Nigerian commercial banks awaken to retail banking as competition from wireless carriers thickens


    Emele Onu, Bloomberg

    After years of ignoring consumers, Nigerian lenders are making an unprecedented push into retail banking.

    Increased technology use and urbanisation are opening up a market of almost 200 million people where less than half of adults are banked. Drawn by the vast potential of an untapped market, banks also have little choice as they face competition from wireless carriers with over 160 million users, and the central bank demands they lend more or risk punishment.

    Banks are trying to entice consumers with free access to music on their mobile phones, payday loans, or shopping services to add deposits and lower their funding costs. Another pressure point to change strategy is coming from a slump in crude prices that has weighed on their main customers in the oil and gas industry, and caused a surge in troubled loans.

    Hurriedly expanding loans will drag banks into “risky” territory, said Tunde Abidoye, a banking analyst at Lagos-based FBNQuest, despite the attraction of retail banking.

    Limited data is available on borrowers’ spending habits, their income or how much other debt they owe. Companies also need to overcome the challenges of servicing a market where many people don’t have fixed addresses and 45% of the population live on less than $1.90 a day. Mortgages and credit cards are pretty much unheard of, showing just how far retail banking in Nigeria still has to go.

    For now, the country’s biggest lenders, such as Access Bank, Guaranty Trust Bank Plc and Zenith Bank Plc, are focused on opportunities in retail banking, with their investments in new technology platforms already seeing big growth in transactions and the fees that come with it. An improvement in non-performing loans is also giving them a little more courage.

    “We also have the rapidly expanding and growing youth population with millions of new people entering the financial system each year,” said Robert Giles, the head of retail banking at Lagos-based Access Bank. Businesses will also benefit as increased focus on consumers fuels commercial activity, he said.

    Access Bank bought Carlyle Group-backed Diamond Bank this year to boost its retail presence, making it Nigeria’s biggest bank by assets and giving it a total of 27 million customers. With the deal, it gained a sizeable deposit base that gives it access to cheaper financing.

    Guaranty Trust Bank in November launched its Habari app, which offers users access to Nigeria’s biggest catalog of music, shopping as well as banking, attracting 100 000 customers less than a month after its release.

    “The corporate market is probably approaching somewhere between the end of growth and maturity,” chief executive officer Segun Agbaje said. “The retail market is at a growth phase. We have 33 million unique retail accounts in the country, so we haven’t even scratched the surface yet. We expect to maintain strong growth across these areas in the immediate, medium and long-term.”

    What others bank see for growth:

    Zenith Bank, Nigeria’s No 2 lender by assets, expects retail credit to account for about 4% of its book in 2019 from less than 1% last year, by making a bigger push into personal loans, car financing and mortgages.

    Union Bank of Nigeria, owned by ex-Barclays CEO Bob Diamond’s Atlas Mara, sees an expansion of as much as 12% in its loan book this year by increasing credit to small-and medium-sized firms, women and technology companies.

    Fidelity Bank is targeting a 20% increase in customer numbers this year.

    Guaranty Trust Bank also started offering payday credit to meet demand via its mobile and online platforms after only providing loans of three to five years, the CEO said. It is already giving small loans in the food and fashion industries at interest rates of 9%, compared with the central bank’s benchmark of 13.5%, to add clients.

    As the companies move into the small-loans market, they’re encroaching on an area that until now has been dominated by almost 900 microlenders, which had stepped into the gap as banks focused on corporate customers. Other players are also trying to tackle the space by starting online lenders, such as Lidya, which has disbursed more than 6 700 loans to small- and medium-sized firms since starting in 2016.

    The heavyweights have to their advantage their larger balance sheets and extended footprint. The big banks can offer much lower interest rates of about 25% a year — compared with up to 10% a month at microlenders — and still make a 10% premium over average government bond yields.

    “They’re taking over our business,” said Usman Onoja, the managing director of Lagos-based Lovonus Microfinance Bank. After expanding prior to Nigeria’s 2016 economic contraction to add a second branch in the country’s commercial hub, he is now struggling to sell some products, and is having to switch to small informal traders. “What do we do?”

    © 2019 Bloomberg L.P.

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