Corporate banking is the mainstay of the Nigerian banking industry. While the liability side of most banks’ balance sheets rests on consumer deposits, the lending activities of all of the banks rely on the corporate and commercial sector. Some Nigerian banks can provide fairly sophisticated investment banking, including capital raising and structured finance, but most commercial banking is vanilla trade finance, with banks still struggling to shed the bad habits that formed under successive military governments.
From the 1980s to late-1990s, the banks had the market to themselves and banking success depended on relationships with key powerbrokers. Easy money was made by exploiting economic weak spots such as the parallel exchange rate, which allowed banks to get fat through foreign exchange round-tripping that was technically illegal. Much corporate banking also disobeyed business logic, with the majority of small banks little more than piggy banks for their owners’ other business interests. While the banks have slowly been improving their commercial business capabilities, it is only with the massive overhaul of the industry in the past two years that Nigeria’s banks have a chance to build a sophisticated corporate and investment banking capacity.
