Saving banks from the impending revulsion

A banking revolution is a good thing but any thing that makes people wish they had nothing to do with banks is revulsion. It is bad. The banking industry in Nigeria has seen the good, the bad and the ugly times. It has had its fair share of difficulties, leading to considerable attrition of its members. Banks have also made significant contributions to the financial inclusion policy of Nigeria, and the digitisation and modernisation of the financial intermediation role of the industry. Time there was, in Nigeria, when going to a banking hall to get cash was both comical and nightmarish.

Once a customer arrived at the bank, he or she was given a “tally number” – a plastic disk with a number on it, to identify his or her location in the permanently long queues that were a standard feature of the banking halls. On armed with the tally, the endless waiting game begins, and ends only when somebody from behind the counter, calls out the tally number and the custom answers. That part used to be very entertaining – to hear Nigerians answer in their various languages, as their tally numbers ring out in the banking halls.

Technology was rudimentary and customers literally went to banks with their mats to lie down, and probably take a nap, while waiting to be called. The real show begins when a banking officer calls out to the waiting customers, some of whom had already begun to doze or even snore. Usman, whose tally number is 4 hears the cashier scream Number 4, and he springs up from his mat and goes in Hausa, “n’am!”. This may be followed after several minutes with another call of tally number 5, which belongs to Madam Bisi, a Yoruba petty trader, and she jumps up on her feet, clutching her loosening wrappers and screaming back at the cashier in Yoruba, “emi re o!”. And Mazi Okoro will jump, roll his mat and reply in Igbo, “obum!”, as soon as his tally number was called.

Each of those responses signalled the presence of the customer who then proceeded to be served. That was the kind of time-destroying ritual that was the norm in our banks at the time, until the dawn of the new era.

The 1980s marked a watershed in Nigerian banking history, and saw us go through some of the most remarkable transformations in the history of banking in Africa. It was a fundamental and relatively sudden change – a kind of revolution that changed the banking landscape for good and for the better. Unlike in the 70s when Rural Banking was compelled, commercial banks took their branches to every nook and corner of the country. In many ways, this positively impacted on the rural based micro, small and medium enterprises (MSMEs).

Prior to the banking revolution of the 1980s, the industry was characterised by what became known as “armchair banking”, whereby bankers sat in their then cosy, but now relatively  decrepit, offices waiting for customers to bring their needs to the banks to have them met through any of the limited service options available at the time. There were hardly any marketing units, to say nothing of marketing divisions in the banks. Customers were served as long as they were able to bring their banking needs to the banks. Banking was essentially an operations activity cantered in the back office.

The banking revolution saw the development of many “new generation bank” that were slim and fleet-footed. Many were merchant banks that specialised in wholesale banking, focusing of capital issues and financial advisory services. The commercial banks outclassed the old “legacy banks” in ambience, product variety and customer service; all facilitated by and delivered through novel technology platforms. I dare say that the so-called new generation banks have contributed immensely to the development of banking in Nigerian, and national economic growth.

In the face of mounting provisions and dwindling inflows, how can the banks sustain lending to ensure the economic engine restarts in good time? This is a global challenge we must attack. How do we keep households and microenterprises breathing as economic decline bottoms out?

Now the times have changed and revulsion, rather than a revolution, seems to be hanging over the banking industry, not just in Nigeria but in the whole world. Banking is not going to be a sweet-smelling scent around in the next few years, unless something is done urgently. The allure of banking has come to a screeching halt, as COVID-19 puts a foot on the break of the global economy, starting in 2020. Another new era seems to be breaking in the annals of banking, in which governments and regulatory authorities have got to nurse the banks and their customers back to life. This will call not just for prudence and rationality but also patience and courage.

At a time when global economy was already weakened by declining oil prices, occasioned by a chain of events, including the Saudi-Russia oil conflict and declining demand from China, a calamity of dizzying proportions, in the form of a pandemic, hit the global economy, destabilising economic equilibrium and devastating every economic sector.

In Nigeria, the economy is confronting a contracting manufacturing sector with Purchasing Managers Index diving significantly south to about 51 in March, the lowest in about one year. COVID-19 has hit the banking industry in such a way that only concerted action of the government and regulators would have any meaningful impact. Customers have watched their cash flows evaporate and with it, credit quality, even of the best risk assets, has deteriorated. Clearly, it will be wishful thinking to expect customers to effectively service their facilities. Not only has cash flows dried up, collateral values have declined as various asset values take a hit.

In the face of mounting provisions and dwindling inflows, how can the banks sustain lending to ensure the economic engine restarts in good time? This is a global challenge we must attack. How do we keep households and microenterprises breathing as economic decline bottoms out? Will recovery take a “V” or “U” shape or will it be drawn out taking an “L” shape? Each recovery trajectory has short and long-term implications for the economy.

For starters, regulators must wake up from any hangover of the good times and come to the reality that banks will have to chase bad money with good money, and still run the risk of losing both and this why the times call for regulatory courage. Trigger happy regulators are not needed now. Regulatory arrogance and supervisory rigidity will dig the hole deeper and make recovery harder. Monetary policy action as currently being implemented is good but will not be good enough. Fiscal action effectively implemented, is a necessity. The flow of funds to households and firms, which constitute the key players in the Circular Flow of income, and the production of the Gross Domestic Product, now practically halted by the lockdown.

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