News Column

The Future of Banking

May 28, 2014

Obinna Chima reckons that the increased focus on the retail segment in the banking industry will result to improved bottomline, as well as enable banks diversify their portfolio

There seems to be a structural shift in Deposit Money Banks' (DMBs') business model in Nigeria.

This development, which was visible in recent financial results churned out by banks, clearly reflects adjustments in business strategies as a result of regulations and other monetary policy measures in the industry.

Specifically, across the industry, banks have intensified strategies to remain dominant in the retail segment of the market. A lot of banks have since refreshed their retail products to make them attractive to customers.

Indeed, the current trend was influenced by the sterilisation of public sector funds through the cash reserve requirement (CRR) by the Central Bank of Nigeria (CBN).

The central bank had raised public sector CRR from 12 per cent to 50 per cent last August. Thereafter, it was increased to 75 per cent in January this year.

To this end, the future of the Nigerian banking industry largely depends on the capacity of players to compete in the retail and small and medium enterprises (SMEs) lending space, experts noted.

Industry experts insisted that given the huge population of the unbanked in the country, retail banking would drive the future of banking in Nigeria.

They stated that DMBs have no choice but to remain innovative and also to continue reinforcing their core businesses to as to remain competitive in that segment of the market.

According to financial market analysts, the new focus of banks would strengthen the industry performance and enable the financial institutions record sustainable profitability.

Banking in developing countries, especially in a country like Nigeria, where banking is a huge industry, is not useful except to the extent that it is contributing to economic growth, they added. For banking to contribute to economic growth, the retail segment should be actively involved.

Banks' foray into retail market To analysts at Afrinvest Securities Limited, with the increased focus on the retail segment, "the future of banking is set to take a dramatic turn."

For instance, First City Monument Bank Group Plc results for the first quarter of 2014 showed growing contribution of its retail banking activities, which compensated for the decline in unit commissions on turnover.

In its first quarter 2014 results, FCMB's loans and advances grew by 50 per cent year-on-year to N493.7billion. This growth was supported by its retail business that witnessed a 90 per cent growth, from the same period in 2013, to N105.4 billion in the first quarter of 2014.

Its retail and business banking segments combined, accounted for 33 per cent of total risk assets in the period under review.

Also, Access Bank Plc Group unaudited results for the first quarter ended 31 March 2014 showed progress towards its strategy of delivering profits through a continued and sustainable build-up of its loan book.

Also, the Group Managing Director/Chief Executive Officer, United Bank for Africa Plc (UBA), Mr. Phillips Oduoza stated that the bank's total deposits grew from N1.78 billion in 2012 to N2.22 billion in 2013. This represented a growth of 25 per cent year-on-year with its retail banking closing with a growth of 18 per cent compared with the previous year.

"We have sustained our funding mix with low cost deposit constituting 78 per cent of the group total deposit," the UBA boss added.

Similarly, the Chief Executive Officer, Guaranty Trust Bank Plc (GTBank), Mr. Segun Agbaje said the bank would continue to drive its presence in the Nigerian market through retail focused products.

GTBank had grown its retail banking business to 23.4 per cent as at the third quarter of 2013, from 21.7 per cent as at the third quarter of 2012.

Diamond Bank is also well established in the SME and retail business segments, while Heritage Bank's strategy is equally focused on SME and retail businesses. However, Heritage Bank would need to expand its footprint aggressively to ensure it penetrates the market faster.

"We believe banks will begin to specialise in specific areas of business to ensure they compete effectively in the new banking landscape. While most banks are hinged on product differentiation strategy using innovation to remain afloat; we keep a keen watch on the industry's competitiveness as events unfold.

"The era of double digits earnings growth in the Nigerian banking industry has gradually begun to thin-out. The numerous liquidity tightening policies introduced by the CBN has constantly exerted pressure on the banks profitability," Afrinvest added.

In order to ensure that it benefits from the opportunity in the retail segment of the market, Group Managing Director designate, Skye Bank Plc, Mr. Timothy Oguntayo, said going forward, the DMB would increase its focus on both the commercial and retail segments of the market. This, he pointed out would enable it increase its support to the real sector of the economy.

About 52 branches have been designated retail branches that would service savings customers. We also want to increase our support to individuals.

"I think we have done enough in the high end of the market. We need to percolate down to the lower end of the market which is mostly SMEs and individual businesses," he explained.

To the Managing Director/Chief Executive Officer, Fidelity Bank Plc, Mr. Nnamdi Okonkwo, the next phase of growth in the bank would among other things, be driven by a fierce competition in the retail banking segment.

Furthermore, the Fidelity Bank boss said the bank intends to remain steadfast in encouraging Nigerian entrepreneurs through delivering special products and services.

"The need to respond to our growing customer base and deepen our operation in the growing retail market vis-À-vis our commitment to make financial services easy and accessible necessitated further expansion in our products and services distribution capabilities in 2013," he added.

Applying the right strategy For the Managing Director/Chief Executive Officer, Citibank Nigeria Limited, Mr. Omar Hafeez, banks must focus on their respective core competence and strength.

He urged banks to design retail strategies that focus on what he termed "widening the net" as opposed to playing in the "same narrow net and trying to beat each other by offering five per cent more or one per cent more would not be proper"

He however pointed out that every change in regulation means bankers have to be smart in order for their organisations to remain profitable.

Hafeez added: "If you were basing your model on public sector deposit, you can't do that anymore, so you just have to alter it.

"I think that each bank needs to have specific strategy from the asset-liability perspective. Repeating what everybody else is doing won't work as it always increase cost as you go wider and wider to attract customers.

"It is interesting to note that the number of unbanked people in our market is quite large. When you have financial inclusion targets, especially around the agency banking model, that gives you an avenue to reach out to people traditionally that were not really being banked."

According to him, because of the agency, banks can attract a wider fraction of savers.

"I think development of the assets side of the balance sheet from a consumer perspective, which is credit cards, car loans, which have started but at a very early stage, would really bring about a viable retail banking business.

"Really, retail banking should be about the asset class. It should be about buying a house, cars, without having cash in your pocket.

"You should be able to leverage on banks' products. So that really is the progress that needs to happen in that business to make it viable," he added.

The Group Managing Director/Chief Executive Officer of Access Bank Plc, Mr. Herbert Wigwe recently stressed the need for capacity building in retail banking. He noted that Nigerian bankers were truly not trained as retail bankers, saying that some bankers understood retail banking to mean just having branches all over the place which is not necessarily correct.

"Retail banking is about how do you enhance and lift up the overall lifestyle of people. So if I go to my branch in America and I need a facility, I don't need to know the branch manager. Once I meet certain criteria, it is done.

"Even as a student, if your stipend was coming and was consistent, you could take money. If your payroll was in a particular place, over time, you don't need to know anybody if you need money to pay your children's school fees. Just walk into your bank and you get the money," he added.

The General Manager, Retail Banking, Skye Bank Plc, Mrs. Arinola Kola-Daisi, described retail banking as a very important business for all banks as it has to do with the provision of banking services to individuals and small businesses.

She explained that the segment has a large number of customers.

"All commercial bank must be interested in retail business because that is really what banks are set up for. Banks are set up to meet the financial requirements of the banking public and that cuts across a wide spectrum from the lower, to middle high net worth individuals and to those running small businesses.

"That is essential banks' function and for all commercial banks in this country, it should be something that they should be keenly interested in," she said.

She added: "The strength of retail is in numbers, so when you look at the different businesses in the bank, you may have some businesses that the profitability is on few large transactions and of course you need the numerical strength and numbers of many people in many locations across the country all adding up to give the profitability that you want because if you look at yourself as an individual, everybody runs a bank account and a lot have been said about financial inclusion."

The Deputy Managing Director, Diamond Bank Plc, Mr. Uzoma Dozie believes that to be successful in retail banking, banks must adopt strategies that are convenient, accessible and cost effective to their customers.

According to him, one of the responsibilities of financial institutions especially in developing economies is to develop the market.

"If we don't bring more people into the financial system, then we don't have the customer base with which our business can grow.

"So for us, why the retail business is important for our future sustainability is that if they are not financially included, they will not have access to finance and will not be able to grow," Uzoma added.

From the foregoing, in order for DMBs to be relevant in the retail segment of the market, there is need for them to adopt unique strategies to achieve success. They must consider products that improve the lifestyle of their customers as well as to help them fulfill their aspirations.

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Source: AllAfrica

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