The coronavirus pandemic has triggered unprecedented challenges for the global economy. The financial sector is being closely watched considering its exposure to risky assets. The situation is the same in Nigeria and as the economy gradually reopens, attention is now pointing towards Nigerian banks and how bad their risk assets are.
Nairametrics did a report last week detailing banks that are exposed to oil and gas, a sector that is more than any devastatingly affected by the global lockdown. We continue to focus on this sector as we review reports and publications that could provide an insight into what might befall banks.
One of such report is that of Augusto & Co Limited, a credit rating firm. The firm earlier in the year published its preliminary forecasts (pre-COVID-19) for the Nigerian banking sector’s non-performing loans (NPL) ratio for the 2020 financial year. The agency had projected 9.4% based on its expectations that major impaired loans would be written off, there would be growth in the loan portfolio and that the IFRS 9 impact would be moderated.
With the advent of COVID-19 and associated risks, Augusto increased its projection to 13% in the short term. In an industry report issued by Augusto & Co. Limited and seen by Nairametrics, it stated,
“We have revised our NPL ratio expectations to 13% in the short term. Our revised forecast is a moderated revision of CBN’s 2016 stress test on the impact of the lower oil prices on the banking industry’s loan book. Our forecast assumes that with crude oil prices averaging $30-$35 per barrel, a proportion of the oil and gas loan book will be impaired. We also expect a rise in impairment levels in other sectors.
“However, our prognosis may be somewhat moderated by the forbearances granted by the Central Bank of Nigeria (CBN) to banks to cushion the impact of the pandemic on the Industry’s performance. These forbearances include the allowance for restructurings of loans to businesses and individuals highly impacted by the pandemic, such as hospitality, manufacturing, and oil and gas firms, to reflect challenges in the sectors.
“In addition, the banking industry tightened credit risk management following the 2016 recession, shifting to short-dated, cash-backed trade transactions that self-liquidate and converting some unhedged FCY loans to naira loans for instance. Notwithstanding, we recognise that some banks are still in the process of cleaning up the loan portfolio from the last recession.”
The report added that the capital base of the banking industry has come under pressure due to the IFRS 9 adoption and other asset quality issues that have resulted in major write-offs.
According to the report, ”Tier II capital-raising activities like revaluation reserve, subordinated debt, and so on, increased in the 2019 financial year up until the first quarter of 2020. Due to challenges with the asset quality of banks, and the naira devaluation, we expect some strain on the Industry’s capitalization ratios in the short term.”
”However, this will be moderated by slower risk asset growth owing to the static business environment, increased profit retention, revaluation gains, and the use of excess qualifying tier II capital to uphold capital adequacy ratios. We also believe that CBN’s forbearance will cushion the impact of the COVID-19 pandemic on the industry’s capital base.”
It added that the banking industry will need to recapitalize in the short to medium term, noting that this will be challenging considering the current environment and weak investor sentiments. For banks that may be seeking to raise tier 1 capital, it stated that the weak valuations at this time, which has led to all the quoted banks trading at a discount to book values, maybe a deterrent.
(READ MORE: Senate okays FG’s N850 billion loan request)
Nigerian banks had a good run on Friday as the banking index posted a 3.9% gain, one of the better performers last week. Bank shares have been battered since February and despite the gains, they are yet to claw back lost ground. The recent gains are also unlikely to incentivize banks towards raising capital from the stock market. Should there be a need to raise capital, it will have to be via tier 2 capital.
”The three most valuable banks are currently trading below book values, with Guaranty Trust Bank Plc trading at 0.89x its book value, Zenith Bank Plc at half its book value and Stanbic IBTC Bank Plc at 0.97x its book value as at 20 April 2020.”
”Tier II capital will be raised to support Capital Adequacy Ratio up to the extent that it is permissible by the CBN and that market conditions are favourable. We believe that regulatory support will be required to implement rules aimed at protecting the banking industry’s profitability,” report added.
Why Artificial Intelligence will separate winning banks from losers amid COVID-19
Banks around the world were already under pressure to fully deploy Artificial Intelligence prior to the pandemic.
Banking experts from around the world believe that Artificial Intelligence (AI) will become the differentiating factor between banks that will succeed and those that will fail, in the new era of global banking.
A new report by The Economist Intelligence Unit, which was sponsored by Geneva-based banking software company Temenos AG, surveyed some 305 banking executives from around the world. 77% of these bankers stated that AI will separate winning banks from losers.
The role of COVID-19 pandemic
The report also noted that the COVID-19 pandemic has put global banks under immense pressure to readjust their strategies and align with the technological requirements of the 21st-century banking industry.
“Retail, corporate and private banks were already under pressure to deploy new technologies and reshape their company cultures in order to compete with big tech firms and payment players. Now, as digital banking surges due to the coronavirus pandemic, this task is more pressing than ever,” said some part of the report.
Key findings from the report
- 66% of banking executives say new technologies will continue to drive the global banking sphere for the next five years while regulatory concerns around these technologies remain top of mind for banking executives (42%).
- 77% of bankers believe that unlocking value from AI will be the differentiator between winning and losing banks.
- 45% of respondents are focused on transforming their existing business models into digital ecosystems. Therefore, banks are expected to continue to adapt their internal structures to digital technologies in order to enhance customer experience, product offerings, and new revenue streams.
The backstory and the present concerns
Prior to the outbreak of the Coronavirus pandemic which has destabilised the global economy and raised major health and safety concerns, many banks around the world were already making major efforts towards the adoption of Artificial Intelligence in their daily operations. Bank customers were encouraged to make use of digital banking solutions in a bid to reduce traffic in banking halls.
To a large extent, this worked, although the pandemic really helped to accelerate the pace. However, the widespread adoption of Artificial Intelligence has not come without some concerns/challenges. According to the report by The Economist Intelligence Unit, data bias, “black box” risk, and lack of human oversight as some of the main concerns bothering bankers.
The report did, however, specify some regulatory guidelines on how best banks can deploy Artificial Intelligence, as you can see below:
- Ethics and fairness: banks must develop AI models that are ‘ethical by design’. AI use cases and decisions should be monitored and reviewed and data sources regularly evaluated to ensure that data remains representative.
- Explainability and traceability: steps taken to develop AI models must be documented in order to fully explain AI-based decisions to the individuals they impact.
- Data quality: bank-wide data governance standards must be established and applied to ensure data accuracy and integrity and avoid bias.
- Skills: banks must ensure the right level of AI expertise across the business in order to build and maintain AI models, as well as oversee these models.
Why it matters
Artificial Intelligence is expected to remain very relevant for banks, even after the COVID-pandemic must have finally been brought under control. Therefore, it is expedient for banks around the world to really develop their AI capacity in order to succeed both during and after the pandemic.
You may download Forging new frontiers: Advanced Technologies will Revolutionise Banking by clicking here.
NITDA launches technology and entrepreneurship scheme
The programme will create local content in Nigeria’s ICT space and jobs in the innovation and tech sector
The National Information Technology Development Agency (NITDA) has launched its Technology Innovation & Entrepreneurship Scheme that is specially designed for Information and Communication Technology (ICT) and Tech startups.
This was disclosed in a statement shared by the agency and signed by Head, Corporate Affairs, and External Relations, NITDA, Hadiza Umar. In the statement, she explained that the scheme, which targets young skilled Nigerians, would enable the digital economy needed for the growth of the nation’s economy.
She said, “It is part of Nigeria’s plan to create 100 million jobs in 10 years, and the program would be beneficial for ICT and tech startups in the nation. There is the need to build support systems that would help in reducing the barriers of entry for startups while increasing the capacity of hubs and startups to create new bankable products and services.
“NITDA initiated a scheme to provide opportunities for building the capacity of both hub owners and start-ups to ensure massive creation of technology entrepreneurs and jobs within the industry.”
According to her, the Digital economic Policy goes in line with the NITDA scheme which ensures skilled hub managers have the necessary support for tech startups and “build innovation ecosystems in their localities.
“It will also build the capacity of hubs to support startups and build local innovation ecosystems, encourage innovation, increase technology and entrepreneurship skills among aspiring and existing entrepreneurs” she added.
She also said the programme will help create local content in Nigeria’s ICT space, render services, and jobs in the innovation and tech sector. The hub managers are required to sign agreements with NITDA to enable them to train managers for other regions. Covering infrastructure needs like Internet and power supply.
“The participants will also be matched with mentors and guided by coaches as they build out their products and services. At the end of the training period, participants will be required to choose if they would like to begin a startup or to get a job,” she added.
She revealed that those who sign up will be placed in a six-month incubator programme which will allow them to gain skills and work experiences needed to build a digital economy. Interested participants are advised to apply, as the portal closes on the 24 of July. See the portal here
Twitter freezes password reset to address cyberattack
Users will be updated on the progress of the investigations and their account functionalities.
Twitter Inc has announced that some users may be unable to tweet, reset their password, or access other functionalities, as the tech company tries to address the breach on its systems on Wednesday.
According to its tweet, the most accounts affected by this freeze are verified individual accounts, including those with no evidence of being compromised.
We also limited functionality for a much larger group of accounts, like all verified accounts (even those with no evidence of being compromised), while we continue to fully investigate this.
— Twitter Support (@TwitterSupport) July 16, 2020
This freeze is, however temporary as users and verified account holders should be able to tweet as soon as the breaches on the internal systems are addressed, and their accounts are confirmed to be secured.
The disruptive move, according to the company, is a necessity, and users will be updated on the progress of the investigations and their account functionalities.
In its Thursday morning tweet, Twitter announced that investigations are ongoing to decipher how the attackers were able to gain access to its internal systems and tools.
Nairametrics reported the breach of the Twitter accounts of top personalities, with the hackers tweeting about a BTC giveaway, and BTC doubling.
Speaking about the breach, Twitter issued a statement;
“We detected what we believe to be a coordinated social engineering attack by people who successfully targeted some of our employees with access to internal systems and tools.
“We know they used this access to take control of many highly-visible (including verified) accounts and Tweet on their behalf. We’re looking into what other malicious activity they may have conducted or information they may have accessed and will share more here as we have it.”
As soon as the breach was detected, the affected accounts were locked down, and Twitter took down the fraudulent tweets.
The company however promised that all of the compromised accounts will be restored as soon as the security has been re-established.
The statement added that steps have been taken to “limit access to internal systems and tools” while investigations are ongoing, and heighten the security of the medium in the future.
Bitcoin scammers, on Wednesday, hacked into the Twitter accounts of many top personalities and leading brands, including Barack Obama, Elon Musk, Jeff Bezos, Kanye West, and Uber, tweeting about a BTC giveaway. They later tweeted that they would double Bitcoins for BTC holders.
According to Cameron Winklevoss, co-founder of the world’s leading crypto exchange Gemini, the scammers were only able to make away with “a paltry sum,”, giving rise to thoughts that there might be other reasons for the attack.
Twitter has commenced investigations into the attack.
Meanwhile, Tron founder, Justin Sun has put a bounty on those responsible for the attacks, saying he is ready to give $1 million to the person or persons responsible for tracking down the hackers.