Scale was a big advantage to Nigeria's banks in the country's currency crisis. But big mergers are hard to pull off
of the oil price that began in 2014 was bad news for Nigerian banks. A quarter of their lending was to oil and gas firms. Many businesses were left reeling after a currency crisis. The economy stuttered, then plunged into recession. Before the oil slump just 3% of loans were not being paid back. By 2017 some 15% had gone sour.
Large banks were able to find ways to make money in the crisis, notes Olamipo Ogunsanya, an analyst at Renaissance Capital. They swapped spare dollars for naira with the central bank, which was trying to rebuild its foreign-exchange reserves. Flush with spare funds, they were in a position to lend naira at attractive rates to the government, which was borrowing heavily to plug the gap left by shrinking oil revenues. Meanwhile credit to the private sector stagnated.
In that regard, Diamond was unusual. It had plenty of retail deposits and a leading digital app, so it could raise funds cheaply. But it had lent out a lot of that money to oil companies and to Nigeria’s floundering power sector. By late last year some 40% of its loans were in trouble. Its share price had tumbled by 90% since the start of the oil slump. Access, which had fewer customers despite holding three times as many assets, saw an opportunity to pick up a strong franchise on the cheap.
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