In an era when Bigtech companies are moving into banking and finance, Nigerian banks are often regarded as laggards.
For instance, while more financially buoyant banks focussed on investing in treasury bills and government securities, Bigtechs, FinTechs and Microfinance Banks are seenramp up retail lending.
Little wonder then that Financial Stability Board (FSB)- an international body that monitors and makes recommendations about the global financial system- says that BigTech – companies like Amazon, Alibaba and Uber that use platform technology to deliver services-may be a greater competitive threat to banks than fintech, given that these companies “typically have large, established customer networks and enjoy name recognition and trust.”
FSB notes that BigTech has already made a significant impact in a short period of time. This is in large part due to their ability to harness data it has accumulated to revolutionise lending models – and lend on a huge scale.
To corroborate this, Martijn De Jong, Co–Head, CCIB Digital Channels and Data Analytics at Standard Chartered, observes that
“Amazon lent $1 billion to small and medium-sized enterprises (SMEs) in 2017, while Ant Financial’s MYbank had RMB31.6 billion ($5 billion) in outstanding loans at the end of 2017, primarily to SMEs. This is in contrast to banks, which struggle to make the most of the data they own”.
Back home, the Nigerian banks are said to be playing catch up to their more nimble FinTech counterparts
To change this notion, Guaranty Trust (GT) Bank, Nigeria’s largest bank by market capitalization, recently crashed its interest rate for its payday loans from 1.75 per cent to 1.33 per cent per month.
Payday loan is a relatively small amount of money lent at a high rate of interest on the agreement that it will be repaid when the borrower receives his or her next salary.
In a growing sign of competition in the lending space, GTBank reviewed its rate, as published on its website, to make it one of the lowest in the lending space.
A report by Nairametrics observed that ‘Nigerians are already used to targeted ads via SMS and across social media platforms offering quick loan incentives, such as loans without collateral or lengthy applications, previously characterized by lending in Nigeria. Commercial Banks have now joined the fray, albeit with a bit more caution.
‘Banks are now extending these loans beyond employees in structured organisations and now comfortably offer the same to self-employed Nigerians. However, unlike microfinance banks and quick loans banks, you will have to open an account with the bank.
‘A survey conducted last year revealed tier one banks charged as much as five per cent monthly for payday loans. microfinance banks such as Page Financials charge as much as five per cent monthly. RenMoney, another payday loan competitor and one of the pioneers of aggressive lending, charges about 2.825 per cent monthly. Some Payday lenders claim their interest rates are free of “hidden charges”.
‘GT Bank rates appear to be the lowest we have seen so far and could precipitate an interest rate war in an increasing competitive space. In a sign of the times, ad agencies representing microfinance banks and FinTechs have splashed hundreds of millions on advertising across multiple platforms.
‘Last October, the Central Bank of Nigeria (CBN) shocked the financial markets with a circular that bounced local investors (except banks) off the lucrative OMO market freeing up over N12 trillion of investable funds. As expected, most of the funds flowed into treasury bills clogging up demand and driving treasury bills rate.
‘At last week’s auction, 91-day treasury bills fell to as low as 2.9 per cent per annum as investors outbidded offer by 10 folds. Banks were also under pressure from an earlier policy that required that they increase their loan to deposit ratios to 65 per cent or face sterilization of their deposits
‘This twin move is thought to have triggered a crash in deposit rates and will inevitably drag lending rates for banks. Nigeria’s inflation rate remains stubbornly at double digits and rose to 11.9 per cent in December, rising for the 4th straight month.
‘With investors facing a lack of secure investments, banks have taken advantage and have also reportedly reduced deposit rates on time deposits in line with market conditions.
‘GT Bank’s decision to crash rates for its payday loans could be for two main reasons. The bank is adjusting to a drop in interest rates across board.
Also, considering itself the market leader in the retail lending space, it believes it can beat out competition by dropping rates to a level where microfinance and FinTechs will struggle to compete. With this move, we expect other banks to follow suit with their own rate cuts.
This could unlock a new wave of borrowers or increase the volume of borrowing by those seeking personal loans. Quick Money Banks, who issue loans with little to no paperwork, will have to leverage on their ease of disbursement to compete. Stiff competition could also push down loans to more subprime borrowers who may have nothing to lose when they default.’
If the interest rate competition becomes more intense, Kabir Katata, Deputy Director, Research Department, of NDIC, says it will be part
of the benefits of technology in which the depositors/customers have access to financial services easier, faster and cheaper while MEs will get access to new credit.