During a recent interview, Zenith Bank’s CEO, Ebenezer Onyeagwu, hinted at something exciting for most banks – the fact that a growing number of customers are now switching to e-banking. At a time when the COVID-19 pandemic has ravaged the economy and left banks exposed to financial risks, e-banking is probably the ultimate silver lining.
According to checks by Nairametrics Research, electronic banking has always been profitable for banks. In the first quarter of 2020 alone, Nigeria’s tier-1 banks (i.e., First Bank, UBA, GTB, Access Bank, and Zenith Bank, otherwise known as FUGAZ) collectively earned N38.7 billion from e-banking. During the comparable quarter in 2019, the FUGAZ earned N33.4 billion from e-banking fees.
The chart below shows the revenue NSE-listed banks earned from e-banking over the past five years.
Now that more Nigerians are increasingly resorting to digital banking, there is an even greater chance that banks will start earning more income from e-banking fees. Experts agree to this.
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Exploiting e-banking…
In the meantime, banks are going to be pushing their online banking products in the faces of their customers. Speaking to Nairametrics earlier this week, the Director of Marketing at Chapel Hill Denham, Lanre Buluro, discussed the areas banks are going to be focusing on going forward. Doubling down on their e-banking strategy is top on the list. He said:
“The banks are definitely going to be focusing on pushing a lot of their transactions to the electronic channels. There will really be a big drive to push customers to the electronic channels. If you recollect, on the first day of easing the lockdown, we were seeing videos of customers rushing to the branches. In this day and age, that shouldn’t be what we should be seeing. A lot of people should be using their electronic channels. There is an urgent need to leverage technology to do more. Some branches will still remain closed.”
Focusing on the essentials
Also speaking to Nairametrics, the Managing Partner of GBC Professional Services, Gbenga Badejo, said banks will only focus on giving credit facilities to businesses whose models are essential, profitable, efficient, and smart. He said:
“The banks are going to focus on businesses that are highly profitable, despite the semi lockdown situation. This is an example of what I mean – I recently got a brief from a client to prepare a document because this particular bank suddenly wants to give him an LPO financial facility. This is somebody that the banks have been saying no to for a long time. Now, they’ve seen that this man’s business is among what can be classified as essential. And what are the essentials – food, pharmaceuticals, education, medicals. The banks will gravitate towards the essentials because patronage will always be there.
“Now, because you are part of the essentials does not necessarily mean that you are efficient. If a bank gives you a credit facility and you blow it up in expenses that are unnecessary, you it’s going to affect your bottomline. And when it affects your bottomline, it affects your cashflow. Your ability to return the loan given to you is therefore in jeopardy.
“So, in addition to being in the essential sector of the economy, you are also efficient, profitable, smart, and watching your cost. You should be able to even better than you were doing (profit-wise) before this COVID-19 era.”
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Meanwhile, banks will be managing their loan books
While banks may no longer be able to give out as much loans as they used to, Lanre Buluro said they are definitely going to be making sure that the loans already in their books are performing. He also noted that there may be some loan restructuring, especially for SMEs. The CBN has provided some guidelines on how banks should manage SME loans, he said.
Taking advantage of naira’s devaluation
Another thing banks may depend on to earn revenue/profit during this difficult time is by taking advantage of the devaluation of the naira. According to Buluro, banks like GTBank and Access Bank that have a lot of dollars in their possession, are really going to benefit from this. He said:
“There are some banks that are quite long on dollars. Examples would be GTBank, Access Bank, and to a great extent Zenith Bank. Just this devaluation alone will see banks booking devaluation gains when they revalue the dollars in their books. As of last year, the official exchange rate to the dollar was N360 and now it’s about N380. So, with just that alone, some banks have booked profits.
I think the CBN may further devalue to an official number of N420 because we are seeing transactions in the parallel market at an average exchange rate of say N450 to the dollar. So, it’s very likely the CBN may further adjust (because I know they don’t like using the word ‘devalue’) to N420 to a dollar. With that adjustment alone, banks who are long on dollars could book some devaluation gains.”
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It should be noted that the option of managing costs by laying off staff may no longer be applicable for banks. This is because the Central Bank of Nigeria recently ordering them not to do that, as Nairametrics reported. However, the banks will most likely figure out other ways of reducing operating costs. For example, while many bank branches remain closed for now, the costs of running those facilities will considerably reduce.
In conclusion, Buluro noted that this is a challenging time for everyone, even though it appears as if banks are the main people at the receiving end of the economic fallouts. He also implied that this might as well be the case for banks, considering the fact that they have not really created new products in a long time. So, while the prospects remain quite low, they will just manage what they currently have.