Six Nigerian banks, Access Bank, First Bank (FBN Holdings), United Bank for Africa, Diamond Bank, Guaranty Trust Bank and Sterling Bank have posted high scores in a 2017 global quality benchmarking rating of 100 major quoted banks across 32 countries, released Thursday and made available exclusively in Nigeria to Businessamlive.
The outcome of a painstaking study by United Kingdom-based Lafferty Group, which provides research, education and knowledge services to the banking and financial services industries worldwide, the ranking shows that five of the banks achieved 3-star status, while one posted 2-stars, on a measuring scale where 5-star rating is the highest and only one bank got this score in the world.
According to an explanatory note on the research, the 100 banks are ranked for their longer-term sustainability, with the highest ratings given to banks that focus on serving their clients’ needs in retail and corporate banking.
Lafferty Group, while making Nigerian banks’ performance available to Businessamlive for exclusive media release, said the ratings are made individually to all the 100 banks on the list. Michael Lafferty, chief executive officer of the group, said Nigerian banks had done remarkably well in this year’s rating by scoring three and two stars respectively, when put side by side with other banks in more developed markets.
The good showing by the six Nigerian banks in the ranking this year is described as being in marked contrast with the giant universal banks of Europe and the United States, which have large-scale investment banking activities, but which generally achieved weaker scores.
“The fact that almost all the Nigerian banks are ranked as 3-star banks speaks well for the state of Nigerian banking. After all, they are better than Australian, French, German, Italian, Chinese and Spanish banks,” Lafferty told Businessamlive in an interview from London
He, however, explained further: “The Nigerian banks generally score well on quantitative/financial ratios which are about the past, but they are weak when it comes to qualitative scores, dealing with matters that relate to the future. I am talking about strategy, culture, customer satisfaction, brand promise, and management experience and qualifications.”
Lafferty also said that Nigerian banks have a lot going for them, adding: “But their CEOs and chairmen need to pay serious attention to the non-financial content of their annual reports.”
This year’s global ratings appear to highlight the impact brought on banks’ managements by diversification. “Diversification often results in a lack of customer focus. The world’s best banks are not the giant universal banks or those banks that try to mimic them, but those that are focused – taking a longer-term view that is in the best interests of their customers,” Lafferty explained to Businessamlive.
Other major highlights of the 2017 research results include:
- that major South African banks achieved the highest quality scores for the second year;
- that major UK banks improved on the overall quality scores compared with last year, but are far from being ‘best in class’ global benchmarks;
- that several top US banks achieve much lower quality scores than last year;
- that Australia’s top banks have slipped significantly in their quality ratings and are now among the lowest in the 100 banks covered in the study;
- that the big Canadian banks – like the Australians, once lauded for having avoided the Global Financial Crisis – rank well down the rankings league table;
- that Dutch banks are the highest-rated Eurozone banks;
- and that on average, the Big 5 Chinese banks are well behind the top banks of Indonesia, Malaysia, Singapore and Thailand in their quality scores.
An explanatory note on the ratings describes the Lafferty Bank Quality Benchmarking (LBQB) as a service that rates banks for their quality – as interpreted from the information presented by banks themselves to shareholders, investors, and the public at large in their own annual reports.
Using what it calls a heuristic methodology, the research interprets the signals that banks are sending out in their annual reports – intentionally or otherwise – about strategy, culture, customer care, brand promise and financial performance – and brings all of these together to rate the total bank quality. Annual reports are used, said the researchers, because of their unique status as the primary vehicle for managements of banks to communicate and account to shareholders and other stakeholders.
“You could say that we are interpreting what the banks are saying about themselves using a standard template. Some are very good at communicating an accurate picture about their quality – and many are revealing more than they realise about their true state of affairs despite lots of PR hype”, Michael Lafferty said.
He also said while financial ratios are important in judging bank quality, matters such as strategy, culture, customer satisfaction, and management education and experience are equally so.