One of the things the banking industry will have to focus on in 2014 is how to replace their lost revenue following a drop in commission on turnover (COT) rates to a maximum of N2 per mile, analysts have said.
It would be recalled that the Central Bank of Nigeria (CBN) last year directed all banks to gradually phase-out the COT charged on current account by 2016, and the reduction was to start at N3 in 2013, N2 by 2014, and N1 by 2015.
With the drop in COT rates, according to analysts, competition in the banking industry is expected to be stiffer this year.
Ladi Balogun, CEO, First City Monument Bank (FCMB) plc, and Chukwuka Monye, managing partner, Ciuci Consulting, are of the view that while lowered fees will be great for customers, banks would need to develop more differentiated products and discover innovative and service-centred ways to replace lost revenues.
According to Monye, the key should be in each bank’s ability to gear up customer intelligence and engagement levels in order to attract and retain target customers.
However, Balogun says the banking industry is expected to grow around 15 percent with respect to revenues, but profitability will remain under pressure as competition intensifies and margins reduce.
To Balogun, consumers should witness improved service quality, greater emphasis on retail banking and e-banking as the cashless policy is gradually being adopted nationwide, saying “expect greater convenience as more ATMs are rolled out also, thanks to the elimination of charges to customers.”
Monye says in 2014, increased retail market intelligence should drive critical banking decisions, such as the move for more retail and SME lending, the choice of transaction engagement channels per target segment, among others.
In an e-mailed response to BusinessDay inquiries, the FCMB boss says: “Availability of credit should improve as (i) banks move more towards retail and SME lending due to increased competitive pressure at the top end and (ii) government and banking sector partner better to support sectors such as mortgages and housing (through the Mortgage Refinance Company), SME’s, agric and industrial projects.
“Foreign exchange markets will be volatile this year and a major challenge will be reducing the gap between the official and parallel markets.”
Akpan Ekpo, director-general, West African Institute for Financial and Economic Management (WAIFEM), says the banking sector in 2014 must begin to take seriously the financing of long-term investment. It must provide funds for the real sector to grow. The structural problems of the economy such as the epileptic power supply must be reduced to the barest minimum to allow banks to lower the cost of funds. The lending rates are just too high and this discourages long-term investment.
“In 2014, the banking sector should try to ‘sacrifice’ for the sake of the economy. I am alluding to the fact that some banks in the midst of making profit (not losses) still embark on massive retrenchment of workers. This could be understood, if the banks are making losses; but in the context of declining profits, they should be able to be innovative and thus retain their workforce. In 2014, the banks need to be more technology friendly as well as improve on current use of technology,” Ekpo states.
According to Ekpo, the banking industry would continue to provide the necessary investible funds, mostly short-term for the economy. If there is growth in the economy as a result of increased production of goods and services, then the sector will re-position itself to reap the benefits of growth.
Monye, in his conclusion, says as gaining and maximising customer value becomes the key to profitability, the fundamental questions of what, why, when and how customers want to be served remain pivotal to the ‘Customer Intelligence-driven Banking’ proposed for 2014.
By: HOPE MOSES-ASHIKE