The collapse of oil prices 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.
The oil shock underscored an old truth: in choppy waters, it helps to be a big ship.
Nigeria's large banks made tidy profits and now sit on sufficient capital. But smaller ones look shaky, even as currency problems have eased and the economy has recovered. Last year, the central bank revoked the license of Skye Bank, a struggling midsize lender.
Diamond, another middling bank, was on the rocks before being taken over by Access, a bigger rival. The combined bank began operations this month, becoming Nigeria's largest bank by assets. It now boasts more customers than any other in Africa.
Large banks were able to find ways to make money in the crisis, noted 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 revenue. Meanwhile, credit to the private sector stagnated.
By contrast, smaller banks had fewer branches and weaker brands, which made it harder to attract deposits. Some relied more on borrowing money from pension funds and asset managers, said Wale Okunrinboye of Sigma Pensions, a Nigerian fund. They suffered when those institutional investors were lured away by juicy yields on government securities.
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.
