First Bank (Nigeria) Limited: Reframing of Core Business Philosophy

Abstract

Essence of the lemons problem of Akerlof (1970) is not easy to communicate to practitioners, particularly practitioners in realm of commercial banking. Commercial bankers, particularly those located in developing or emerging countries typically find it difficult to understand how in face of increase in deposit costs, a decrease in lending rates can generate more shareholder value than an increase in lending rates. This case utilizes financial statements of one of the leading and largest commercial banks in Nigeria (ranked top five in size) to provide real life illustration of emergence and correction of a lemons problem within context of commercial banking. The link between the lemons problem and share valuations is explicitly explored. Teaching Notes are available to instructors upon request from the case study author.