McKinsey, a consulting firm has said that, commercial banks are likely to embark on a round of acquisitions, as they seek to diversify their sources of income away from treasury bills.
He said, the proportion of Nigerian bank earnings derived from fixed-income securities increased from 14percent in 2009 to 30percent in 2019.
But a collapse in treasury bill yields, coupled with inflation at its highest for three years, means there’s no prospect of positive real returns on the paper in the foreseeable future.
Equity research analyst at Chapel Denham Hill in Lagos, Nkemdilim Nwadialor, said that there’s never a time Nigerian banks relies on high T-bill yields.
“That means they will be under pressure to diversify and find new business lines in insurance, pensions and asset management” According to her, Insurance is one business line where income streams are less volatile than T-bill yields, arguing that at the end of December, Nigeria’s National Insurance Commission suspended the application of increased capital requirements for insurers.
“The deadline had already been delayed until September 2021, but the reprieve won’t last for ever.
New capital requirements are likely to lead to weaker names being bought out. Now could be a good time to be getting into the insurance business” she said.
She explained that smaller insurance companies such as Staco Insurance and Niger Insurance are candidates to be bought out.
“GTBank is in the market for a pensions provider, and Investment One, which GTBank previously divested, now looks like a good candidate for re-acquisition, she said.
She said; lack of clear acquisition targets in asset management may lead to banks building their own businesses.
“The Great Financial Crisis’ starting in 2007 led to Nigerian regulatory requirements for different business lines within banks to be separated from their holding companies. Now we’re seeing them return to these business lines,” Nwadialor said.
According to her, the banking sector is now much stronger than in 2008 and is better able to finance different operations, adding that the financial services sector outside of banking has become weaker.