Nigerian banks position themselves for mergers

* Second round of bank consolidation seen as inevitable

* Audit, common year-end gives clearer view on sector

* Higher loan loss provisioning surprises investors

By Chijioke Ohuocha

LAGOS, Nov 6 (Reuters) - Nigerian banks are positioning themselves for a second round of consolidation after an industry-wide audit and tighter accounting rules exposed the strengths and weaknesses of their rivals.

The central bank has injected around 600 billion naira ($4 billion) into the banking system since mid-August after its auditors found nine institutions had built up bad loans which left them too weakly capitalised to sustain operations.

It has since demanded all of Nigeria's 24 banks publish accounts as at the end of September detailing full provisioning for loan losses, a new departure in a country where corporate disclosure levels lag even smaller rivals such as Kenya.

The move, which comes ahead of the introduction of a common financial year in December, has for the first time forced banks to fully provide for non-performing loans, giving a clearer basis for comparison across the sector. [ID:nTAT771685]

"Even until late last year, banks were still declaring profits, and all of a sudden we're seeing huge losses and provisions," said Wole Famurewa, banking analyst at Lagos-based PHB Asset Management.

"Investors are panicking because they are surprised at the level of provisioning," he said, noting that even conservative lenders considered to be among the country's strongest had posted higher provisions than many analysts expected.

For a factbox on the provisions, click on [ID:nL6724323].

The central bank injected 400 billion naira into Afribank AFRB.LG, Finbank FIBP.LG, Intercontinental Bank INBK.LG, Oceanic Bank OCBK.LG, and Union Bank UBNP.LG on Aug. 14 and sacked their top management after the first round of the audit.

The regulator has said the businesses will be run as going concerns until new investors can be found to recapitalise them and that its preferred option is for them to be bought out.

Two months later it said it was providing 200 billion naira to four more banks -- Bank PHB BPHB.LG, Equitorial Trust Bank, Spring Bank SPRN.LG, and Wema Bank WEMA.LG -- also judged to be facing a grave liquidity crisis.

One other bank, Unity Bank, was judged to have insufficient capital while the remaining 14 institutions were judged liquid enough to support current operations.

JOCKEYING FOR POSITION

First Bank FBNP.LG, Guaranty Trust Bank GTB.LG, United Bank for Africa (UBA.LG) and Zenith Bank ZETH.LG are the top four banks by assets to have come through the audit intact and analysts expect them to play a leading role in consolidation.

First Bank Chief Executive Bisi Onasanya told a conference call on Wednesday his bank plans to use a 500 billion naira bond to help fund acquisitions in Nigeria and abroad [ID:nL4439130].

Shareholders in Equitorial Trust Bank have pledged to diversify its capital base either through a public offering of shares, securing a core investor or merging with a local bank within a year, the central bank said on Thursday. [ID:nL5417768]

Brokerage Renaissance Capital said in a report last week it believed the most prized acquisition targets would include Diamond Bank DIAM.LG, Ecobank Nigeria ECOB.LG, Fidelity Bank FUMB.LG and Skye Bank SKYE.LG, all of which passed the audit and which it said offered solid niche businesses.

But Henry Ogbuaku, head of research at Express Discount Asset Management in Lagos, said such mid-tier banks might seize the opportunity to grow their own market share and view any attempt to take them over as a hostile bid.

"Mid-tier banks might not want to be acquired, instead they will want to acquire some of the troubled banks to expand their network," Ogbuaku said, particularly in a culture where selling your business is seen as a mark of failure.

"In our own environment, it's difficult to divorce the sentimental attachment of the owners from making pure business decisions", he told Reuters. (For more Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Editing by Nick Tattersall and Simon Jessop)