Nigeria an attractive option for Standard Bank

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Nigeria offers a big prize for South African banks – Razia Khan.

Standard Bank Group (JSE:SBK), Africa's largest lender, says it's looking at Nigeria for possible acquisition opportunities as a banking crisis in the West African country slashes valuations.

"The current situation in Nigeria does present opportunities, and we are watching developments with interest," said Erik Larsen, spokesman for Standard Bank, on Tuesday. "Nigeria is a key strategic market for Standard Bank."

Nigeria's banking crisis began in August when the central bank fired eight chief executive officers and injected 620 billion naira ($4.1 billion) into those and two other distressed lenders to boost their capital and liquidity.

Banking shares extended falls this week after Intercontinental Bank Plc and Oceanic Bank International Plc reported losses. Rivals in the US, the UK, South Africa and Nigeria will not be "blind" to buying opportunities in Nigeria following the losses and stock price declines, according to Razia Khan, head of Africa research at Standard Chartered Bank.

"The largest banks will probably still be Nigerian but, for South Africa, Nigeria offers a big prize," Khan said. While South Africa has the appetite to do more in Africa's second- largest economy, foreign banks, such as Citigroup Inc and Barclays Plc, will also be watching, she added.

"South African banks, in particular FirstRand (JSE:FSR), Absa (JSE:ASA) and Standard Bank, have expressed a strong interest to acquire and further expand operations in Nigeria," John Storey, an analyst at Bank of America-Merrill Lynch, said in a note on December 7.

‘Mergers and acquisitions'
"Our base case is actual mergers and acquisitions will be slow to materialise but aggressive posturing could drive a re- rating," Storey wrote.

Absa Group's deputy chief executive officer, Louis von Zeuner, on Tuesday said the lender is "not involved in any discussions in Nigeria" and that having a representative office in the West African country is "adequate." FirstRand said on September 15 it's "keen" to participate in any consolidation.

Concerns about the asset quality of Nigeria's banks will dominate Storey's investment view in 2010, he said. Impairment charges will not "normalise" next year, he wrote, adding that banks usually take 24 months to fully recover from a crisis.

Guaranty Trust Bank Plc is Storey's top pick in Nigeria. "We see Guaranty Bank as the best-in-class bank within Nigeria that provides exposure to upside surprises to the oil and macro economic story. Zenith, United Bank for Africa, Guaranty and FirstBank are the four largest banks in Nigeria by market capitalization and appear well-placed to gain market share in a consolidated sector."