Focusing on digital products to sustain banking business in 2017

Here comes the New Year with high expectations from the banking industry stakeholders on improved financial services, reasonable income and investor confidence among others.

However, to achieve these comes with some challenges as analysts believe that the events that will drive the sector this year may likely be similar to those of 2016.

The sector suffered from foreign exchange income problems, deterioration in asset quality as a result of foreign exchange depreciation and flagging operating environment, as well as downward pressure on capital ratios, among others, in the year that just ended.

Consequently, Deposit Money Banks will need to be more creative and innovative as they respond to the expected vagaries and volatilities in 2017 according to Tunde Mabawonku, Chief Financial Officer, Wema Bank plc. 

Available data and forecasts of key economic variables indicate that the outlook for growth and inflation in the medium term continues to be challenging. Growth is expected to remain less robust given the absence of sufficient fiscal space while the current tight stance of monetary policy might continue. Specifically, the Monetary Policy Committee at its last meeting in November 2016 reiterated the limitations of monetary policy in reversing the current stagflationary condition in the economy, which it traced to supply and demand shocks.

Members stressed the need for a robust and more keenly coordinated macroeconomic policy framework that would restart output growth, stimulate aggregate demand and rein in inflation expectations. The Monetary policy committee urged the Federal Government to urgently assess the extent of its indebtedness to domestic economic agents and develop a framework for securitizing the debts in order to settle its outstanding domestic contractual obligations which cuts across all sectors of the economy. These accumulated debts have slowed business activities of economic agents; most of who are indebted to the banking system, thus compromising the integrity of the financial system. Overall, members called for an enrichment of fiscal and other sector initiatives and interventions towards resolving the growth challenges in the economy in order to promptly revive confidence in the economy.

In addition to the above, Mabawonku said the key points that will still resonate in the Banking industry in 2017 include, firstly, asset quality:the biggest asset quality concerns for the sector stem from a weaker Naira, disruptions in oil production and weakness in certain sectors like power, manufacturing and general commerce which all continue to face significant challenges.

Secondly, funding costs is expected to rise as rates on term deposits track yields on government securities which are expected to climb as well.

Thirdly, Foreign exchange illiquidity has caused major setback for the industry and impacted on trade finance business. There is still no clarity on the foreign exchange management regime.

The quest for financial inclusion will continue as many banks renew focus on digital products as a way of migrating the non-banking segment of the economy into the banking system and also to attract the young and upwardly mobile segment of the population. We expect the Central Bank of Nigeria to come up with a Digital Banking Framework in 2017.

HOPE MOSES-ASHIKE