The 2023 edition of the Proshare Bank Strength Index (PBSI) has revealed that four tier one banks and financial holding companies retained their ranking in the industry.
It listed the banks that retained their tier one spots as Access Bank, Guaranty Trust Company, Zenith Bank and the United Bank of Africa (UBA).
On the other hand, it stated that Stanbic IBTC and Fidelity Bank dropped from the tier I ranking to tier II.
It disclosed that the methodology deployed by the PBSI required that banks/financial Holdcos over the 50th percentile were ranked as Tier 1, while those below the mark were categorised as Tier II and III, respectively.
According to the report, Ecobank Transnational Incorporated joined the Tier 1 ranking for the 2023 PBSI from the Tier II ranking in 2021/2022.
In the maiden edition of the “Tier 1 Banking Report” titled The Case for Redefining Tier 1 Banks, the PBSI focused on measures of Asset Quality, Profitability, and Liquidity.
“This has been broadened to cover efficiency ratios, risk management, and digital income to incorporate Assets, Gross earnings (in absolute terms and on logarithmic scales), Capital Adequacy Ratio (CAR), Loans Deposit Ratio (LDR), Cost to Income-Ratio (CIR), Cost of Risk (CoR), Net Interest Margin (NIM), Non-Performing Loans Ratio (NPLR), Digital Income to Gross Earnings Ratio, and Independent Non-Executive Directors (INED) to Board Ratio,’ it added.
According to the report, “Dynamism would be a key feature for surviving business disruptions beyond 2023 Revised. In discussions with bank chief financial officers (CFOs), Proshare’s researchers noted that if commercial lenders are not going to be trapped by the next wave of socioeconomic dislocations, they must be prepared to transition from rigid routines and fixed outlooks to less formal and hierarchical structures that allow for better internal collaboration and the breaking of operational walls.”
It further stated that Nigerian banks would have to find new ways of holding on to their customers and ensure the creation of uncontested markets, as seen in the rise of banking’s AI-supported fintech services.
It also noted that a few banks may encounter difficulties, but many, especially Tier 1 banks, would continue to thrive.
The report assessed the full-year 2022 performance of the banks/financial Holdcos and incorporated the half-year 2023 results, considering the timing of the Tier 1 banking report release.
It featured six sections and highlights the following key areas: H1, 2023 Silicon Valley Bank crisis and impact on global banking, operations of Nigerian banks, revised 2021 PBSI and bank classifications, the financial risk profile of Tier 1 and Tier 2 banks, the rise of tech foundries and digital income in the Nigerian banking industry and the recommendations for regulators.
“Our Banking sector report last year emphasised the fact that the only statutory classification of banks given by the regulator (CBN) is with respect to the Systemically Important Banks (SIB) and Non-SIB classification and that while this met the needs of the regulator in ensuring a stable financial system, a SIB is not necessarily the same as a Tier 1 bank.
“The PBSI queried industry-wide, historical data on the usual bank assessment metrics, namely Assets and Gross earnings growth, Capital Adequacy Ratio (CAR), Loans to Deposits Ratio (LDR), Cost to Income Ratio (CIR), Cost of Risk (CoR), Net Interest Margin (NIM), Non-Performing Loans Ratio (NPLR).
“The report also looked at new metrics like Digital Income to gross earnings ratio, NED to board ratio, and efficiency ratio, among others.
“The PBSI weighted and summed up the 2021 selected ratios for each quoted bank.
“Banks with overall PBSI scores in the 50th percentile are regarded as Tier 1 banks, while those that do not make the cut-off are classified as Tier 11 banks.
“After weighing and summing the selected ratios as per the 2021 results, Access Bank, UBA, Stanbic IBTC Zenith Bank, GTB, & Fidelity Bank came up with scores in the 100th, 91st, 82nd, 73rd,64th, and 55th percentiles respectively.
“By implication, Access Bank came up with a score better than 100 per cent of all other banks, while UBA outperformed 91 per cent of other banks and in its own case, Fidelity Bank outperformed 55 per cent of the industry.
“ETI, FBNH, Union Bank, Sterling Bank, and Wema Bank failed to make the 50th percentile cut and so fell in the Tier 2 category,” it added.
