Malawi, Ghana & Nigeria Banks: This may shock you!

Dear Africa Interested Individuals:

                                                        The three above mentioned African countries are going through tough economic times though, to varying degrees.  It is at times like this that I get to know resilient banks.  The banks that make hay when the sun shines and dig a nice hole to hibernate during the winter which keeps them warm in a cold environment.  "The strength of a warrior can only be determined during battle."  I selected the largest bank in Malawi, Ghana and Nigeria plus two others.  Let us kick off with Malawi.

Malawi

 The monetary policy rate (MPR) of Malawi is currently 25%.  Malawi's latest inflation rate is 21.3%.  Expectedly, the bank must lend at a higher rate than it borrows from the Reserve Bank of Malawi.   

The base lending rate for the National Bank of Malawi is 32%.  Fixed Deposit rate for 90 days is 10% and for 180 days is 7.5%.  Ordinary savings account is 7% per annum.  The spread between the MPR and lending rate is 7% for the National Bank of Malawi.  Remember, the country's inflation rate is 21.3% which is lower than that of 2014 which hovered above 22%.  

Ghana

The MPR of Ghana is currently 22%.  Ghana's latest inflation rate is 17.1%.  Once again, the bank must lend at a higher rate than it borrows from the Bank of Ghana.  

The base lending rate for Ecobank Ghana is 25.95%.  Fixed Deposit Rate for 90 days is 8% and for 180 days is 8.5%.  Ordinary savings account rate ranges from 2.5% - 2.75%.  The spread between the MPR and lending rate is 3.95% only for Ecobank Ghana.  

Nigeria

The MPR of Nigeria is currently 13%.  Nigeria's latest inflation rate is 9.2%.  Once again and expectedly, the bank must lend at a higher rate than it borrows from the Central Bank of Nigeria.  

Calls were made by a contact of mine to three Nigerian Banks to get their rates.  The first up is Zenith Bank.  The base lending rate for Zenith Bank is 24%.  Fixed Deposit rate for 30 days is 5% - 6% for amounts ranging from $500 - <$25,000 and for $50,000 - <$250,000 the fixed deposit rate ranges from 6% - 7.5%.  Rates for Zenith Bank are the same across tenors ranging from 30 - 90 days.  The bank does not have a rate for 180days which means it is not accepting fixed deposits for that length of time presently.  Ordinary savings account rate is 3.6%.  The spread between the MPR and lending rate is 11% for Zenith Bank.  

FCMB

The base lending rate for FCMB is 25.95%.  Fixed deposit rate for 90 days is 9% and for 180 days is 9.25% based on certain minimum deposit levels.  Ordinary savings account rate is 3.6%.  The spread between the MPR and the lending rate is 12.95% for FCMB.  

UBA

The base lending rate for UBA is 25%.  Fixed deposit rate is 8% for 90 days and 8.5% for 180 days based on certain minimum deposit levels.  Ordinary savings account rate is 3.6%.  The savings rate is a CBN directive hence, the homogeneity among Nigerian banks.  The spread between the MPR and lending rate is 12% for UBA.  

National Bank of Malawi charges a lending rate 7% above the country's MPR.  Ecobank Ghana charges a lending rate about 4% above the country's MPR.  Three Nigerian banks (big and small) charge a lending rate at least 11% above the country's MPR in a country with a single-digit inflation rate.  

So how did the Malawian and Ghanaian banks fare when it came to the bottom-line in 2014 in these tougher business and economic environments than Nigeria and where they were lending at single-digits in excess of MPR compared to Nigeria at double-digits in excess of MPR.   

National Bank of Malawi achieved RoE of 32.8% for 2014.  Ecobank Ghana achieved RoE of 40.1% for 2014.  Zenith Bank achieved RoE of 18% for 2014, UBA achieved RoE of 18.1% for 2014 and FCMB achieved RoE of 13.8% for 2014.  

Ghana achieved a higher ROE than National Bank of Malawi with a lower inflation rate differential of about 500 basis points which is logically expected.  Nigeria has a lower inflation differential than Ghana of about 800 basis points and Nigeria's largest bank could not even achieve RoE equivalent of half of Ecobank Ghana. Nigerian banks have the most room to make a profit (from an economic and business sense) and still made the least comparatively from a RoE perspective.  

Ghana's lending rate is on average just 100 basis points higher than Nigeria despite having a much higher MPR by 900 basis points and an inflation rate almost double that of Nigeria.  Remember, I selected the largest bank in each country.  The National Bank of Malawi achieved interest income on its net loans more than double that of GT Bank (the best Nigerian bank in that regard.)  Details can be found in the article about Kenyan and Nigerian Banks on this blog.  Note that Malawi's lending rate is on average just 1.3X higher than that of Nigeria (32% versus 25%.)   

There is clearly some inherent inefficiencies in the Nigerian banking system that prevents proper creation of value given the potential to do so.  The reason why Nigerian banks are trading at below book value may has a lot to do with a lot more than the President of Nigeria not appointing ministers yet.  The management of Nigerian banks have cases to answer to varying degrees.  There are leakages in the system and investors are paying a hefty price for the wrongdoings of others.  If Nigerian banks are put into the worse economic environments that exist in Ghana and Malawi, what kind of returns will they generate?  

Nigerian lending rates should be much lower and they are not; despite this, the bountiful returns are not manifesting.  Ghana and Malawi banks in worse economic and business environments did better than Nigerian banks and are still trading at single digit price-earnings ratios of 7X and 8X respectively.  Ecobank Ghana and the National Bank of Malawi have proven their strength in  battle and reaped more than they even sowed.  The jury is still out on Nigerian banks and this permeates the whole industry.  If the door must close today, Nigerian banks have failed compared to their African counterparts in more difficult operating environments.  

The truth will set us free; I will keep telling it.   

The process of getting the needed information for this article was very smooth from Ecobank Ghana and National Bank of Malawi.  The Nigerian banks selected were not as smooth a process in comparison.

                    

        Tell others to tell others about this Africa Research Blog; a new dawn is here.