Banking Sector

The Banking Industry Would Have Recorded an ROE of 31.6% If Not For The Aggressive Implementation of The Cash Reserve Policy in 2020

Published

3 years ago

August 23, 2021

Agusto & Co. Limited, Nigeria’s foremost research house and rating institution recently released its flagship 2021 Banking Industry Report, which is the most current and comprehensive report on the banking industry in Nigeria based on the review of the financial statements of twenty commercial banks and five merchant banks. The report reviewed the Industry structure, financial condition, the regulatory environment in addition to the macroeconomic environment and its impact on the Nigerian Banking Industry.

According to the report, the COVID-19 pandemic brought about an extraordinary test for the global community. Although the global COVID mortality rate stands low at about 2.2%, casualties increased from less than 3,000 in December 2019 to about 3.9 million as at 30 June 2021. Nigeria’s mortality rate stood comparably lower at about 1% as at the same date. However, the local economy had its fair share of pandemic-related adversities. However, leveraging lessons from the 2016/2017 economic recession, the Nigerian banking industry was better prepared in 2020. Proactive measures in the form of forbearance granted by the Central Bank of Nigeria CBN), enabled banks to provide temporary and time-limited restructuring of facilities granted to households and businesses severely affected by COVID-19. There was generally a cautious approach to lending in the Industry, given difficulties in the operating environment. Although gross loans and advances grew by 12%, loan growth was negative when the 19.3% naira devaluation is considered. Underpinned by the forbearance and proactive measures adopted by banks, the NPL ratio improved to 6.6% (FYE 2019: 7.6%).

The reliability of business continuity measures was tested in 2020, considering the movement restrictions that lasted for months. Most banks showed resilience through innovative measures including remote work arrangements and upgrade of network infrastructure to accommodate higher traffic on digital channels. These arrangements also provided support during the mandatory curfew elicited by the civic unrest that followed the #EndSARS protests in October 2020. Indeed, the pandemic brought to the fore, technology’s crucial role in deepening financial services as some banks recorded as much as a 50% increase in digital banking transaction volumes. However, these gains were limited by the CBN-induced reduction in bank charges, which took effect in January 2020. As a result, electronic banking income declined by 27.3%, accounting for a lower 13.2% (FY 2019: 21.1%) of non-interest income.

The CBN’s policies targeted at lowering interest rates have persisted especially given the dire need to stimulate the economy following adversities created by the pandemic. However, given the need to moderate inflation amidst efforts to maintain a stable exchange rate, the cash reserve requirement (CRR) was increased and standardised to 27.5% for both merchant and commercial banks. The standardised CRR was implemented alongside discretionary deductions. As at FYE 2020, the Industry’s restricted cash reserves exceeded ₦9.5 trillion and translated to an effective CRR of 37%. It is noteworthy that Nigeria has the highest reserve requirement in sub-Saharan Africa. South Africa, Kenya and Ghana all have CRR’s of below 10%. We believe the elevated CRR level moderated the Industry’s performance and liquidity position during the year under review. Assuming the sterile CRR was invested in treasury securities at 5%, ₦482 billion would have been added to the Industry’s profit before taxation. This would have increased the Industry’s return on average equity (ROE) by 11% to 31.6% in the financial year ended 31 December 2020.

Table 3: Impact of Restricted Funds (CRR) on the Banking Industry’s Profitability in FY 2020

	Cash Reserve Requirement	Estimated interest income forgone assuming 5% return
Zenith Bank Plc	1,370,619,000	68,530,950
Access Bank Plc	1,275,279,265	63,763,963
First Bank of Nigeria Ltd	1,230,974,871	61,548,744
United Bank for Africa Plc	1,072,094,000	53,604,700
Guaranty Trust Bank Plc	1,008,748,051	50,437,403
Fidelity Bank Plc	540,129,000	27,006,450
Ecobank Nigeria Plc	406,043,000	20,302,150
Standard Chartered Bank Nigeria Ltd	362,542,981	18,127,149
Union Bank of Nigeria Plc	356,452,000	17,822,600
Stanbic IBTC Bank Ltd	368,357,000	18,417,850
First City Monument Bank Plc	311,746,155	15,587,308
Wema Bank Plc	246,974,959	12,348,748
Sterling Bank Plc	228,791,000	11,439,550
Citibank Nigeria Ltd	209,236,306	10,461,815
Polaris Bank Plc	204,832,000	10,241,600
Unity Bank Plc	91,130,360	4,556,518
Providus Bank Plc	89,567,141	4,478,357
Coronation Merchant Bank Ltd	72,327,019	3,616,351
FBN Merchant Bank Ltd	39,370,061	1,968,503
Nova Merchant Bank Ltd	35,170,012	1,758,501
FSDH Merchant Bank Plc	27,061,559	1,353,078
Globus Bank Ltd	25,999,790	1,299,990
Rand Merchant Bank Ltd	22,899,811	1,144,991
Jaiz Bank Ltd	22,590,165	1,129,508
Titan Trust Bank Ltd	22,521,705	1,126,085
	9,641,457,211	482,072,860

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Banking Sector

UBA, Access Holdings, and FBN Holdings Lead Nigerian Banks in Electronic Banking Revenue

Published

4 days ago

April 24, 2024

Samed Olukoya

United Bank for Africa (UBA) Plc, Access Holdings Plc, and FBN Holdings Plc have emerged as frontrunners in electronic banking revenue among the country’s top financial institutions.

Data revealed that these banks led the pack in income from electronic banking services throughout the 2023 fiscal year.

UBA reported the highest electronic banking income of N125.5 billion in 2023, up from N78.9 billion recorded in the previous year.

Similarly, Access Holdings grew electronic banking revenue from N59.6 billion in the previous year to N101.6 billion in the year under review.

FBN Holdings also experienced an increase in electronic banking revenue from N55 billion in 2022 to N66 billion.

The rise in electronic banking revenue underscores the pivotal role played by these banks in facilitating digital financial transactions across Nigeria.

As the nation embraces digitalization and transitions towards cashless transactions, these banks have capitalized on the growing demand for electronic banking services.

Tesleemah Lateef, a bank analyst at Cordros Securities Limited, attributed the increase in electronic banking income to the surge in online transactions driven by the cashless policy implemented in the first quarter of 2023.

The policy incentivized individuals and businesses to conduct more transactions through digital channels, resulting in a substantial uptick in electronic banking revenue.

Furthermore, the combined revenue from electronic banking among the top 10 Nigerian banks surged to N427 billion from N309 billion, reflecting the industry’s robust growth trajectory in digital financial services.

The impressive performance of UBA, Access Holdings, and FBN Holdings underscores their strategic focus on leveraging technology to enhance customer experience and drive financial inclusion.

By investing in digital payment infrastructure and promoting digital payments among their customers, these banks have cemented their position as industry leaders in the rapidly evolving landscape of electronic banking in Nigeria.

As the Central Bank of Nigeria continues to promote digital payments and reduce the country’s dependence on cash, banks are poised to further capitalize on the opportunities presented by the digital economy.

Banking Sector

FMBN Set for Commercialization to Improve Affordable Mortgage Financing

Published

6 days ago

April 22, 2024

Samed Olukoya

In a bid to bolster housing delivery efficiency and enhance affordable mortgage financing for Nigerians, the Federal Mortgage Bank of Nigeria (FMBN) is gearing up for commercialization.

This move comes as part of the Nigerian government’s efforts to address the housing deficit and ensure adequate shelter for its citizens.

The Managing Director of FMBN, Shehu Osidi, made this announcement during a courtesy visit by the Federal Housing Delivery Reforms Task Team at the bank’s headquarters in Abuja.

Led by Mr. Adedeji Adesemoye and Brig. Gen. Tunde Reis, the task team discussed strategies to revitalize the housing sector, with a focus on FMBN’s pivotal role in providing affordable mortgage financing.

Osidi explained the bank’s commitment to supporting the government’s agenda of reforming and improving the housing sector, which is vital for sustainable development and enhancing citizens’ quality of life.

He underscored FMBN’s significant journey in the history of mortgage and housing finance in Nigeria and expressed optimism about the forthcoming commercialization process.

The commercialization plan involves repositioning and recapitalization efforts, following extensive engagements with the Bureau of Public Enterprise (BPE).

Osidi stressed the importance of aligning the bank’s operations with its mandate of affordable mortgage financing, ensuring that it remains a reliable partner in the quest for accessible housing solutions.

As part of its strategic blueprint, FMBN has prioritized various initiatives to enhance service delivery and operational efficiency.

Of note is the ICT project aimed at upgrading core banking applications that is almost complete and promised to revolutionize customers’ experience.

Also, amendments to the FMBN and NFH Acts are underway in the National Assembly, addressing key areas to facilitate the bank’s transformation.

Despite challenges, including performance issues with estate development loans, FMBN is determined to overcome obstacles and achieve its objectives.

The commercialization plan aligns with broader efforts to deepen reforms and foster a remarkable turnaround in the housing sector.

By focusing on process automation, cost efficiency, credit quality enhancement, and strategic partnerships, FMBN aims to catalyze sustainable growth and address the nation’s housing needs effectively.

Chairman of the Federal Housing Reforms Task Team, Adedeji Adesomoye, reiterated the committee’s mandate to review the operations and governance structures of key housing institutions.

With ambitious targets set by the government, including the construction of 20,000 housing units in 2024 and 50,000 units in subsequent years, the commercialization of FMBN marks a pivotal step towards realizing Nigeria’s housing aspirations.

As the commercialization process unfolds, FMBN stands poised to play a central role in facilitating access to affordable mortgage financing, thereby contributing to the realization of homeownership dreams for millions of Nigerians.

Banking Sector

Adesola Adeduntan’s Early Departure Prompts First Bank Holdings to Scrap Capital Raise Plans

Published

1 week ago

April 20, 2024

Samed Olukoya

First Bank Holdings Plc has decided to scrap its plans for capital raise following the early departure of its Managing Director, Adesola Adeduntan.

The decision to cancel the extraordinary general meeting (EGM), which was planned to discuss the proposed N300 billion capital raise, comes amidst Adeduntan’s resignation from his role, eight months before the scheduled expiration of his tenure.

The bank formally announced the cancellation of the EGM in a filing seen by Investors King on Friday.

The meeting, which was initially scheduled to be held virtually on April 30, 2024, aimed to seek authorization from the company’s members for the capital raise and address other related matters.

Adeduntan’s resignation, announced on the same day as the cancellation of the EGM, comes as a result of the Central Bank of Nigeria’s tenure requirements affecting bank executives.

In his retirement letter addressed to the Chairman of First Bank, Adeduntan expressed gratitude for the support received during his stewardship and highlighted the strides made by the bank during his tenure.

He stated, “During this period, the bank and its subsidiaries have undergone significant changes and broken new grounds. We have repositioned the institution as an enviable financial giant in Africa.”

Adeduntan further mentioned his decision to pursue other interests, prompting his early retirement effective April 20, 2024.

The cancellation of the capital raise plans shows the impact of Adeduntan’s departure on the bank’s strategic initiatives.

It reflects a shift in priorities for First Bank Holdings as it navigates leadership changes and seeks to chart a new course for its future direction.