Recently, more Nigerians have been relying on financial technology (fintech) firms for quick fixes to their financial needs. A cross section of the population use these companies to pay their bills, transfer cash, and even borrow money. The disruption fintechs have brought about in the financial services space is certainly undeniable, and their effectiveness and efficiency are just some of the qualities that have popularised them in the country.
In 2018, several fintech companies made surprising announcements of corporate deals involving millions of dollars. Paystack, for instance, was able to attract both foreign and local investments to the tune of $8 million. In the same vein, Piggybank.ng announced early last year that it had secured some $1.1 million worth of seed funding from a group of homegrown investors.
So far, 2019 promises to be a good year for stakeholders in the financial technology space. This is because as the Central Bank of Nigeria continues to work towards ensuring that more Nigerians are financially included, it is also recognising the important role already being played by fintechs in this regard. To this effect, the apex bank has stated its commitment to backtrack on an earlier regulation rule which required fintechs and other payment service providers to have costly minimum capital bases.
Now, with all things being equal, below are the Nigerian fintech companies to watch in 2019. Note that this list has been arranged in no particular order.
Cowrywise Financial Technology Limited
Cowrywise is on a simple but very important mission— to encourage Nigerians to start saving again. A mission statement on the company’s website says it wants to empower Nigerians to retake charge of their personal finances, including saving money. The company believes that traditional financial institutions (i.e., the banks), “have made saving money and growing wealth costly and unattractive to individuals who are outside their high net worth bracket.”
Asides offering an automated service that helps Nigerians to easily save money, Cowrywise also helps Nigerians invest in high yield government bonds. The fintech company was founded in 2017. Between the time of its incorporation and the middle of last year, the company claimed that it had processed more than $1.5 million worth of savings.
Last year, Cowrywise accomplished quite a number of feats. For one, it was accepted into YCombinator, a California-based startup accelerator programme which offers mentorship and financing. The sum of $120,000 was successfully raised by Cowrywise from the YCombinator programme. It also launched an IOS mobile app, which has been reviewed nearly five hundred times, with many users praising it for its easy usability and functionality.
Considering that it has been less than two years since Cowrywise has been in existence, it has accomplished quite a lot. This gives great hope that there is still a lot of growth ahead, especially this 2019. For this reason, Cowrywise is a fintech company to watch in 2019.
This fintech company is less than two years old, and already it has become one of the leading fintech companies in Nigeria and indeed, Africa. Founded in 2016, Paystack offers payment services to more than 17,000 businesses and is said to be responsible for 15% of all online payments that happen in Nigeria today.
Now, that’s a big deal! But you know what is an even bigger deal? Well, the fact that this startup has continued to raise millions upon millions of dollars from both foreign and local investors. This is asides the millions it earns monthly as direct reward for its services.
Just last year, the company raised the sum of $8 million in Series A Funding. Meanwhile, the company had earlier raised $1.3 million in 2016, just shortly after it was founded. In total, Paystack has raised about $10 million. 2018 was, of course, its best year by far in terms of raising money, expanding, and making returns.
Last year, Paystack was among the three Nigerian fintech companies that were ranked by CB Insights (a global intelligence machine) as one of the 250 fastest growing fintech companies in the world.
As 2019 begins in earnest, our attention is on Paystack to see what else it does. Most importantly, many people are looking up to the company to come up with a mobile app, something that it most likely will unveil, as the year continues to unfold.
Branch is a financial technology firm which offers personal finance loans to small business owners. The company is one of the three Nigerian fintech firms that were ranked among the 250 fastest growing fintechs in the world by CB Insights.
Branch has offices in Nigeria, Kenya, Tanzania, Mexico, India, and the USA. Judging from the many reviews on Google Play, mostly by Nigerian users, it is safe to believe that Branch is not only solving a real problem, but also impacting lives positively.
Nairametrics cannot wait to see what the company has in store this 2019. You should watch out too.
Paga is the last of the three Nigerian fintech companies that were ranked among the world’s fastest growing startups in 2018 by CB Insights.
Founded in early 2009, it is one of the foremost fintech companies in the country. Its business model entails money transfers, which is carried out with using technology and in partnership with a group of selected banks.
Meanwhile, inasmuch as Paga has done relatively well over the past years that it has existed, there still seems to be a number of problems it must urgently fix in order to remain relevant within the ecosystem. A quick look at the review section of its mobile app on Google Play shows many dissatisfied customers. A lot of these reviews were made in 2018, and they range from the app being slow, to lack of security.
In 2019, we have placed this company among the fintech companies to watch, because we want to see how prepared it is to manage these internal problems whilst remaining relevant in the market.
Fint claims to be “Nigeria’s first loan market place”. Perhaps this is a befitting description, seeing as Fint is engaged in the business of using technology to link credit-worthy individuals with competitive interest seeking lenders.
Fint says that its platform is simple, transparent and hassle free. The goal is to connect lenders and borrowers in what usually always ends as a win-win situation for all the parties involved.
Loans are important in every society, as there will always be those who need urgent cash to meet certain needs, as well as those who have such money to lend in anticipation of interests. This is one mission that was left in the hands of commercial banks for a long time. Needless to say, they failed many people.
But so far, Fint hasn’t failed in this regard. Therefore, as the new year takes off, it is most definitely one of those fintech firms to watch.
One Credit, owners of Paylater
Paylater is yet another phenomenal Nigerian fintech company everyone should definitely watch out for in 2019. The company, which was co-founded in 2012 by brothers Chijioke and Ngozi Dozie, specialises in consumer lending. Information available on the company’s website says that “We empower individuals with access to credit, simple payments solutions, high-yield investment opportunities and easy-to-use tools for personal financial management.”
The paylater mobile app was launched in 2016 and has since then been downloaded more than one million times. With it, users can supposedly borrow money in just a matter of minutes. But then, it’s more than just borrowing because the app offers users the opportunity to perform even more financial transactions on it.
Based on the number of positive reviews on the app, it is safe to say that Paylater is doing incredibly well. We look forward to seeing what latest innovations the company has in store for Nigerians in 2019.
PiggyTech Global Limited
Piggybank.ng is one of the fintech companies that we projected would shape the sector in 2018. And most certainly, our projection did not disappoint. This is because in May 2018, the company secured seed funding to the tune of $1.1 million. Prior to this time, the management of Piggybank.ng already announced in late 2017 that the company had grown its savings base by 3000% to N1 billion.
Founded in 2016, Piggybank.ng is a mobile savings platform which targets young people both within and outside Nigeria. It has a mobile app with lots of glowing reviews by users.
This 2019, we are looking forward to seeing the company sustain its performance so far. Perhaps, it may even roll out more innovations.
This is one of the oldest and safest fintech companies in Nigeria, with a secured payment platform that has seen its popularity soar over the years. It is useful for payment of goods and services online. The good thing about KongaPay is that it can be used for shopping both locally and internationally and it is affiliated with major banks in Nigeria.
Mode of payment is via Master card, Verve Card and Visa Card. It links up with your debit cards for seamless transfers and payments. The platform doesn’t require tokens for fund transfers; you simply make transfers via your mobile phone only. BVN details are, however, required to maintain integrity of transactions between parties on the platform.
As more Nigerians continue to embrace financial technology, it is imperative that fintech companies continue to innovate in order to offer better services to their customers. It is only by doing this that they will remain relevant.
Why Insurance firms are selling off their PFAs
It has not been uncommon over the years to have insurance companies with pension subsidiaries.
The idea of mitigating risks and curtailing losses at the bare minimum begins from the insurance industry and only crosses into the pension space with the need for retirement planning. For this reason, it has not been uncommon over the years to have insurance companies with pension subsidiaries. However, controlling the wealth of people is no easy feat – and crossover companies are beginning to think it might not be worth it competing with the big guns; that is, the pension fund administrators (PFAs) that already cater to the majority of Nigerians.
A few months ago, AXA Mansard Insurance Plc announced that its shareholders have approved the company’s plan to sell its pension management subsidiary, AXA Mansard Pensions Ltd, as well as a few undisclosed real estate investments. It did not provide any reason for the divestment. More recently, AIICO Insurance Plc also let go of majority ownership in its pension arm, AIICO Pension Managers Ltd. FCMB Pensions Ltd announced its plans to acquire 70% stakes in the pension company, while also acquiring an additional 26% stake held by other shareholders, ultimately bringing the proposed acquisition to a 96% stake in AIICO Pension. The reason for the sell-off by AIICO does not also appear to be attributed to poor performance as the group’s profit in 2019 had soared by 88% driven by growth across all lines of business within the group.
So why are they selling them off?
Pension Fund Administration is, no doubt, a competitive landscape. Asides the wealth of the over N10 trillion industry, there is also the overarching advantage that pension contributors do not change PFAs regularly. Therefore, making it hard to compete against the big names and industry leaders that have been in the game for decades – the kinds of Stanbic IBTC, ARM, Premium Pension, Sigma, and FCMB. Of course, the fact that PFAs also make their money through fees means the bigger the size, the more money you make. With pressure to capitalize mounting, insurance firms will most likely spin off as they just don’t have the right focus, skills, and talents to compete.
The recent occurrence of PENCOM giving contributors the opportunity to switch from one PFA to another might have seemed like the perfect opportunity for the smaller pension companies to increase their market shares by offering better returns. More so, with the introduction of more aggrieved portfolios in the multi-fund structure comprising of RSA funds 1, 2, & 3, PFAs can invest in riskier securities and enhance their returns. However, the reality of things is that the smaller PFAs don’t have what it takes to effectively market to that effect. With the gains being made from the sector not particularly extraordinary, it is easier for them to employ their available resources into expanding their core business. There is also the fact that their focus now rests on meeting the new capital requirements laced by NAICOM. Like Monopoly, the next smart move is to sell underperforming assets just to keep their head above water.
Olasiji Omotayo, Head of Risk in a leading pension fund administrator, explained that “Most insurance businesses selling their pension subsidiaries may be doing so to raise funds. Recapitalization is a major challenge now for the insurance sector and the Nigerian Capital Market may not welcome any public offer at the moment. Consequently, selling their pension business may be their lifeline at the moment. Also, some may be selling for strategic reasons as it’s a business of scale. You have a lot of fixed costs due to regulatory requirements and you need a good size to be profitable. If you can’t scale up, you can also sell if you get a good offer.”
What the future holds
With the smaller PFAs spinning off, the Pension industry is about to witness the birth of an oligopoly like the Tier 1 players in the Banking sector. Interestingly, the same will also happen with Insurance. The only real issue is that we will now have limited choices. In truth, we don’t necessarily need many of them as long all firms remain competitive. But there is the risk that the companies just get comfortable with their population growth-induced expansion while simply focusing on low-yielding investments. The existence of the pandemic as well as the really low rates in the fixed-income market is, however, expected to propel companies to seek out creative ways to at least keep up with the constantly rising rate of inflation.
Nigerian Banks expected to write off 12% of its loans in 2020
The Nigerian banking system has been through two major asset quality crisis.
The Nigerian Banking Sector has witnessed a number of asset management challenges owing largely to macroeconomic shocks and, sometimes, its operational inefficiencies in how loans are disbursed. Rising default rates over time have led to periodic spikes in the non-performing loans (NPLs) of these institutions and it is in an attempt to curtail these challenges that changes have been made in the acceptable Loan to Deposit (LDR) ratios, amongst others, by the apex regulatory body, CBN.
Projections by EFG Hermes in a recent research report reveal that as a result of the current economic challenges as well as what it calls “CBN’s erratic and unorthodox policies over the past five years,” banks are expected to write off around 12.3% of their loan books in constant currency terms between 2020 and 2022, the highest of all the previous NPL crisis faced by financial institutions within the nation.
Note that Access Bank, FBN Holdings, Guaranty Trust Bank, Stanbic IBTC, United Bank for Africa and Zenith Bank were used to form the universe of Nigerian banks by EFG Hermes.
Over the past twelve years, the Nigerian banking system has been through two major asset quality crisis. The first is the 2009 to 2012 margin loan crisis and the other is the 2014 to 2018 oil price crash crisis.
The 2008-2012 margin loan crisis was born out of the lending institutions giving out cheap and readily-available credit for investments, focusing on probable compensation incentives over prudent credit underwriting strategies and stern risk management systems. The result had been a spike in NPL ratio from 6.3% in 2008 to 27.6% in 2009. The same crash in NPL ratio was witnessed in 2014 as well as a result of the oil price crash of the period which had crashed the Naira and sent investors packing. The oil price crash had resulted in the NPL ratio spiking from 2.3% in 2014 to 14.0% in 2016.
Using its universe of banks, the NPL ratio spiked from an average of 6.1% in 2008 to 10.8% in 2009 and from 2.6% in 2014 to 9.1% in 2016. During both cycles, EFG Hermes estimated that the banks wrote-off between 10-12% of their loan book in constant currency terms.
The current situation
Given the potential macro-economic shock with real GDP expected to contract by 4%, the Naira-Dollar exchange rate expected to devalue to a range of 420-450, oil export revenue expected to drop by as much as 50% in 2020 and the weak balance sheet positions of the regulator and AMCON, the risk of another significant NPL cycle is high. In order to effectively assess the impact of these on financial institutions, EFG Hermes modelled three different asset-quality scenarios for the banks all of which have their different implications for banks’ capital adequacy, growth rates and profitability. These cases are the base case, lower case, and upper case.
Base Case: The company’s base case scenario, which they assigned a 55% probability, the average NPL ratio and cost of risk was projected to increase from an average of 6.4% and 1.0% in 2019 to 7.6% and 5.3% in 2020 and 6.4% and 4.7% in 20201, before declining to 4.9% and 1.0% in 2024, respectively. Based on its assumptions, they expect banks to write-off around 12.3% of their loan books in constant currency terms between 2020 and 2022, a rate that is marginally higher than the average of 11.3% written-off during the previous two NPL cycles. Under this scenario, estimated ROE is expected to plunge from an average of 21.8% in 2019 to 7.9% in 2020 and 7.7% in 2021 before recovering to 18.1% in 2024.
Lower or Pessimistic Case: In its pessimistic scenario which has a 40% chance of occurrence, the company projects that the average NPL ratio will rise from 6.4% in 2019 to 11.8% in 2020 and 10.0% in 2021 before moderating to 4.9% by 2024. It also estimates that the average cost of risk for its banks will peak at 10% in 2020 and 2021, fall to 5.0% in 2022, before moderating from 2023 onwards. Under this scenario, banks are expected to write off around as much as 26.6% of their loan books in constant currency terms over the next three years. Average ROE of the banks here is expected to drop to -8.8% in 2020, -21.4% in 2021 and -2.9% in 2022, before increasing to 19.7% in 2024.
Upper or optimistic case: In a situation where the pandemic ebbs away and macro-economic activity rebounds quickly, the optimistic or upper case will hold. This, however, has just a 5% chance of occurrence. In this scenario, the company assumes that the average NPL ratio of the banks would increase from 6.4% in 2019 to 6.8% in 2020 and moderate to 4.8% by 2024. Average cost of risk will also spike to 4.2% in 2020 before easing to 2.4% in 2021 and average 0.9% thereafter through the rest of our forecast period. Finally, average ROE will drop to 11.6% in 2020 before recovering to 14.4% in 2021 and 19.0% in 2024.
With the highest probabilities ascribed to both the base case and the pessimistic scenario, the company has gone ahead to downgrade the rating of the entire sector to ‘Neutral’ with a probability-weighted average ROE (market cap-weighted) of 13.7% 2020 and 2024. The implication of the reduced earnings and the new losses from written-off loans could impact the short to medium term growth or value of banking stocks. However, in the long term, the sector will revert to the norm as they always do.
Even with a 939% jump in H1 Profit, Neimeth still needs to build consistency
Neimeth has been one of the better performers in the stock market in the last one year.
Neimeth’s profit after tax for H1 2020 might have jumped by 939% from H1 2019, but there’s still so much the company needs to do to remain in the game.
For the first time in years, Pharmaceutical companies across the globe are in the spotlight for a good reason. As the COVID-19 pandemic rages on, the world waits patiently for this industry to produce a vaccine that can once again lead us back to the lives we all missed. Nigeria is also not an exception, it seems. One of Nigeria’s oldest pharmaceutical companies, Neimeth, has been one of the better performers in the stock market in the last one year. However, there is still so much the company needs to do to earn profits consistently.
Neimeth’s recently released H1 2020 results show a jump of 19.4% in revenue from ₦976 million earned in H1 2019 to ₦1.165 billion in H1 2020. While this is impressive, its comparative Q2 results (Jan-March ‘ 20) show a drop in revenue of 25.4% from ₦748.8 million earned in Q2 2019, to the ₦568.7 million revenue in Q2 2020. In similar vein, while its profit-after-tax soared by 939% from ₦5.447 million in H1 2019 to ₦56.596 million in H1 2020, its quarter-by-quarter results show a drop of 118%. While there is a truth that some months are better performers than others, Neimeth’s extreme profit jump in the half-year results juxtaposed with the more-than-100% drop in the first quarter of this year, reveal wide-gap volatility in its earning potential. Its revenue breakdown attributes the quarter-by-quarter drop in revenue to a comparative drop in its ‘Animal Health’ product line by a whopping 897.42%. The ‘Pharmaceuticals’ line also only experienced a marginal jump of 2.57%.
Full report here.
Current & Post-Covid-19 Opportunities
A 2017 PWC report had revealed that by 2020 the pharmaceutical market is expected to “more than double to $1.3 trillion. Mckinsey had also predicted that come 2026, Nigeria’s pharma market could reach $4 billion. The positive outlook of the industry is even more so, following the disclosure by the CBN to support critical sectors of the economy with ₦1.1 trillion intervention fund.
The CBN governor, Godwin Emefiele, had stated that about ₦1trillion of the fund would be used to support the local manufacturing sector while also boosting import substitution while the balance of ₦100 billion would be used to support the health authorities towards ensuring that laboratories, researchers and innovators are provided with the resources required to patent and produce vaccines and test kits in Nigeria.
While manufacturing a vaccine for the Covid-19 pandemic might be nothing short of wishful, the pandemic presents a global challenge that businesses in the healthcare industry could leverage. Through strategic R&D, it could uncover a range of solutions, particularly those that involve the infusion of locally-sourced raw materials.
In order for the company to attain sustainable growth, it needs to come up with structures and systems that are dependable, while also tightening loose ends. One of such loose ends is its exposure to credit risk. It’s Q2 2020 reports reveal value for lost trade receivables of N693.6 million carried forward from 2019. To this end, it notes that while its operations expose it to a number of financial risks, it has put in place a risk management programme to protect the company against the potential adverse effects of these financial risks.
At the company’s last annual general meeting (AGM), the managing director, Matthew Azoji, had also spoken on the company’s efforts to gain a larger market share through its initiation of bold and gradual expansion strategies.
The total revenue growth and profitability of the half-year period undoubtedly signals a potential in the company. However, we might have to wait for the company’s strategies to crystalize and attain a level of consistency for an extended period before reassessing the long-term lucrativeness of its stock or otherwise. That said, it certainly should be on your watchlist.