Recapitalisation: Banks Count on NIBSS For Digital Infrastructure, New Possibilities

The macro headwinds that triggered the current recapitalisation exercise in Nigeria’s banking industry have pushed the banks into fierce competition for service delivery and market share.

As industry analysts have observed, the unexpected magnitude of the capital requirements has left many in the industry surprised and scrambling to strategize on meeting the new demands.

Their focus will largely be to create a unique selling point (USP) around the digital space and a remarkable visibility in financial inclusion – geared towards attaining robust growth and wealth. To achieve this, they require adequately effective and efficient digital infrastructure that stands the demand of modern banking.

Digital revolution harvest

Even before the Central Bank of Nigeria (CBN), in March 2024, released the new guidelines on the minimum capital requirements for banks operating in Nigeria, the financial services institutions had engaged in a hectic competition for superiority in digital service delivery. This has brought them both wealth and fame in a sector that battles choking regulations.

For example, analysis of the FY 2023 financial statements of the Tier-1 banking group in their Holco structures revealed that the Big Five generated a total of N385.85 billion in e-banking revenue as against N277.14 billion in 2022, representing a 40 percent increase.

UBA earned the highest e-banking income among the Tier-1 financial services institutions. The bank generated N125.57 billion in 2023 representing 32.5 percent of the Tier-1 group’s total income for the year.

By this, Africa’s Global Bank grew its e-banking income by 59 percent when compared with N75.94 billion it earned in 2022 to emerge the first in 2023, followed by Access Bank which recorded N101.61 billion against N59.65 billion in the previous year, accounting for a 70.34 percent rise.

FirstBank grew its e-banking income by 20 percent to N66 billion in 2023 from N55 billion in the preceding year, ranking it the third among the Big-Five group.

It was followed by Zenith Bank with e-banking revenue of N51.81 billion compared to N45.73 billion in the preceding year, representing a growth of 13.3 percent.

The financial statements of Guaranty Trust Bank revealed that the 34-year-old bank recorded N40.82 billion as e-banking income in 2023, against N31.73 billion in 2022, constituting a 28.6 percent increase.

The Q1 2024 financial statements of the Tier-1 group (excluding FirstBank of Nigeria) amounted to N108.95 billion against N64.32 billion or 70 percent increase and followed the same performance trend by the major banks.

UBA’s N44.35 billion e-banking revenue in Q1 2024 representing 60 percent of the total e-banking income by the four Tier-1 banks was the highest during the period. It was followed by Access Bank which recorded N33.38 billion, while Zenith Bank and Guaranty Trust Bank earned e-banking income of N19.96 billion and N11.26 billion respectively.

The remarkable increase in e-banking revenue of the banks shows the high level of interest in alternative payment system by bank customers as the CBN pushes for expansion in financial inclusion across the country.

The gate-keeper

To achieve this, the pivotal role of the Nigeria Inter-Bank Settlement System (NIBSS) in building the desired digital infrastructure becomes evident.

The NIBSS has as part of its mandate: “To provide infrastructure for the automated processing and settlement of transactions between banks acting on their own account as regards deposit placements, Treasury Bills Transaction, Naira settlement on inter-bank foreign exchange transactions.”

Industry experts have noted that NIBBS is a silent trail-blazer in the modern financial services industry supporting the technological revolution that has transformed the banking landscape. “They have made us forget that up-country cheque clearing took 21 working days while domestic clearing required 14 working days,” said Tony Akalonu, a retired bank executive now into consulting service.

According to the Managing Director/CEO, Premier Oiwoh, NIBBS upgrades its systems continuously. A reason for this is that NIBSS was established to carry on business as a service oriented institution providing mechanisms for problem-solving innovations.

He maintained that with 65 million Bank Verification Numbers (BVN) holders enjoying the products offered by the financial services institutions, NIBSS plays a major role in facilitating the technology-based innovations that make for seamless financial transactions.

Assurance for banks

This view resonated at the 30th Annual General Meeting (AGM) of NIBSS at its headquarters in Lagos on August 15, 2024.

Addressing Shareholders at the meeting, Chairman, Board of Directors of NIBSS, Mr Philip Ikeazor, applauded the company’s resilience and performance amid challenging economic conditions, especially remaining focused on its role as an enabler in Nigerian digital infrastructure revolution.

Mr Ikeazor, who is also a Deputy Governor, Financial System Stability at the CBN, said “Our ability to navigate the complexities of 2023, while delivering on our mandate, is a testament to the strength of our leadership and the unwavering commitment of our team.”

Reflecting on the company’s accomplishments, he added that, “NIBSS has not only sustained its critical role in the Nigerian payment system but has also pioneered innovations that are setting new benchmarks for the industry.”

Counting the gains

Last year (2023) marked significant achievements for NIBSS, driven by its commitment to enhancing Nigeria’s financial and payment infrastructure. One of the most notable achievements in 2023 was the successful launch of the AfriGO Card; the national domestic card scheme, in collaboration with the Central Bank of Nigeria.

This initiative is aimed at deepening financial inclusion and reducing reliance on foreign payment cards, marking a significant step toward enhancing the self-sufficiency of Nigeria’s payment infrastructure.

The AfriGO Card is expected to play a crucial role in integrating the informal sector into the economy, offering lower transaction costs, reducing the dependency on foreign exchange, enhancing data sovereignty in our identity and payment system while also catering for domestic offline transactions to deepen financial inclusion.

The company also made significant progress on its digital transformation journey with the completion of a Hyper-Converged Infrastructure, enabling the migration of over 90% of critical applications to a modernised platform. This development ensures greater availability, scalability and redundancy for the national digital infrastructure, reinforcing NIBSS position as a leader in the digital payment space Additionally, NIBSS introduced the Central Fraud Management Solution, known as Hawk, to bolster the industry’s defences against fraudulent payment activities.

This omni-channel tool leverages adaptive behavioural analytics and machine learning algorithms to provide real-time fraud prevention and detection, further securing the integrity of the payment ecosystem. It is also available as a service to other financial institutions on a small or large scale.

NIBSS as anchor

The upward revision of banks’ capital base will ensure that Nigerian banks have the capacity to take on bigger risks and stay afloat amid both domestic and external shocks. However, it comes with the capacity to build and sustain innovations which the digital space demands.

Going by the available data, deposit money banks in the country would require almost N4 trillion combined funds to meet the new baseline capital requirements. Some have already embarked on capital raising through rights issues and initial public offering (IPO).

Under commercial banks with international authorisation of N500 billion, in meeting with the new capital base, Access Bank, Fidelity Bank, FCMB, First Bank, Guaranty Trust Bank, Union Bank, United Bank for Africa and Zenith will be raising capital of N248.19 billion, N370.30 billion, N374.71 billion, N248.66 billion, N361.81 billion, N351.91 billion, N384.19 billion, and N229.25 billion respectively.

Also, CitiBank Nigeria Limited, Polaris Bank, Stanbic IBTC Bank, Standard Chartered Bank Limited, Sterling Bank, Titan Trust Bank, Unity Bank, and Wema Bank will be adding a new capital of N185.56 billion, N149.57 billion, N90.74 billion, N154.58 billion, N142.85 billion, N170.80 billion, N183.67 billion, and N184.87 billion respectively

As the industry prepares for this transformative period, conversations are around superior service delivery and deepening financial inclusion.

The recapitalization initiative, therefore, will not only reshape the banking sector but also underscores the importance of a robust financial system driven by effective digital infrastructure. This indicates an imminent shift in the banking landscape which NIBSS is set to anchor.

First published on The Will