Evidently, the Federal Government appears determined to influence and stimulate
the level of economic activities in the real sector of the national economy.
Within the last 20 months, the Central Bank of Nigeria (CBN) has released four
guidelines for disbursement of funds totaling N900 billion, directed at boosting
real activities across five sectors. The four Funds, with varying loan tenures, are
Commercial Agricultural Credit Scheme (CACS), SME Credit Guarantee Scheme
(SMECGS), SME/Manufacturing Sector Refinancing/Restructuring Fund, and Power
and Aviation Intervention Fund (PAIF). The Funds are earmarked to finance five
sectors: Agriculture, Aviation, Power, Education and SME/Manufacturing. Prior to
2010, the last time the Federal Government injected direct funds into the real sector
was in 2006 (Agriculture Credit Support Scheme). In the table shown below, we
highlight the funds’ basic framework:
14 FirstBank Review | 1st Half 2011

15. FirstBank Review | 1st Half 2011 15

16. Profile of Recent Government Assisted Funding
Funding Intervention Year of Establishment Amount Sectors to be Funded
Measures /Release of Guideline (N ‘Billion)
Agricultural Credit April, 2006 50 Agriculture (Establishment or
Support Scheme management of plantations;
cultivation or production of
crops; livestock; farm machinery
and hire services)
Commercial Agricultural January, 2010 200 Agriculture (Production of cash crops,
Credit Scheme food crops, poultry, livestock,
aquaculture; processing; storage;
and farm input supplies)
SME Credit Guarantee March, 2010 200 • Manufacturing
Scheme • Agricultural Value Chain
• Educational Institutions
• Any other activity as may be specified
by the ManagingAgent from time
wto time
SME/Manufacturing April, 2010 200 • Nigerian SME/Manufacturing Sector
Sector Refinancing/
Restructuring Fund
Power, Aviation & August, 2010 300 • Power
Infrastructure Fund (PAIF) • Aviation
Source: Funds’ Guidelines
What happened to the target sectors still face onerous by government, funding gaps have
challenges that inhibit their ability to persisted (and appear to be approaching
Funds? easily access financing. Key among epic proportions), when seemingly the
Figures from CBN show that the funding the limiting factors are: nation’s GDP growth is increasingly being
schemes have been largely successful in disconnected from bank lending.
terms of disbursement and utilisation. For • Difficulty encountered in obtaining
instance, as at December 2010, over 60% Irrevocable Standing Payment Order In the Nigeria Vision 20:2020 – First
of the funds directed at the agricultural (ISPO) from state governments National Implementation Plan (2010–
sector had been disbursed. Updates of to guarantee loans disbursed to 2013) Blueprint (draft copy) – released
the funds utilisation are highlighted as farmers in their various states; in May 2010, the Federal Government’s
follows: • Mismatch between the mean time planned investment across all sectors of
for processing credit and the timing/ the domestic economy between 2010
• N109.628 billion out of the N200 seasonality of the available business and 2013 is estimated at N7 trillion.
billion CACS Fund has been opportunities for which the loan is The top-5 priority sectors are projected
released for disbursement to sought; to account for 73.6% of the total
115 beneficiaries (comprising 95 • Inability of the fund-seekers to investment expenditure estimate. The
individuals/private promoters and provide the required security as priority sectors, in descending order
20 State Governments), through 12 stated in the Fund guidelines, of indicative allocations, are: transport
banks (as at February 2011); especially when banks have to bear (N2.43 trillion), power (N880.98 billion),
• N199.6 billion out of the N200 the credit risk. education (N611.66 billion), agriculture
billion for re-financing/re-structuring & water resources (N595.34 billion), and
of banks’ existing loan portfolios to oil & gas (N541.79 billion).
Any Funding Gap?
the manufacturing sector and SMEs
was disbursed to 539 beneficiaries The recent Intervention Funds Similarly, the expenditure in the power
across 12 different sectors of the pronouncement is positive confirmation sector over the next ten years is projected
economy (as at December 2010); that government is aware of the financing at about $100 billion (N15 trillion) – in
• N35.82 billion out of the N50 billion challenges facing the real sector of order to increase electricity generation
ACSS Fund has been guaranteed the economy. However, the available from its current level of less than 4,000
since inception (as at June 2010); funds are just a fraction of the financing megawatts to 40,000 megawatts by 2020.
resources required by the sector to regain Projections of the other priority sectors
This apparent success traction and achieve sustainable growth. will likely follow a similar pattern.
notwithstanding, operators in the Despite the ongoing funding initiatives
16 FirstBank Review | 1st Half 2011

17. The national and sub-national “Clearly, aggregated the impediments which have hampered
governments’ investment in these the private sector’s ability to access credit
sectors is to enable a conducive investments in facilities from banks. In addition, such
environment and to galvanise the private these sectors will strategic measures should checkmate past
sector’s participation in the economy. pitfalls (e.g. ballooning of non-performing
Cumulatively, the funding required to open up investment loans, escalating interest rate, etc.), as
achieve the anticipated sectoral/economic opportunities for the well as pre-empt future hindrances.
development projections is massive.
private sector. But it A related and festering concern is the need
Clearly, aggregated investments in will be very difficult to accelerate land reforms. In Nigeria, the
these sectors will open up investment primary collateral for bank loan requests
opportunities for the private sector. But
for the private sector is landed property, and, over the years,
it will be very difficult for the private solely to finance all this has created an incongruous barrier
sector solely to finance all the sub-sectors
of the real sector to the extent of their
the sub-sectors of to entrepreneurship. Recognising this
fact, government, in 2007, included land
funding requirements, without financing the real sector to the reforms in its 7-point agenda, stating
assistance from the banking sector. extent of their funding “While hundreds of billions of dollars have
been lost through unused government-
In the Doing Business Report (2010), requirements, without owned landed assets, changes in the land
a co-publication of Palgrave Macmillan, financing assistance laws and the emergence of land reforms
International Finance Corporation (IFC) will optimise Nigeria’s growth through
and the World Bank, Nigeria ranked from the banking the release of land for commercialised
125th position out of the 183 countries sector.” farming and other large-scale businesses
surveyed in the report. The ranking was by the private sector. The final result
a decline from the 120th position Nigeria translates to improved welfare”. Hence to will ensure improvements and boosts
achieved in 2009. realise this goal, the Bankers’ Committee to the production and wealth-creation
“has identified three key sectors: power, initiatives.”
The difficulties that characterise the ‘Ease transportation and agriculture, as most
of Doing Business in Nigeria’ index have critical to the development of the real Additionally, it is important to develop the
a strong direct correlation with funding. economy, as well as the change that primary and secondary markets for long-
In a survey by the World Bank, “An will drive other sectors and contribute to term debt. This is particularly important
Assessment of the Investment Climate economic development in Nigeria.” given the banks’ limitation in extending
in Nigeria (2009)”, it was reported that loans to the real sector (considering their
only 1% of the business financing needs Five key decision thrusts that would loan/deposit maturity mismatch profile).
in Nigeria are sourced from banks and influence Bankers’ Committee’s lending The current practice whereby the bond
other financial institutions. The remaining provision to the three identified sectors market is dominated by government
business financing comes from internal are: at the expense of the private sector
funds/retained earnings (70%), suppliers’ is not sustainable for a country that
credit and advances from customers • Identification of initiatives in each of has identified the private sector as its
(25%), and borrowing from family and the focus sectors that the financial primary engine of economic growth. Both
friends (4%). system will support; government and financial intermediaries
• Determination of the requirements should institute strategies that will reduce
Access to financing, according to the for success, including funding; the crowding-out effect of government’s
Global Competitiveness Report (2010– • Engaging in advocacy to effect borrowing at the expense of private
2011), was the most problematic factor government policy changes; sector lending.
impeding doing business in Nigeria • Support for industry-wide capacity-
out of the 15 factors considered in the building; While the issues described above
report. The other factors, in descending • Work on the development of are considered crucial to unlocking
problematic order, are: inadequate supply regulation and legislation to support the domestic credit market, all key
of infrastructure, corruption, policy lending to the sectors. stakeholders should ardently brainstorm
instability, government instability/coups, and fine-tune the modalities to actualise
inefficient government bureaucracy, the strategic objectives that would spur
inflation, inadequately educated Bridging the Gap sustainable economic growth. This will
workforce, crime and theft, poor work With the apparent mutual understanding facilitate deeper understanding of the
ethics in national labour force, foreign of the funding gap and remedial actions funding schemes and the technicalities
currency regulations, restrictive labour to bridge the gap, a new chapter appears of lending to the real sector. This is
regulations, poor public health, tax to have been opened in the Nigerian a clarion call to all stakeholders to
regulations, and tax rates. real sector financing. However, to pro-actively champion and contribute
orchestrate tangible increase in credit towards Nigeria’s attainment of the
Interestingly, one of the four cardinal to the private sector (real sector, in enviable position of ‘one of the 20 largest
pillars of the CBN’s ongoing reform particular), all parties must concertedly economies by 2020’.
is “ensuring that the financial sector design pragmatic strategies that will
contributes to the real economy, which reduce actual and inherent risks in the real
is very critical to the type of growth that sector. By so doing, this should reduce
FirstBank Review | 1st Half 2011 17

18. Syndicated
Loans Gaining
Popularity in
Nigeria
FirstBank Research
Over the past five years, about 64% of syndicated lending in Nigeria went
to the telecommunications sector and 20% to oil & gas.
When Etisalat Nigeria closed on a representative in the Etisalat syndicated have taken advantage of loan syndication
syndicated loan deal earlier this year, it loans deal, “just one bank may not be structures. Over the past five years, about
was a sign of renewed dynamism in the able to shoulder that level of borrowing 64% of syndicated lending in Nigeria
country’s lending markets. Eight Nigerian because of the size of the facility”. went to the telecommunications sector
lenders financed the N97 billion facility. and 20% to oil & gas. In recent years,
The mobile operator plans to use the funds Etisalat first approached lenders in the country has averaged only about
to aggressively expand its network across December 2010. Over the course of the four syndicated deals per year. But as the
the country, buying new equipment and next few months, the FirstBank team Nigerian government intensifies its power
building new infrastructure. along with representatives of other major sector reforms, banks will be called upon
lenders met multiple times to flesh out to finance even more capital-intensive
In such transactions, several banks team the details. Although the banks strove projects.
up to structure and underwrite a single to protect their own interests, there
large loan, allowing them to share were nevertheless no major obstacles in Clients seeking to approach lenders
information and diversify their risks. As agreeing stipulated terms. “While such for a syndicated loan must be well-
Nigerian banks continue to strengthen deals take more time and co-ordination, prepared. While it helps to have a good
their balance sheets and stabilise their they are worth it because they help existing relationship with lenders, the
positions, syndicated loans represent banks to better evaluate risks, and ensure most important selling point is a strong
the type of financing schemes that an certain comfort in knowing that all the proposal. Potential borrowers must have
increasing number of Nigerian firms will banks are in the same situation.” a clear idea of what they are using the
explore. facility for, be able to show strong cash-
Syndicated deals have for long been a flow projections and prove that they have
With the slow thawing of the credit staple in Western markets. In the U.S., good management. Clients make the deal
environment in Nigeria, loan syndication they formed 51% of total corporate as straightforward as possible for lenders
deals offer companies a way to finance financing in 2007. By contrast, in Nigeria by showing profitability, sticking to loan
major capital-intensive projects, which they were 12% of corporate lending that terms and communicating regularly with
are often too large for just one lender year. Since then, an increasing number all lending partners.
to undertake. According to the FirstBank of companies in mostly mature sectors
18 FirstBank Review | 1st Half 2011

19. FirstBank Review | 1st Half 2011 19

20. Top-10 Banks in the Nigerian Loan Syndication Market (2006–2010)
Bank Amount (US$ ‘m) No. of Deals
Platinum Habib Bank Plc 9,576.23 10
Access Bank Nigeria Plc 8,953.39 9
First Bank of Nigeria Plc 8,808.39 9
Oceanic Bank International Nigeria Plc 7,431.85 9
Stanbic IBTC Bank Plc 8,717.54 9
United Bank for Africa Plc 7,211.00 9
First City Monument Bank Plc 8,688.39 8
Guaranty Trust Bank Plc 8,688.39 8
Standard Chartered Bank Nigeria Plc 8,799.54 8
Zenith Bank Plc 8,684.65 8
Source: FirstBank Research
Supportive Operating syndication scheme. It is our belief that up in monetary policy rates, in our view,
Environment the Freedom of Information Bill (FIB) signals higher interest rates on domestic
passed by the National Assembly, once debt instruments. CBN has indicated that
Growing interest in loan syndication is signed into law, will bolster information it is prepared to tighten further should
a product of its intrinsic loan portfolio dissemination and disclosure, going the inflation outlook worsen in 2011. It
diversification attribute, as it reduces forward. is our hope that fiscal consolidation and
excessive single-lender exposure risk. It likely interest rate hikes later in the year
also serves the dual purpose of aiding At the Monetary Policy Committee (MPC) will not be at the expense of the recovery
financial institutions to comply with strict meeting held on March 21 to 22, 2011, of credit growth.
regulatory limits and in curtailing risk. the CBN noted that the net foreign assets
In terms of earnings, it enhances mixed in the first two months of 2011 posted With about N1.5 trillion yearly investments
income sources through the collection positive growth, the first time since estimated for the power sector over the
of fees, while tackling lack of origination January 2009. Therefore, enhanced credit next ten years, analysts have projected a
capability and origination costs. flow to the private sector is envisaged three-digit growth rate multiplier effect in
due to the high potential for accelerated the power and ancillary sectors, provided
One major challenge that arrangers and growth, the stabilisation of the banking the ongoing power reform programme
other players in the loan syndication sector and improving investor confidence, intensifies and is sustained.
market face is the uneven access to following the take-off of the Asset
market information amongst them Management Corporation of Nigeria
and other participants in a given loan (AMCON). On the downside, the trending
20 FirstBank Review | 1st Half 2011

21. One major challenge that arrangers and other players in the
loan syndication market face is the uneven access to market
information amongst them and other participants in a given
loan syndication scheme.
*Profile of Syndicated Loans in Nigeria
Project Syndicated/Beneficiary Amt Banks Involved Year
Involved
(US$’Mn)
Transcorp – Acquisition of 75% stake of NITEL 750.00 consortium of Nigerian banks 2006
Obajana Cement Plc – Construction 160.00 consortium of Nigerian banks 2006
Celtel – Network Expansion 1,584.00 12 Nigerian Banks and 13 International Banks 2007
Zenon Petroleum 1,500.00 BNP Paribas of France & 9 local Banks 2007
House for Abuja Civil Servants 769.00 Oceanic Bank and two other local Banks 2007
Xechem Pharmaceuticals 7.69 Bank PHB & Diamond Bank 2007
Eleme petrochemicals 123.00 Stanbic Bank, UBA and Fidelity Bank 2007
AES Nigeria Barge 270MW Power Station Project 25.00 Local Banks 2007
NLNG Trains 50.00 Local Facility Agent 2007
NNPC/MPN NGLII Project Financing 50.00 Nigerian Banks 2007
NNPC/MPN $600m Satellite Oil Field Financing 90.00 Local & International Banks 2007
Lekki Infrastructure Project 46.15 Local Banks 2007
Refinancing the New Lagos Airport Terminal Project 153.85 Access, FirstBank, GTB, Oceanic, Zenith, FCMB 2007
MMA2 Lagos Project 250.00 Oceanic Bank 2007
MTN Nigeria 2,000.00 consortium of 21 foreign and Nigerian banks
and financial institutions 2007
Exxon Mobil - finance exploratory and 265.00 United Bank for Africa Plc, Oceanic Bank, 2008
production activities Standard Chartered Bank, Skye Bank, Zenith Bank,
Bank PHB, Access Bank and Union Bank Plc
Lafarge Cement- WAPCO - Ewekoro 268.74 Stanbic-IBTC, GTBank, Std Chartered, FirstBank, 2009
Expansion Plant UBN, Ecobank, Bank PHB, Access, FCMB
Main Street Technologies 120.00 AfDB, DEG, First Bank of Nigeria Plc, Skye 2009
Bank Plc
MTN Nigeria 2,150.00 Access Bank, Afribank, Bank PHB, Citibank,
Diamond Bank, Ecobank, FCMB, Fidelity Bank,
FirstBank, GTBank, Stanbic IBTC, Standard
Chartered Bank, Union Bank,UBA, Zenith Bank,
Industrial & Commercial Bank of China and
KfW IPEX-Bank of Germany 2010
AccuGas Limited 60.00 Stanbic IBTC, UBA 2010
Etisalat - Network expansion 650.00 FirstBank, Zenith Bank, Access Bank, Fidelity Bank, 2011
Bank PHB, GTBank, UBA, and Oceanic Bank
Shell Petroleum Development Company of Nigeria 30.00 FirstBank, Zenith Bank, UBA 2011
Limited - Shell Contractor Support Fund
Source: FirstBank Research
*Commercial banks still dominate the primary syndicate market all over the world and they appear not in a hurry to leave the space
FirstBank Review | 1st Half 2011 21

22. Definitive SME
Guide to Getting
A Bank Loan
*Patrick Akhidenor
“Mr. Small-Medium Business” is likely to taken regarding the appropriate
point accusingly to lack of access to bank form of support, which may not
loans as the greatest challenge he faces. always be direct lending. A business
But, is this real or mere exaggeration owner must be able to clearly
and possibly prejudice? If this conjecture express the precise financial need. The longer a
is true, why is this so and, how can it be A lender will need to know if, for
reversed? This short article will attempt example, the actual purpose is for business has been
to address this issue. the payment of salaries, financing in existence, the
of receivables, or if the request is
Lack of Access to Bank Loans – more capital-oriented for, say, the more likely that
Fact or Myth?
construction of a factory. When the it has assimilated
funding request is vague, what “Mr.
Generally speaking, the small business is by Small-Medium Business” seems to be
and weathered
design “unitary” with ownership centred conveying is arbitrariness, ambiguity the vicissitudes
on a “key man” and supported nominally or evasiveness. Consequently, a
by his close family and, sometimes, a few lender would rather choose to err
of its operating
friends. Typically, the business derives on the side of caution…; environment;
its vision and dynamism from this key
man who often has very limited funds at • Business plan or FEASIBILITY
“surprises”
his disposal but almost unlimited ideas study. This will readily indicate if should therefore
and boundless optimism. His inability to the promoter, especially where start- be less frequent
transmit the vision and potential he SEES up risk is envisaged or expansion
to his banker often hampers his access to into some new area of business and financial
funds. On his part, his banker’s checklist is intended, has carefully thought projections
would usually focus on the following: through the business idea and is able
to articulate its viability and back likely to be more
• A clear loan PURPOSE. Clarity it up with documentary evidence. realistic.
and conviction, exhibited by the Otherwise, the promoter might
prospective borrower for the simply come across as a spontaneous
requested bank loan, will make for or impulsive risk taker;
easier and faster decisions to be
22 FirstBank Review | 1st Half 2011

23. • C A PA C I T Y t o re p a y . A f t e r • Reliable FINANCIALS with good extra mile to ensure the success
conducting appropriate due CASh FLOW Projections and of a deal or transaction and not
diligence on the character and supporting ASSUMPTIONS. More “abandon ship at the slightest signs
credibility of “Mr. Small-Medium often than not, “Mr. Small-Medium of turbulence” if the borrower has
Business” – usually sourced from Business” pays very little attention personal funds at risk. Oftentimes,
past credit history, and professional to keeping good, reliable, and collateral stake is also required, in
relationship with employees, readily accessible financial records. addition to equity where the risk is
suppliers, trade partners, etc. – a Often categorised as “one-man perceived to be quite high, and given
lender would need to assess and businesses”, such business owners the need to comply with regulatory
determine from current business characteristically focus more on cost requirements for lending.
operations whether the loan can be savings (by not engaging the services
repaid as and when due, towards of accountants or auditors) than on With the above pointers as guidelines, the
achieving a win-win proposition for keeping good finance records. perennial claim by small to medium-sized
both parties. Business acumen and Obviously, the better the quality of business owners of poor access to bank
conservative financial management available financial records, the more loans should become less emotional but
skills are two key attributes of easily banks can understand and rather premised on hard-nosed reality.
successful and long-term business assess the needs of customers;
owners;
• P ro m o t e r ’s e q u i t y S TA K E . *Patrick Akhidenor is a Senior Credit Analyst in FirstBank
• Track record or EXPERIENCE. Generally, the credibility of a proposal
Obviously, the longer a business will reflect in the level of equity that
has been in existence, the more the promoter has in the proposition.
likely that it has assimilated and A lender is more inclined to support
weathered the vicissitudes of its a request that puts the promoter’s
operating environment; “surprises” own personal funds at risk than one
should therefore be less frequent where the promoter’s risk is tied
and financial projections likely to be to the expected margins or profit.
more realistic; Economic history has shown that
business owners will usually go the
FirstBank Review | 1st Half 2011 23

25. DNAL
RESIURC
BPL
BRISCOE PROPERTIES LTD
TA
YO
TO

26. Nigerian Banking
Sector - Set to
‘Resume’ Lending?
FirstBank Research
A
As the global financial and economic
recovery continues, the need for the
domestic banking industry to ‘resume’
lending to the private sector gains higher
credence, albeit with greater prudence
and consideration to inherent risks in
business transactions, especially those
considered as ‘notable transactions’.
26 FirstBank Review | 1st Half 2011

27. FirstBank Review | 1st Half 2011 27

28. Catalysts in the Nigerian may prescribe afterwards. Banks were Extension of CBN Guarantee
required to submit their compliance
At its meeting on March 21 to 22,
Banking Industry plans on or before February 14, 2011.
2011, the Monetary Policy Committee
Key policies/activities that will influence Except the four banks that have chosen
(MPC) extended the CBN Guarantee for
the dynamics of banks’ intermediation to operate a holding company (Holdco)
all interbank transactions, and foreign
role in 2011 include the following: model (FirstBank of Nigeria Plc, United
credit lines, as well as pension funds’
Bank for Africa Plc, Stanbic IBTC Bank Plc
placements with banks from June 30,
and First City Monument Bank Plc), many
CBN Policy on Cash Withdrawals 2011 to September 30, 2011.
other banks plan to sell their subsidiaries.
/Lodgments Limits Even those that choose the Holdco model
A key issue that will determine how
In an effort to reduce the dominance may not retain all their subsidiaries.
quickly CBN can withdraw its guarantee is
of cash in the Nigerian economy Consequently, consolidation activities
the success record of the recapitalisation
and encourage the use of electronic (joint ventures, alliances, mergers and
exercise/pending sale of the rescued banks.
payment systems, the Central Bank of acquisitions) are expected to intensify
If mergers/acquisitions/recapitalisation
Nigeria (CBN), in collaboration with in 2011.
exercise is successful, and with AMCON
the Bankers Committee, has set limits firmly in place, the likelihood that CBN will
on cash withdrawals and lodgments by In addition, there could be a restructuring
not extend the guarantee further from
individuals (N150,000) and corporate of customers’ composition across banks,
September 30, 2011 is very high, as both
institutions (N1 million) transacting depending on each bank’s operating
investors and creditors will have access
with Deposit Money Banks (DMBs). This model – coverage and ease of access
to sufficient information to enable them
directive, effective from June 2012, is to other financial services will be key
assess the inherent risks before making
also expected to help moderate the cost determinants.
commitments – thanks to uniform year-
of cash management and reduce related end, supportive regulatory regime and
incidences of security breaches and Sale of Toxic Assets banks’ migration to International Financial
money laundering activities. Plainly, the establishment of Asset Reporting Standards (IFRS).
Management Corporation of Nigeria
Given its primary objectives, it is our (AMCON) in 2010 was the reform catalyst If CBN removes its guarantee on all
opinion that this policy initiative is required to propel the recovery of the interbank transactions and foreign credit
commendable. Majority of the world’s domestic money and capital markets. lines, the expectation is that there will be
advanced and emerging economies a surge in interbank rates, depending on
have since transited from cash-dominant 21 deposit money banks (DMBs) met the risk level, across various maturities.
systems to electronic payment channels, the December 30, 2010 deadline set by
hence a policy that will elevate Nigeria AMCON for all DMBs to sell their toxic Expiration of Rescued Banks
to the committee of nations that has assets to the company. The portfolio of
entrenched electronic payment platforms Interim Tenures
impaired assets of the 21 DMBs comprised
in their financial culture is timely, N2.43 trillion from 9 rescued banks and August 14, 2011 and October 2, 2011
appropriate and admirable. However, N581 billion of 12 healthy banks. The will mark the end of the 2-year tenure
as laudable as the policy initiative may total value of toxic assets of the banks given to the interim Chief Executive
appear, the practical implications in a is within the limit of N3 trillion in bonds Officers appointed by the CBN for 8 of
Nigerian economy that is traditionally cash that AMCON plans to issue. the management teams of the 10 rescued
oriented demands that all stakeholders banks.
pull together to discuss and agree its In line with the terms of the loan purchase
‘operability’. The debate should also agreement AMCON signed with DMBs The first batch (with August 14, 2011
address the lingering risks associated with on the purchase of their toxic assets, tenure expiry date) includes Oceanic
online banking in Nigeria. AMCON has started injecting funds into International Bank Plc (John Aboh),
the banks. The action has facilitated more Intercontinental Bank Plc (Lai Alabi),
New Banking Model trading activities in the market shares of Afribank Plc (Nebolisa Arah), Union
DMBs. Given the volume and influence Bank of Nigeria Plc (Funke Osibodu), and
CBN, in its effort to promote a sound
of the banking industry’s shares on the FinBank Plc (Susan Iroche).
financial system in Nigeria, repealed
the Universal Banking Guidelines (UBG), movement of other stocks, the multiplier
effect of the industry’s gains are also The second batch (with October 9, 2011
effective from November 15, 2010. The
being felt across other sectors of the tenure expiry date) comprises: Spring
repeal was approved after months of
market. Bank Plc (Sola Ayodele), Bank PHB Plc
deliberations, consultations and intensive
(Cyril Chukwuma), and Equatorial Trust
review, in order to curtail the exposure of
With this development, we expect Bank Ltd (Gbolahan Folayan).
banks to higher operating risks, as well
as prohibit investment of depositors’ investors’ confidence in quoted bank
shares to rise. This will facilitate financial The CEOs of the remaining two banks
funds into risky adjacent non-banking
stability and credit expansion, as well as (Wema Bank Plc and Unity Bank Plc)
businesses that often heighten financial
further enhance the depth and liquidity of will remain in charge, but have been
system instability.
the domestic money and capital markets mandated to recapitalise their banks.
in 2011. We expect CBN to make specific
The expected effective date for compliance
pronouncements on the tenure of all the
is May 14, 2012 (i.e. 18 months from the
appointed CEOs before August 14, 2011.
regulation date) or such date as the CBN
28 FirstBank Review | 1st Half 2011

29. A key issue that will The CEOs’ tenure may be extended if and protecting against money-laundering
the bid to finalise the consolidation fails and terrorism financing, as well as help
determine how quickly to materialise before these expiry dates. protect individual customer’s interests.
CBN can withdraw
its guarantee is the Corporate Governance Increase in MPR, CRR & LR
As a fallout of the CBN’s special audit At its third meeting in 2011, MPC
success record of on all banks in mid-2008, the apex bank unveiled its decision to raise the Monetary
the recapitalisation has renewed its efforts to enshrine good Policy Rate (MPR) – from 7.5% to 8.0%. It
exercise/pending sale corporate governance in the banking
sector. Two major pronouncements by
would be recalled that the CBN had also
increased in January 2011 the Liquidity
of the rescued banks. If the CBN in this regard relate to tenure Ratio from 25% to 30% (effective March
mergers/acquisitions/ limit for directors and external auditors’ 1, 2011) and Credit Reserve Ratio (CRR) -
independence. from 2% to 4% (effective June 8, 2011).
recapitalisation exercise The overall effect of this tight monetary
is successful, and with Tenure Limit for Directors: On January policy is a rise in interest rate, and possible
19, 2010, CBN released a circular, decrease in inflation rate.
AMCON firmly in place, restricting the tenure of banks’ CEOs to
the likelihood that 10 years, and non- executive directors’ Nigerian Uniform Bank Account
tenure to 12 years.
CBN will not extend Number
the guarantee further Auditors Independence: On September On August 19, 2010, CBN released a
13, 2010, CBN released another circular, policy on the standardisation of account
from September 30, requesting banks to replace auditors numbering for all banks in Nigeria.
2011 is very high, as that had spent over 10 years, effective NUBAN is a 10-digit code that will enable
both the employer and the presenting
both investors and December 31, 2010. The 10-year tenure
for external auditors is in line with the bank validate account numbers. The
creditors will have provisions of paragraph 8.2.3 of the deadline for the full compliance by the
access to sufficient CBN Code of Corporate Governance for banks is May, 2011.
Banks.
information to enable CBN expects “every bank to maintain
them assess the The primary objectives of these circulars/ their present Account Numbers and use
directives/guidelines are to enforce them for their internal operations only
inherent risks before succession planning and promote good as from the effective date of NUBAN,
making commitments corporate governance in the banking but every such account number would
industry. Hence, we expect more robust have to be mapped to a NUBAN code as
– thanks to uniform corporate governance practices and an Alternate Account Number. The bank
year-end, supportive enhanced investors’ confidence in the customer should be provided with only
banking sector in 2011. the NUBAN code which he/she would use
regulatory regime and as a means of account identity at every
banks’ migration to Update on Bank Account interaction with the bank.”
International Financial Information We expect the policy to have a positive
Reporting Standards On November 29, 2010, CBN directed impact on banking transactions,
(IFRS). all customers of banks and financial
institutions in Nigeria to update their
by reducing error rates and undue
delay in Automated Clearing House
account information by January 31, processing activities, and consequently,
2011. facilitate seamless payment processing
nationwide.
We expect this account update, which
forms part of the Customer Due Diligence
(CDD) and Know-Your-Customer
(KYC) requirements commonly applied
internationally to assist in monitoring
FirstBank Review | 1st Half 2011 29

30. Credit Dynamics:
Is It Better to Borrow in
Naira or in Dollars?
Financial Derivatives Company
A
As Nigeria’s financial markets have evolved this past decade,
one of the most compelling concerns for investors, speculators
and businessmen has been how best to navigate the stormy
waters of the country’s credit markets. Undoubtedly, this is
a highly pertinent issue in an economy dominated by trade,
where the relative propensity to import hovers around 65%.
Peripherally, the introduction of a financial instrument, Forex
Forwards, appears to be breathing new life into the debate of
whether it is better to borrow in local or foreign currency.
30 FirstBank Review | 1st Half 2011