Agusto & Co. has predicted that more bank customers would embrace digital banking platforms which could result in higher electronic banking income for the financial institutions.
The pan-African ratings agency which stated this in its latest banking sector report, stressed that, these are indeed difficult times for the industry that barely recovered from the recession.
But, it noted that despite various identified risks, opportunities exist in the sector.
According to the Lagos-based firm, the full impact of the COVID-19 pandemic on the industry would be difficult to measure in the near term.
It “For instance, working capital needs of companies in key economic sectors will increase because of the naira devaluation and higher inflation, presenting prospects to grow loans to obligors with good business fundamentals in resilient economic sectors.
“We expect more bank customers to embrace digital banking platforms which could result in higher electronic banking income for banks. Furthermore, banks can leverage intervention funds provided by the CBN to susceptible sectors during this pandemic to grow loans. The Nigerian banking industry remains resilient and we expect this narrative to remain,” it stated.
According to Agusto & Co., non-interest income accounts for approximately 42 per cent of the industry’s net earnings, largely driven by electronic banking activities, account maintenance fees, credit related fees and securities trading income.
It pointed out that with the lockdown resulting in skeletal operations, banks have leveraged their electronic banking platforms to boost income as more banking transactions are only consummated through digital channels during the lockdown period.
“However, minimal trade activities will moderate credit related fees. We expect some correspondent banks to pull back on their lines of credit. We also anticipate repricing by correspondent banks to reflect the elevated credit risks emanating from lower liquidity in the foreign exchange market.
“Outstanding obligations to foreign portfolio investors seeking to exit Nigeria stood between $700 million and $900 million as at April 2020. The regulatory induced reduction in bank charges which became effective in January 2020 will also moderate non-interest income.
“Nonetheless, expected revaluation gains from a further devaluation of the domestic currency will support the earnings of banks with net foreign currency assets positions. With expected pressure on revenue generation, cost containment will be top burner in 2020.
“While the Industry’s operating costs are expected to increase on account of a rise in inflation and a growth in foreign currency denominated costs (such as technology-related expenses), we believe that cost management strategies will be paramount to sustained profitability.