Analysts Want Banks to Modify Business Model to Beat Headwinds

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By Obinna Chima

Some financial analysts have stressed the need for banks to alter their revenue models and embrace digital transformation in order to create an entirely new banking experience that meets the demands and expectations of today’s millennial.

This, they said, would enable the financial institutions to remain competitive and maintain their market share.

In addition, they advised investors to avoid promises of fast and high profits from investments offerings that are not regulated, saying fraudsters are preying on investors’ desperation for high rates of returns.
The analysts gave the advice during a virtual investment conference organised by Zedcrest Capital Limited at the weekend.

At the event, the Group Executive, Treasury and Financial Institutions, First Bank, Mr. Ini Ebong, explained that banks are presently facing challenging times.
He, however, noted that the banks need to alter their business models and adopt measures that would enhance revenue.

“So, that model where banks rely traditionally on net-interest income has to change. And we are beginning to see that, even though we are not yet at that point. So, what do we do? As banks, we have try to engender credit growth in the economy. So, we have to keep on providing service offerings and the whole push on digital is critical,” Ebong said.

The Group Managing Director, Zedcrest Group, Mr. Saheed Amzat, warned against fraudulent investment schemes, which has been on the increase in the economy.

According to him, a decade ago, a large population of Nigerians did not know about treasury bills and all of a sudden it became the only asset class in Nigeria.

“Asset managers became irrelevant as everyone could immediately invest directly in treasury bills just as the government latched on to that and came up with savings programmes.

“Today, there are lots of stories around what happened in the 90s in Nigeria, where we had an explosion of alternative asset providers and so-called finance houses coming up with beautiful products and in less than six months to one year, all of that money got lost. People died and some lost their pension and we are beginning to see all that again.

“So, the caution is that we should see this year as a bad year and not a bad life, as long as capital is protected. Now, we are seeing an explosion of investment platforms, we don’t even know the guys behind those platforms. These people are taking advantage of the desperation of investors. People that were used to treasury bills of 22 per cent yield, now same treasury bills is around one per cent.

“So, it is understandable that they are under stress, which is why we the advisers, regulators and industry have to come together to continue to sound caution to everyone because not all that glitters is gold. There is no investment that can guarantee 50 per cent returns in a market where GDP is not growth and risk-free rate is two per cent and negative productivity,” he added.

Partner and Head, Private Wealth, PricewaterhouseCoopers (PwC), Esiri Agbeyi, also advised asset managers to come up with investment opportunities given the appetite for businesses to lean towards private equity.
According to her, PwC has projected that by 2020, the country would have $1 trillion assets under management, up from about $293 billion in 2008. That would present an annual growth rate of 9.6 per cent, she said.

“Now, with COVID-19, those projections are likely to drop in the interim. But I think they would still pick. So, there are still opportunities in the market, there are investors who are still looking to invest in this market and there are private equity funds and banks as well that can take advantage of these opportunities, depending on the products that they issue out and how to issue them,” she added.
Wealth expert and former CEO, RMB Securities, Abiola Adekoya, noted that one of the key things the pandemic has shown is that investors need to be more diversified.

She said: “I did a survey recently and about 50 per cent of the people in that survey had never invested in the Nigerian stock market. The demography for this was between the mid-20s and mid-30s. Now, the reality is that we are focusing a lot of our attention on the 40s and above, and leaving out the millennials.

“These same investors are doing FX trading, they are doing agric business and they are investing in global markets. So, it is the lack of products in the market that is discouraging them from the market,” she stated.