The top five Nigerian banks owned 60 percent of the banking sector assets in the country. This was contained in a report released, Tuesday, by The Banker, a publication of Financial Times of London.
The top five banks, according to The Banker comprise Zenith Bank, Access Bank, First Bank, Guaranty Trust Bank and United Bank for Africa and owned about 60 percent of overall assets.
It said some foreign investors have suggested Nigeria will soon go the way of South Africa, where the four largest banks have an 85 percent market share.
For them, Nigeria's mid-tier and small lenders will struggle to survive and several would be taken over by bigger rivals in the next few years".
The report said: "Nigeria's banking sector has become highly concentrated over the past 10 years, with the biggest five banks now dominating market share.
But executives at smaller firms are not worried. They insisted that innovation and nimbleness, not to mention the huge scope for growth in Nigeria, would see them make up for their lack of size".
According to The Banker survey report of the banking sector in Nigeria, "A decade ago, Nigeria had almost 90 banks. Two rounds of consolidation since 2005 in response to a hike in capital requirements, while the second came in the wake of the country's 2009 financial crisis, have seen the number drop to few more than 20.
As well as creating banks with far bigger balance sheets, the changes have resulted in a more concentrated banking sector.
The Central Bank Governor, CBN, Malam Sanusi lamido Sanusi said: "I'm concerned about the concentration of the banks at the upper end because very large institutions tend to lend to large multinational corporations and invest in government securities.
"They don't have time for the middle, which is where economic growth happens and jobs are created. I don't think we're looking for any more institutions that would be too big to fail".
Ronak Gadhia, an analyst at security house, Exotix said: "Nigeria is highly under penetrated. There's a lot of scope for growth. Out of a population of 160 million, there are only about 30 million bank accounts, some of which represent duplicate customers".
Bolaji Balogun, managing partner of Chapel Hill Denham, a local investment bank, said an indication of the potential number of bankable people is given by the fact that there are almost 110 million mobile phone accounts in the country.
He said: "If you assume that a mobile phone is banking channel and even if you net out the duplication (as many Nigerians have more than one phone), it suggests there is still a big opportunity for banks to take on more customers. There are potentially another 30 or 40 million bank accounts. Somebody's got to take that business."
Nigeria's banks are trying to do just that, and are focusing heavily on luring more low-cost deposits from unbanked Nigerians as well as existing customers. Doing so is crucial for their plans to expand their loan books and grow organically.
Alex Otti, the chief executive of Diamond Bank, a mid-sized lender, cites innovative methods of capturing more low-cost deposits as one reason why his bank has one of the highest net interest margins in the country.
He said: "Our balance sheet is driven largely by an impressive growth in customer deposits, which are our lifeblood".
Putting liabilities to use
Even when banks manage to build a hefty deposit base, they still need to go about putting it to use. Nigeria's top tier lenders are often less nimble and innovative than their rivals when it comes to offering customers loans, particularly in the retail market. Diamond Bank's success is in no small measure down to its clever use of delivery channels other than branch networks. Analysts cite it as one of the savvier users of internet and mobile banking, as well as point of sales terminals.
Other mid-sized institutions have managed to create niches in various market segments. Stanbic IBTC Bank, a subsidiary of South Africa's Standard Bank, has been focusing on secured personal loans such as mortgages and car loans, which few other lenders offer.
Its chief executive, Yinka Sanni, said this is a key part of the bank's attempt to tap Nigeria's middle class, especially people in formal employment.
Retail lending, while lucrative, remains risky in Nigeria. A lack of credit bureaux makes it difficult to assess the credit history of potential borrowers, while an inefficient legal system means it is tough to realise collateral on defaulted loans. Bankers are confident, though, that recent moves to create a biometric identification system and properly functioning credit bureaux will further open up the segment to banks, not least mid-tier ones.
Mr Aku of Ecobank said: "The system will be much safer for us. We'll know that if a customer burns his credit, he won't be able to get credit at any other bank because he's on the biometric system".
Smaller players also have opportunities to expand their corporate banking businesses. The government's privatisation drive is expected to result in plenty of lending opportunities in the next two years, including in the power sector. Few bankers think that only the top five will be the ones to benefit.
Plenty of industries, meanwhile, are underfunded. Agriculture is the most glaring example. Despite accounting for about 40 percent of the economy, it makes up less than 5 percent of banks' lending books. The government, as part of widespread agricultural reforms, wants lending to farmers and agribusinesses to increase substantially over the medium term.