Competition looms as CBN issues new banking licences

With the Central Bank of Nigeria (CBN) issuing licences to six new banks in the last three years, older lenders are bracing for more competition in the industry, New Telegraph’s findings show. Latest data obtained from the apex bank shows that between 2019 and June this year,


it has issued licences to a total of six lenders, comprising three commercial banks, two non-interest banks and a merchant bank.


This brings the total number of lenders in the country, as at the end of June this year, to 32.


Specifically, the latest entrants are Parallex Bank, which holds a commercial banking licence with regional authorisation; Lotus Bank Ltd, holding a non-interest banking licence with regional authorisation and Greenwich Merchant Bank  which obtained a merchant banking license with national authorsation last year.


In 2019, CBN issued a commercial banking licence with regional authorisation to Globus Bank Limited; it issued a commercial banking licence with national authorisation to Titan Trust Bank Limited and non-interest banking licence with regional authoriseation to TAJ Bank Limited.


According to CBN regulations, the minimum capital requirement for commercial banking licence with regional authorisation (regional bank) is N10 billion, while for commercial banking licenses with national and international authorisation, it is N25 billion and N50 billion, respectively. For a merchant bank, the minimum paid-up share capital is currently N15 billion.

Also, the CBN’s guidelines for the regulation and supervision of institutions offering non-interest financial services require that national non-interest banks should have a capital based of N10 billion and will operate in every state of the federation, including the Federal Capital Territory (FCT), while    regional non-interest banks should have a capital base of N5 billion and will operate in a minimum of six states and a maximum of 12 contiguous states of the federation, lying within not more than two geo-political zones as well as the within the Federal Capital Territory.


Industry sources told New Telegraph that while the new banks may have a long way to go before they start competing aggressively with their older counterparts on lending and deposits, the latter are keeping a wary eye on them, especially given that the industry was already focusing on the competition from Fintechs and payment service banks (PSBs).


A top banker, who spoke on condition of anonymity, stated that the newly licensed banks will give the older lenders more serious competition than PSBs, for instance, which are not permitted by CBN to extend loan facilities to their customers.


The banker said: “Contrary to what a lot of people think, there is still room for more banks in the industry. For instance, I can tell you that if any of the newly licensed banks can extend a huge loan facility to a state government, the interest income it would earn from that transaction alone can be enough to cover its costs for a year. Many of the promoters of the new banks are well connected politically, so I can tell you that this alone makes them to be a serious threat to the older banks.”


However, analysts noted that Tier 2 lenders would be worried about the looming competition compared with Tier 1 lenders – Zenith Bank, Access Bank, Guaranty Trust Bank, UBA and FBN Holdings – which will continue to dominate the banking industry in terms of branch spread, deposit size and loan issuance.


New Telegraph reports that CBN, in its half year 2020 economic report, stated: “The structure of the Nigerian banking industry remained oligopolistic in the first half of 2020, with the concentration ratios of the largest six banks (CR6) at 68.1 in deposits and 65.2 in assets.



“As in the corresponding half of 2019, there was no dominance of a single bank, as the share of the largest bank in deposits and assets stood at 14.6 per cent and 14.3 per cent respectively, compared with 14.9 and 13.2 per cent in the first half of 2019.


Fourteen banks had percentage shares ranging from 0.1 to 5.1 per cent in deposits and 0.1 to 5.2 per cent in assets, compared with 0.1 to 4.3 per cent and 0.1 to 4.2 per cent, respectively in the corresponding period of 2019.”


According to analysts, the apex bank’s licensing of new lenders is driven by its desire to attract new investments into the sector and also boost access to financial services for the country’s over 50 million unbanked and under-banked population.




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