A new wind of financial easing blowing across Nigeria’s banking system is giving bank customers an edge in the face of tight financial situations.
Today, middle-class Nigerians can do things they couldn’t previously do, as many banks offer a reasonable percentage of their customers’ monthly incomes as “payday advance” without guarantor or collateral.
Industry watchers say this new trend, which goes by the name consumer banking, will be a plus for the banks in their efforts to win customers.
BusinessDay also learnt that the banks now give loan advances without collateral, and in some cases, with movable collateral such as vehicles, share certificates, certificates of occupancy (C of O) and other documents.
Many banks take these products to the comfort zones of their customers, such as their offices, or through text messages and e-mail messages, with some requesting for a switch of their salary accounts to get some percentage as payday advance. A text message from one of the banks reads: “Get up to 90 percent of your monthly pay as payday advance, no guarantor, no collateral. Simply switch your salary account to —–. For details, call —.”
They also offer automobile and household items advance purchase support, among others, to their customers. By this means, the banks hand out cash for their customers to buy cars and other goods outright and up front, and then allow the customer the convenience of instalmental repayment over specified periods.
“We can give you money to expand your business and change your lifestyle,” another bank text message says.
Banks no longer enjoy 75 percent deposits from the public sector as the Central Bank of Nigeria (CBN) had increased the Cash Reserve Ratio (CRR) of public sector deposit from 50 percent to 75 percent. In addition, the Commission on Transaction (COT), where banks derive some revenue, has dropped to N2 per mile this year and will drop to zero by 2016.
The impact of the CBN’s tightening policy on banks’ liquidity continues to reflect on their score cards, as evidenced in the 2013 financial results of most banks.
“Logically, given the tightening monetary policy environment and impact of regulatory headwinds on non-interest income, the banks have to drive volumes to offset the impact. Thus, if you look at 2013 numbers from the top ten banks we look at, credit growth averaged 22 percent YoY from below 15 percent the previous year, and we expect 15-20 percent credit growth in 2014,” Adesoji Solanke, vice president and banking analyst (SSA), equity research, Renaissance Capital, says in an e-mail response to BusinessDay.
Almost all the banks are now pushing consumer/retail banking, specifically consumer loans, in order to cushion the effect of loss of revenue.
According to Ladi Smith, executive director, Credit Awareness Nigeria, “The cycle effect of this aggressive posture is that by signing up more credit for customers, they are indirectly increasing their customer and deposit base, as the loan customers will have to open accounts with the banks and credit the proceeds of their business or salaries to these accounts and this will inherently impact on and shore up their liquidity.”
Smith says the banks will also have to devise other means of shoring up their income and liquidity positions in order to sustain lending.
“Consumer banking is also of critical importance to the domestic economy, as it enables us to mobilise customer deposits that allow us to provide loans to our retail and business customers, generating employment and wealth in the process,” says Ayoola Adio, head, personal banking, Stanbic IBTC Bank, in an e-mail response.
Speaking on how this product is being administered, Adio says, “We have designed our workplace banking as the channel to attract new customers and expand relationships with existing clients in the consumer banking space. We team up with the employer to service the financial needs of employees – this becomes an added benefit to their employee value proposition.
“This is the ultimate in convenience, as our relationship managers visit employees at their workplaces, giving them access to a wide range of financial services during office hours, thus making them more productive, as there will be no more wasted time travelling to the bank.
“It gives us the opportunity to cross-sell and deepen relationships – to understand the needs of the employees and provide tailor-made solutions to address them. This puts our teams constantly in front of prospects and customers.”
On the sustainability of this drive, Smith says since this aggressive loan drive tends to mean that the banks are now doing more of what they are supposed to be doing as banks, which is intermediation and not just collecting deposits from customers, he believes the loan push will be sustained over a period, until they attain a relatively comfortable asset position, and then it will get to a plateau and just be maintained at that level.
“However, with increased and more aggressive competition within the banking sector, which is definitely inevitable, they might not be able to sustain this drive, especially if the banks are not dynamic in their business models,” he adds.
HOPE MOSES-ASHIKE
