Your Bank Does Not Hate You!

Even Though It Seems That Way

Why POS Terminal’s Don’t Work, ATM’s Fail & Transfers Are Often One Chance

Things Often Break…

“Es Network oh, abeg no vex” is a phrase you often hear, explaining away the failure of this critical transaction you have just attempted. It applies when using a POS, an ATM, your bank’s website or even more prosaically attempting to withdraw money over the counter from your bank branch.

A truism in Nigerian banking especially on the retail side is that “sometimes”, things don’t work as they should. This regularity of “failure” has led to particular phrases in the Nigerian lexicon such as “The server is down” , “Na network”.

The various examples of service failures quoted here, were all taken from Twitter. Service failures are a normal part of the Nigerian banking experience. The question is why?

Your Bank Loves Its Most Profitable Customers

Basic business logic, suggests; that, your bank should strive to deliver a quality service to its most valued customers. On the grounds that, it does not want them to go elsewhere. This same logic also suggests that, your bank will want to deliver a service, no worse than that of its competitors. In fact it will want to deliver a better service so it can attract new customers, all things being equal.

One would expect Nigerian banks to compete on the basis of service excellence. Yet, this does not appear to be happening. Service challenges often occur and are a feature of practically all banks. No institution seems immune to this problem, it is a systemic problem in Nigeria.

Why is it that institutions, do not appear to be investing; in providing an ideal experience for their retail customers?

Are we doomed to forever experience sub par performance? Is service excellence in Nigerian banking akin to our electricity supply, at best, insufficient, at worst, non-existent? Services mundanely delivered elsewhere but apparently impossible in Nigeria?

The barely spoken truth of Nigerian retail banking is that it is not particularly profitable today, in 2015. I posit that it is this lack of profitability, which is often responsible, for the service challenges; that we as customers experience.

This apparent lack of profitability is likely responsible, for our banking institutions not investing; in the appropriate systems & processes that will guarantee excellent service delivery for their retail customers.

Your bank loves and provides a stellar service to its most profitable customers. “Retail” customers do not appear to be in that category.

How Much Profit Does Your Bank Make From Retail?

What are you worth to your bank?

GTBank is a stellar example of a bank with great results. Their results should illustrate exactly how profitable retail can be in Nigeria. I am not singling out GTBank for its service or lack of it. Personally I believe they are excellent bankers and they are often recognized as such by their peers in the industry. Often called the banker’s banker, GTBank’s results should show us what is possible in Nigerian Retail banking.

This excellence appears in the clarity of their reporting. They are for instance, one of the few banks that actually publicly declare their customer numbers. They are also kind enough to present a sectoral breakdown of their profits. This allows us to see their profits per retail customer.

An analysis of their results from their published financial statements is shown below. The Deposits, Loans & PBT figures are in billions of naira.

GTBank’s 2013 & 2014 Results

A number of things immediately stand out.

  • GTBank makes approximately 3,500 naira per retail customer as against 1.7 million naira from its other customers in a year.
  • GTBank does not really lend to retail customers. Only 11% of their loans went to Retail customers.
  • Retail customers provide roughly 50% of the deposits and 21% of the profits.
  • In 2014 as an additional 1 million more retail customers were acquired, the percentage of retail loans dropped as a proportion of the whole. GTBank lent less to retail customers in 2014 than it did in 2013.

As you’ve always suspected, GTBank is indeed giving your money to Dangote for “turn up”.

That characterization is a bit unfair. Traditionally retail banking has been a source of deposits for banks, providing funding for their commercial and investment banking arms. What is missing in Nigeria, are the loans and mortgages that drive profitability in retail banking.

EFInA Access To Financial Services In Nigeria 2014 Survey

EFInA estimates that only around 600,000 Nigerians, have obtained a loan of some sort, from their bank. There are approximately 26 million Nigerians with bank accounts! Those of you, lucky enough to have obtained loans from your bank, probably have a diary from said bank, with your name on it. The profits generated by your loan are enough to ensure a better service experience for you. This experience manifests in that personalized diary.

Your accounts officer also knows you by name and makes sure things work When things break She or he quickly fixes them. If God has really blessed your hustle, she will be a light skinned Prada carrying beauty able to deliver your dollars and other things to you. As you relax at the club, to the envy of your peers and for the glory of the Lord.

Lest I’m accused of trivializing “the burden of dark skin” by the usual suspects. I’m reliably informed by “sauces” that they have dark skinned Chanel toting beauties too. You just have to inform your relationship manager of your preference; while you negotiate your mortgage for that plot in Banana.

And those of us, without diaries? Well, we are busy queuing at the ATM!

Some of you may cry that, GTBank is “posh” and not representative of the industry as a whole, even though they succeeded in attracting an additional 1.5 Million Nigerians in 2014, to fill those banking halls. You may be right…

Will Retail Ever Be Good?

How First Bank Can Buy Diaries For Millions Of Customers…

EFInA Access To Financial Services In Nigeria 2014 Survey

According to EFInA, only 4% of Nigerians were aware of GTBank. Maybe First Bank’s results will tell a different story. After all, almost seven times more people were aware of First Bank, compared with GTBank. First Bank according to EFinA MUST be the people’s bank.

Unfortunately unlike GTBank, FirstBank does not break out its PBT figures by sector. So we can not accurately say how much profit is generated by its retail banking operations. We can attempt an estimation though.

FBN Holdings 2014 Results Presentation
FBN Holdings 2014 Results Presentation
FBN Holdings 2014 Results Presentation
  • First Bank’s retail loans are 16% of its loan book, compared with the 11% of GTBank.
  • Retail deposits are 57% of its deposit base, compared with GTBank’s 50%
  • It has 9.7 million accounts with 7.4 million debit cards
  • If we assume FBN generates 25% of its profits from its retail banking operations(23.63 billion) and all the debit cards represent individual retail customers (7.4 million) we have…
  • An approximate profit/retail customer of 3,200 Naira for First Bank

The retail business does not indeed seem especially profitable according to this rather simplistic analysis of both GTBank and First Bank.

What could be responsible for this?

Your bank makes its money either from lending you money(interest margin) or from charging you for the privilege of banking with them (fees & commissions). Those Prada carrying account officers are not exactly cheap you know.

Fees & Commissions, non-interest revenue to a banker; are shown below for First Bank.

FBN Holdings 2014 Results Presentation
  • 11.5 billion was earned from electronic banking fees — your ATM cards and those transfers you make on the web site
  • With a total revenue of 480.6 billion, electronic banking fees are however less than 3% of the bank’s revenue.

FBN’s retail business with the bulk of its retail customers, all 7.4 million of them are probably not covering their costs according to the “average” Nigerian bank manager. He will point to the 194 billion in Staff, Admin & General expenses and tell you.

“This is what it costs us to support those 7.4 million customers”

“So you want us to spend more money on retail?…to improve service??”

Will Things Change & Service Improve?

“Will No Network…” disappear from our lexicon?

First Bank’s Revenue Generation goals for 2015

FBN Holdings 2014 Results Presentation

First Bank appears to have a laser focus on retail banking. This is because it realizes that it actually can improve its retail business. If we define retail to actually include extending credits (loans) to retail customers, i.e. you and I that happen to be “diary free…”, then this focus should result in a better service for its retail customers. It should also dispense with the services of bag toting relationship managers.


Imagine if First Bank were to extend credit to 15% of its customers. Some 1 Million accounts. In this hypothetical situation, it manages to make an average income per credit customer of 100,000 naira. It can achieve this through the spread between the interest it charges credit customers and the interest it pays out on its deposits. Assume this spread is 10% (Now as the banker’s amongst us sputter into their Orijin, the actual spread is often 15% or more).

Assume again that it loans 1 million naira on average to these 1 million customers. Of course there will be loans of 130,000 naira for the prospective motor cyclist to mortgages of 300 million naira for that house in Banana. The key is that it extends credit to 1 million people. It will then earn 100 billion naira a year! This analysis is of course extremely simplistic. We have not included likely loan losses and other costs of the same ilk. The point being, banks make profits when they lend. First Bank knows this.

The infrastructure improvements that are required to accommodate this will immediately improve service for its Retail customers. Bank’s do not like to admit in public, that the service challenges customers face; also impact negatively on their internal operations.

Imagine you have a queue at the ATM, in your bank branch in Bonny, because of “network!”. With withdrawals taking an average of 5 minutes per transaction. The banking officer in the branch also has problems using the bank’s internal systems which depend on the same “network”. So he can not use those internal systems to originate loans, check credits or anything out of the ordinary. In fact, sometimes paying cash over the counter is a challenge.

This also explains why the bulk of your bank’s commercial banking business comes from a few key branches. In banker speak, the other branches are “unprofitable…”. As they have no interest in extending motorcycle loans to the teeming masses in Otueke or Daura, the branches there will of course be declared unprofitable.

Structurally the industry is changing, initiatives like the Bank Verification Number (BVN) and cashless along with the COT mandates; are forcing banks to take a second hard look at retail. BVN addresses a particular bogeyman for bankers, identifying customers. The COT mandate and the margin pressure in traditional commercial banking ensure that retail revenues have to grow for institutions to generate revenue.

The solutions to the service and infrastructure problems in banking are well known. The same way, the solution to Nigeria’s electricity supply problems are well known. In my opinion, what had been lacking was the cultural & organizational will to address these issues.

Management’s attention was not focused in this area. This is however now changing. Banks are beginning to realize that they can make money by servicing the retail customer. The infrastructural, process and service improvements that are required to actualize this, will over time, retire “the network is down” from our lexicon and make our banker’s laugh all the way to the bank.

When was the last time, you visited your bank with a Mat?