Connect with us

Finance

Banks to Experience Severe Credit Losses in Late 2021 – Mckinsey & Company

Published

on

First Bank

The crisis of 2008 came from within the financial services industry. Today, in this crisis of the real economy, banks are economically afflicted alongside other sectors in society. But banks are also playing an important role in helping society through the crisis: as the conduit for state support, supporting small businesses, companies and individual citizens.

The crisis is delivering, in effect, the biggest stress test to banks, a test which the industry is withstanding to-date, whilst demonstrating resilience and purpose. The impact of the last year without the role the industry has played is likely much deeper.

Going forward, McKinsey anticipates the test presented for banks by the pandemic will evolve in two stages in the months and years ahead. First will come severe credit losses, likely through late 2021; almost all banks and banking systems are expected to survive. Then, amid a muted global recovery, banks will face a profound challenge to ongoing operations that may persist beyond 2024.

  • Depending on scenario, average return on equity globally would continue its decline, from 8.9 percent in 2019 to 4.9 percent in 2020 to 1.5 percent in 2021. At the trough in 2021, ROE would fall to −1.1 percent in North America, −1.8 percent in Europe, and −0.2 percent in developed Asia. ROE would fall from higher starting levels and bottom out higher in emerging Asia (2.6 percent), the Middle East and Africa (MEA; 3.7 percent), and Latin America (5.2 percent); and it would take a smaller dip to 8.6 percent in China.
  • African banks enjoyed one of the highest ROEs in the world, however the overall ROE is expected to half at 7.6 percent in next 2 years, while revenues after risk may decline by 15 percent in a muted recovery scenario. In the short term, banks will be affected by cascading credit losses resulting in 50 percent impact on revenues while in the long term, continued pressure on margins and moderate volume growth might dwarf the revenue growth to half of pre-COVID-19 levels.
  • The onset of recovery is likely to vary by country as level of provisioning done by banks in 2020 will be a deciding factor if they will see V- or U-shaped recovery. In SA and Kenya, banks have already provisioned highly for potential bad debts while Morocco and Nigeria may continue to increase provisions in 2021 as well.

Francois Jurd de Girancourt, Head of the Banking Practice in Africa said: “The ROE recovery post COVID-19 is projected to be lower compared to pre-crisis levels, unless banks further improve their cost efficiency. African banks cost to asset ratio is 2.3 times higher than the global average and based on our estimates, banks would need to increase their operating efficiency by at least 25-30 percent to converge back to 2019 ROEs.”

Marie-Claude Nadeau, San Francisco-based McKinsey partner and report author said: “Banks will need to act quickly to return to precrisis ROE levels, in a far more challenging environment than the decade just past. The period of zero percent interest rates is being prolonged by the economic crisis and will reduce net interest margins, pushing incumbents to rethink their risk-intermediation-based business models. The trade-off between rebuilding capital and paying dividends will be stark, and deteriorating ratings of borrowers will lead to inflation of risk-weighted assets, which will tighten the squeeze.”

Mayowa Kuyoro,  a partner at McKinsey & Company in Lagos, Nigeria said: “In Nigeria, our analysis is that ROE levels are likely to recover by 2024, although they will remain low compared to pre-crisis levels. To proactively manage this, Nigerian banks will need to revisit and interrogate matters of efficiency and productivity to deliver services to more people at lower cost. The rapid shift to digital is clearing the way for banks to ramp up their use of data and analytics to enhance services and reduce costs. For banks that are existing market leaders, now is the time to consider investing in technology infrastructure and talent to expand beyond current customers and products. Equipping employees with the right skills and digital tools, doubling down on digital marketing, and establishing robust digital infrastructure are likely to be key enablers for success in the next normal.” 

For the long term, banks need to reset their agenda in ways that few expected nine months ago. McKinsey sets out three imperatives that will position banks well against the trends now taking shape.

  1. They must embed newfound speed and agility, identifying what worked well in their response to the crisis and finding ways to preserve those practices.
  2. They must fundamentally reinvent their business model to sustain a long winter of zero percent interest rates and economic challenges, while also adopting the best new ideas from digital challengers.
  3. And they must bring their broader purpose to the fore, especially environmental, social, and governance issues, and collaborate with the communities they serve to recast their contract with society.

Is the CEO and Founder of Investors King Limited. He is a seasoned foreign exchange research analyst and a published author on Yahoo Finance, Business Insider, Nasdaq, Entrepreneur.com, Investorplace, and other prominent platforms. With over two decades of experience in global financial markets, Olukoya is well-recognized in the industry.

Continue Reading
Comments

Finance

Currency Outside Banks Increases By 66.2% As Nigerians Shun Formal Banking Channels

Published

on

New Naira notes

A recent data has revealed that currency outside banks increased by 66.2 percent in September 2024.

To this end, money outside traditional banking channels rose to N4.02 trillion compared to N2.42 trillion reported in September 2023.

This represents an increase of N1.60 trillion in just one year.

This was revealed in the Money and Credit Statistics data of the Central Bank of Nigeria.

According to the data, on a month-on-month basis, currency outside banks grew by 3.8 percent in September 2024 from August’s figure of N3.87 trillion, translating to an increase of N147.9 billion.

The trend suggests a growing inclination among the public to retain cash outside formal banking channels, a shift that could impact banks’ liquidity and shape monetary policy dynamics.

The CBN data further shows that a considerable proportion of Nigeria’s currency is held outside the banking system.

In September 2024, approximately 93.1 percent of currency in circulation was outside banks, a rise from 87.5 percent recorded in September 2023.

This shift may reflect limited trust in banking services, inflationary pressures, or a structural dependence on cash in Nigeria’s largely informal economy.

Such a high percentage of currency outside banks poses potential challenges for channelling funds into productive investments, potentially hindering economic growth.

The CBN report also highlights a parallel rise in overall currency in circulation, which encompasses both bank-held and outside cash.

In September 2024, currency in circulation rose beyond 56.1 percent year-on-year to reach N4.31trn, up from N2.76trn in September 2023, reflecting an increase of N1.55trn.

This indicates that the volume of currency retained outside the banking sector outpaced the total released for circulation within the past year.

Compared to August 2024, currency in circulation rose by 4.0 percent month-on-month, adding N166.2bn from the previous figure of N4.14trn.

Earlier in September, the CBN announced plans to sanction banks that fail to dispense cash through their automated teller machines, as part of efforts to improve cash availability in circulation.

The CBN also revealed plans to release an additional N1.4 trillion into circulation over the next three months to ease cash flow within the banking system.

This strategy aims to ensure that ATMs and bank branches have sufficient cash, addressing ongoing challenges faced by customers over cash shortages.

In related developments, it was observed that Nigeria’s money supply grew significantly by 62.8 percent year-on-year in September 2024, despite the Monetary Policy Committee’s tightening stance intended to manage excess liquidity to control inflation.

According to CBN data, M3 reached N108.95 trillion in September 2024, up from N66.94 trillion in the same period last year.

On a month-on-month basis, money supply rose by 1.6 percent, increasing from N107.19trn in August 2024.

Continue Reading

Banking Sector

Zenith Bank Achieves Triple-Digit Growth, Revenue Surges 118% to N2.9 Trillion

Published

on

Zenith Bank - Investors King

Zenith Bank Plc has announced its unaudited results for the third quarter ended 30 September 2024, recording a remarkable triple-digit growth of 118% from N1.33 trillion reported in Q3 2023 to N2.9 trillion in Q3 2024.

This performance underscores the Group’s resilience and market leadership in spite of the challenging macroeconomic environment.

According to the Bank’s unaudited third quarter financial results presented to the Nigerian Exchange (NGX), the triple-digit growth in the topline also led to an increase in the bottom line, as the Group recorded a 99% Year on Year (YoY) increase in profit before tax, growing from N505 billion in Q3 2023 to N1.0 trillion in Q3 2024.  Profit after tax equally grew by 91% from N434.2 billion to N827 billion in the same period.

The growth in the topline was driven by the expansion of both interest income and non-interest income. Interest income saw a notable 190% rise to N1.95 trillion, attributed to the high-yield environment.

Non-interest income rose by 41% to N856 billion, bolstered by substantial growth in fees and commissions, which highlights the strength of Zenith Bank’s retail growth and the robust performance of its digital channels during the reporting period.

The robust increase in profitability reflects the Bank’s focus on operational efficiency and strong risk management practices. Earnings per share (EPS) nearly doubled, rising to N26.34 from N13.82 in Q3 2023, underscoring Zenith Bank’s strong value creation for shareholders.

The Bank’s balance sheet grew significantly, with total assets growing by 49% to N30.4 trillion, largely supported by customer deposits, which rose by 42% to N21.6 trillion.

This growth in deposits was broad-based across corporate and retail segments, highlighting the Bank’s deepening reach and customer loyalty.

Gross loans increased by 46% to N10.3 trillion, underscoring the commitment to supporting strategic sectors in the economy.

Capital adequacy ratio remained strong, improving to 21.9%, well above regulatory requirements. The return on average equity (ROAE) stood at 37.8%, up from 35.1%, while return on average assets (ROAA) also improved to 4.3% as Zenith Bank maximized its asset base.

Cost of funds increased to 4.3%, reflecting the broader market trend of rising interest rates, while the cost of risk was maintained at 7.3%, underscoring the Bank’s proactive approach in provisioning for credit risk.

The Bank’s cost-to-income ratio rose to 39.5%, reflecting the impact of strategic investments in technology and capacity building aimed at supporting long-term growth, even as it continues to strive for greater operational efficiency.

Zenith Bank’s asset quality remains a cornerstone of its strength, with a non-performing loan (NPL) ratio of 4.5%, within regulatory limits. A high coverage ratio of 198.4% underscores the Bank’s disciplined approach to risk management, positioning it for resilience in the face of market volatility while supporting stable loan growth.

Zenith Bank remains steadfast in its commitment to sustainable growth and value creation. The Bank launched a capital raise program on August 1, 2024, consisting of a combined Rights Issue and Public Offer.

This capital raise was driven by the Central Bank of Nigeria (CBN)’s recapitalization directive for commercial banks issued in March 2024. While the Bank awaits final capital verification approvals from authorities, the fundraising exercise was successful, reflecting strong confidence in Zenith Bank’s brand.

The additional capital will enhance the Bank’s ability to expand its product offerings, deepen its penetration in strategic sectors, boost lending to the real sector and pursue its African and global expansion plan.

In furtherance of this, the Bank in September 2024 received regulatory approval for the establishment of a Zenith Bank branch in Paris, France, which is fully operational and will enhance the Bank’s product offerings in international markets.

With a strengthened capital base, Zenith Bank is well-positioned to navigate the evolving economic landscape, while putting best-practice sustainability standards at the heart of its business.

The Bank will also continue to prioritize opportunities that enhance stakeholder value and a strong compliance and corporate governance culture, which will reinforce the its leadership position within Nigeria’s financial sector and drive long-term growth.

Continue Reading

Banking Sector

UBA Expands Footprint in the Middle East with New Subsidiary in Saudi Arabia

Published

on

UBA House Marina

Africa’s Global Bank, United Bank for Africa (UBA) Plc, has set the wheels in motion to expand its operations in the Middle East with plan ongoing to open a subsidiary in Saudi Arabia, its largest economy.

This move which is expected to happen within the next year will mark the bank’s second subsidiary in the Gulf Region, following the expansion of its business to the United Arab Emirates in 2022.

UBA’s Group Deputy Managing Director, Muyiwa Akinyemi, who disclosed this during a panel session during the 8th Edition of the Future Investment Initiative(FII) in Riyadh, Saudi Arabia and in an interview with Arise TV, underscored the bank’s strategic commitment towards fostering Africa’s growth through infrastructure development, youth empowerment, and sustainable partnerships across key global markets.

He said, “Opening a presence in Saudi Arabia represents the next step for us in connecting the Africa-Gulf region. We are excited to bring UBA’s expertise in financial services to Saudi Arabia, where we aim to facilitate knowledge transfer and create strong economic linkages. This venture will further enable us to access Saudi expertise in food security, energy transition, and sustainable practices, which are all critical for Africa’s continued development.”

While emphasising the importance of Africa as a strategic investment destination for long-term capital, he said, “Africa’s infrastructure deficit is an opportunity for investors worldwide. Our pitch to the Gulf and Southeast Asia emphasizes that Africa must be part of their investment horizon. Today, food security is paramount as our population expands.

Akinyemi also highlighted the bank’s dedication to nurturing Africa’s youth talent through entrepreneurship. “Guided by our Group Chairman’s efforts with the Tony Elumelu Foundation, UBA is committed to supporting young entrepreneurs in tech, agriculture, and entertainment, which are all burgeoning sectors in Africa. With such a young and dynamic population, we see enormous potential for innovation and growth.”

He also reiterated the bank’s continuous support for Small and Medium Enterprises (SMEs) in Africa and beyond as he outlined the bank’s commitment to these businesses, which he referred to as key players in the African economy and vehicles for employment and economic growth.

“SMEs are the backbone of economic development in Africa. They contribute significantly to job creation and value chains, particularly within Nigeria. Over the last year, UBA has committed billions to support SMEs across Africa, and our network of over 20 countries enables us to make a substantial impact.”

During the panel discussions, Akinyemi took time to emphasize UBA’s longstanding experience on the continent as it navigates an ever-evolving investment landscape, adding that “As investors, we focus on infrastructure and sustainable projects that encourage economic prosperity while addressing pressing issues such as talent migration. Our goal is to ensure that people can thrive in Africa without needing to relocate. By investing in local talent and fostering growth sectors, we contribute to building the next generation of global innovators right here in Africa.”

The DMD further articulated UBA’s approach to risk management on the continent, emphasizing that the bank’s 75-year history has uniquely equipped it with insights and strategies to navigate diverse markets.

“With over seven decades of experience, Africa is what we know, and that knowledge allows us to manage risks effectively. We see tremendous opportunities in various sectors across the continent, and our continued investments are driven by a commitment to bring economic empowerment to communities, increase GDP, and improve socioeconomic quality. Our anniversary is a celebration of UBA’s legacy of contributing to Africa’s progress. We look forward to leveraging this milestone to drive even greater impact across sectors and empower future generations,” he said.

United Bank for Africa Plc is a leading Pan-African financial institution, offering banking services to more than forty-five million customers, across 1,000 business offices and customer touch points in 20 African countries. With presence in New York, London, Paris and Dubai, UBA is connecting people and businesses across Africa through retail, commercial and corporate banking, innovative cross-border payments and remittances, trade finance and ancillary banking services.

Continue Reading
Advertisement
Advertisement




Advertisement
Advertisement
Advertisement

Trending