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Banking: Modest progress on financial inclusion Modest progress on financial inclusion

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Banking: Modest progress on financial inclusion Modest progress on financial inclusion

With about 40 per cent of Nigeria’s estimated 180 million population still not having a bank account 57 years after independence, the country’s banking industry still has a long way to go with respect to the provision of financial services.

As can be deduced from the fact that six Nigerian banks were ranked among The Banker Magazine’s Top 25 Banks in Africa and among top 1000 global banks in the magazine’s 2017 Global Banks’ ranking released in July, local banks have come a long way since 1960 when the country gained independence from Britain.

According to the ranking, Zenith Bank was ranked 10th and 430th in Africa and the world respectively. It was closely followed by FirstBank, which was ranked 12th in Africa and 567th in the world while GTBank was ranked 13th in Africa and 588th in the world. Also, Access Bank was ranked 14th in Africa and 628th in the world, while UBA was ranked 22nd in Africa and 832 in the global ranking.

The sixth lender, Diamond Bank, was ranked 24th in Africa and 881 in the world. Indeed, compared with the situation at independence in 1960, the banking industry segment of the Nigerian financial system, which includes the Deposit Money Banks (DMBs), Microfinance Banks (MFBs) Discount Houses, Finance Companies, Bureaux De Change and Primary Mortgage Institutions, has grown over the years to assume a level of sophistication that has made it one of the highest ranked on the continent.

Specifically, in terms of expansion and competition, product development, new business models, technology leverage, regulation and supervision, the Nigerian banking industry has grown over the years to be the second biggest in sub Saharan Africa after South Africa.

Perhaps, nothing better illustrates the tremendous growth of the country’s lenders since independence than the steadily rising billions of naira that most of the Tier 1 banks report as profit these days in spite of the sluggish economy.

Huge profits

For instance, in its audited financial results for the half year ended June 30, 2017, Guaranty Trust Bank reported a 16.6 per cent increase in Profit After Tax (PAT) to N83.67 billion from N71.76 billion reported the same period of 2016. It was followed by Zenith Bank, which announced PAT of N75.317 billion for the first six months of this year.

Also, UBA reported a PAT of N42.3billion for 2017 half year, which was a 56.2 per cent growth over the N27.1billion recorded in the half-year of 2016. Similarly, another Tier 1 lender, Access Bank reported a 17.31per cent rise in PAT to N39.46billion from N33.64billion reported for the same period in 2016.

High financial exclusion rate

However, despite the industry’s remarkable growth in the past 57 years, the consensus among analysts seems to be that Nigerian banks are not yet up to par with respect to the prevention of financial exclusion and discharging their primary role of financial intermediation.

In fact, although the advent of mobile banking and the Central Bank of Nigeria’s (CBN) introduction of the cashless policy have helped to boost financial inclusion, statistics show that almost two-fifth of the country’s population is under-banked and lack access to the full range of basic financial services. A Deputy Director at the CBN’s Banking and Payments System Department, Mr. Sam Okojere, revealed at a recent event that about 40 per cent of Nigerians still don’t have a bank account.

Ailing MFBs sub-sector

Interestingly, Nigeria continues to struggle to meet its financial inclusion targets despite statistics showing a steady expansion of the critical MFBs sub-sector. According to latest CBN data, the number of licensed MFBs in the country rose to 999 in August from 991 last April.

Also, the 2015 Annual Report for National Financial Inclusion Strategy showed that the number of MFBs rose to 958 at the end of December 2015 compared with 913 in 2014. The report also showed that total assets within the microfinance industry rose to N343.9 billion in 2015 from N300.7 billion recorded in December 2014, representing a growth of 14.4 per cent above the level attained in the previous year.

In addition, it stated that deposit liabilities within the sector increased by 9.3 per cent from N145.8 billion in 2014 to N159.5 billion as at December 2015. Loans and advances also rose from N162.9 billion in 2014 to N173.7 billion at end of December 2015, representing an increase of 6.6 per cent, while investments grew by 12.4 per cent from N15.8 billion in 2014 to N17.7 billion in 2015.

Significantly, however, the CBN’s Financial Stability Report released last April, stated that the total loans provided by MFBs across the country to Micro, Small and Medium Enterprises (MSMEs) in the second half of last year dropped to N183.96 billion, declining by N48.7 billion (about 20.96 per cent) from the N232.73 billion they advanced in June 2016 to N183.96 billion at the end of December 2016.

The report further showed that total assets of microfinance banks decreased to N341.68 billion at the end of last December, from N455.96 billion as of the end-June 2016, reflecting a decrease of 25.06 per cent. In the same vein, the report said shareholders’ funds for the microfinance banking sector decreased by 42.91 per cent from N135.09billion to N77.12billion as of the end of last December.

It attributed the decrease in shareholders’ funds largely to losses by the MFBs resulting from increase in non-performing loans. The study further stated that MFBs’ total deposit liabilities dropped from N191.25 billion as of June 2016 to N166.29 billion as at December 31, 2016. According to the report: “The total assets of microfinance banks decreased to N341.68 billion at end-December 2016, from N455.96 billion as of end-June 2016, reflecting a decrease of 25.06 per cent.

The shareholders’ funds also fell by 42.91 per cent from N135.09 billion to N77.12 billion as of December 31, 2016. The decrease in shareholders’ funds was largely attributed to losses by the microfinance banks resulting from increased provisioning for non- performing loans. Reserves also decreased by 24.39 per cent to N16.80billion at end-December 2016, from N22.22billion at end-June 2016.

The decrease in reserves was as a result of operational losses.” Commenting on these figures at an event organised by MFBs in June this year, the Director of Other Financial Institutions Supervision Department (OFISD) at the CBN, Mrs. Tokunbo Martins, said they were grossly inadequate given the country’s population of 170 million, the bulk of which consists of the unbanked.

She said: “The industry is highly concentrated and unevenly distributed with the top 10 of the 991 Microfinance banks accounting for 37 per cent to 40 per cent of the total loans, deposits and assets as at March 31, 2017.

The sub-sector is also under capitalised with high Non-Performing Loans and characterized by a high spate of distress and failures with many institutions particularly unit Microfinance banks technically insolvent or inactive.” Analysts point out that the 999 licensed MFBs in the country are still a long way off from meeting the target proposed for microfinance bank branches in the National Financial Inclusion Strategy, which is that there should be five branches per 100,000 adults by 2020.

EFInA survey

Also, a report by Enhancing Financial Innovation & Access (EFInA)-a financial sector development organization that promotes financial inclusion in Nigeria- its, “Access to Financial Services in Nigeria 2012/2014 survey,” shows that 88.6million adults in the country have never had a microfinance bank account.

The study also stated that number of microfinance bank users dropped from 4.6 million in 2012 to 2.6 million in 2014, adding that the top three reasons that users gave for shunning MFBs were irregularity of income, lack of trust and microfinance institutions closing down.

In addition, another survey carried out by EFInA last year showed that although the proportion of Nigeria’s adult population with access to financial services grew by an average of 6.4per cent between 2008 and 2012, this growth slowed down to 0.2per cent and 2.1 per cent in 2014 and 2016 respectively.

“This decline was driven by a reduction in the proportion of adults accessing financial services through other formal providers-other than Deposit Money Banks (DMBs) and informal financial providers. DMBs have been better able to withstand the economic crisis and maintain their customer acquisition drive at the expense of formal other channels like MFBs most of which have struggled under the economic strain,” EFInA stated.

Troubled history

However, as industry watchers point out, the MFBs’ sub-sector has had a somewhat troubled history in Nigeria. In 2010, for instance, the CBN revoked the operating licences of 224 MFBs, citing the report on the target examination on 820 MFBs across the country jointly conducted by the regulator and NDIC, which showed that 224, or 27 per cent, of them, were found to be “terminally distressed” and “technically insolvent” and/or had closed shop for, at least, six months.

New Telegraph findings show that stakeholders largely attribute the challenges that the MFB sub-sector is currently facing to the CBN’s 2010 action. As an official of a Lagos-based MFB, who did not want to be named, said: “The mass revocation of MFBs’ licences in 2010 did serious damage to the public’s perception of the sub-sector.

Most people still believe that the sector is not healthy and this is scaring away investors as well as depositors.” But, commenting on the issue, Managing Director of LAPO Microfinance Bank, one of the country’s biggest MFBs, Mr. Godwin Ehigiamusoe, stated that while the downturn in the economy has clearly impacted most MFBs, an assessment of the industry has to be carried out to find out exactly the nature of the challenges that it is currently facing and what can be done to address them. He said: “Generally, the tough economic situation is affecting everyone so it also affects MFBs.

However, there has to be an assessment of the problem to ascertain if it has to do with liquidity or loan portfolio issues.” Ehigiamusoe, whose bank has over two million clients, said the fact that some MFBs are under a lot more pressure than others has to do with how operators seize opportunities.

He defended the achievements of the sub-sector in an interview, arguing that although there was still room for improvement MFBs, in the last decade had granted over N151billion as loan assets and made it possible for over four million Nigerians, mainly persons from low-income households and owners of micro and small enterprises to access a range of financial services.

He argued that MFBs’ liquidity would be significantly boosted if tiers of government were supporting the sector with certain proportions of their budgets as was originally suggested during the formulation of the microfinance policy.

Also, a financial analyst, Mr. Ben Odidika, predicted that the MFBs sub-sector would continue to struggle until there is significant improvement in the country’s current low banking culture. He advised MFB operators to continuously look for ways of lowering the cost of landing profitable customers.

Last line

According to him, unless there is significant improvement in Nigeria’s level of financial inclusion, the growth of DMBs will not be sustainable. He said: “With the advent of fintech, deposit money banks are embracing digital innovation to remain in business. As the competition gets keener, only a significant improvement in Nigeria’s level of financial inclusion will ensure that they are able to sustain the kind of profits they are currently reporting.”

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