Fintech not a threat to Nigerian banks – Fitch Ratings


Fitch Ratings, one of the three leading global ratings agencies, has said in its mid-year outlook for Nigeria that the country’s huge population presents opportunities to both commercial banks and fintech companies to grow.

The global ratings body gave this assurance in response to the concerns expressed by many industry stakeholders that the licensing of fintech companies to provide digital banking services in the country poses existential threats to Nigerian commercial banks.

The Central Bank of Nigeria (CBN) in furtherance of its mandate to raise the level of financial inclusion in Nigeria, recently licensed some firms to operate in the digital banking space as payment service banks, interbank settlement system, international remittance operators, and payment service agents, among others.

“For you to have successful digital banking services, you need expertise and technological capability. In terms of products, Nigeria has a good product range, and the biggest thing they have is the volume. Nigeria is a huge country. If you put all these together, they present fantastic opportunities for banks and fintech companies to grow, and for both banks and fintech to cooperate”, Mahin Dissanayake, senior director, head of African Bank Ratings at Fitch, said.

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Available data show that Nigerian fintech companies have witnessed unprecedented growth in terms of the number of fintech firms in the country and the amount of foreign investments they have attracted in the last few years. The number of fintech firms in Nigeria increased from about 50 in 2016 to over 300 in 2022. And in terms of investments, African fintech firms attracted $615 million in foreign funding in 2019 in 134 deals; $231 million in 2021 in 155 deals, and $2 billion in 2021 in 198 deals according to data provided by Crunchbase.

Fitch analysts, while speaking on the theme “Nigeria sovereign and banks – mid-year outlook: Policy settings limit upside potential from higher oil prices”, projected that Nigeria will record a 3.2 percent real GDP growth rate by the 2022 year-end, while the percentage of net external debt relative to GDP will be 3.1 percent in 2022.

Further, they added that the government balance as a percentage GDP will be -4.3 percent and the government’s debt relative to GDP will be 31.5 percent in 2022.

Nigeria was also projected to enjoy stronger resilience of external finances, especially through durable recovery in international reserves or from current account surpluses, just as the nation will have a credible path to the domestic mobilisation of non-oil revenue sufficient enough to reduce the high debt-and-interest to revenue ratio.

Nigeria’s foreign currency Issuer Default Rating (IDR) and local currency IDR were assigned ‘B’ and stable each by the global ratings firm.

The downside risks for the country include rapid drawdown of reserves which is likely to be caused by a sustained period of low oil prices, and the possibility of the nation experiencing a weakened fiscal policy framework occasioned by huge subsidy payment, and the central bank financing most of the government’s activities.

“We all know Nigeria is an oil exporter, but the sector outlook has weakened. That is the reason for the soaring inflation and slower growth rate. The soaring inflation is a huge concern for us, mainly from the credit perspective because of its impact on consumers, disposable incomes, consumption, businesses in terms of costs and ability to produce, slower output, and worst-case scenario, stagflation”, Dissanayake, said.

He added that despite Nigeria being an oil-exporting country that should benefit from higher crude oil prices, and lower risk of default, the benefits were not there for the country, noting that the monetary response to the rate hike would further increase the cost of capital for businesses and consumers with the resultant decline in the demand for loans.

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