2015 was tough for the banking industry, occasioned by consistent fall in oil price, non availability or scarce foreign exchange and the implementation of the Treasury Single Account (TSA), among other indicators.
Specifically, the dwindling fortunes of the nation as the crude oil price declined from about $50per barrel in January to about $37 in December in continuation of its descent from the peak $114per barrel in June 2014 impacted negatively on business activities and most especially access by banks to foreign exchange.
The outlook for 2016 seems blurred as analysts and bankers are saying this year would be tougher, with the implementation of zero Commission-On-Turnover (COT), even as the economic slowdown persists.
“2016 will remain a tough year as asset quality and earnings are expected to come under continued pressure. Non-interest income will also suffer as a result of the removal of COT”, a top banker told BusinessDay.
Amid all the challenges banks may face this year, what surviving strategy can banks deploy in order to remain in business? The top Banker expects cost containment and technological innovations aimed at boosting efficiency and productivity to be the main investment objective for banks going forward.
“Everyone is watching the foreign exchange policy and rightly so as this will determine many things. We expect the Central Bank of Nigeria (CBNs) policy demand management to continue, whilst we also look for the harmonization between parallel market and official rates in order to improve supply of FX into the official markets”, the Banker said.
According to Chukwuka Monye, Director General, Delta State Economic Summit Group, in 2016, as the CBN insists on fixing the naira at its current rate despite slowing economic growth, reduced foreign exchange earnings, dwindling oil prices, depleting external reserves and increasing inflationary pressures, banks would have to seek out new ways to raise or at least sustain their profit levels.
He said the battle for low-cost deposits will become even more intense. While some would have to strategically optimise their service delivery, others would have to explore new channels and develop unique products.
As customer retention and acquisition remain critical to success, he dwined that the need to develop more customer-centric products, provide satisfactory service experience and maximise customer value will be prioritized.
With evolving customer lifestyles and preferences; shifts in the current fiscal regime; and advancements in the country’s technological/digital landscape; banks would have to adapt, innovate and evolve rapidly in response to the new realities of 21st century banking. Customer intelligence would become a critical component for banks as efficiency requires adequate knowledge of the target customers.
Boladeola Agbola, executive director, Cashcraft Asset Management Limited, noted that the implementation of TSA last year effectively reduced government borrowing. This led to crash in treasury bills rates and loss of spread by banks. The banks that are heavy in public sector funds not only lose the treasury but opportunity to earn income as the funds went to CBN. As the economy weakens credit collection became seriously hampered which implies possible escalation in loans loss provisioning for the banks as they close their accounts for the year.
“Overall, it is doubtful if the banks might have had a good year.2016 may be equally challenging given the outlook of the crude oil market which might deteriorate further as United States lift ban on crude oil export ,Iran resumes oil export by the first quarter of 2016 while OPEC remains incapable of cutting production to moderate prices”, he said in an emailed response to BusinessDay.
