Key highlight:
- Capital market operators are hopeful that the incoming government will address issues in the financial sector.
- The banking industry could face fierce competition with fintech firms and telecommunication companies that have payment licence.
- Meanwhile, President-elect Bola Tinubu’s administration have been urged to work with the Central Bank and the financial sector to review and optimize the exchange rate regime.
As Nigeria prepares for a change of government on May 29th, 2023, some market operators have said that the banking sector will need to rework its model to remain profitable under the incoming administration.
The operators, who spoke to Nairametrics in separate interviews, noted that with the demonetisation policy of the Central Bank of Nigeria (CBN), the banking industry will face fierce competition with fintech firms and telecommunication companies.
They also stated that President-elect Bola Tinubu’s plan to harmonize multiple exchange regimes will have an impact on the revenue of banks. According to them, the changes in the operating environment that are expected under the Tinubu regime could have significant implications for the operational model of Nigerian banks. The implications of this are highlighted below.
Increased competition: With the advent of technology, fintech firms and telecommunication companies with payment licenses are expected to pose a significant threat to traditional banks in Nigeria. Banks will have to adapt to these changes by developing new products and services, improving customer experience, and investing in technology to remain competitive.
Decreased revenue from forex trading: If the government harmonizes the parallel market and official market, it will impact the banks’ ability to generate significant revenue from forex trading. Banks will need to explore other revenue streams, such as fees from digital services, to offset the potential loss of forex revenue.
Increased focus on technology: To remain competitive, banks will need to focus on improving their technology infrastructure, developing new digital products and services, and enhancing their online and mobile banking capabilities. They will also need to invest in cybersecurity to protect their customers’ data.
Changes in leadership and business models: The incoming government’s policies may lead to changes in leadership and business models in the Nigerian banking sector. Banks may need to restructure their operations, adopt new technologies, and streamline their processes to remain profitable and competitive.
The Managing Director of Arthur Steven Asset Management Limited, Mr Olatunde Amolegbe, told Nairametrics that the expectation is that the banking sector will operate under a different ball game adding that there may also be a change of leadership in the CBN.
He noted that aside from the imminent change in leadership, even the business model will need to change because of the advent of technology.
- “With the demonetisation policy of CBN, electronic banking will be the order of the day, rather than the traditional banking, competition is going to be very fierce, they are going to face competition with small fintech companies and other telecommunication companies like MTNN and Airtel Africa that have payment licence. The banking sector will need to rework its model to remain profitable,” he said.
Amolegbe further stated that a lot of banks make big money from forex, adding that the expectation is that with Tinubu’s presidency, that will change because the incoming government will seek to harmonise the parallel market and official market.
- “That will impact their ability to generate significant revenue from the forex market,” he said.
The President of the New Dimension Shareholders Association, Mr Patrick Ajudua, said also in an interview with Nairametrics that the operators are very hopeful that the incoming government will address issues in the entire financial sector, adding that it has not been an easy ride.
- “The multiple exchange rate needs to be addressed; it is better we have one exchange It is paramount that the incoming government will address the issue. I believe that there will be more competition among the banks and fintech firms which will bring in the best in the financial services sector.
- Any bank that is lagging technology will find it difficult to break even,” he said.
Ajudua noted that the incoming government should do more to encourage the banking sector to be technologically compliant.
- “The cashless society will thrive more where there are adequate technological infrastructures. It is what is gaining ground worldwide. I see a situation where the competition will be more, not only to drive the success of the banking sector but also to enhance their profitability. Technology will bring out the beauty of the banking sector and make banking seamless,” he said.
Mr David Adonri, the Executive Vice Chairman of Hicap Securities Limited said the incoming government will undertake to change the leadership of the CBN because the current CBN governor’s second term will end in April.
- “They will have to get a new governor for CBN. With a new governor, I expect that the monetary policy that would be pursued will lead to the convergence of forex for a single exchange rate.
- And then they should ensure that the CBN concentrates on its primary responsibilities which are monetary policy and banking supervision. If CBN focuses on its core mandate, it will enhance the performance of the banks. I am not hopeful of the incoming government, I have reservations because the same party that ran down the economy in the past years is still the one coming back to continue with its style of governance,” he said.
Possible challenges: Finally, the banking sector in Nigeria is expected to face significant changes under the incoming administration of Bola Ahmed Tinubu. But while the changes will present challenges, they also present opportunities for banks to innovate, modernize and become more customer-focused.
To remain profitable, Nigerian banks will need to adapt their operational models, invest in technology and explore new revenue streams beyond forex trading. It remains to be seen how the sector will respond to these changes, but those that are agile and adaptable are likely to thrive in the new environment.
How about banks just do banking for a change? And get used to lending for a profit? Instead of FX dealing between official and unofficial rates and looking for charges from customers? Eliminate N65 and SMS fees….