The recent decisions of the Central Bank of Nigeria (CBN) to further tighten money supply have heightened competition for the retail segment of the banking populace and cheap funds in the banking industry.
Meanwhile, Skye Bank is leveraging on its expanded branch expansion courtesy of its acquisition for Mainstreet Bank to sharpen its retail strategy and prove its emergence as one of the top four banks in the country.
Two weeks ago, in addition to devaluing the naira by 8.4 percent to N168 per dollar, the Monetary Policy Committee (MPC of the CBN reduced the money available for banks to do business with, as it increased the portion of deposit they must keep as cash (Cash Reserve Requirement) to 20 percent from 15 percent. In addition to this, the apex bank increased its benchmark lending rate (Monetary Policy Rate) to 13 percent from 12 percent. Though these moves were aimed at reducing the volume of cash in the banking system as a result curb amount of funds that could be used to speculate in the foreign exchange market, however, they imply increase in cost of funds in the banking industry. In addition to leading to withdrawal of N500 billion from banks’ vault, the increase in CRR also means banks can only lend and make money with 80 percent of customers’ deposit. To reduce the impact of this reduction on the interest income, and profitability, banks have to mobiles cheap deposit namely savings account and current account. The key to achieving this lies in expansive branch expansion and quality customer service that would help banks to position themselves to attract more customers to open current and savings account.
Already, customers are redefining the agenda – for the first time in as many years, excellent customer service, according to the published Banking Industry Customer Satisfaction Survey (BICSS) result conducted by KPMG in 2013, has replaced financial stability as the primary reason for maintaining banking relationships in the retail and corporate segments.
According to excerpts of the survey result, “In the face of evolving customer behavior and expectations, it has become imperative for banks to listen and understand the voice of the customer as input in shaping their strategies”. Findings from more than 14,000 retails, over 3,000 SME and 400 corporate/commercial banking customers polled in the survey across 18 locations in Nigeria indicate how excellent service and proximity of alternate channels will be a game changer.
Insight from the broader survey further reveals that efforts at promoting alternate channels are yielding positive results. It was established that there had been a two-fold increase in adoption of almost all the alternate channels and a further increase in ATM usage. After a slow start, mobile payments appear to be gaining some momentum and should ultimately transform the payments landscape in the country. However, amidst the proliferation of channel options, according to the survey, “customers want banks to remember that convenience should remain a key focus – cash availability at ATMs was the most important issue for retail customers in 14 of the 18 locations covered.”
Proximity of branches and ATM with cash availability tops the chart of retail customers’ preference and this is where smart players are focusing on. A look at the branch network and ATM distribution of the banks operating in the country shows an interesting trend. Size plays a significant role in the fortune and prosperity of any business organization globally. However, this is not stereotyping that size is everything a company needs to survive at all times. For one, it helps organisations to provide services to a wider clientele base compared to medium or small scale organisations who have limited reach.
In the Nigerian banking industry, banks that place high premium on serving the public and delighting them also locate branches close to the people to ensure that access to financial services and products is not denied the people. The need to be close to the people has been one of the reasons why banks have been adopting inorganic growth methods over the years. The leading bank in terms of branch network include First Bank leading the pack with 627 branches; followed by Ecobank (610); UBA (549) and Access Bank (366) in that order. Others are Zenith Bank (340); Union Bank (338); and FCMB which has 275.
Given the economies of scale which an enlarged Skye Bank would enjoy, financial analysts have described the acquisition as a good one in view of the synergies and advantages that it will bring. One main area that analysts say the acquisition will have immediate impact is the branch network of the bank.
In terms of ATM distribution, the top 6 banks are First Bank with 2,240; followed by Access Bank with 1,206; GTB (1,034); Diamond (689); Zenith (6770 and Skye Bank (609) in that order.
Interestingly with the current wave of acquisition in the industry, the dynamics and positioning of banks are set to change in terms of branch network and ATM distribution. Following the acquisition deal, Skye Bank’s branch network jumped to 469, making it the fourth largest bank in terms of branch network in the country. In the opinion of analysts the implication of this sharp growth means the Skye Bank will be better placed to mobilize cheap retail liabilities, reduce cost of funds, and generally serve a larger clientele base.
Similarly, the accessibility of Skye Bank’s services by customers will be enhanced by the combined number of the Automated Teller Machines (ATMs) of Skye Bank and Mainstreet Bank. For instance, ATM distribution of Skye Bank before the acquisition was 609, ranking 6th in the industry. The consolidation of the ATMs of Skye Bank and Mainstreet Bank will move the Bank to 4th position with a total of 814 active ATMs.
Although it is expected that Skye Bank will rationalise some of the branch and ATM locations for the two banks where there are overlaps or concentration, this is not expected to significantly reduce the number of branches of the combined entity, given the fact that there is a very healthy geographical distribution between the two institutions. For instance, Mainstreet Bank has 54 branches in the South – South and South – East regions alone, compared to Skye Bank’s 29. It also has 52 branches in the core North as against Skye Bank’s 23 branches in the same area. These branches will complement Skye Bank and buoy its strength in these areas very significantly.
With the recent devaluation of the Naira, the increase in the MPR and the attendant impact on cost of funds and the economy generally, it is clear that banks will have to pay more attention to the retail segment of the market for survival. The acquisition of Mainstreet by Skye Bank could not have come at a more opportune time, as it places it in a vantage position to compete better for retail business, given Mainstreet’s pedigree and strength in that segment.
The prevailing market sentiment is that Skye Bank is poised to play in the big league and deliver superior value to the customers just as it will deliver mega returns to shareholders and other stakeholders.
