Based on the FY 2021 results of the banks, Access Bank has been ranked atop other banks in Nigeria using the Proshare’s Bank Strength Index (PBSI) having recorded a Capital Adequacy Ratio (CAR) of 24.5% an NPL of 4%, a Liquidity ratio of 51%, and a Board gender mix of 38.2%. Access scored 41.39%, while UBA came in second place with a score of 39.34%. A closer look at UBA’s figures shows that the lender recorded a slightly higher CAR (24.9%) than GTB which clinched the top spot. Likewise, UBA had a better NPL ratio (3.6%) but lower liquidity and Board diversity ratios limited the bank to second place. Stanbic IBTC makes an entry into the list of first-tier banks with a score of 36.86% which is in the 80th percentile.
Zenith Bank which scored 36.14%, came in the 72nd percentile while GTB scored 33.60% to come in at the 63rd percentile. Fidelity Bank takes the sixth position with a PBSI score of 31.3% thereby coming in at the 54th percentile. Importantly, of all the banks eventually categorized as the first tier, GTB alone exceeded the recommended 5% NPL threshold. All banks that qualified as Tier 1 banks met the 15% CAR requirement and the 30% Liquidity ratio conditions
The first known attempt at ranking Nigerian Banks into Tiers was made by analysts at Afrinvest, Lagos-based research, and financial advisory firm, in its 2013 Banking Sector Report. However ,due to certain alleged arbitrariness of existing classifications makes it imperative to come up with a more reliable basis for classifying banks into tiers. Therefore, Proshare Analysts classifies banks based on their percentile score on the Proshare Strength Bank Index. Banks with scores in the 50th Percentile are regarded as Tier 1 banks, while the rest are considered Tier 11 banks. In its simplest form, the PBSI sums up measures of Asset Quality, Profitability, and Liquidity. The banks with scores in the 50th percentile ranked as tier 1
. In the Afrinvest, report, Nigerian banks were classified into two categories namely: tier-1 and tier-2. The report stipulated conditions similar to some CBN prudential guidelines such as a minimum CAR of 15%, NPL cap of 5%, and Liquidity ratio of 30%. In addition, the Afrinvest Tier-based classification required banks to have N1tr worth of Assets. Commercial banks had to meet up with all the requirements to be regarded as first-tier banks, while those banks that fail to meet up to the requirement are classified as second-tier banks. Since then, Tier 1 banks have been captured with the moniker ‘FUGAZE’, a collective acronym for FBNH, UBA, GTCO, Access Bank, Zenith Bank, and ETI.
This marked a notable improvement on the methodology adopted in previous unstructured classifications. By focusing more on specific banking ratios, this method provided an efficiency-based assessment. It however failed to provide compelling arguments as justification for the choice of selected variables as well as the threshold it sets for qualifying banks. In 2020, Afrinvest decided to introduce a new set of parameters and ranking (which never gained as much acclaim as the first). This time the share of business Assets domiciled in Nigeria (at least N5tr), 3-year average CAR (16%), and a minimum deposit Size of N2.5tr.
But Proshare noted that the Afrivest approach above is not only arbitrary but also overlooks important quantitative and qualitative factors such as governance factors which have real implications for the long-term profitability-the focus of investors, who happen to be the major beneficiaries of the Tier1&2 classifications. Overall, the arbitrariness of existing classifications makes it imperative to come up with a more reliable basis for classifying banks into tiers. Therefore, Proshare Analysts classifies banks based on their percentile score on the Proshare Strength Bank Index. Banks with scores in the 50th Percentile are regarded as Tier 1 banks, while the rest are considered Tier 11 banks. In its simplest form, the PBSI sums up measures of Asset Quality, Profitability, and Liquidity. The banks with scores in the 50th percentile ranked as tier 1
