Another round of banking consolidation inevitable –Report

• says another portfolio crisis would be too huge for the Nigerian economy to afford

McKinsey & Company, a management consulting firm, in a report on Tuesday said that another round of consolidation in the nation’s banking industry is inevitable for them to thrive by growing capital base quicker than inflation rates and devaluation of the naira.

The document titled Nigeria’s Banking Sector: Thriving in the Face of Crisis and Bold Ideas to Help the Industry Build Resilience and Drive Long-term Sustainability, noted that a new banking consolidation was imminent, considering the need to measure up to Basel III requirements, manage asset quality deterioration and a couple of forex-based commitments to service.

McKinsey recommended the restructuring of banks’ portfolios, saying another portfolio crisis would be too huge for the Nigerian economy to afford.

It enjoined the banking sector to leverage the lessons learnt from the coronavirus pandemic to achieve sustainability and stressed that digitalisation would help banks achieve between 25 and 40 per cent reduction of cost.

McKinsey also prescribed scale, data and analytics, talent hunt as well as efficiency and productivity as the four-pronged model that would enable lessons of the past few months to drive sustainability in the banking sector.

“In Nigeria, significant opportunities remain for banks to develop scale across segments—for example by targeting small and medium-size enterprises (SMEs), which have significant unmet needs in the banking sector—or by targeting geographies such as the north of the country, which has been historically underserved,” the McKinsey report said.

It went further that productivity and efficiency were achievable via transformation of operating models to meet customers’ needs.

“The McKinsey Financial Insight Pulse survey conducted in October 2020 found that most consumers expect to increase their use of digital and mobile banking services even after the crisis, with 53 per cent of consumers wanting their banks to make it easy to get a line of credit and 36 per cent desiring improved bank websites to facilitate online transactions.

“In Nigeria, we’ve also seen a surge in agent-banking transactions during the crisis, opening up new possibilities for delivering services to more people at lower costs. However, these shifts may reverse unless steps are taken to hardwire new behaviours and attitudes.”

It is worthy of note that Fitch Ratings forecasting last week that impaired loans could rise to between 10 and 12 per cent of total credit by the end of 2021. This is mainly as a result of the effects of COVID-19 crisis.

Fitch also predicted that the expiry of relief measures could cause credit losses to soar, meaning that loan growth could be limited to 10 per cent next year compared to 20 per cent in 2019.