CBN Governor, Sanusi Lamido Sanusi
Obinna Chima highlights some of policies and activities that would shape the performance of the banking industry in 2013
Despite efforts by the Central Bank of Nigeria (CBN), access to financial services by a large number of the population is still low as a lot of people are still outside the banking system.
Indeed, financial inclusion has been identified as a plank to lift a large fraction of the unbanked population globally out of poverty and hunger and bring them into the financial system.
Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society.
It has also been described as the state of financial system where every member of society have access to appropriate financial products and services for effective and efficient management of their resources, get needed resources to finance their businesses and financial leverage to take up opportunities that will lead to increase in their incomes.
According to the United Nations (UN), the main goals of financial inclusion amongst others include access at a reasonable cost of all households and enterprises to the range of financial services, for which they are ‘bankable,’ sound institutions guided by appropriate internal management.
In Nigeria, a 2012 report by the Enhancing Financial Innovation & Access (EFInA) had shown that 39.7 percent or 34.9 million Nigerians are financially excluded.
The survey also revealed that 32.5 per cent or 28.6 million Nigerians bank formally. This included adults who have access to or use financial services supplied banks. Adults who have access to, or use formal financial services or products not supplied by banks constituted 10.5 per cent or 9.2 million.
Therefore, with the launch of the financial inclusion strategy by the banking sector regulator last year, it is expected that the move, aimed at encouraging a lot more Nigerians into the banking system would be pursued sincerely by the regulators, government and operators this year.
In fact, CBN Governor, Mallam Sanusi Lamido Sanusi, disclosed recently that in line with the strategy, the Bankers’ Committee would commence the pilot scheme of the programme in Borno State.
“Bornu State was selected to pilot the financial inclusion scheme due to its high rate of financial exclusion, significant number of rural women, security issues plaguing the state and having one of the highest levels of poverty in the country,” Sanusi said.
Therefore, commercial banks and other stakeholders in the system would have to further strengthen their collaboration this year especially on delivery model and technology. This is because attracting this huge number of the unbanked population into the system presents a huge opportunity for banks.
The cashless policy is another initiative that was designed to support financial inclusion. The pilot phase of the initiative aimed at reducing the dominance of cash in the system commenced in Lagos last year January.
The CBN had, in response to public outcry over an earlier ceiling on daily cash withdrawals and deposits, raised the limits. The banking sector regulator had in March, increased the daily cumulative cash withdrawal/ deposit limit for individual accounts from the previously announced N150,000 per day to N500,000. Similarly, the limit for corporate accounts was also raised to N3 million per day, from the N1 million earlier announced. Penal charges were also imposed, for customers that wish to withdraw/deposit above the limits from April 1, 2012.
According to the earlier arrangement, the policy was expected to be implemented in other states by January 1, 2013. However, the apex bank recently explained that the January date was no longer feasible, saying that the connectivity challenges observed in Lagos would be sorted out before rolling out the policy nationwide.
Some of the alterative channels being offered by banks and service providers include Internet banking, mobile money transfer, point of sale (PoS) terminals and the use of automated teller machines (ATMs).
While officials of the CBN believed the policy had recorded a lot of success, Managing Director/Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, disagreed.
Rewane expressed concern over the low level of acceptance of the policy.
Rewane listed connectivity challenges with PoS terminals, ATMs and mobile services as some of the factors obstructing the growth of the scheme.
“The level of debit card activities in the supermarkets and shopping malls up marginally, but still less than 3 per cent of total sales,” he said.
He also argued that the cashless policy was “making traders and consumers less comfortable.”
The recent removal of the N100 charge on ‘other banks’ ATMs, is also expected to support the policy. Thus, in 2013, it is expected that in line with the financial inclusion target of the regulator, the challenges identified in the cashless policy would be addressed.
Financing of Power Sector Privatisation
With the announcement of 14 companies selected as preferred bidders for the generation and distribution companies under the power privatisation programme, the market will be looking up to Deposit Money Banks (DMBs) to finance the acquisition of the power assets this year.
Already, some of the banks have disclosed that they are already negotiating with the power sector investors on the structure of the deal. Investigations had shown that nearly all the banks, led by First Bank of Nigeria (FBN), Zenith Bank Plc, United Bank for Africa Plc (UBA), Fidelity Bank Plc and Skye Bank Plc, have been wooing the bidders and offering them mouth-watering proposals to fund their acquisitions.
Financing of the distributing companies (Discos) is attracting more interest from banks than the power generation companies (Gencos) because of their direct interface with customers and as such, could generate high returns and pose a lower risk to the banks.
Group Managing Director/Chief Executive Officer, First Bank Nigeria, Mr. Bisi Onasanya, disclosed recently that although First Bank has been supporting some of the preferred bidders, the bank is doing so meticulously.
“We have identified the parties that are credible and we are working along with them, together with their technical partners to make sure that we take them and hand-hold. What we are putting on the table with the consortia that we are dealing with, is not just funding. We are also involved in the technical side of it. So, it is not just First Bank alone that is involved in this.
“We have also had the opportunity to make our input known to the federal government in terms of what we expect. A lot still needs to be done as we go ahead with privatisation and a lot of resources are required. We have made suggestions and agreed with the central bank at the last Bankers’ Committee retreat that the proceeds of the privatisation should be used in fixing the transmission problems that we have.
“Banking has become globalised and so these transactions are not just available for Nigerian banks. There are foreign banks and foreign Development Finance Institutions who also want to be part of the transaction,” he explained.
Lending to Real Sector
In 2012, there was a lot of complaints by industrialists and operators of small and medium enterprises (SMEs) over their inability to access bank loans. This was largely blamed on the restrictive monetary policy of the CBN. It is also expected that banks would continue to invest heavily in treasury bills and government securities this year because of their high returns and low risk.
Confirming this, a financial consultant and Chief Executive Officer, B.A. Adedipe, and Associates, Dr. Biodun Adedipe, argued that with the experiences of what financial institutions suffered during recent the global economic crisis, they are not likely to soon forget the lessons. He predicted that banks would prefer to continue lending to the blue-chip companies in 2013.
He added: “I see them still playing in the safe sectors of the economy. They will still be interested in lending to blue-chips, oil and gas and telecoms. They perhaps would only look the way of SMEs if there is a clear intervention of the government or there is a clear commitment to infrastructural development.”
In his prediction for the banking industry in 2013, Adedipe said: “I see a Nigerian banking industry that would grow bigger, that, is talking about the balance sheet of the banks because the economy itself is also growing. In terms of the trajectory, the economy is on the recovery path.
“The expectation is that the Nigerian economy would grow further in 2013 and that provides the environment for the banks to grow. I equally expect them to have stronger earnings in 2013 because the reality is that the banks are not only renewing their technology, they are equally strengthening their operations.”
According to analysts, the expansionary 2013 budget and the recent approval of a supplementary budget for 2012, may send signal to the Monetary Policy Committee (MPC) that there is much liquidity in the system and may force the committee to retain high interest rates in the first quarter.
On his part, Deputy Governor Operations, CBN, Mr. Tunde Lemo, said: “Once we remove the structural factors that impede growth, over time we are going to see a lot more rebalancing in the economy.”
To Onasanya, having fixed the problem in the banking sector, all banks in the country are now solid. He advised banks to ensure that they continue to balance liquidity management, capital adequacy management and interest rate risk management.
“In doing all that, it is only the banks that have enough skills and discipline to strike that delicate balance between those three parameters that would make the difference in 2013. There are so many financing opportunities in the market today, but my advice to the banking sector is that they should not be greedy, they should know exactly what their limits are and they should put their skills in structuring deals and transactions, partnering with each other to fashion out financing model for the privatisation model that is going on presently to support the real sector of the economy,” he said.
He urged the “real sector needs to do better for the banking sector to come out and support it.”