July 19, (THEWILL) – Banks devise means to remain profitable despite the impact of COVID-19, writesBEN IGBOKWE
When a new strain of the Coronavirus became noticeable in Wuhan, a city in mainland China, in October, 2019, the world did not pay much attention until March 11, 2020, when the World Health Organisation (WHO) declared it a global pandemic, giving it the name COVID-19.
Since then, the world has taken a hit from the pandemic in every aspect of human endeavor, including health, economy and social life. The financial sector was not spared in the rage unleashed on the world as financial institutions found themselves in a situation in which they had to struggle for survival, just like other sectors.
The situation in Nigeria was made worse by the fact that the country was just emerging from the second recession within four years. For financial institutions and regulatory authorities, the pandemic presented challenges that threatened the systemic stability and traditional banking model which favoured customers’ physical presence and contact in a branch-oriented retail banking system. Consequently, banks were forced to reduce banking activities and operations that promote physical contacts between staff and customers, such as transactions in banking halls. Other measures included reduction of branch activities, rescheduling of normal working hours and days in a bid to mitigate the spread of the deadly virus.
Some banks were faced with the need to sack some staff despite assurances by the Central Bank of Nigeria (CBN) that no bank worker would lose his or her job due to COVID-19. Some closed down some of their branches, while others alternated branch operations. In order to stay afloat during the troubled times, banks had to re-strategise and redesign their services, as well as operating models and value propositions in order to remain competitive and profitable.
Furthermore, the quest to survive motivated and encouraged Nigerian banks to massively embrace and invest in digital technology and infrastructure in order to sustain retail banking services and offerings to their customers, despite the adverse effects of the pandemic. This saw a sharp increase in the deployment of e-payment and digital payment channels such as point of sale (POS), automated teller machine (ATM), internet banking, etc across the country to complement limited physical banking activities.
As part of strategies to remain profitable, some banks embarked on establishment of branches in other African countries and beyond. This helped in shoring up their profits during the financial year. Despite the challenging operational environment occasioned by the pandemic, many banks posted impressive results at the end of the financial year ended December 2020, contrary to the predictions of some financial pundits and industry observers.
In an analysis by Nairametrics on the performance of 12 Nigerian banks, indications at the end of 2020 financial year showed that their combined total assets improved by 27 per cent, from N38.7 trillion in 2019 to N49.4 trillion in 2020. They are Access Bank Plc, FCMB Plc, FBNH Plc, Fidelity Bank Plc, GTB Plc and Jaiz Bank Plc. Others are Stanbic-IBTC Plc, UBA Plc, Union Bank of Nigeria Plc, Sterling Bank Plc, Wema Bank Plc and Zenith Bank Plc.
Also, in 2020, the combined asset of the 12 banks increased by 17.9 percent. It was also observed that all the affected banks had significant increases in their net assets in 2020, as total customer deposits increased by 32.1per cent. They all recorded customer deposits growth higher than 20 per cent during the same period, with exception of Jaiz Bank and Sterling Bank, which grew by 7.2 per cent and 6.5 per cent, respectively.
The banks under review delivered improved profit after tax, with Zenith Bank declaring N230.6 billion; Guaranty Trust Bank, N201.4 billion; UBA, N113.7 billion; Access bank, N106 billion and Stanbic IBTC, N83.2 billion. The exceptions were Fidelity and Wema Banks. There was also improvement in their return on investments, with GTB leading the pack with N26.8 per cent; Stanbic IBTC Holdings, 24.4 per cent; Zenith Bank, N22.4 per cent; Jaiz Bank N17.4 per cent and UBA, 17.21 per cent.
“The strategic actions that the bank has taken over the past 12 months is evidence of a strong focus on retail banking and financial inclusion, an African expansion strategy and a drive for scale for sustainable value creation”, said Herbert Wigwe, Managing Director and Chief Executive Officer of Access Bank Plc.
“In 2020, Access Bank proudly opened its doors for business in Kenya and Mozambique, further increasing our footprints across the African continent. Access Bank Zambia also concluded the acquisition of Cavmont Bank Limited in January 2021 and the Group recently announced the approval by relevant regulatory authorities for the acquisition of Grobank Limited, creating an inroad into the South African market in realization of the Group’s strategic ambitions,” Wigwe added.
The banks effectively leveraged the information and digital technologies which further boosted and encouraged growth in electronic payment transactions in the country and elsewhere. With increased public awareness and embrace of the e-payment system by a large segment of the banking public, coupled with improved internet and mobile network penetration across the country, banks and other payment tech companies invested massively in digital infrastructure.
This helped them to remain in operation and make profit, even as physical services and activities at both the branch and corporate headquarter levels remain skeletal and unattractive to the majority of bank customers.
For instance, banks in Nigeria successfully recorded $428 billion through e-transactions, which is 40 per cent way above the 2019 result, according to the Nigerian Interbank Settlement Systems (NIBSS) Plc data. During the same period, Inter-bank transactions were put at 364 million valued at N20 trillion ($52 billion) while POS transactions reached 77million worth N574 billion ($1.5 billion).
“Non-interest income accounts for approximately 42 per cent of the industry’s net earnings, and is largely driven by electronic banking activities, account maintenance fees, credit related fees and securities trading income”, Augusto observed in its post-pandemic report.
“With the lockdown resulting in skeletal operations, banks have leveraged their electronic banking platforms to boost income as more banking transactions are only consummated through digital channels during the lockdown period. However, minimal trade activities will moderate credit related fees”.
Marcel Okeke, former chief economist of Zenith Bank and public analyst, commended the courage and performance of banks that have declared their financial results for the year 2020. He said digital technology and investment in e-payment infrastructure contributed significantly to the strong performance witnessed by banks during the period.
“During the pandemic people were sending money and making all kinds of transactions with or with less encumbrances”, he said. “Whether bank staff went to work or not, the system was still working.”
Okeke said the cost reduction measures embarked upon by banks to cushion the negative impact on the fortunes of financial institutions such as grounding of most of the official vehicles including staff buses and pool cars, reduction of branch activities including at head offices, dropping of some staff and others impacted positively on the performance of the banks.
Dr. Alaba Olusemore, a banker and financial analyst, said it was expected that bank profits would reduce as a result of COVID-19, which would spike bad loans in the financial system, but that did not happen due to resilience by banks.
“Ordinarily, we expect bank profits to reduce when there is general lull in the economy”, he said, adding “I expect many loans to have gone bad, requiring write-off or postponement of interest collections”. He further said that Nigeria’s banking sector has always been non-cyclical, implying that they are usually immune from the adverse changes in the economy.
“Insurance business is also doing well; so also is the telecom sector. So, cost reduction is a major contributor to their profit in 2020. Banks have rationalized branch operations. Some branches have been closed and operations staff reduced to the barest minimum. Non-professional staff are doing some sensitive operations jobs in order to reduce cost”.
It is instructive that the various deliberate and coordinated intervention measures put together by the CBN and other relevant government agencies to mitigate the negative impact of the pandemic were critical to the stability of the economy and the financial sector in particular, consequently contributing positively to banks’ ability to deliver good performance in 2020.
The CBN and other regulatory authorities had articulated and put in place special intervention funds, credit support facilities, regulatory forbearance, tax reliefs, among others, aimed at supporting and boosting businesses and household incomes and, by implication, the entire economy.
“Banks are always resourceful and I believe they are likely to continue to declare huge profits in the periods ahead, ‘’ said Olusemore. “Banks are adaptive and innovative. They will continue their financial engineering that will produce optimal financial results. Banks that have foreign subsidiaries will also continue to do well because they are able to diversify their investment portfolios.”
•Igbokwe is a banker and investment analyst
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