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Nigeria’s Average Banking Return on Equities (ROEs) to Hit 21 Percent – McKinsey & Company

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The financial services industry is surviving the economic ravages of COVID-19 better than expected, but banks are quickly splitting into “rock star” performers and poorly performing laggards. Welcome to the great divergence!, stated McKinsey & Company.

McKinsey & Company, a global management consulting firm, examines how banks fared in the whirlwind of 2020; details the factors that will influence their economic fate in the coming years (such as geography, customer base, scale, and business model); and looks at the forces lifting one set of banks above the rest.

In the 11th edition of McKinsey & Company Global Banking Annual Review 202 report released on December 2, 2021, the financial services industry is said to be trading at 1.3 times equity book value globally while in Africa banks ate trading at 1.0 times, Nigerian banks are trading at 0.4 times equity on the books. See key findings below.

Key 2021 report findings include that:

  • Financial services as a whole (including banks, fintechs, and specialists) is trading at 1.3 times equity book value globally, well below the remaining sectors at 3.0 times book value. Globally and in Africa, banks are trading at 1.0 times, while Nigerian banks are trading at 0.4 times the equity on their books.
  • Payments specialists, exchanges, and some securities firms captured more than 50 percent of the $1.9 trillion in market cap that the industry added globally.
  • The gap between the banking industry’s leaders and laggards, as measured by total return to shareholders (TRS), has steadily widened. In Africa, TRS for the top-quintile performers was 159 basis points higher than the bottom quintile in 2021. This gap has tripled in the past ten years, with most of the divergence happening in the past four years.

The analysis shows that there are four primary sources for the divergence. The first three—geography, scale, and segment focus—are difficult for banks to change. The fourth—business model—is well within banks’ power to adapt, and our analysis found that banks with capital-light and specialized businesses focused on fees typically thrive. Weak performers can catch up, but time is short. Two-thirds of the value generated (valuations/market cap) during an entire economic recovery cycle is created during the first two years after a crisis.

“In Africa, average banking return on equities (ROEs) dipped from 15 percent in 2019 to 9 percent in 2020, a steeper fall than global ROEs. The industry is set for a recovery that could put African banking ROEs at between 13 and 15 percent by 2025. In Nigeria, average ROEs dropped from 20 percent to 18 percent between 2019 and 2020, and are expected to recover to between 19 and 21 percent, said Mayowa Kuyoro, a Partner in McKinsey’s Lagos office.

Overall, fintechs and specialized financial-services providers—in payments, consumer finance, or wealth management—are generating higher valuation multiples than most global universal banks. This is no different in Africa. Over the last 12 months, we have witnessed some of these institutions achieve valuations that have been higher than universal banks. Some fintechs are going from a rough sketch to billion-dollar valuation in a few years.

There is a significant competitive advantage linked to scale. In Africa, the top three largest banks in each country are on average 10 points more cost-efficient than the rest of the market. Banks often can’t change their geography, scale, or segment, but the business model they adopt is in their control. Yet many traditional banks have pursued a commoditized universal bank business model based on retail deposits and corporate lending.

According to the report, African banking is now more profitable, and revenues are expected to grow faster than the rest of the global industry with an average growth rate of between 7 and 9 percent.

“We are seeing an accelerating divergence of returns between top and bottom African banking players,” said Francois Jurd de Girancourt, Head of McKinsey’s Banking Practice in Africa. “Winners are benefiting from the great divergence in three ways: (i) by focusing on customer ownership—leveraging technology to increase contacts points and leveraging customer data to personalize offers; (ii) by growing the fee part of the business on the continent—leveraging consumer and merchant payments, corporate transaction banking services and wealth products; and (iii) by deploying the balance sheet outside of their traditional customer base—lending to the unbanked/low-data consumers and SMEs, and offering new products, e.g., through apps and wallets.”

The next few years are crucial for any African bank with aspirations to land on the right side of the divergence described in this year’s report. Not only is there simply no value to waiting, but also history shows a pattern in which institutions that take bold steps toward growth in the first years after a crisis generally hold on to those gains for the longer term.

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Banking Sector

Fidelity Bank Enriches Customers, Holds Second Draw of GAIM 5 Promo

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Fidelity Bank

Leading African financial institution, Fidelity Bank PLC, has announced the second set of millionaires in its Get Alert in Millions Season 5 promo (GAIM 5) which held recently in Victoria Island, Lagos.  

The event was witnessed by representatives of regulatory organisations which include: Ms Oyinkan Kusamotu, Senior Legal Officer, Lagos State Lotteries & Gaming Authority; Mr Tanko Mohammed, Head, Monitoring & Enforcement, Lagos State Lotteries and Gaming Authority; Mrs Susie Onwuka, Head, Lagos Office, Federal Competition & Consumer Protection Commission (FCCPC) and Ms Chioma Amanoh, Lagos Office, National Lottery Regulatory Commission (NLRC).

Since the commencement of the fifth season of the promo in November 2021, the bank has enriched over 460 customers with various cash prizes. So far, 10 lucky customers have been rewarded with a million naira each. This month, Fidelity Bank has continued its tradition of rewarding loyal customers which has seen Ajoma Rachel, Stanley Sunday, Musbahu Kabiru, Usman Abdulkadir, John Uchechukwu, Oluwatayo Oladipupo, Esther Eloho, Sophia Sefera, Amarachi Sarah Anyacho, and Obi Chinelo emerge as the next set of millionaires in the promo.

Commenting on the event, Dr. Ken Okpara, Executive Director overseeing the Bank’s Lagos and Southwest Directorate, stated that, “As a bank that places our customers at the centre of everything we do, we are always looking for opportunities to help our customers grow. Two months ago, we kicked off the GAIM 5 promo to reward our customers and demonstrate our commitment to improving their lives and wellbeing. Today, we are excited at how happy we have made some of our most loyal customers. We remain committed to providing rewarding experiences and best-in-class services for our clients.”

Also speaking at the event, the Divisional Head, Product Development, Osita Ede stated that: We have earmarked the sum of N125million for total cash rewards this season which we would be giving out in weekly, monthly and grand draws till the campaign ends in July 2022. We encourage our customers to save up to increase their chance of winning and those yet to open an account to do so today. At the end of the campaign season, we want to celebrate customers who make savings second nature.

Fidelity Bank is a full-fledged commercial bank operating in Nigeria, with about 6million customers who are serviced across its 250 business offices and digital banking channels. The bank is known for exceptional customer service and digital innovation.

L-R: Tanko Mohammed, Head, Monitoring & Enforcement, Lagos State Lotteries and Gaming Authority; Osita Ede, Head, Product Development, Fidelity Bank Plc; Cynthia Ogbonna, Team Lead, Brand Management, Fidelity Bank Plc; Meksley Nwagboh, Divisional Head, Brand & Communications, Fidelity Bank Plc; and Susie Onwuka, Head, Lagos Office, Federal Competition & Consumer Protection Commission (FCCPC); at the second month draw of the Get Alert in Millions Season 5 (GAIM 5) Savings Promo held in Lagos on Thursday

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Banking Sector

Parallex Bank Debuts As Newest Commercial Bank In Nigeria

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Parallex Bank

Parallex Bank, a licenced Microfinance Bank, has successfully transited to a commercial bank after 14 years of operations.

According to the bank’s chairman, Dr. Adeola Phillips, the bank is delving into the commercial banking space, to drive consumer-centric innovation that will propel the banking industry to greater heights.

The bank’s Managing Director, Mr. Olufemi Bakre, who spoke during the launch of the bank’s commercial operations, affirmed that the bank’s promise to its customers is to be an enabler of limitless banking. According to him, the vision of the bank is to be the preferred financial solution provider redefining customer experience through innovation.

The bank revealed its plan to disrupt the market and delight customers with very attractive offers. It noted that most transactions on Parallex mobile app are free but beyond that, customers will have the freedom to do much more with the app.

Parallex bank converted from Parallex Microfinance Bank (a National Microfinance Bank incorporated in 2008 as a Unit MFB) to a commercial bank duly licensed by the Central Bank of Nigeria to carry out commercial banking services. This is a first-of-its-kind achievement in the Nigerian banking space.

The bank noted that it is “poised to be the preferred financial solutions provider redefining customer experience through digital innovations.

“This we will achieve by leveraging the best talents and technology to deliver unparalleled value to our stakeholders. With a strong ecosystem anchored around the customer, we offer a superior product portfolio that is customer-focused and innovative, yet simple”.

With a vision to leverage the best talent and technology to deliver unparalleled value to all its stakeholders, the bank noted that it is open to working with various stake holders to amplify its impact and capability.

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Banking Sector

FirstBank Rewards Customers in Transact and Win Promo

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First Bank Of Nigeria

Getting rewarded for spending money is a dream that is probably going to remain exciting for many people, but not for the Firstmonie Wallet users. In a two month Transact and Win campaign that started on November 22, 2021, First Bank of Nigeria Limited is rewarding several customers for carrying out transactions on its Firstmonie Wallet application. 

The e-wallet is useful for conveniently paying utility bills, purchasing airtime and data, transferring and receiving money, and many other digital transactions. Just for using the mobile-friendly wallet app, Customers got rewarded with mouth-watering prizes both in cash and kind. The number of transactions done on the app determines the price a user could win.

100 customers who had done 1-15 transactions through Firstmonie Wallet within the month won N10,000 cash price; 53 25kg bags of rice and 50 units of standing fans were also won by customers who carried out 16 – 30 transactions with the Firstmonie Wallet; 2 units of power generating sets, 1 unit of Air Conditioning systems and 1 unit LED Televisions went to customers who carried 31 – 50 transactions; while 2 units of iPhone 12 were won by customers who had carried out over 50 transactions on the app within the month.

Victor Nnanna Onyedikachi, a student of the University of Abuja was one of the winners of the iPhone 12, and while receiving his gift, he admitted that he did not expect to win the prize.  “I used the Firstmonie Wallet App, and just like that, I was told that I had qualified. I did not believe it until I saw it myself. I am truly grateful to FirstBank” he said.

Other winners also expressed their pleasure at being rewarded for using a completely user-friendly app. “There is no issue of service error when using it for any transaction. The service is seamless and the app is easy to use” one of them said.

The Group Executive, e-Business & Retail products, Mr Chuma Ezirim had noted that the promo was targeted at appreciating customers for their patronage; and in line with the Bank’s December-is-a-Vybe campaign. “This promo is hinged on the need to appreciate our customers for their patronage, especially as we have had an increased engagement and usages of the various services offered by our mobile-friendly wallet product,” Ezirim said when the promo was being launched.

Interestingly, the promo also includes new customers and users of the app. By simply downloading the mobile app from the play store, or using the *894# USSD string to sign up, anyone can qualify for the promo. The promo runs till January 22, 2022, so what are you waiting for as you could be the next winner of any of these fantastic prizes.

As the premier Bank in West Africa and the leading financial inclusion services provider in Nigeria for over 127 years, First Bank of Nigeria Limited has remained at the forefront of promoting digital payment in the country, and the Firstmonie Wallet is one of the channels for digital transactions.

Little wonder FirstBank was named “Most Valuable Bank Brand in Nigeria” six times in a row (2011 – 2016) by the globally renowned “The Banker Magazine” and “Best Retail Bank in Nigeria” for seven consecutive years (2011 – 2017) by the Asian Banker International.  FirstBank also bagged the Excellence in Retail Financial Services Awards and “Best Bank in Nigeria” by Global Finance for 15 years.

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