Experts list ways banks can boost revenue, navigate in post-pandemic era

…See weak economic recovery at 0.1% in Q1’21

To minimize the impact of COVID-19 on banks and boost their revenues, experts have stressed the need for lenders to reduce their loan book to the barest minimum, and diversify to other areas in the non-banking space.

The experts, who spoke at the FBNQuest webinar at the weekend, noted that banks currently have pressing issues to grapple with such as asset quality, and rise in cost of risks.

Besides, they also expressed optimism that Nigeria’s economy would return to a growth path in the first quarter (Q1) 2021, after contracting by a record 6.1 per cent in the first half (H1) of the year, following the effect of pandemic-induced lockdown.

Specifically, the Head, Equity Research, FBN Merchant Bank, Tunde Abioye, said regardless of provision for loan losses, banks have to contend with downward pressures on net interest margin, following the subdued interest rate environment and regulatory-induced fee cuts on e-banking transactions.

He also cited the issue of discretionary Cash Reserve Ratio (CRR) of the CBN, adding that this is currently impacting banks’ liquidity.

“Thanks to the regulatory forbearance by the CBN, banks have embarked on a sizeable restructuring of their loan book. Based on high net interest margin for banks to boost revenue, they must grow their loan book and look for other areas in non-banking space and businesses.”

On the outlook of the equities market for the second half H2 2020, Abidoye, said the fragility still exists, noting that companies and entities are still vulnerable to any macro shock in the environment.

“Banks structured about 40 per cent of loan book, but the possibility of this loan still existing is there despite forbearance packages.”He urged investors to stake their funds in blue-chip companies that can withstand macroeconomic shocks.

A Senior Economist at the Bank, Chinwe Egbim, anticipated that a rapid acceleration in inflation rate at 13.1 per cent, while the monetary policy rate is expected to stand at 12 per cent at the end of this year and next. She pointed out that the economy would record only a weak recovery of 0.1 per cent at the end Q1’21.

According to her, the rate of contraction would reduce with the nation’s economy contracting by three per cent year-on-year (y/y) by Q4, 2020, an improvement from the level in H1, 2020. She said: “Alongside enhanced credit availability, the federal government’s proposed spending and its borrowing plans provide a little comfort for the macro story.

“We think spending will be trimmed in the likely event that revenue collection falls short of the heady target set, which the FG projects N10.8 trillion, even as its capacity to prime the pump is substantially lower than that of its peer governments in emerging markets.

“However, when the population is growing at up to three per cent annually, and in the absence of a nationwide famine, it is difficult to see more than a token contraction in agriculture.”