Retail, SME lending future of banking –Afrinvest

The future of the banking industry in the country will rely on their capacity to compete in the Retail and Small and Medium Enterprises lending space, as the Central Bank of Nigeria’s policies continue to impact negatively on profitability.

The CBN’s increased monetary tightening, aimed at ensuring price and exchange rate stability and other recent measures have affected non-interest income sources for banks in recent weeks.

The situation, according to investment banking firm, Afrinvest, puts the fate of small players in the sector hanging in the balance as banking in the country is gradually evolving into a “game of size with scale economies becoming a competitive advantage among the banks.

Afrinvest analysts in a new report released yesterday, pointed out that having hit it big in profit earnings in 2012, banks within the last nine months have been grappling with the “policy induced” earnings shrink, in addition to the aggressive competition for cheaper deposits.

They however believe the future banks earnings reside in retail and SMEs lending.

According the analysts many banks are retooling their strategies with the aim of focusing in these areas.

For instance, the Afrinvest report observed that Guaranty Trust Bank, GT Bank, has grown its retail banking business to 23.4 per cent as at the end of the third quarter of 2013 from 21.7 per cent in the prior year period.

Afrinvest also noted that Zenith Bank and United Bank for Africa, UBA, are in the game of expanding their lending opportunities with Zenith Bank maintaining a deposit mobilisation strategy from the mass affluent, lending to the multinationals.

“UBA is well established in the retail banking space with N2.2tn in deposit liability. However, it needs to leverage the evolving technological environment to adapt and extract more value from their client base, while maintaining market position.

“Diamond Bank is well established in the SME and retail businesses as it has less appetite for lending to low-risk blue chip companies and multinationals at below market interest rates”, Afrinvest analysts said.

The analysts said developments in the sector are in line with their expectations as reported in their 2013 Banking Sector Report titled “Standing on the 4th Pillar”.

“We noted that the era of real banking appears to be gradually re-emerging as traditional sources of high income continue to face significant threat from tighter regulation and increased competition.

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