Introduction

Between March and May 2018 we collated the annual results of some Nigerians banks and made economic prognosis based on subsisting and prevailing macro and micro economic indices in Nigeria and some major headwinds bewildering the existence of the banks. This prediction was used for a report and not published but looking back it appears they are hitting the points.

As a disclaimer, the analysis below is a non-academic work that is not motivated in any way by any person or association or organization but a pure analysis of results narrowed only to a single financial year and a close check on the strategy of the banks for the future as contained in the 2017 annual results published and extracted from www.nse.com.ng under corporate disclosure. It is also difficult to separate some banks’ results from group so the tables are stated as bank or group hence this could be a major snag in the real value of the analysis especially those reported as group because they were all subjected to same mathematical computation.

It is interesting that Nigerian Banks like the other leading global banks are curious about innovation, robotic and artificial intelligence (AI), self-service and any other activity that will ensure reduction in the cost of doing business, promote value based product offerings and make them highly competitive in the market space. Some of the banks are making tremendous investment in technology, digitization and digitalization of services render to customers and they are proactively changing the face of banking in Africa however, low government investment in infrastructure and some roller coaster regulatory policies are major setbacks in this development.

Some of the challenges banks faced and still confronting in Nigeria are both internal and external and those are not alien to the market since the development of the financial system especially post consolidation. Some of these challenges have no immediate solutions because they stemmed growth and are results of government policy and programs with the absolute lack of independence of the CBN to making some economic decisions that will help both the economy and the financial system without government interventions.

Some internal challenges of some of the banks include management crisis or corporate governance deficiency or lack of strong compliance culture and many others which are inimical to the tenet of the financial system that requires high level of integrity and full or absolute compliance and disclosure attitude in all ramifications of the business. As at the period of collating the figures, Skye Bank Plc and Heritage Banking Ltd have not declared their annual financial reports which we predicted that it will take urgent action of the regulators for the banks not to have issues before the next financial report and truthfully, Skye Bank Plc has been recapitalized and put on the counter for sale on a new name-Polaris Bank Ltd by the CBN/AMCON. It was also predicted that some banks need radical approach which may include recapilization or a change of management and a downline among them is Diamond Bank Plc.

The Analysis

A simple approach of effectiveness was taken in the analysis and effectiveness in the context is defined as the rate at which the banks were able to convert asset into profit or in another analysis, gross earning into profit and secondly, effectiveness is defined as the percentage of impairment to risk asset. Some academic analysts might not like the second definition but traditionally in Nigeria, the bulk of impairment charge has its underlying value as bad debt.

In the Figure 1 below it can be seen that the most effective bank by percentage of impairment to loan is the most profitable which is GT Bank and it is incredible how they have consistently and sustainably maintained this market leadership. Another important note about the top leader of the banking market is innovation. GT Bank has invested so much in technology and innovation over the years and has also continued to pioneer some new ways of customer relationship management with real time focus on their target market. It is also unbelievable how GT Bank was able to employ the cost cutting and containment strategy to convert the gross earning into the tremendous PBT compared to what the other market leaders have been doing. Some other banks with low impairment to loan are Jaiz Bank, Wema Bank, Fidelity Bank and UBA while Diamond Bank Plc has a threatening rate.

The ranking by PBT below also showed how effectiveness and asset size are influencing the market. It shows the superiority of effectiveness over size in the contemporary business space. If it is size that matters then EcoBank or First Bank Plc would have been No 1 in PBT.

The Figure 2 below is  a measure of how Nigerians banks were able to translate gross earnings into bottom line value and the variation between gross earning and PBT was best for GTB going by the available figures.

Categorization of Nigerian Banks based on 2017 AFR

The mathematical comparison of total asset to PBT has shown a distinctive classification of Nigerian banks into different categories as represented in Figure 3 below. This classification does not have respect for asset size of course power of innovation is more of a potent variable of bottom line value than the size of the asset. While size and strength of an asset is good, in the contemporary world where presence in a location does not mean business but the quality of content in your online resources and your ability to communicate with customers through those low cost resources, it is effectiveness that matters.

We have the Market Maker, the Market Leader, the Tigers or Potential Leaders, the Bears and then the Dogs. It is interesting that Banks in Nigeria have large headroom for improvement in all ramifications hence a Dog can change its market approach and then make some radical growth strategies that will change its categorization absolutely and this could happen in few financial reporting years which is why Banks in Nigeria need to now have CInO which is Chief Innovation Officer or Chief Strategists and a viable innovation team with talented and resourceful employees that can sniff solutions out of any market environment.

It is expected that Nigerian Banks will continue to grow but the Bears and the Dogs need to be more radical else they might not survive the great technology war in the industry that will happen in the next five years.

Innovation War

We have called it innovation war to be more all-encompassing and of course we will see an advent of technology and idea war amongst Nigerian Banks and it will be a race that will elevate some banks but depress others. Though there has been slow technology adoption in Africa but that is changing very fast now with the vast youth demography and the wild technology awareness going on in Nigeria with the use of smart phone for online transactions, use of ATM/virtual cards, USSD and QR codes and of course emergence of  FinTech companies practically challenging the survival of the traditional banks, using agency or networking approach to conduct their business which means low cost and also their ability to attract funds more rapidly.

If small banks in Nigeria are not proactive, active and reactive, they will become moribund while FinTechs like paga, kwickash and piggybank etc will take business away from them. Banks in Nigeria need to align with the global leaders in adopting Blockchain technology with attendant benefits in security and speed of transactions. Those banks no matter the size that will adopt and adapt to technology faster will become the market makers in the next few years and those that will make snail moves at technology acceptance will nose dive and reduce to nothing.

As Nigeria capital market will develop in the next few years, only those banks with high technology pull and push will attract investors and drive market capitalization. It is also expected that the FinTechs will attract foreign direct investment injections and will grow rapidly hence banks need to develop product and services around and about the activities of the FinTech companies.

Another threat to the existence of banks not only in Nigeria but globally is the activities of the big tech and ecommerce companies with product and services that serve the purpose of banks. We have seen Amazon.com, Alibaba, even our Nigerian Jumia and Konga gradually playing banking roles, imagine when MTN and Glo have license for financial services then the financial inclusion program will take a new turn like Kenyans have it. When virtual cards gain more acceptability all over the world then tech companies can creates cards that accept deposit and withdrawals, used for payments and etc. We have also seen in recent times how digital currencies using Blockchain backbone are changing the world and as soon as governments and states regulate the use of digital currency then banks can participate in that market freely and globally hence, Nigerian banks are not prepared for this change perhaps because the CBN has not considered the topic of digital currency yet but by the time it will debut in Nigeria then it might change the entire banking system in the country.

Service and the Bottom Line Value

It is interesting that the record analysis is very similar to the ranking of KPMG in its Banking Industry Customer Service Survey (BICSS) which they conduct annually and we have seen similar ranking of the Nigerian banks over the last few years and if you compare Figure 1 and 5 you will find the link between service and PBT as GT Bank is prominent in Figure 5 as one of the top most customer focused banks in Nigeria and at the same time has the highest PBT in the industry.

You will also find that the most customer focused banks are the most profitable banks in Nigeria especially looking at the first 5 banks in the report below. It is therefore certain that those banks that build innovation around and about service will emerge as the future leaders in all ramifications of the banking business even with the current and prevailing market headwinds and stiff competition among the banks.

The future bank therefore, will take service and innovation very seriously and looking at the trend of time, there is no significant change except in few cases, most banks will still maintain the position in the 2018 AFR.

‘Tope Oladele

For: Zavixintel