Interview : Abubakar Jimoh
How has the merchant banking segment developed since the 2013 universal banking licence review?
ABUBAKAR JIMOH: This policy action, which classified banks into commercial banks, merchant banks and specialised banks, led to the rebirth of merchant banking in Nigeria. At present, the number of merchant banks in the country has increased to five, with total assets of about N600bn ($1.9bn). Since 2013 local merchant banks have led and participated in several landmark transactions, ranging from financial advisory on notable infrastructure projects to capital raising through debts or equities across key sectors of the economy. It is important to note that the emergence of merchant banks has further propelled specialised service delivery in global trade by Nigerian entities.
In what ways is financial technology (fintech) reshaping the Nigerian banking sector?
JIMOH: Fintech is gaining significant momentum and causing disruption to traditional financial services in Nigeria. In the payments realm, especially, we have witnessed increased adoption of products launched by fast-growing tech start-ups. Today, the entire banking process from account opening to transfers, withdrawals, investment bookings, and local and international payments has been completely digitalised.
Data from the Central Bank of Nigeria confirmed that the banking sector is responding well to the opportunities of fintech, with exponential growth of mobile money operations from an average monthly transaction value of $5m in 2011 to $304.7m in the first quarter of 2018. Nigerian banks are also experiencing increased revenue from new digital applications that facilitate easier payments and seamless execution of customers’ transactions in a more cost-effective manner. Fintech solutions will continue to redefine the way routine transactions are carried out, and the increased adoption of this trend will position Nigeria as an attractive investment destination for the industry.
Which sectors provide the greatest credit and lending opportunities for Nigerian banks today?
JIMOH: The oil and gas sector accounts for just 9% of GDP, but constitutes roughly 80% of government revenue, hence it attracts a lot of investment and has been the focus for bank lending activities in recent times. Despite its allure, the oil and gas sector is highly volatile and susceptible to factors beyond domestic control. Recent episodes of growing non-performing loans from exposure to such a mono-product sector are a major cause of concern for lenders. In the first half of 2018 we witnessed a decline in interest rates occasioned by falling money market yields.
To augment this drop in margins, banks have sought out alternative sectors where they can lend and earn decent margins. Going forward, we have streamlined our clientele to focus effectively on six broad economic sectors: oil and gas, consumer goods, manufacturing, telecommunications, construction and infrastructure.
What kind of regulatory and policy changes would help increase local participation in real estate investment trusts (REITs)?
JIMOH: Ongoing engagement and partnerships between stakeholders and regulators will help spur the needed reforms to stimulate the development of REITs. Comprehensive tax reform as it pertains to the real estate sector will boost not only the demand side, but also encourage more supply of grade-A commercial and residential properties in Nigeria. The Securities and Exchange Commission (SEC) has been working on reviewing the current rules of REITs, and there have been discussions around handling REITs as a distinct asset class and widening the SEC-registered advisers to include real estate consultants and valuers.
Following this review, rules of the National Pension Commission may also be reviewed to treat REITs as a distinct asset class and allow pension fund administrators to allocate a proportion of pension assets to REITs.
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