Banking industry tackles challenges in 2014, face short-term forex

There is no doubt that 2014 was very challenging and an eventful year for the banking industry. One interesting thing is that those challenges were not left unaddressed.

The first quarter of 2014 featured the launch of Bank Verification Number (BVN) by Sanusi Lamido Sanusi, the former governor of Central Bank of Nigeria (CBN) in Lagos.

Another major event sector was the suspension of Sanusi by President Goodluck Jonathan based on investigations being carried out by the Financial Reporting Council of Nigeria since May last year.

Consequently, Godwin Emefiele, who was the managing director of Zenith Bank plc, was appointed as the new CBN governor and he assumed office in June 2014.

There were some policies approved by the former governor which were later implemented by the current CBN governor. One of such policies was the re-introduction of inter-bank ATM charges of N65 on ‘remote-on-us’ after four withdrawals.

Uju Ogubunka, president, Bank Customers Association of Nigeria (BCAN), admitted that the banking sector in 2014 witnessed naira devaluation, risk management, infrastructure deficit, human capacity development and emphasis at ensuring stability of the economy, among other major events.

At the local environment, he noted that there were not much penalties but appreciated the fact that about N17bn illegal bank charges were refunded to customers by the regulator, which he said implies that consumer protection initiative is moving forward.

“Financial inclusion took a primary place because of the need to bring people who are financially excluded into the banking system,” he said in phone interview.

In 2014, there was also the counterpart financial literacy campaign which saw the CBN, the Nigerian Deposit Insurance Corporation and managing directors of some institutions adopt schools and enlighten them on financial issues.

“Customers of banks are getting more aware of their rights and obligation. The sophistication of average Nigerian bank customer is rising by day,” Ogubunka added.

The Apex Bank has remained focused on its mission of consumer protection and value creation and has delivered economic value to bank customers in 2014, Chukwuka Monye, managing partner, Ciuci Consulting said in an e-mail response.

The Apex Bank also introduced the ‘Know-Your-Customer’ policy as part of efforts to enhance financial inclusion and reduce the incidence of identity fraud.

By earmarking 60 percent of the commercial component of the N220bn SME fund to women, the Central Bank of Nigeria has demonstrated its commitment to financial inclusion of women – a mission that holds real opportunities for major economic growth.

Apart from the opportunities presented to banks either by being Participating Financial Institutions (PFIs) through which SME funds would pass through, some banks have taken deliberate steps to develop products for women as they have recognised the value of their roles in the socio-economy. Examples of banks that have developed specialised products for women are Diamond Bank, Access Bank and UBA.

In 2014, Monye said there was an increased appreciation of retail market intelligence that is focused on driving critical banking decisions such as the move for more retail and SME lending, the choice of transaction engagement channels per target segment among others.

Looking ahead, Razia Khan, managing director, head, Africa Macro Global Research, said the key challenge for the banking sector over the coming year will be how it manages short-term foreign currency obligations. With oil prices expected to undershoot considerably in H1, the willingness of offshore entities to extend credit lines to Nigerian banks may be tested.

Traditionally, this has always been strongly correlated with the price of oil. Given the recent preference amongst Nigerian borrowers for borrowing in foreign currency, this may slow the pace of intermediation in the near-term.

Ogubunka noted that the rate of borrowing has gone up and if it persists in the new year, it means banks will not be in the position to lend money at a reasonable price and this will have impact on the Small and Medium Enterprises (SMEs). “The financial industry must put in place risk management framework,” he warned.

According to Monye, following the trends in 2014, Nigerian banks will continue to wade through tides, finding ways to thrive amidst changes in the regulatory and business environment – with the outcome of each bank’s strategic response becoming more quantifiable.