Banks ditch costly real estate investments for tech operations

• Why 234 branches, 649 ATMs were shut down last year
• Decommissioned property litter Lagos, other cities

There are indications that Nigerian banks are rapidly cutting back on office space in major cities as they shift administrative functions to high-tech operations.

The Guardian gathered that with increasing number of staff working from home in the aftermath of COVID-19 pandemic, banks are exploring technology options that will limit crowd at their halls and reduce overhead on yearly real estate costs.

Though, the square feet of office space shed by banks are yet to be determined, reports revealed that prior to the pandemic, space taken up by commercial offices in 2019 was in excess of 20,100 square metres.

But a report by the International Monetary Fund (IMF), last week, disclosed that Nigerian banks closed 234 branches and 649 Automated Teller Machines (ATMs) in 2020 leading to a decline in the country’s Financial Access Score (FAS) to 4.44 last year against 4.78 in 2019.

The global financial body disclosed this in its Financial Access Survey (FAS) 2021 Trends and Developments. IMF is known to utilise two FAS indicators to monitor Target 8.10 of the 2030 Sustainable Development Goals (SDGs), which aims to increase domestic financial institutions’ capacity to promote access to banking and financial services.

The number of commercial bank branches per 100,000 adults and the number of ATMs per 100,000 adults are the two commonly used FAS indicators.

According to details from the report, Nigeria experienced reductions in these two crucial FAS indicators as well as 12 other FAS indicators out of a total of 64 used.

The financial body stated that these reductions were due to a drop in the number of commercial bank branches in Nigeria from 5,392 in 2019 to 5,158 in 2020. 

Similarly, the fall in the number of bank branches led to a drop in the number of ATMs in Nigeria by 649, leading to an average of 18,810 ATMs in 2020 from 19,459 in 2019. This also led to the country’s financial access score falling to 17.19 in 2020 from 16.14 in 2019 in terms of the number of ATMs per 100,000 adults.

Amid other economic shocks, the devastating effects of the pandemic led to banks in Nigeria temporarily or permanently shutting down their branches as the virus forced people to remain indoors and adopt remote models.

The rapid reductions in bank branches and ATM points alike are also due to the rising use of digital and mobile banking solutions.

Instant payment yearly statistics for 2020 released by the Nigerian Inter-Bank Settlement System (NIBSS) shows that mobile transactions in Nigeria (mobile & USSD) surged in 2020. 

These payments witnessed an 82.6 per cent growth at a transaction value of 1.69 billion compared to the 928.86 million they recorded in the previous year. 

Point of Sale (POS) usage statistics from NIBSS also put the volume of POS transactions for 2020 at 77 million, a nearly 40 per cent increase from the 46 million transactions recorded for 2019.

Basically, Nigerians are rapidly moving towards more contactless and digital modes of transaction and this is taking its toll on traditional banks. One of its effects is the declining number of bank branches and ATMs across the country.

The Guardian gathered that with the new normal and the banks joining global shift that has permanently change ways bankers work, it is becoming clear that the 2,000 – 5,000 square metres of offi­ce space, sometimes, on two to three floors, is no longer necessary.

As more digital and personalised financial services continue to spring up, more people would find less need to visit physical branches. Thus, there could be continuous drop in number of ATMs.

The new development has made banks to now outfit new operations centres with technologies, such as videoconferencing and electronic messaging, that they had historically been slow to adopt.

They are also tailoring their offices with more recent advancements, such as distributed ledger, data analytics and cloud-based computing, all of which are helping them automate tasks that employees once handled manually.

Currently, apart from physical bank branches where savings are held, customers are being asked to enroll in mobile banking and other models that enhance services. ATM is now a must for most customers that withdraw some specific amounts.

Specifically, professional estate agents known as estate surveyors and valuers, confirmed that some banks are still decommissioning branches to optimise their portfolios, while a handful of them are also opening new locations for ATM centres to solve complex issues and providing digital solutions. 

They said downsizing by financial institutions have been a huge setback for the Nigeria office market, which has witnessed increase in vacancy rate. The rebound for Grade A office buildings were still expected due to the sluggish economy and COVID-19 pandemic.

A report by Ubosi Eleh and Company predicted that “the growth of commercial real estate will slow down or be challenged in 2021 and possibly another near year or two going forward, sales values or speed will be low.”

The Guardian investigations revealed that presently, decommissioned branches adorn major cities, especially Lagos, Abuja, Kano, Borno and Port Harcourt. The insecurity in some parts of the country has also made some banks to abandon their branches.

It was further learnt that reducing office space usually happens slowly as many leases run for ten years or even longer and terminating agreements ahead of time can trigger steep compensation payments, if the buildings are not rented.

The immediate past chairman, Royal Institution of Chartered Surveyors (RICS), Mr. Gbenga Ismail, told The Guardian, the change started years ago when the physical planning law restricted banks to 1000sqm, which stopped the voracious expansion of branches.

“It was further compounded by technology and agency banking. A bank can operate on less than 10sqm today. The implication of all these is that demand for bank specific real estate has gone down and impacted non-city locations and rural-urban areas. 

“Between 2000 to 2007 land prices went up because of bank expansion and those who owned properties or land with bank specifications hit gold. Today, there are no renewals, expansions and purchases. There is now a glut of bank branches looking for new takers,” he said.

The Managing Partner, Ubosi, Eleh and Company, Mr. Chudi Ubosi, said: “Indeed banks have reduced the amount of new offices and branches they are opening. Its impact on real estate can be seen in the number of bank branch buildings that are currently vacant.

“Many banks don’t need as much space anymore and even as many staff. Technology is causing major rationalisation in space and labour needs. When you see a large bank branch of 400m2/500m2, they are probably using only 40 per cent of the space.

“The rest is dedicated to storage or left vacant for future expansion or needs. The reason why they do this is because for security reasons most banks cannot share space with other businesses so they would rather stay on their own.”

Ubosi, who was the former president, Africa region, International Real Estate Federation (FIABCI), said these vacancies have not impacted on prices. “Rental and capital values have maintained their upward climb or stability. I believe that with time the banks will find use for current vacant structures. Many would be sold out to interested parties. There are some that would for strategic reasons not be sold and kept for future use,” Ubosi said.

The estate surveyor and valuer stated some banks might donate or offer some decommissioned branches to states, other levels of government and departments to provide social services as part of their corporate social responsibility.

The Former Chairman, Faculty of Estate Agency, Nigerian Institution of Estate Surveyors and Valuers (NIESV), Mr. Sam Eboigbe, noted that there is always boom in the real estate sector during network expansion of banks centred on acquisition of locations for banking and other related purposes.

“Conversely, the sector is bound to experience some level of voids due to decision of some banks to close down some offices and halt acquisition of fresh office spaces.

“More so, that the structure of these properties have been significantly altered, it becomes cumbersome initiating and concluding offerings, lettings and leasing of such properties that have been vacated,” Eboigbe said.

According to him, the situation is compounded, as there is glut in the commercial property sector due to global acceptance of working from home culture and lifestyles. “The properties vacated by banks will accordingly, increase the volume of voids in the office buildings in the real estate sector.” 

Similarly, Eboigbe said the introduction of ATMs, on-line banking and host of other digital innovations have really brought revolution that it is now fully certain that there will continue to be systematic reduction in the volume of physical space that the banks will require.

“It is certain that banks deployment of technology in their operations have continued to discourage massive physical presence of customers at bank locations.

“It means the desire or request for physical space for expansion will be eroded. And in this arrangement, it is evident that banks’ interest in subsequent renewals upon expiration of their tenure is doubtful,” he added.