Managing
Director/Chief Executive Officer of FirstBank, Dr. Adesola Adeduntan, has
advised financial institutions in the country to be vigilant and improve the
monitoring of their customers’ loans in order to prevent the build-up of
non-performing loans (NPLs) in the industry as a result of the macroeconomic
challenges.
Speaking
in an exclusive interview with THISDAY, Adeduntan also urged businesses and
their bankers to approach the new year in a collaborative relationship in order
to overcome anticipated headwinds in the economy.
Adeduntan
explained, “To prevent rising NPLs, businesses and their bankers will have to
collaborate more and ensure timely flow of information to prevent surprises.
“Banks
on their part will have to improve monitoring of their loan portfolio to
quickly identify early warning signals for attention before a full-scale loan
deterioration.
“Overall,
businesses and their bankers must approach 2023 with a partnership mindset to
ensure that a win-win outcome is achieved despite the anticipated macroeconomic
challenges.”
Managing
Director of the International Monetary Fund (IMF), Kristalina Georgieva,
recently warned that 2023 would be tougher than 2022 for much of the global
economy, as the United States, European Union and China see slowing growth.
Georgieva
had said 2023 would be a “tough year”, with one-third of the world’s economies
expected to be in recession.
The
IMF had in October cut its global growth forecast to 2.7 per cent, down from
2.9 per cent forecast in July, amid headwinds, including the war in Ukraine and
sharply rising interest rates.
Owing
to the anticipated weakening of the global economy, Adeduntan said with slowing
growth and elevated inflation rates, the sustainability of foreign debts,
especially for developing nations, was likely to call for a re-evaluation by
lenders given the increased likelihood of default.
He
stated, “When this is juxtaposed with the higher interest rate environment at
which these debts are likely to be refinanced, you will observe a scenario
where further strain is exerted on the debt repayment capacity of these
economies.
“However,
this situation does not necessarily translate to an automatic economic doom for
developing nations. The actual impact on each developing economy will depend on
the economy’s level of fiscal discipline and revenue generating capacity.
“Developing
nations, who are able, in the short term, to increase revenues either from
taxes or sale/refinancing of idle/sub-optimal assets will be able to negotiate
reasonable refinancing terms from lenders and prevent further economic turmoil.
“Nonetheless,
all concerned nations need to take the issue of debt sustainability more
seriously by limiting fiscal wastages, reducing inefficiencies, growing
revenues, and aggressively working down unsustainable debt-to-GDP levels that
may worsen the impacts of external shocks.”
Adeduntan
also pointed out that expectedly, rising cost of debt and contracting demand
would exacerbate the challenges that businesses would face this year,
particularly for players operating in small-margins sectors of the economy.
Locally,
the surging inflation rate was also expected to reduce disposable income of
most consumers and demand for non-essential goods and services may dip, he said.
He,
however, pointed out that despite the expected macroeconomic challenges in
2023, there were also emerging business and revenue opportunities that could be
exploited by discerning players in the financial services industry.
Specifically,
he identified the areas that would provide significant opportunity to players
in the financial services industry to include payments, digital security,
mergers and acquisition (M&A) opportunities, partnership across segments
and consumer lending.
Adeduntan
explained, “The Central Bank of Nigeria’s renewed drive on cashless policy has
provided an opportunity for players in the financial services industry to
enhance existing digital product offerings and create more attractive product
offerings that will further reduce frictions in the payment process.
“This
will help to reduce the financial exclusion gap, increase fees and commissions
revenues, and improve overall viability and stability of the financial system.”
In
the area of digital security, the chief executive said, “Increasing adoption of
digital payments platforms will necessitate increased requirement for the
security of payment channels. Thus, opportunities exist for players in the
financial services industry to leverage robotics and artificial intelligence to
improve security protocols on digital payment channels.”
He
added, “With the anticipated pressures on earnings, opportunities exist for big
and liquid players to gain additional scale and market share through outright
acquisition of fringe players with the right strategic fit.
“There is also an opportunity for two or more
small and/or medium size players to merge their operations/businesses to obtain
scale advantage.
“The growing number of Fintechs and licensed
Payment Service Banks also presents an opportunity for improved partnerships
across various categories of players in the financial services industry for
both mutual and industry-wide benefits.
“Tightening financial conditions of the average
household will create opportunities for consumer loans in several variants such
as buy-now-pay-later (BNPL), salary advance, consumer asset finance, etc. The
industry is already witnessing a rising trend in the creation of digital
consumer loan product offerings. This is likely to intensify in 2023.”
Culled from ThisDay
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