Nigerian Banks Make Gradual Shift to Universal Banking Model
Godwin Emefiele -CBN Governor

Nigerian Banks Make Gradual Shift to Universal Banking Model

There is an indication that Nigerian banks are making gradual shift to Universal Banking Model with serial record of adoption of holding structure in the recent time.

In actual fact, some banks have obtained approval in principle from the Central Bank of Nigeria to restructure as holding company.

This will allow for more diversified activities, a new development after the initial phase out of Universal Banking model after 2008 global financial crisis.

With the holding structure in place, analysts view is that banks are now stylish and strategically returning to Universal Banking model, an umbrella for diversification into financial services.

Nigerian Banks Make Gradual Shift to Universal Banking Model
Godwin Emefiele -CBN Governor

Holding structure being pursue allow lenders to operates  more financial services apart from deposit collection and lending, a model previously introduce by the Central Bank of Nigeria in 2001.

MarketForces Africa recalled that erstwhile Governor of the Central Bank of Nigeria, Sanusi Lamido Sanusi halted Universal banking for narrow lending based commercial model.


In its reaction to manage post financial crisis, CBN asked Banks to either spin off non-banking subsidiaries or adopt a holding company structure.

Many banks opted for the former option, while Stanbic IBTC, FCMB and FBNH adopted holding structures, to maintain their investments in insurance, asset management, investment banking and other activities.

In a note, Tellimer’s analysts Busola Jeje observed that the trend is reversing as Access and Sterling have received approval in principle from the CBN to restructure to adopt holding structure.

Tellimer’s analyst explained than banks are gunning for Holdco due to regulatory pressures, declining yields on interest earnings assets, lower fee income and growing fintech threats.

Speaking to regulatory pressure, Tellimer’s analysts said this comes from arbitrary and punitive Cash Reserve Ratio (CRR) debits, to the conundrum of meeting the minimum 65% loans to deposit ratio in a low-growth environment fraught with risk.

As a result, Tellimer said core banking has been more difficult to execute profitably.

This is coming just at the time when there is declining yields from loans, thus worsening lenders earnings pressure.

The fixed income market which was safe investment haven for many lenders has suffered from lack of descent earnings from assets.

Widening negative returns is expected to persist with inflation rate rising further, hitting 30-month high at 13.71% for September, 2020.

Tellimer said that the recently reduced monetary policy rate to 11.5%, and lowered range of the asymmetric corridor (the cost at which lenders borrow) to +100/-700bps from +200/-500bps, is likely to further reduce the rates at which banks lend.

While this is good for private sector operators, the economy capability to produce has been weakened by the outbreak of coronavirus pandemic.

Again, the nation’s economic pulse has remained weak following a 6.1% decline in gross domestic products.

Declining yields on investment securities is a key issue facing deposit money banks”, analyst said.

In addition to customer loans, Jeje said a substantial proportion of Nigerian banks’ assets are in the form of CBN bills (OMOs), Nigerian Treasury Bills (NTBs) and Federal Government Bonds.

These account for about 22% of total commercial bank assets as at Dec 2019, Tellimer’s analyst stated.

Given the depressed rates on both OMOs which averaged 1.9% at the end of September 2020.

This is against 13.2% at the end of December 2019; and NTBs at an average 1.9% at the end of September 2020 compare to 4.9% at the end of Dec 2019, investing in these securities are extremely unattractive.

Tellimer’s analyst said earlier in the year, the CBN changed the flat fee structure of N50 on all electronic funds transfers to a graduated scale.

Transfers below N5,000 attracting a charge of N10, those between N5,001 and N50,000 attracting a charge of N25, while transfers above N50,000 attracts N50.

Also, reductions were made to card maintenance fees and ATM withdrawal fees, which all had negative consequences for the banks’ non-interest incomes.

Tellimer also noted that the growing number of financial technologies (FinTechs) companies in Nigeria, especially payments, lending, investech and mobile money are presenting themselves as formidable opponents for Nigerian banks.

“These challenges present both near-term and long-term threats to the growth and profitability of the Nigerian banking sector”, Tellimer’s analyst stated.

Diversification of businesses into other areas however present lenders an opportunity to raise performance and raise shareholders wealth.

Of note is higher margins availability in other sector as analysts pointed out.

Tellimer’s analyst Jeje said businesses such as insurance, asset management and pensions require less operating costs and investment in physical assets compared to traditional banks, adding to profitability.

In addition, there is long-term growth potential which lenders are always willing to key into.

These alternative business lines are at a younger growth stage than banking and offer long-term growth potential, Jeje said.

For context, Tellimer’s analyst said annual pension contributions have been increasing at an attractive rate at an average annual growth rate of 11.9% between 2009 and 2019.

Meanwhile the net asset value of collective investment schemes crossed over N1.0 trillion in 2019 (2011 to 2019 Cumulative Average Growth Rate of 38.6%).

A cursory look into the industry indicates there exist new opportunities in pensions as Tellimer’s analyst noted that there is an interesting developments occurring in Nigeria’s pension space.

This includes the possible opening of a transfer window, which would allow contributors to move their funds to an administrator of their choice.

This option that did not exist before, and the new “Micro Pension Plan” to expand pension services to self-employed people and the informal sector.

“With these developments, a pension subsidiary with better service offerings and a strong affiliation to a bank can capture market share”, Tellimer said.

In addition, analyst said Fintechs offer a simpler solution than traditional banking, in capturing the large unbanked population in Nigeria.

Banks that have moved motion to restructure to HoldCo include the GTBank, Access, and Sterling bank plc.

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Nigerian Banks Make Gradual Shift to Universal Banking Model