Report: Rivalry to Intensify in Banking Sector in 2019

Bismarck Rewane
  • Says banks being ‘cannibalised’ by telecoms

Obinna Chima

The level of rivalry between commercial banks in Nigeria is expected to deepen next year due to ongoing consolidation in the industry, a report has stated.

The report, presented by the Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane, at the Lagos Business School’s executive breakfast session for December, was obtained by THISDAY yesterday.

Specifically, Rewane based his projection on the recent business combination agreement that was signed recently between Access Bank Plc and Diamond Bank Plc, which is expected to be finalised before June next year.

The Central Bank of Nigeria (CBN) had approved the deal, which is expected to produce a financial institution with the largest customer base.

The report stated, “Access Bank acquires Diamond in an elegant merger deal. Access Bank and Diamond announced a scheme of arrangement to produce Nigeria’s largest bank in footings.

“For Diamond, it’s a deft move out of necessity. Access Bank move is consistent with its strategy – acquisitive strategy for scale economies. Banking industry attractiveness is deteriorating and rivalry intensifying.”

Shedding more light on his prediction, in a telephone chat with THISDAY, the economist explained, “Because the industry is consolidating, the level of rivalry between competitors would intensify and when they compete, they reduce price and they give consumers more choice.

“The banks are being cannibalised from the outside by the telecom companies (telecoms) because the telecoms are going to have mobile payment systems and they (the telecoms) have very deep pockets, so they invest significantly.

“Telecoms are the ones that invest in capital expenditure. They invest on average between $1 billion and $2 billion annually on capital expenditure, which the banks can never afford to spend.

“So, because of this, the banking industry is going to go through a major shake out. The banks are already under pressure, but the pressure would intensify in the coming years.”

MTN Nigeria and Airtel Nigeria recently announced plan to set up a Payment Service Bank (PSB) in Nigeria, following the Central Bank of Nigeria (CBN) issuance of guidelines for licensing PSBs in the country.

The PSBs are expected to leverage on mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services

Airtel had commended the CBN for issuing guidelines for licensing of PSBs in Nigeria, saying the move would help promote financial inclusion as well as enhance access to financial services to the rural poor, low income earners and financially excluded of the society. It had said it would apply for the PSB licence through a subsidiary and in line with the CBN guidelines, as it has a vision of becoming the largest and most secured PSB in Nigeria.

Commenting on the CBN guidelines for Mobile Banking Licence, the Chief Executive Officer and Managing Director of Airtel Nigeria, Mr. Segun Ogunsanya, had said, “We welcome the development and we express profound appreciation to the CBN for its commitment to driving financial inclusion through technology.

“In line with the guidelines shared by the CBN, we have commenced the process of applying for a license as we believe that we are at a vantage position to empower and connect more Nigerians as well as deliver mobile banking services to the door steps of the financially excluded. Folks will no longer need to keep their money inside cooking pots or under their beds because we will securely connect them to the financial system.”

On his part, the Chief Executive Officer of MTN, Mr. Rob Shuter, had said it would next month, apply for a mobile-money licence. He had said after securing the licence, it would be followed by a concerted financial-services roll out in 2019 to its more than 60 million Nigerian subscribers.

Continuing, Rewane, in the report predicted that 2019 would consist of four distinct parts. According to him, the presidential election would be a close contest.

“There could be a boycott, run off, conflicts. But a perfect storm for instability is highly unlikely,” he added.

Furthermore, he predicted that currency pressure may force the Central Bank of Nigeria to act, projecting a parallel market exchange rate of N375/$ in the second quarter of 2019.