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Financial Services

Nigeria @ 60: The Banking Sector and the Nigerian economy 

The banking sector in Nigeria has come a long way but financial inclusiveness still remains a hurdle to scale through.

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Nigeria celebrates 60 years of gaining her independence from the colonial masters. Six decades of diverse ideas and reforms, which helped build the financial service sector to the point where it stands. It is imperative to consider how far the industry has come, and the outlook for the sector.

Gone are the days, where it is compulsory for customers to visit their bank before opening an account or completing a transaction, now it can be done at the comfort of their homes. This is a function of continuous reforms implemented and adopted by the financial sector of the country, via embracing the use of internet as a medium of banking.

These reforms and ideas have propelled the Nigerian banking industry into a major economic driver of the nation, accounting for 34.2% of the total equities market capitalization of the Nigerian Stock Exchange (NSE).

A cursory look at historic data, reveals that the banking sector has witnessed significant growth over the years, starting in the 80s with the African Banking Corporation and the Bank of British West Africa, now First Bank of Nigeria, to a total of 23 commercial banks, and an aggregate asset value of N41.9 trillion as at December 2019, coupled with other variant financial services in the country.

Brief history

The origin of modern banking in Nigeria dates back to the 80s, but notably the establishment of the Central Bank of Nigeria, through the Central Bank Act of 1958. Ever since then, the apex bank has gone through a number of restructuring and Act amendments, to sail the banking sector to its current position.

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In 1997, an amendment made the Central Bank of Nigeria directly responsible to the Minister of Finance, with respect to the supervision and control of bank and other financial institutions, while extending the supervisory role of the bank to same.

Meanwhile, the current legal framework within which the CBN operates, is the CBN Act of 2007, which repealed the CBN Act of 1991 and all its amendments. The Act provides that the CBN shall be a fully autonomous body in the discharge of its functions under the Act, and the banks and other financial institutions Act, with the objective of promoting stability and continuity in economic management.

These amendments and many more, helped widen the number of commercial banks in the country, as well as other financial services firms such as Fintechs, Mortgage banks et al.

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The banking sector and the Nigeria economy

It is no doubt that the banking system in any given society is the artery, through which the economic lifeblood of the nation runs. Also, the economic well-being of the country will, to a very large extent, depend on the strength of the financial sector. This is evident in the Gross Domestic Product figures (GDP), which shows that financial sector grew by 28.41% (real terms) in Q2 2020, despite the economy contracting by 6.1%.

The financial sector contributed 3.6% in real terms to the total GDP in the second quarter of 2020, a positive movement from 3.1% recorded in the previous quarter (Q1 2020), and 2.63% in the corresponding quarter of 2019, a clear indication of steady growth and great resolve, despite economic downturn.

The banks play the critical role of mobilizing savings from the surplus economic units, while directing same to the deficit economic units for investment purposes, which in turn brings about economic development to the country.

This is can be seen from credit statistics report, that the banking sector contributes significantly to the effective functioning of other sectors of the economy. According to data obtained from Nairalytics – the research arm of Nairametrics, credit issued to various sectors of the economy increased by 40.1% in 5 years, indicating an additional credit of N5.38 trillion to stand at N18.82 trillion.

It is worth noting that the Oil and gas sector holds the highest share (26.27%), followed by the Manufacturing and General services sector with N3.07 trillion and N1.64 trillion respectively.

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Banking sector reforms

Over the past six decades, banking reforms have been articulated as means of enduring the stability of the banking system and ultimately, the attainment of economic growth. The financial system is more than just being an institution that facilitates payment and extend credit, rather it encompasses all functions that direct real resources to their ultimate users.

Mainly, banking reforms usually set to achieve macroeconomic goals of price stability, full employment, high economic growth, and internal and external balances. In Nigeria, the reforms have been directed towards financial intermediation, financial stability, and confidence in the system.

In Nigeria, the apex bank has the oversight role of managing financial institutions and dynamic role of manipulating financial related factors in boosting the economy. The strive for structural and economic development, has brought about the adoption of online banking, which has witnessed significant growth and acceptance since inception.

A look at the value of POS transactions in the country vis-à-vis that of cheque transactions, indicates an upward trend, while the later shows reduction. This can only mean that the Nigerian populace are appreciating the usage of online platforms, as means of banking rather than the traditional approach of hardcopy banking.

Also, between January and May 2020, the number of active bank accounts increased by 32.26 million in 5 months. Total bank accounts increased by 35.19 million in the same period, despite the restriction on movement across the country, indicating the likely usage of online and mobile account opening tools.

Outlook for the sector

Earlier in April, Nairametrics reported that Moody’s Investors service had projected a negative performance for the Nigeria banking sector, stating that the banks will face weakening loan quality and foreign currency liquidity challenges, as depressed oil prices and the global pandemic weigh on the Nigeria economy.

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However, the banks have shown resolve during the pandemic, as 13 listed Nigerian banks posted an aggregate profit after tax of N439.1 billion, increase of 6.67% when compared with N411.7 billion posted in the relatable period of 2019. This is a clear indication of the banking sector’s wit and innovation, even in a time of global economic pandemonium.

Owing to the recent reduction in monetary policy rate by the CBN, from 12.5% to 11.5%, bank net interest income is expected to come under pressure as observed in the first half of 2020. Meanwhile, Mr. Ugochukwu Obi-Chukwu, the Founder of Nairametrics, believes that net interest margins will however improve due to access to cheaper funds. He stated further, that banks profits are expected to be flat at the end of the year, due to lower than expected net interest income and higher non-performing loans.

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It is observed that some Nigerian banks are in pursuit of diversifying and restructuring into holding companies. This could be a strategic movement by the banks to explore other revenue sources, and branch into other territories in search of new market growth. However, it is to be noted that the best banks in Nigeria today are not Holdcos.

In conclusion, the banking sector in Nigeria has come a long way but with room for improvement, as financial inclusiveness still remains a hurdle to scale through, despite the fact that Nigerians have to a large extent, accepted online as a means of banking.

At 60, the Nigerian Banking sector is not in a bad position.

Happy independence!

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Financial Services

CBN to drive implementation of zero balance account opening in banks

The CBN has urged the DMBs to allow zero balance for the opening of new accounts.

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CBN Vs NESG: Waving the white flag for the benefit of Nigerians, Exchange Rate Unification: CBN devalues official rate to N380/$1, Nigerian banks have written off N1.9 trillion impaired loans in past 4 years, CBN sandbox operations, Stirling Trust Company Limited

The Central Bank of Nigeria (CBN) has urged the Deposit Money Banks (DMBs) to allow zero balance for the opening of new accounts, as part of the efforts to promote greater financial inclusion across the country.

In addition, the banks are also expected to simplify their account opening processes, while adhering to Know-Your-Customer (KYC) requirements in the push towards financial inclusion.

READ: This is where PSB, CBN got it all wrong

READ: CRR: Banks suffer N917.5 billion debits in latest CBN action

This disclosure was made in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for 2020/2021 fiscal year, which was issued by the Central Bank of Nigeria (CBN).

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While stating that these measures are part of the efforts to encourage banks to intensify deposit mobilization during the 2020/2021 fiscal years, the apex bank also encouraged banks to develop new products that would provide greater access to credit.

READ: Nigeria @ 60: The Banking Sector and the Nigerian economy 

A part of the report reads, “As part of its effort towards promoting greater financial inclusion in the country, the bank shall continue to encourage banks to intensify deposit mobilization during the 2020/2021 fiscal years. Accordingly, banks shall allow zero balances for opening new bank accounts and simplify their account opening processes, while adhering to Know-Your-Customer requirements.

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READ: Lagos Rail Mass Transit: House of Assembly approves N153 billion for construction

“Banks are also encouraged to develop new products that would provide greater access to credit.”

In addition, the apex bank said that the Shared Agency Network Expansion Facility (SANEF), which was established to enhance the provision of financial services access points in under-served and unserved locations and drive financial inclusion through agent banking, would continue in the 2020/2021 fiscal years.

READ: CBN launches framework for advancing women’s financial inclusion in Nigeria

It states that banks, mobile money operators, and super-agents would continue to render returns in the prescribed formats and frequency to the CBN.

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Exclusives

CRR: Banks suffer N917.5 billion debits in latest CBN action

The central bank debited Nigerian banks N917.5 billion last week in its latest CRR action.

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CRR: Banks suffer N917.5 billion debits in latest CBN action

Nigerian banks suffered a total of N917.5 billion in new CRR debits from the Central Bank of Nigeria. Reliable sources inform Nairalytics Research that the latest debits occurred in the week ended October 23rd, 2020.

The cash reserve requirement is the minimum amount banks are expected to leave retained with the Central Bank of Nigeria from customer deposits. In January, the CRR was increased by 5% to 27.5% by the CBN Monetary Policy Committee (MPC) who explained that the decision was intended to address monetary-induced inflation whilst retaining the benefits from the CBN’s LDR policy.

READ: CBN says 17 banks to restructure over 32,000 loans

CRR Debits for Nigerian Banks.
Nairalytics Data

READ: Union Bank suffers N188 billion in CRR debits as at June 2020

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From the data, Zenith Bank topped the list with N285 billion followed by UBA with N160 billion. The rest of the FUGAZ, Access, FBN, and GTB were debited N140 billion, N95 billion, and GTB N55 billion respectively. The FUGAZ also suffered a N1.9 trillion debit in CRR sequesters in the second quarter of 2020 (April – June) alone.

READ: Nigeria’s forex devaluation timeline – 2020

Nigeria’s central bank has since 2019 debited Nigerian banks a chunk of their deposits as part of a mutually inclusive cash reserve requirement (CRR) and Loan to Deposit Ratio policy that is targeted at coercing banks to lend more to the private sector.

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READ: CBN reviews minimum interest rates on savings deposit to 1.25%

Last month, Nairametrics reported that the CBN now holds a total of N6.57 trillion in CRR debits from the nation’s top 5 banks a whopping 43% higher than the N4.58 trillion held in March and more than double the N3.5 trillion CRR debits as of December 2020. CRR debits in the third quarter of 2020 will be revealed when banks release their results in the coming days and weeks.

READ: Nigeria’s telecom sector posts double digit growth of 18.1%, manufacturing, others contract

Meffynomincs: CBN under the leadership of Godwin Emefiele has deployed several heterodox policies as it strives to stimulate the economy and manage the exchange rate crisis in the absence of strong fiscal support.

  • Interest rates on fixed deposits and money market instruments have fallen to single digits despite the galloping inflation rate.
  • Last month, the CBN monetary policy committee admitted it was no longer combating inflation but will direct its policies towards stimulating lending to the private sector hoping this will spur local production.
  • This policy has placed banks in the crosshairs with the Apex bank exposing them to CRR debits if they cannot use customer deposits to spur lending.

 

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ENDSARS

#EndSARS: Access Bank announces N50 billion interest-free facility for businesses

Access Bank Nigeria Plc has announced plans to offer N50billion interest-free credit facility to individuals and businesses. 

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Access Bank Plc, Nigeria's Creative Industry needs urgent financing from commercial banks to bridge unemployment gaps - Herbert Wigwe

Access Bank Nigeria Plc. has announced N50 billion in support of Nigerians through interest-free loans and grants to support communities, the youths, and micro, small and medium-sized businesses.

READ: Access Bank gets regulatory approval to become a Holding Company

READ: Banks lay-off 2,477 staff during lock-down

This information was disclosed by the bank through its official LinkedIn page. 

The bank’s official statement read thus,

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“Now more than ever, we remain committed to our purpose of impacting lives positively. In light of the recent occurrences, we will be supporting Nigerian businesses with 50 Billion Naira interest-free loans and grants. Watch this space for more information.”

READ: Access, GTBank, two others pay PWC & EY N1.5 billion as Audit fees in H1 2020 

Why it matters

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The impact of the pandemic, coupled with the hijacked #EndSARS protests that led to the looting of businesses and destruction of properties has thrown so many Nigerians into debts.

READ: $70 billion per annum will be needed to tackle pandemic induced poverty – World Bank

READ: WTO DG: US, EU divided over Nigeria’s Okonjo-Iweala and South Korea’s Yoo

This show of support from Access Bank will help alleviate and stimulate economic activities, as well as produce many positive multiplier effects on the economy.

READ: #EndSARS: Popular hacking group, Anonymous allegedly hacks Nigerian Govt. websites

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