Many of these investors have shown interest in Open Market Operations (OMO) and treasury bills auctions.

Sources in the Nigerian Exchange Limited (NGX) said there was an uptick of foreign portfolio investors in the market which domestic investors dominated for the past seven years. Foreign Portfolio Investments on the NGX in February 2024 rose by 23% from ₦53.11billion ($39.13 million) to ₦65.81 billion ($42.61 million) compared to January 2024.

This uptick reflects investor confidence in the market, according to analysts. 

“High-interest rates attract foreign investor participation, which could stabilise the currency woes,” Ayodeji Ebo, Chief Business Officer, Optimus by Afrinvest told TechCabal over the telephone. 

The Central Bank has consecutively raised interest rates sharply to a 10-year high of 24.75%, in an aggressive move to contain stubborn inflation. At the last rate hike meeting, Cardoso hinted that the MPC would keep raising the rates in hopes that inflation moderates below 30%. The continuous rate hike has attracted more investors while hurting lending to smaller businesses.

Analysts told TechCabal that they want the trend to continue. Last week, the CBN directed all banks on a recapitalisation drive, to increase their minimum capital requirements within 24 months, to ensure stability of the financial system. Ebo believes that the entrant of foreign investors will provide the needed capital for the banks’ recapitalisation. He explained that even if the entry of foreign investors is for a short while, their inflow is important for stabilising the economy.

Foreign investors provide the liquidity needed in the market, said Ayooluwade Ogunwale, a portfolio manager. Therefore, making carry trade opportunities in Nigeria attractive again. 

Five days out of seven a week, most of the over 25 ATM locations are empty because the machines are out of service, out of network, or out of cash. It is the same experience many bank customers face with about 22,600 ATM locations, as Inlaks data show, spread across the country.

Nigeria requires about 60,000 ATMs to meet up with its growing population of 216 million people and a banking population of 106 million adults, according to Tope Dare, executive director of Inlaks, the largest ATM operator in the country, which controls over 50% of the market. 

In 2010, Nigeria had roughly about 7,100 ATMs and the number grew to over 11,000 in 2011 because the CBN mandated the removal of the offsite deployment by banks. This meant that banks would no longer invest in ATMs outside their branches. The CBN seeded the deployment to independent ATM deployers which couldn’t run the project due to the cost. The ban was eventually lifted, allowing banks to invest more in ATMs. The number of ATMs then grew from 11,000 in 2011 to 16,000 around 2016 and 21,000 in 2019. It grew to 22,600 in 2021, where it has remained as of December 2023, an indication that investment in the market has reduced. 

Seventy-six per cent of the total ATMs in Nigeria are deployed by eight banks. Access Bank has over 4,000 ATMs, First Bank has about 3,300, UBA has 2,150 ATMs, Zenith has 2,100 ATMs, GTBank has 1800 ATMs, FCMB has 1,350, Polaris has 1300, and Union has 1,200. A total of 17,200 are owned by these eight banks.

Consequently, there needs to be more ATMs in Nigeria to serve the needs of the banking population, and this has always been the case with Nigerian banking services. 

The estimated branch count of the 24 commercial banks is about 4,500, which is not enough for an estimated 106 million banking population reported by EFInA. The BVN accounts are currently at 60.1 million and active bank account holders are about 135 million. The annual growth rate of ATMs in Nigeria is about 3%-4%, but this has dropped to below %1 in the past two years, as the Inlaks data show. 

Nigeria’s ATM per capita (number of ATMs per 100,000 adults) has also dropped from 16.92 ATMs in 2018 to about 16.15 in 2021. The global standard should be 1,000 ATMs per 100,000 bankable adults. Hence, Nigeria should have about 60,000 ATMs when it is measured against the unique bank customers at 60.1 million. Given the 22,600 active ATMs, there is a deficit of about 37,400 ATMs. As the number of bankable adults keeps increasing and more cards are issued, it is expected that ATMs will decrease in number over time, since the banks are not deploying more ATMs. 

Growth factors for ATMs

In the past, some of the factors that have contributed to the growth of ATM deployment in the country include banks’ profitability. When banks are profitable, they undertake branch expansion and capital expenditure. Banks also deploy more ATMs when their customer base is growing because this means that more cards will be issued, and there will be a need to provide cash and additional ATMs for the customers. Banks that undertake digitalisation initiatives often need to deploy more ATMs. Financial inclusion initiatives also impact the growth of ATMs positively. Banks will also deploy ATMs in areas with improved power generation, this is because the cost of electricity is a major burden for ATM deployment. 

Why investors are looking away from ATMs

Dare says the ATM business in Nigeria is facing its most difficult times due to the high cost of maintenance, growing adoption of other banking channels, foreign exchange crisis, galloping inflation, insecurity, and uncertainty in the ATM policy environment, all of which are driving investors far away from the market.  

In 2016, the exchange rate for the dollar was ₦250. It rose to ₦325 in 2017 and stabilised between ₦330 and ₦360 by 2019. Dare says buying at a rate of ₦380 in 2020 and ₦455 before the Muhammadu Buhari administration left office, impacted the unit cost of ATMs significantly. However, it went from bad to worse when the new government under Bola Ahmed Tinubu dramatically announced the unification of the FX rate, which pushed the official rate to ₦750. The black market price for the dollar is currently above ₦1,500. 

“A machine that we were selling at ‘x’ million naira this time last year, by today we are selling at 3.5x today. This is affecting the hire purchasing cost due to FX. The FX is also dependent on the customs duty and the OPEX. The cost of maintaining ATMs has gone up due to inflation, the cost of transportation, and the cost of spare parts because you have to import spare parts from abroad,” Dare said. 

ATMs are also seeing fewer investments because most investors are paying more attention to other growing electronic channels such as PoS terminals, mobile app transfers, USSD, and other alternative channels consumers use to make payments faster and more convenient. 

“The rapid adoption of digital payment methods is influencing consumer behaviour, leading to a shift away from traditional ATMs in favour of more convenient digital alternatives,” said Olaoluwa Awoojodu, CEO of E-Settlement Limited.

The non-profitability of ATMs is also a big factor for investors. The interchange fee also known as the surcharge fee, is one of the lowest in the world. Today, when a customer visits an ATM he/she is charged N35 after the third transaction. The fee is fixed by the CBN; hence banks cannot change it without approval from the regulator. For investors, fixing the fee does not make sense given that the unit cost for processing ATM notes in Nigeria is one of the highest in the world. Today, it takes a minimum of 150 notes to process the equivalent of $100, said a bank CEO who wanted to remain anonymous. 

According to Dare, to revive the ATM business, the government should consider offering a tax concession. Presently the customs duty on ATMs is over 25%, whereas the duty on solar products is 5%. ATM policymakers also need to de-emphasise cash availability in ATMs and champion the upgrade of the machines to provide cardless payment innovations such as Near Field Communication (NFC). NFC is a short-range wireless communication technology that allows devices to exchange data without a physical connection. Users can initiate a transaction by tapping their NFC-enabled smartphones in front of the contactless reader on the ATM. This connection facilitates secure data transfer between the user’s mobile banking app and the ATM, eliminating the need for a physical card. 

“You can also have a convergence of your mobile to the ATM where you can initiate a transaction in your phone, and you can go to the ATM to consummate it. ATMs should go beyond the regular functions of cash dispensing to more advanced and innovative solutions and contactless payment at minimal costs. ATMs will not die in any country as long as cash is king,” said Dare. 

Two fintech founders said they were aware of the conversations but said there’s still some way to go in finding common ground for the banks and fintechs.

The industry-wide collaboration will create a solution that holds all financial institutions accountable for fraud, TechCabal learned. Two areas that may receive special focus include Bureau de Change operators and banking agents whom fraudsters usually turn to after successfully withdrawing the stolen funds, said one person close to those discussions. 

Deposit banks lost ₦9.75 billion to fraud in Q2 2023, a staggering 276% increase compared to the same period in 2022, according to data from the Financial Institutions Training Centre (FITC). The total losses from incidents of fraud amounted to ₦5.79 billion in Q2 2023. 

The CBN goes hard on fraud

As fraud rises, the Central Bank of Nigeria is scrambling for solutions. In 2015, the regulator mandated all deposit money banks, mobile money operators, switches and all payment service providers to establish a fraud desk. The CBN argued that the fraud desk was an effective mechanism for receiving and responding promptly to fraud alerts. The apex bank has also slammed fines on banks and fintech companies found to have relaxed KYC rules. 

Since October 2023, licenced entities have paid hundreds of millions in fines,” said a fintech founder with first-hand knowledge of the companies which were fined. 

Some financial industry stakeholders have commended the apex bank for mandating that all Tier-1 bank accounts and wallets for individuals be linked to either the Bank Verification Number (BVN) or National Identity Number (NIN) or both by 1 March 2024. Others have argued that these measures are not enough.

Collaboration hasn’t always worked

Two banking executives said the CBN’s efforts have not translated into policies that bring circuit breakers into the system and lead to shared responsibility.

They also pointed out that banks and fintech companies have attempted to solve the problem collaboratively in the past. A low-trust environment and a preference for building in silos have led to little or no results. There have also been efforts made by CBN, CeBIH, NFIU, and NSA to unite the operators, but the solutions have not been implemented.

Financial institutions may continue to solve the problem individually

TechCabal reported last year that Fidelity blocked Opay and other neobanks to mitigate exposure from fraud. Complaints from customers over the opening of accounts in their names without their consent also caused a stir.

For the banks, one of the concerns is that when fraud is committed and it involves a fintech, it is impossible to get a refund. On the other hand, banks tend to make refunds to avoid public embarrassment and a loss of reputation.

Ironically, even Nigeria’s big banks have also been accused of lax KYC and compliance measures. Last year, MTN Nigeria sued 18 banks after their customers received money from a breach of MoMo, the telco’s mobile money service.

“Whenever fraudulent money enters your bank, money that is not consistent with a particular customer’s behaviour, the receiving bank will be the one to pause the check and not allow them to withdraw the money,” said one banking industry leader.

A solution stakeholders recommend is to have a layered system where older customers with proven identities and a history of transactions get instant value while customers who have just opened their accounts or been around for less than a year get delayed value.

The new customers would be allowed to see their money but cannot withdraw it until after a couple of hours or even a day. The delay gives the customer who has been defrauded enough time to make a complaint and for action to be taken by the third party or recipient bank. 

Their anger is understandable because, for four months, Nigerians suffered a cash crunch after the country’s Central Bank began a puzzling currency redesign. From January to April 2023, the ill-advised and abrupt decision to phase out Nigeria’s old ₦200, ₦500 and ₦1000 notes depressed commerce and saw productivity drop to pandemic levels.

Months after Nigerians thought they were finally past the cash crunch, they have returned to a familiar uncomfortable situation. At least three tier 1 Nigerian banks have limited daily cash withdrawals to between ₦10,000 and ₦20,000 per customer, driving an even madder rush for cash. On the other hand, ATMs are either not dispensing cash or are limited to a single ₦10,000 withdrawal per customer. 

What’s causing the latest cash crunch?

“It is the CBN that is responsible for this cash scarcity. We are not getting enough from them,” Punch Newspaper quotes an anonymous banker as saying. “They are just causing unnecessary suffering for the masses.”

The Central Bank, on the other hand, has blamed the current cash scarcity on commercial banks and individual customers. “There is cash out there,” said Hakama Sidi Ali, CBN’s Acting Director in Corporate Communications. “The CBN is giving to banks, except that most of this cash is in the hands of individuals. All these panic withdrawals, hoarding is ongoing.”

Another CBN official blamed the current scarcity on panic withdrawals.

One source with extensive knowledge of the CBN’s operations told TechCabal that there was either an element of hoarding involved or people were cautiously holding on to money over fears that the old notes may still be phased out by January 2024. 

“It’s a chain, the money goes out and comes back into CBN, and that’s the process. The cycle is being disrupted, and somewhere the chain is broken. People are either not depositing money, or there’s some hoarding happening,” the person said. 

While some fintech startups saw a boost in transactions and customer acquisition during January’s cash crunch, Nigeria remains a cash-heavy economy, and the scarcity of Naira notes puts a strain on people and businesses.

“The POS people don’t have money, that’s why I am queuing here,” said an exhausted Kemi Adelayo. She points out that people spend otherwise productive hours in these queues daily. As the holidays draw closer and bank holidays are imminent, these queues will likely worsen. 

POS operators refuse to be cast as villains

Unlike the cash crunch earlier in the year, many Nigerians are now sidestepping POS/mobile money agents because of their high commissions. 

“To withdraw ₦10,000 at a POS agent, you’ll pay a commission of ₦400. Some POS operators even charge ₦800,” said John Sunday, a customer who had been waiting at the ATM for over an hour. “If you have time to spare, come and battle it out at the ATM rather than giving POS operators.” At least two other bank customers shared the same sentiment as John. 

Three POS operators told TechCabal that the availability of cash determined their pricing. The average withdrawal charge for ₦5,000 has increased to ₦200 from ₦100.

“It is so difficult to get cash, and I cannot let people finish the little I have. That is why I increased the price,” Abdulganiyu Saheed said. Deborah, another POS operator, said she did not increase her charges because she still receives cash from the banks and does not have to buy cash from market women as it occurred in the first quarter of the year.

In early 2022, UK-headquartered Standard Chartered Bank announced it was exiting five African countries and partially exiting two others – breaking its ‘here for good’ brand promise after more than a century on the continent.

A year earlier, another British-based bank but a fairly new entrant, Atlas Mara withdrew from seven markets, walking away from its bold statement, “Africa: too big to ignore”, after only seven years.

Barclays sold its majority stake in Barclays Africa Group in 2017 and in August 2022 sold its remaining stake in the rebranded ABSA, exiting a region it had first entered 90 years before. Credit Suisse and  France’s BNP Paribas also pulled out in 2022.

The reasons for exit, they said, was generally a need to refocus on core markets to achieve growth and scale due to the challenging African retail banking environment.

Many of the more than 1,000 financial industry players gathered in Lome, Togo in mid-November to debate how the industry can unlock a US$1.5 trillion potential market by expanding banking, insurance and capital markets penetration, had a very different view. Many of the sessions were made public via the internet.

“There are still numerous opportunities out there including those presented by the exit of international financiers and we are poised to take advantage of that,” said United Bank for Africa (UBA), Chief Executive Officer, Marufatu Abiola.

“Africa can only be developed by Africans. We need to increase our size, increase our capacities, We need to believe more and invest more in Africa,”

Lagos-headquartered UBA, with a presence in 20 countries, said it is keen on expanding to all African countries either through organic growth or acquisitions.

“Both can be considered. The exit of international players presents a unique opportunity. If there is an opportunity to acquire, to merge or grow organically, I don’t think any of those is off the table,” said Abiola.

International Finance Corporation (IFC) Vice President Africa, Sergio Pimenta shared similar sentiments, painting a bigger picture of the rising demand for growth capital on the continent.

“The opportunities are very significant and the demand is very strong. We are also seeing shifts in these demands and one of them is regionalisation of the market, as companies, banks and other financial institutions in Africa look at the regional markets. And that’s a very in-depth movement and trend that creates a lot of demand,” Pimenta said.

He also singled out rapid urbanisation, climate change and digitalisation as drivers of key opportunities that financial firms should tap into for growth.

In 2022, the IFC had a record year, with US$43 billion of capital deployed across the world. US$11.5 billion of that was deployed to Africa, the largest amount it has ever deployed on the continent.

Yet despite the positive prospects clearly identified by a wide range of bankers, Africa continues to be profiled as a risky playground.

African Guarantee Fund Group Chief Executive Officer, Jules Ngankam said one of the major challenges facing Africa is a huge gap between the real and perceived risk at the sovereign level and an even worse gap at the small and medium enterprise (SME) level.

“Of all the financial crises we have had around the world, none of these came from Africa, but people still believe that it’s the riskiest continent,” posed Ngankam.

In a risk analysis of Africa’s insurance industry, Namibia National Reinsurance Corporation, Managing Director, Patty Karuaihe-Martin said while the average loss ratio in Africa was 70%, Europe’s ranged over 90% and would also cross the 100% mark.

“Only about 3% of the world’s largest losses occur in Africa. All this data shows Africa’s portfolio is not risky. I must admit we have some challenges, we will not say it’s easy to do business in Africa due to data inadequacy and low insurance penetration,” she said. 

The three giant international rating agencies consistently downgraded the credit risk profiles of major African economies in the first six months of 2023.

Moody’s, Standard and Fitch have together actioned 13 negative ratings, out of which seven were downgrades and the remaining were negative changes in the outlook of 11 African countries.

Among the countries that have suffered credit rating downgrades are Nigeria, Kenya, Egypt, Tunisia and Ghana, hurting their prospects of tapping into the global markets for cheap credit.

“We need to offer investors an instrument that enables them to absorb that perceived risk,” said Ngankam.

In its latest Africa Sovereign Credit Rating Review 2023, the African Union mulls examining the feasibility of establishing an African Credit Rating Agency (ACRA) as an independent entity of the Union to provide alternative credit ratings to the ‘big three’. 

“It is envisaged that the ACRA would provide balanced and comprehensive opinions on African credit instruments to support affordable access to capital and the development of domestic financial markets,” said AU in the review. 

To strengthen Africa’s financial industry, Abiola suggested harmonising and strengthening regulatory and governance structures and interconnecting regional central banks to remove artificial barriers.

According to documents seen by TechCabal, NIBSS has reduced the processing fee for transactions on NIBSS Instant Payment (NIP). The new ₦3.75 pricing for instant transfers—down from ₦5—will take effect on July 1, 2023. An anonymous source at NIBSS told TechCabal that the reduction resulted from commercial banks asking for a reduction in the cost of transactions. The source added that the reduction would not affect the transaction fees banks charge their customers. 

It’s a position that financial services experts agree with. Adedeji Olowe, the founder of Lendsqr, told TechCabal, “[The] truth is, the impact would be nothing except the Central Bank compels banks to reduce pricing.” Olowe’s comments ring true, as only the CBN can instruct banks to reduce their transaction fees. Currently, banks charge a ₦10 fee for transactions under ₦5,000, ₦26 for transactions between ₦5,000 and ₦50,000, and ₦50 for transactions above ₦50,000. 

Would the NIBSS reduction affect transfer fees for customers?

Abubakar Idris, a business journalist, told TechCabal that for banks and fintechs, “every kobo counts”. “A reduction in NIBSS fees won’t necessarily trigger any decrease in customers’ payment fees,” he said. Idris added that for fintechs, the cost of serving customers is not decreasing. “Server fees are in dollars, compensation for talent has become competitive, and rising inflation and devaluation mean businesses are already struggling to stay afloat”, he said. 

Additionally, transaction fees are a critical revenue source for Nigerian banks. In 2022, Access Bank, Zenith Bank, Ecobank, and UBA made ₦145.7 billion, ₦132.8 billion, ₦200.9 billion, ₦128.2 billion, respectively, from fees and commissions. These figures made fees and commissions the largest or second-largest contributors to the banks’ non-interest income. It explains why the banks hope that the CBN doesn’t ask them to reduce their fees.

In December 2019, the CBN, in a move to offer stability and improve financial inclusion, compelled banks to reduce their fees. Some banks hesitated due to concerns over their profit margins. Their hesitance was met with fines.

But Charles Odogwu, the growth head for NowNow, believes that it’s not a binary conversation. He says that if banks lower transaction fees, it can “stimulate increased transaction volume”. He added that this could translate into more revenue opportunities for banks, “especially if they have a significant market share in electronic payment services”. On the flip side, he said that reducing transaction fees may impact banks’ profit margins. “If the price reduction is significant, banks may experience a decline in transaction fee revenue, which could affect their overall profitability”, Odogwu said.

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Telecom operators have insisted on withdrawing their services should deposit money banks (DMBs) fail to pay over ₦120 billion ($260 million) in Unstructured Supplementary Service Data (USSD) debts. The Chairman of the Association of Licensed Telecommunications Operators of Nigeria (ALTON) Gbenga Adebayo, said their terms were simple—payment of debt or risk disconnection. 

Adebayo who spoke to TechCabal on the phone revealed that the industry regulator—the Nigerian Communications Commission (NCC)—had given ALTON the nod to unplug the support on the USSD platform to banks.

On Thursday, May 18, CEO of Guaranty Trust Holding Company Plc Segun Agbaje described the USSD as a clumsy technology during a media parley organised to discuss the lender’s recently released full-year 2022 and Q1 2023 earnings report. He further stated that the ongoing fight between banks and telcos over USSD is nothing but a distraction by telecom firms from the real issue of high data cost, adding that Nigeria had one of the highest data costs in the world.

Responding to the comment, Adebayo said all they need from the banks is to simply pay the debt owed. “Even in the narration going to the press, they are changing the story every day. Last week, they agreed they owed money and would find a way to pay. Following that, they said end-user billing will be applied to it. I don’t know how that would work knowing that the service is rendered per session billing. They have consumed the service, they charged the subscribers. How does end-user billing pay for the service they already owe?”

“Today, they are saying USSD is expensive because of the high cost of data. they are changing the story every day, we are saying one thing: you owe us, pay us,” Adebayo explained.

A protracted battle

This is the third time an issue of this magnitude is reoccurring. In 2019, ALTON threatened to shut down the service over who would bear the cost of transaction fees. The same feat repeated itself in June 2021, two months after the Central Bank of Nigeria (CBN) transferred the cost to users at ₦6.98 ($0.015) fee per transaction. 2023 is the third time the issue has come up. In 2019, the debt was ₦32 billion ($69,200.513) but by 2023, the debt had now grown to ₦120 billion ($259,501,926).

A business analyst Chika Mbonu, believes that disconnection will affect everyone, especially the financial inclusion plan. “There are a lot of people at the bottom of the pyramid that use the USSD. Everyone who uses it and the whole system will suffer difficulties,” Mbonu explained. He stated that everyone—telcos and banks inclusive—involved in the matter may have to shift positions.

A public expert, Bala Zakka shares Mbonu’s thoughts and believes that the constant bickering between telcos and banks could negatively impact the sector. “I will call for restraint because if the telcos cut off the service, losses would be huge. It may end up causing social, and industrial calamities across the board. So many stakeholders would feel the brunt,” he said.

Between January and December 2020, the value of USSD transfers increased, going from roughly ₦30 billion ($64,875,481) to ₦551 billion ($1,191,546,347).  In November last year, data released by the Nigeria Inter-Bank Settlement Systems (NIBSS) revealed that transactions worth ₦38.9 trillion ($84,121,874) were performed electronically through the NIBSS Instant Payment platform (NIP). These figures highlight USSD’s potential because several local banks  expose their NIP through their various channels like internet banking, bank branch, Kiosks, mobile apps, USSD, and so on

Banks are still using USSD

At least 13 commercial banks still make use of the USSD service, TechCabal can confirm as of the date of publication. The 13 include Access (Diamond) Bank, EcoBank, Fidelity Bank, First Bank, Guaranty Trust Bank (GTB), Heritage Bank, Keystone Bank, Polaris Bank, Stanbic IBTC Bank, Sterling Bank, Union Bank, Wema Bank, and Zenith Bank.

Meanwhile, the CBN’s acting director of corporate communication, Dr Abdulmumin Isa, had previously disclosed that the apex bank was intervening in the crisis. “The CBN is very much aware of the protracted dispute between the banks and telcos and has been engaging all stakeholders to ensure an amicable resolution,” he stated.

Financial inclusion finally in the mud?

The importance of USSD as a service cannot be taken for granted. Nine out of 10 mobile transactions in sub-Saharan Africa flow through the service. This is important considering that non-connected feature phones still dominate the landscape in the region. This means, only about half the continent’s population makes use of mobile phones, and a much lesser number are connected to the internet.

Similarly, a survey from Agusto & Co Consumer Digital Banking Satisfaction Index for 2021 showed that USSD banking was the most popular banking platform among Nigerians. The report revealed that USSD banking makes up about 35% of the frequently used digital banking platforms.

Given all available data, Zakka’s opinion may prove to be the way forward for both parties to come to a peaceful resolution. The implications of cutting off the service could add more to an already complicated problem. Since, it has been clearly established that not many Nigerians have smartphones to do mobile banking, what are the odds that disconnecting your average tailor, cobbler, or trader would help the situation?

GTCO’s announcement follows a trend of increasing fraud incidents by deposit money banks in Nigeria. Between 2020 and 2021, fraudulent activity recorded by deposit banks in Nigeria rose to 211,713—a 44.8% jump, according to data from the Nigerian Deposit Insurance Scheme (NDIC). Per data from Smile Identity, a KYC provider, fraud attempts increased by 50% between the second half of 2020 and the first half of 2022. The first half of 2022 alone recorded a 30% increase compared to the same period in 2021.

Earlier this year, the Nigerian Data Protection Bureau (NDPB) announced that it was investigating Guaranty Trust Bank and Zenith Bank over alleged data breaches. According to the NDPB’s head of legal enforcement and regulations, Babatunde Bamigboye, the investigations were triggered by allegations of unlawful disclosure of banking records to a third party and unlawful access and processing of personal data. Zenith Bank did not disclose any information about its experience with fraud in 2022. But in 2022, the bank was the butt of jokes and customer complaints online alledging fraudulent transfers or payments from customer accounts. Besides Zenith Bank, several of Nigeria’s largest lenders have not published their annual reports for 2022, almost a month after the deadline set by the capital market regulator, Nigeria’s Securities and Exchange Commission (SEC).

Speaking to the prevalence of fraud incidents in Nigerian banks, Bamigboye said: “There are reports by the Nigeria Inter-Bank Settlement System (NIBSS) which indicated that within nine months of 2020, fraudsters attempted 46,126 attacks and they were successful with 41,979 occasions representing 91 per cent of the time.”  Results from the investigation into Guaranty Trust Bank are not yet public, but some cybersecurity experts TechCabal spoke with explained that data breaches are often precursors to fraud incidents. 

Drop in profits and shareholders’ earnings 

GTCO’s profit continued its downward trajectory in 2022, with its profit-before-tax slumping 3.32% from  ₦221.49 bn to  ₦214.15bn. This represents a second fall in profits for the lender after a rise in 2021. It’s also a more than a 10% decline from the  ₦238.09bn reported in 2020. Additionally, the earnings per share stumbled from ₦6.14 to  ₦5.95 per share. However, the company’s gross earnings increased for the first time in recent years, shooting from  ₦447.81bn to  ₦539.23bn. 

GTCO’s total assets showed a significant 18.6% increase from  ₦5.4 trillion to  ₦6.4 trillion, on the back of increasing deposits from customers. The holding company reported an increase in customer deposits—from  ₦4.01 trillion to ₦4.48 trillion. The capital adequacy ratio (CAR) rose slightly from 23.83% to 24.08%.  

The banking group says declining profits were driven by a ₦35.6bn impairment it took on reorganised Ghanaian sovereign securities. Additionally, non-performing loans to individuals and non-individuals increased between 2021 and 2022. 

Rising deposits also fueled commercial loans, but in line with the trend in Nigeria’s banking sector, the bank’s loan book was dominated by loans to large corporations.

The full-year statement brings focus to the question of how beneficial GTBank’s restructuring to a holding company has been for shareholders. With the earnings per share taking a beating, shareholders might have to play the long game and hope GTCO’s suite of subsidiaries finds roots in respective markets.

The regulation also provides responsibilities and expectations for the various participants (the banks, third-party financial institutions, and customers) and ensures consistency and security across the open banking system. An outline of minimum requirements for participants is also provided, which stipulates safeguards for financial system stability under an open banking regime. 

What open banking means

Open banking is the practice that allows banks to share customer data with third-party service providers—fintechs and mobile money operators—that will leverage the data to create solutions that boost financial inclusion and innovation in Nigeria. The data is shared via APIs and can only be shared with a customer’s consent.

Several fintechs like Mono, Stitch and Okra have all had to come up with innovative hacks to provide similar solutions to open banking. But with the new regulation, they can now provide a more robust set of data. 

What it means for Nigeria 

On a call with TechCabal, Adedeji Olowe, the CEO of Lendsqr, shared that although the regulation might take some time to bear fruits, it is the beginning of a journey towards increased partnerships between banks and fintechs in Nigeria. “ There are still some steps that need to happen before the regulations take effect but what it means is that if everyone speaks the same language, the friction of interoperability will reduce. That means people can build apps that have access to customer data and will do interesting things. Financial inclusion will explode, and custom loans can be built,” he said. According to the CBN, the regulation will allow for credit scoring and rating.

The clamour for open banking regulation in Nigeria began in 2017 when Adedeji Olowe led industry experts to form an open banking working group, which became known as Open Banking Nigeria. The CBN then released a regulatory framework for open banking in 2021, which led to an industry committee that created the draft of the open banking regulation in 2022. Now that the draft has become law, the next steps are for the CBN to build a registry and for the financial institutions to leverage the regulations to build new financial solutions. 

The regulation will also be supported by the Nigeria Data Protection Regulation (NDPR), which was released in 2019, as data privacy is a foundational pillar for open banking. The open banking regulations will also benefit merchants by allowing them to use the solutions provided by financial institutions to better manage the flow of money and will allow customers to enjoy more tailor-made opportunities for credit and investments. 

Those limits led to the ouster of Jim Ovia and Tony Elumelu in July 2010 as CEO of Zenith Bank and UBA bank, respectively. Per the same 2010 rules, those bank executives could not be appointed to other roles at the bank (or its subsidiaries) for three years. It explains why Tony Elumelu and Jim Ovia became Chairmen of UBA Group and Zenith Bank, respectively, in 2014. 

Under CBN’s new tenure limit shared last week, both men would have to leave next year, which marks their 20th year as top executives. The rule will affect other bank executives like Segun Agbaje, who became Guaranty Trust HoldCo CEO in August 2021, and Herbert Wigwe who became Access Holdings Plc CEO in March 2022. Both men have also spent over 20 years as top executives at both banks. 

New tenure limits will affect HoldCos 

In 2020, many Nigerian banks began exploring changing their structure to stay competitive and explore other businesses. By law, Nigerian banks cannot delve into businesses unrelated to their core banking functions. The change in structure also meant that the CEOs nearing their tenure limit of 10 years could instead become CEOs of the Holding Company (as in the case of Wigwe and Agbaje). 

Unfortunately for them, the new CBN rules also apply to the Holding companies of banks, making their exits likely. Several Nigerian publications claim that the move to cap the tenure of executives across board in Nigerian banks is to curb brain drain. 

The pros and cons of the new rules

Mr. Ijezie, a former banker, told TechCabal,”Industry knowledge is a valuable asset that should be shared across the board, rather than retained within a single organization.” Under the new policy, executives with 20 years of experience at one bank will have to move to another bank. These kinds of moves will inadvertently spread industry knowledge as they will apply their expertise and expertise elsewhere. Other observers argue that “sit-tight” executives have reduced the possibility of upward mobility for other employers. They say that the new rules will ensure that more people can aspire to top leadership positions. 

Other analysts disagree, with one writer at ProShare calling it  “a clumsy overreach of power and responsibility,” especially because of the way the CBN grouped parent and subsidiary entities. Beyond this, some question if the CBN should force out executives who have delivered value to shareholders. 

Ultimately, the new rules will prompt a shakeup of a banking system where leaders are often well entrenched. While some pushback against the policy has some merit, it’s easy to understand that the CBN is acting to prevent abuse of power by established executives.