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Banks to intensify competition for retail deposits

By on January 10, 2016

Competition for retail deposits is expected to be intensified across the banking industry this year as competitive frontier shifts to efficiency and margin, a report has shown.

In addition, the report titled: “The Year Ahead-2016,” by Diamond Bank Plc, pointed out that banks that create quality risk assets would be most competitive. Furthermore, it forecasted another stress test for the banking industry in the first half of 2016, should oil price and economic/business outlook remain depressed.
Also, the 10-page report predicted that interest income from investment securities would be muted year-on-year, stating that emerging markets’ capital markets would remain bearish in 2016.

“Banks will compete aggressively in the retail front in 2016 in a bid to optimise net interest margin with cheaper retail deposits. Product development and marketing campaigns strategies will be more of “customer orientation”, rather than “product orientation”. Emphasis will be placed largely on value-chain marketing and customer experience, particularly for the middle class market segment.
“The integration of Bank Verification Number with other databases, coupled with the expected asset registry infrastructure should stimulate appetite for retail lending across the banking industry,” it added.

Continuing, it stated that the operating environment in 2016 would be defined by weak global growth, which it estimated to be at about 3.6 per cent; depressed crude oil price outlook, predicted to remain around $30pb); flat economic growth outlook (estimated at 4%), further naira depreciation ( predicted to be around 15%), improved systemic liquidity, expansionary fiscal policy and a more stable monetary policy.

“Nevertheless, we see compelling opportunities in retail, SME, agriculture, solid minerals, hospitality and entertainment sectors. We expect the apex bank to review a number of its forex policy in the first monetary policy committee meeting of the year. Emphasis will be placed on the trade impact of forex shortages and its inherent sovereign risks. Further, the ripple effect of increasing non-performing loans (NPLs) and capital inadequacy issues amidst exchange rate exposures might push the CBN to undertake another stress test in the first half of 2016,” it added.

Furthermore, the bank stated that the performance of the equities market in 2016 would be determined by a number of factors amongst which it listed to include: health of the domestic economy, interest rate direction in the US and the UK, the bottoming of crude oil price, direction of the exchange rate, and impact of economic policies on businesses. These factors, according to the report are expected to impact on the operating environment of quoted companies in 2016. Banking stocks, Consumer goods and Industrial goods stocks remain our top picks for the year.

“At the FGN bond market, we expect marginal uptick in yields to an average of 13per cent. The government will likely borrow an estimated N1trillion from the domestic bond market and can only do so successfully at a relatively attractive yield. We expect the sovereign yield curve to remain inverted with market activities biased towards the short end as interest rate uncertainties impact on investor behaviour. In addition, further increase in US interest rate remains a major headwind.

“The year 2016 will no doubt be another challenging year for businesses, given the expectation of lower crude oil price, naira devaluation, inflationary pressures and low foreign portfolio investments. Nevertheless, there are growth boosters coming from expansionary fiscal and monetary policy,” it added.

 

 

[ThisDay]