E-Financial
Report Predicts New Rounds of Banking Sector Consolidation
A report by McKinsey and Company has stated that digitalisation will enable Nigerian banks to achieve between 25 and 40 per cent cost-reduction.
The report also urged banks to plan for another round of consolidation in order to thrive beyond the crisis by growing their capital base faster than the rates of inflation and devaluation of the naira.
It emphasised that another round of consolidation was inevitable given the need to meet Basel III requirements, manage the possible deterioration of asset quality and some foreign exchange-based commitments to service.
It also called for portfolio restructuring, warning that the Nigerian economy could not afford another portfolio crisis, which is likely to occur.
The report titled, “Nigeria’s banking sector: Thriving in the Face of Crisis and Bold Ideas to Help the Industry Build Resilience and Drive Long-term Sustainability,” also urged the Nigerian banking industry to boldly utilise the lessons it learnt from the COVID-19 pandemic disease interruption to drive sustainability in the industry.
It argued that bold thought and actions were required beyond the crisis, even as it enjoined banks to continue with their adjustment to a remote operating model, revisiting portfolio priorities and some valuable lessons in order to adapt to the “next normal.”
It also recommended four bold initiatives that would enable the lessons of the past few months to drive sustainability in the banking industry beyond the COVID-19 crisis.
The four dimensions, according to the report, are scale, efficiency and productivity, data and analytics as well as talent hunt.
It stated that scale could be achieved either by targeting specific market segment or geography to bring down marginal costs.
“In Nigeria, significant opportunities remain for banks to develop scale across segments–for example by targeting small and medium-size enterprises (SMEs), which have significant unmet needs in the banking sector–or by targeting geographies such as the north of the country, which has been historically underserved,” the report said.
The report also said that efficiency and productivity could be attained by transforming operating models to serve customers as they would want to be served.
“The McKinsey Financial Insight Pulse survey conducted in October 2020 found that most consumers expect to increase their use of digital and mobile banking services even after the crisis, with 53 percent of consumers wanting their banks to make it easy to get a line of credit and 36 percent desiring improved bank websites to facilitate online transactions.
“In Nigeria, we’ve also seen a surge in agent-banking transactions during the crisis, opening up new possibilities for delivering services to more people at lower costs. However, these shifts may reverse unless steps are taken to hardwire new behaviors and attitudes. Now is an opportune moment for banks to revisit and interrogate matters of efficiency and productivity in a disciplined manner.
“Actions taken out of necessity during the lockdown such as online training, virtual performance management sessions, remote working for certain jobs, and adjusted operating hours for branches could be refined for implementation on a permanent basis,” the report said.
The McKinsey stated that rethinking end-to-end digital options for card subscription and renewal, PIN reset, and electronic channel issue resolution, to name a few, could unlock new growth, adding that sales and lending processes, which have been heavily reliant on physical interaction, could be reviewed to identify automation potential, especially for SMEs.
“Ultimately, reimagining these processes in line with consumer requirements will lead to a redefinition of the role (and size) of the branch network and required coverage model,” it said.
The report also advocated for improved data and analytics by leveraging technology for commercial risk and operational effectiveness because rapid shifts in consumer behavior that is driven primarily by physical distancing have led consumers to embrace digital options at a scale and pace not seen before in the country.
“This, in turn, is clearing the way for banks to ramp up their use of data and analytics to enhance services and reduce costs. Previous McKinsey research has demonstrated that data and analytics can potentially increase a bank’s cost advantage by 10 percent and improve cost-to-income ratios by up to 15 percent, even in a recession,” the report said.
It suggested risk and sales as two immediate areas that could be explored and realised through digital marketing by developing new risk models that are powered by artificial intelligence and machine learning that improve accuracy and efficiency and leverage real-time transaction data to understand market and customer dynamics.
It, however, advised banks to find the best talents that could support their shift to digital operations as “the crisis has prompted dramatic shifts in working behavior–notably working from home models– that are opening up new avenues for banks to attract and retain the skills they need to support their shift to digital.”
The report said that banks could attract talents by improving on their employee value proposition, which is often perceived to be less attractive than those of technology companies that are competing for the same talent.
It also advised banks to develop capabilities for identifying and funding viable businesses within the intervention fund category; restructuring their funding base to reflect the realities of the current CRR impact and “use this opportunity to educate the frontline on the implications of CRR and the effective cost of every deposit.”
The National Pension Commission (PenCom) and the Pension Operators Association of Nigeria (PenOp) are taking steps to integrate workers who are not currently contributing to the Contributory Pension Scheme (CPS) into the Micro Pension Plan (MPP).
The initiative targets workers without any form of pension coverage, including those who have left previous employers under the CPS but wish to join the MPP.
The MPP is designed to allow self-employed individuals and those working in companies with fewer than three employees to contribute towards a pension for their retirement or in cases of incapacitation. Additionally, pension operators are developing incentives to make the MPP more appealing to potential contributors.
At the micro pension plan industry stakeholders’ engagement forum held in Lagos recently, organized by PenCom and PenOp, the Acting Director-General of PenCom, Omolola Oloworaran, highlighted the critical role of the MPP.
She said the event’s theme: “Reimagining Micro Pension Plan: Balancing Service, Policy, and Health” accurately captures the essence of the MPP as a transformative tool for improving the lives of Nigerians.
To maximise the impact of the MPP, PenCom is embarking on several initiatives like market segmentation, rebranding, advanced technology, incentives and others.
Oloworaran pointed out that with over 77.5 million workers in Nigeria’s informal sector, even a small increase in MPP participation could unlock billions of naira in savings, positively impacting individuals and the wider economy.
In his presentation on the “Overview of the Micro Pension Plan,” Babatunde Alayande, head of the micro pensions department at PenCom, emphasised the importance of providing incentives to make the MPP more attractive and accessible to its target market.
Okhueleigbe John, head of the micro pension unit at Stanbic IBTC Pension, stressed the need for tailored policies to promote the growth of the MPP. He also advocated more financial literacy, public-private partnerships, and innovative funding strategies to drive incentives for the scheme. Additionally, he called for a review of the pricing structure of micro pensions to make them more appealing to investors.
Dr. Shem Ouma of Kenya APSA also provided valuable insights, recommending that operators incorporate built-in benefits, ensure flexible payment systems for contributors, and leverage technology to drive the MPP forward.
NGX has seen a record foreign investor transaction activity, with a 156% YoY increase reaching N744.34. Foreign investors’ transactions on the Nigerian Exchange Limited (NGX) reached a total of N744.34 billion in the first 10 months of 2024, which was an increase by 156 percent Year-on-Year (YoY) when compared to the N291.38 billion recorded in the first 10 months of 2023.
The N744.34 billion foreign investors’ transactions recorded was another all-time high for the Nigerian bourse.
The latest NGX’s “Domestic & Foreign Portfolio Participation in Equity Trading,” for October 2024, revealed that foreign investors contributed about 16.65 percent out of the total transactions of N4.47 trillion reported in the 10 months under review.
The report revealed that foreign investors’ inflow and outflow stood at N344.30 billion and N400.04 billion, respectively.
The CBN recently implemented some reforms in the foreign exchange market aimed at enhancing transparency, compliance, and market stability. These reforms were part of the CBN’s broader strategy to create a fairer, more stable FX market and support economic growth through better monetary policies.
In tandem with these reforms, the CBN has also implemented aggressive Monetary Policy Rate (MPR) hikes, with the goal of curbing inflation and stabilising the naira, a move supported by the International Monetary Fund (IMF).
Domestic investors made up of retail and institutional investors transacted an estimated N3,726.63 trillion worth of stocks in the period under review.
The breakdown showed that domestic retail in 10 months of 2024 transacted N1.909.99 trillion as against N935.78 billion recorded in 10 months of 2023, while domestic institutional transacted N1.816.64trillion in 10 months of 2024 from N1.706.23 trillion in 10 months of 2023.
According to the report, the total transactions at the nation’s bourse increased marginally by 1.97percent from N493.01 billion (about $307.84 million) in September 2024, to N502.73 billion (about $300.05 million) in October6 2024.
“The performance of the current month when compared to the performance in October 2023 (N220.94 billion) revealed that total transactions significantly increased by 127.54per cent.
“In October 2024, the total value of transactions executed by Domestic Investors outperformed transactions executed by Foreign Investors by circa 82 per cent,” the report stated.
“A further analysis of the total transactions executed between the current and prior month (September 2024) revealed that total domestic transactions increased by 0.81per cent from N451.60 billion in September 2024 to N455.27 billion in October 2024.
“Similarly, total foreign transactions increased by 14.61 percent from N41.41 billion (about $25.86 million) to N47.46 billion (about $28.33 million) between September 2024 and October 2024.”
Federal Government has hailed the contributions and remarkable achievements of Africa’s fastest-growing financial institution, Moniepoint Inc in the financial technology sector, its commitment to advancing financial inclusion, and its ongoing collaborations with law enforcement agencies to combat financial fraud.
This was stated by the Vice President, Senator Kashim Shettima, when he received the Moniepoint’s leadership team led by its Chief Executive Officer, Tosin Eniolorunda, on a courtesy visit at the Presidential Villa. The Moniepoint delegation included, Babatunde Olofin, MD Moniepoint Microfinance Bank; Didi Uwemakpan, Vice President, Corporate Affairs, Moniepoint Inc; Ross Strike, SVP, Investor Relations and M&A; Efemena Ogie, Head of Partnerships; Abdulmumin Tijjani, Regional Manager, North West; and Ravi Sharma, Partner, Lightrock Global – a global private equity and investors in Moniepoint Inc.
During the course of the visit, CEO, Moniepoint Inc, Tosin Eniolorunda expressed gratitude to the Vice President for making time to meet with the team, underscoring the administration’s dedication to digital innovation and financial inclusion.
He emphasized Moniepoint’s commitment to Nigeria’s financial ecosystem, stating that the fintech giant has grown into Africa’s latest unicorn this year, a testament to its resilience and innovation.
He detailed Moniepoint’s contributions to financial inclusion, including providing digital banking solutions to millions of Nigerians, particularly underserved communities, and empowering small and medium-scale enterprises (SMEs).
Highlighting their robust collaboration with law enforcement agencies such as the Nigeria Police Force, the Nigerian Financial Intelligence Unit (NFIU), and the Economic and Financial Crimes Commission (EFCC), Mr. Eniolorunda reiterated Moniepoint’s commitment to using intelligence-driven technology to fight financial fraud and strengthen trust in the digital payment system.
“At Moniepoint, we are big believers in driving collaborations across the entire eco-system and this is premised on collaboration being the cornerstone of progress.
“Our engagement here underscores our intentionality to enhance government to business relationship in a way that powers the dreams of millions of many more Nigerians.
“Together, we can unlock opportunities, transform lives, and build a more inclusive economy for all”, Eniolorunda said.
The Vice President congratulated the Moniepoint team on achieving unicorn status, lauding their innovative approach to leveraging technology to solve financial challenges.
He acknowledged the company’s impressive growth trajectory, its workforce of over 3,000 employees, and its contribution to the country’s vision of building a $1 trillion economy.
In his remarks, the Vice President highlighted the diversity within Moniepoint’s team, describing it as a “kaleidoscope of colors” and reflecting the beauty of Nigeria’s multicultural and multi-regional identity.
He was particularly pleased with the inclusion of individuals from various regions and backgrounds, including a notable representation of women in leadership and operational roles.
While celebrating Moniepoint’s achievements, the Vice President emphasized the need for stronger auditing measures to prevent misuse of the platform, especially by fraudsters and criminal elements. He urged Moniepoint and other fintech platforms to remain vigilant and proactive in addressing these challenges.
He acknowledged the company’s impressive journey over the past five years as Moniepoint and their earlier contributions as a software solutions company for banks, applauding their resilience and innovation.
In closing, the Vice President encouraged Moniepoint to continue expanding its global footprint, referencing his ongoing support for similar initiatives such as Amal Hassan’s Outsource to Nigeria project.
He assured the Moniepoint team of his unwavering support, promising to be their “chief promoter” in advancing the brand’s visibility on the global stage.
It will be recalled that Moniepoint partnered with the Corporate Affairs Commission to formally onboard over two million businesses while targeting 30m businesses over the next five years.
It also launched Nigeria’s Informal Economy Report in July this year, in conjunction with SMEDAN and the Federal Ministry of Industry, Trade and Investments to provide a policy thrust for advancing Nigeria’s informal economy in the light of its huge contributions to the nation’s GDP.
The courtesy visit marks another milestone in the partnership between the Nigerian government and private sector innovators like Moniepoint, who are key players in the administration’s drive to build a robust digital economy and foster financial inclusion across the nation.
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