The Central Bank of Nigeria (CBN) has further moved against bad debtors as it said it will extend its Credit Risk Management System (CRMS) to the other financial institutions (OFIs) in the country.

This follows the successful implementation of the CRMS in deposit money banks across the country.

This disclosure is contained in a circular titled, ‘Credit Risk Management System: Commencement of Enrolment of all Development Finance Institutions, Microfinance Banks, Primary Mortgage Banks and Finance Companies, issued by the apex bank and signed by its Director, Financial Policy and Regulation Department, Kelvin Amugo, on April 8, 2021.

CBN in the circular noted that this policy is to help promote a safe and sound financial system in the country as well as prevent the bad debtors from undermining the banking system.

What the CBN is saying in the circular

The statement from the CBN’s circular reads, “As part of efforts to promote a safe and sound financial system in Nigeria, the CBN introduced the CRMS to improve credit risk management in commercial, merchant and non-interest banks as well as to prevent predatory borrowers from undermining the banking system.

“With the successful implementation of the CRMS in deposit money banks, it has become expedient to commence the enrolment of Other Financial Institutions on the CRMS platform.

Accordingly, all DFIs, MfBs, PMBs and FCs are required to report all credit facilities (principal and interest) to the CRMs and to update same on monthly basis. OFIs shall note the Bank Verification Numbers and Tax Identification Numbers are the only basis for regulatory renditions.

To ensure full compliance, OFIs are reminded to conclude the tagging of ALL life credits files for ALL individual and non-individual borrowers with BVN and TIN respectively by May 14, 2021.’’

The apex bank in the circular also advised concerned OFIs to acquaint themselves with the regulatory guidelines for the operations of the redesigned CRMS for commercial, merchant and non-interest banks in the country.

While noting that it would monitor compliance with the requirements of this circular, the CBN said that appropriate sanctions would be applied for non-compliance.

What you should know

• The CRMS was introduced due to rising cases of non-performing loans in banks and this contributed significantly to the financial distress in the banking sector.
• This was also compounded by the existence of predatory debtors in the banking system who are fond of abandoning their debt obligations in some banks only to move to contract new debts in other banks. This led to the need for a central database from which consolidated credit information on borrowers could be obtained.
• The CRMS is web-enabled thereby allowing banks and other stakeholders to dial directly into the CRMS database for the purpose of rendering statutory returns or conducting status enquiry on borrowers.

Nigerian banks raked in a sum of N216.52 billion from their e-business earnings in the year 2020 as tier-1 banks popularly known as FUGAZ (First Bank, UBA, Access Bank, GT Bank, and Zenith Bank) topped the list of highest earners. 

Income from digital channels is also classified as electronic business or banking income by the majority of commercial banks. Nairametrics gathered this research from the audited financial statements of 12 of the leading banks in the country. The same banks reported N217 billion in income from digital channels in 2019 dipping marginally by 0.24%.

• Banks attribute the reason for the drop in 2020 compared to 2019 to the revision of fees and charges for electronic transfers by the central bank in early 2020.
• On January 1^st, 2020, the CBN ushered in a new regime for bank charges. While these mostly affected things like card maintenance fees, charge for hardware tokens it also affected the amount that can be paid for electronic transfers.
• For example, a graduated fee scale for electronic transfers replaced the current flat fee of N50 such that transfers below N10,000 now attract a maximum charge of N10; and transfers above N50,000, N50.
• USSD fees also got a cut a few months later announcing that customers will pay a flat fee of N6.98 per transaction every time they use USSD services with effect from Tuesday, March 16, 2021.
• The Covid-19 pandemic also played a major role in bank performance as it affected the expansion of the digital rollout plans earlier on in the year. However, the pandemic will swing in their favour as Nigerians increasingly relied on mobile banking for transactions while avoiding banking halls for fear of contracting Covid-19.

Banks and Digital Channels

Banks in Nigeria have increasingly resorted to generating income from digital channels such as their mobile applications, USSD channels, and online banking targeting Nigerians from all works of life. Efforts at increasing revenue from digital channels have been supported heavily by the Central Bank through initiatives such as BVN, POS, and other banking policies driving financial inclusion.

While the apex bank’s policy was aimed at reducing the number of unbanked in the country, banks have seized on the opportunity to offer a wide range of services that have increasingly provided an alternative source of income. According to NIBSS, the total value of electronic transfers for 2020 topped N158 trillion in 2020 a 50% growth when compared to 2019. Transaction volume also rose to 2 billion up 77% when compared to 2019.

Rise of Challenger Banks

Banks will face stiffer competition in 2021 as Challenger Banks such as Kuda Bank and V-Bank are more capitalized having attracted significant funding in recent months. These banks offer zero fees as an attractive selling point which they hope will sway customers from the big commercial banks who have long started monetizing their platforms.

Challenger Banks typically earn money from other sources such as providing bespoke services wrapped around savings and investments with their customers. Thus, rather than rely on digital revenues earned from fees and charges per transaction, they earn by actually engaging in the business of banking, lending depositors funds, and investing their free float.

Here are the top earners in 2020: 

Apart from Access Bank, UBA, and FBNH, all the other banks posted year-on-year declines. For example, Zenith Bank and GTB recorded a 36% and 25% drop respectively.

However, Access Bank and UBA both recorded an increase of 56% and 14% respectively topping N56 billion and N44.2 billion respectively. Access Bank is now the largest bank making money from e-business income having topped FBNH which posted N48 billion from E-business income, the highest in 2019.

Fifth position – GT Bank (N11.77 billion)

Guaranty Trust Bank, the most capitalized financial institution listed on the Nigerian Stock Exchange generated a sum of N11.8 billion from its e-business unit, accounting for about 5.4% of the total e-business revenue in 2020.

• Its e-business revenue declined massively by 24.85% compared to N15.66 billion recorded in the previous year.
• The bank, however, posted a profit after tax of N201.44 billion in 2020 (second only to Zenith Bank), representing a 2.33% increase compared to N196.85 billion recorded in 2019. 

Fourth position – Zenith Bank (N27.08 billion)

Zenith Bank earned a sum of N27.08 billion from its e-business in 2020 to stand fourth on the list behind UBA.

• Its income from e-business accounted for 12.5% of the total income generated by the twelve banks. Zenith Bank’s e-business income witnessed a huge plunge of 36.3% in 2020 compared to N42.5 billion it recorded in 2019.
• However, Zenith Bank posted the highest profit of N230.6 billion in the review period, growing its profit after tax by 10.4% from N208.8 billion recorded in 2019. 

Third position – UBA (N44.25 billion)

UBA retained its position in third place with a total e-business revenue of N44.25 billion, accounting for 20.4% of the total e-business income generated by the banks on our list.

• UBA recorded a 14.14% increase in its e-business revenue in 2020 compared to N38.8 billion recorded in the prior year. 
• UBA has also intensified its effort to build on its 2020 success by releasing a new mobile banking app, which aims to improve the ease of transacting by their customers.
• The tier-1 bank posted a profit after tax of N113.77 billion in 2020, representing a 27.7% increase compared to N89.09 billion recorded in the previous year. 

Second position – FBN Holdings (N48.68 billion)

First Bank lost its first position to Access Bank, having increased its e-business revenue marginally by 1.35% to stand at N48.68 billion in 2020. Its e-business revenue accounted for 22.5% of the e-business income recorded by the twelve banks under consideration. 

• Despite being one of the oldest banks in the country, First Bank has been at the forefront of the mobile banking revolution.
• The bank was one of the pioneers of the USSD platform which is used to transfer money via a text messaging application of a mobile phone and has continued to create products within the electronic space.
• For example, in November 2020, First Bank launched a Next Generation ATM, referred to as FastTrack ATM, designed to eliminate the need for physical interaction with the automated machine.
• This was as a result of the need to reduce physical contact with people and substances, due to the covid-19 spread in the country. 

First position – Access Bank (N56.09 billion )

The largest bank in Nigeria by total assets toppled First Bank, Zenith, and UBA to occupy the first position with e-business revenue of N56.09 billion in 2020.

• Access Bank was in the fourth position in 2019 but catapulted to first as it grew its e-business income by a whopping 55.64% from N36.04 billion recorded in the previous year.
• This increase also translated to a 12.71% growth in profit after tax to stand at N106.01 billion in the review period from N94.06 billion recorded in 2019. 
• Access Bank does mention that its E-business income includes earnings from its Channels business.

The increase in its e-business revenue is no surprise as the tier-1 bank spent a sum of N18.7 billion on IT and E-business related initiatives in the same year, as against N9.7 billion incurred in the previous year and N11.39 billion in 2018, a move that clearly translated to a boost in E-business income. 

According to a recent article published by Nairametrics, Access Bank stated that it created 4 million digital loans in the year under review and disbursed N105 billion loans through its digital lending platform, indicating a 48% year-on-year growth. 

Bubbling under

• FCMB – N8.61 billion
• Union Bank – N7.04 billion
• Sterling Bank – N4.97 billion
• Stanbic IBTC – N2.74 billion
• Wema Bank – N2.61 billion
• Fidelity Bank – N2.46 billion
• Jaiz Bank – N214 million

Commercial Banks E-Business (Digital Banking) Income.
Source: Nairalytics Research.

Bottom line

The disruption caused by the covid-19 pandemic plunged into the revenue generated by Nigerian banks from their e-businesses, however, they were able to make up for it from their multiple streams of income which translated to a general stellar performance from the sector. It is worth noting that only Access Bank, UBA, and First Bank recorded growth in e-business income in the period under review.