Bloomberg News

Standard Bank May Buy Guaranty of Nigeria, Analysts Say

September 29, 2011

(Updates with analyst comment in 12th paragraph.)

Sept. 29 (Bloomberg) -- Standard Bank Group Ltd., which this year reversed international expansion plans to focus on Africa, may consider buying a stake in Nigeria’s Guaranty Trust Bank Plc, the most profitable of the country’s biggest banks.

Africa’s largest lender said last month it may buy a consumer bank in Nigeria. Guaranty, Nigeria’s second-biggest lender, is the most likely target because of its high return on equity and wide margins, according to Ilan Stermer, a Johannesburg-based banking analyst at Renaissance Capital.

“The expansion of Standard Bank’s retail business in Nigeria is critical to its success in Africa,” said Faizal Moolla, a banking analyst at Avior Research Ltd. in Cape Town who has a “buy” rating on the lender. “Nigeria has a huge population and given its growth prospects, the bank needs to have a bigger presence.”

Nigeria is forecast to overtake South Africa as the continent’s largest economy by 2025, Morgan Stanley economists said in a report in June. Rising oil prices and consumer spending are helping the expansion, according to Morgan Stanley. That growth is attracting overseas lenders from the U.K.’s Barclays Plc to South Africa’s FirstRand Ltd.

Standard Bank is seeking to revive the profitability of its operations in Africa after aborting plans to expand in Russia and Argentina. The lender is the worst-performing stock on the six-member FTSE/JSE Africa Banks Index after dropping 10 percent this year, three times the benchmark’s 3.1 percent decline.

Return on Equity

Johannesburg-based Standard Bank will have about $1 billion in surplus capital during 2012 after disposing of its Russian venture and selling stakes in its Argentine units.

The lender isn’t in talks or conducting due diligence on any Nigerian lenders, spokeswoman Kate Johns said. Guaranty is not in talks with Standard Bank, Lola Odedina, a spokeswoman for the Nigerian lender, said.

While Standard Bank’s overall return on equity rose to 14.5 percent in the first half, from 13.5 percent a year earlier, its operations in 16 African nations outside South African posted a return of 7 percent, after taking into account goodwill, development costs and converting earnings back into rand.

Guaranty’s 19 percent return on equity surpasses that of Nigerian rivals United Bank for Africa Plc, First Bank of Nigeria Plc and Zenith Bank Plc, according to data compiled by Bloomberg. The Lagos-based lender has the widest net interest margin at 7.8 percent, the data show.

The bank may post a 23 percent return on equity this year, more than First Bank’s 16.4 percent and Zenith’s 15 percent, according to Renaissance estimates.

Nigerian Banks

Guaranty is Nigeria’s second-best performing lender on the 10-member Bloomberg NSE Banking Index after Standard Bank’s Stanbic IBTC Bank Plc. Guaranty is down 15 percent this year as compared with the average decline of 31 percent. Standard Bank combined its Nigerian branch with Lagos-based IBTC Chartered Bank Plc in September 2007 and bought control of the combined company for 2.8 billion rand ($358 million).

“Valuations in Nigeria are less demanding now than they’ve been for a long while, so the timing makes sense for Standard Bank,” said Lisa Haakman, an analyst with London-based Religare Capital Markets. “Guaranty makes sense,” she said, adding that Standard Bank is likely to partner with a local investor to buy a majority stake.

Buying control of Guaranty, with a market value of $2.2 billion, would give Standard an extra 186 branches in Africa’s most populous nation, tripling the value of its operations in a country where 70 percent of citizens don’t have bank accounts.

Benchmark Bank

“Guaranty is widely seen as the benchmark for Nigerian banks, given its efficiency, use of technology and brand strength -- all off a relatively small physical network,” Stermer and Adesoji Solanke wrote in a report in August. “It is also the benchmark for corporate governance in the sector” because it publishes accounts under International Financial Reporting Standards.

Other potential targets in Nigeria, according to Renaissance, include First Bank, United Bank for Africa and Zenith. First Bank is Nigeria’s largest bank by assets while United has the most branches. Zenith has 315 branches according to Renaissance, and is the biggest bank by value.

Central Bank of Nigeria Governor Lamido Sanusi in 2009 fired the CEOs of eight of the nation’s lenders, spent about $4 billion to prop up failing lenders and created an entity to buy bad debts. Overseas and local companies were invited to bid for stakes in the West African country’s banks, both healthy and distressed. FirstRand entered talks with Sterling Bank this year and walked away after the two disagreed on price, according to FirstRand. No overseas banks have taken a controlling stake in a Nigerian lender since the changes in 2009.

--Editors: Vernon Wessels, Dylan Griffiths.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at

To contact the editors responsible for this story: Edward Evans at

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