As For Banks: It Is Time To Understand The Customer

Times are hard, a new strategy has to be devised. Nigerian banks are looking at how they can save themselves from another episode of the infamous 2008 financial crisis that led to the shutdown/takeover of some of their competitors.

On why banks must take drastic steps, the numbers are very compelling to say the least.

Non-performing loans are going through the roofs, above the Central Bank of Nigeria, CBN’s prudential limit of 5%. Some banks who are badly hit with toxic debts and NPLs are in the region of 10-15%. This is a scary statistics given the fact that as a system, the entire banking system has very low immunity from such systemic risks.

The only soothing metric is the capital adequacy ratio (this is basically the ratio of a bank’s capital to its risk) and liquidity ratio (this stipulates how much banks are required to hold as a certain level of highly-liquid assets) are still in the safe zone as required by the CBN.

However, in spite of the fact that they are still within the prudential minimum of 10% for national banks and 15% for banks with international relevance, as at April 2016, the ratio has declined to 16.5% compared to 17.0% declared by the CBN in the same quarter last year.

Nonetheless, there is still light at the end of the tunnel. One area that has not been tapped for this category is the enormous potential of the retail side of the business. Without quoting much numbers, Nigerian banks with retail banking licenses have only handle that side of the business with much tokenism. While this argument can be countered by the fact that banks have in recent times captured a large percentage of the unbanked population, but numbers do not lie.

Only about 20.8 million people applied for the bank verification exercise with about 40 million bank accounts as at year end 2015. These numbers virtually means that just a little above 20 million Nigerians actually own operational bank accounts. By implication, close to 70 million adults do not own or operate any bank account. We can then conclude that banks were only stressing the commercial and merchant side of their business, retail was just a ticket to get into the bank.

Some banks have hinged their strategy on over-generalised narratives. Some quarters argued that many Nigerians do not have anything to do with banks because their is nothing to save. While some take the illiteracy dimension. It turns out that none of these positions are dependable. Nigerians through various traditional and modern means are engaging and patronising quasi-financial services, credit and savings activities.

Apart from established and the murky cooperative societies, there is a well-structured, unregulated joint contributions amongst peoples of different walks of lives. Many Nigerians look up to these informal arrangements to get mostly zero-interest loans, a mere imagination they can never get from orthodox financial services providers.

There is an humbling lesson for us in the formal sector and mostly banks who are looking at taking their retail business to the next level. We need to understand the market and our businesses beyond stock prices, quarterly projections and average margins. Boardroom assumptions often fail in the real world.

Nigerians are not backward, illiterates or desperately-poor that they do not understand the importance of savings and credit, but the system is not built for them. The system is built for big businesses, investors and their shareholders. The collapse of this superstructure is now making banks look at reconciling with them.

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