Dr. Adesola Adeduntan, Managing Director/Chief Executive Officer of FirstBank, has advised financial institutions in the country to be vigilant and improve the monitoring of their customers’ loans in order to prevent the industry from building up non-performing loans (NPLs) as a result of macroeconomic challenges.
In an exclusive interview with THISDAY, Adeduntan also urged businesses and their bankers to approach the new year collaboratively in order to overcome anticipated economic headwinds.
Adeduntan said, “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.”
Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), recently warned that 2023 would be tougher than 2022 for much of the global economy, as growth in the United States, European Union, and China slows.
Georgieva predicted a “tough year” in 2023, with one-third of the world’s economies expected to be in recession.
The IMF reduced its global growth forecast in October to 2.7 percent, down from 2.9 percent in July, citing headwinds such as the Ukraine conflict and rapidly rising interest rates.
With slowing growth and elevated inflation rates, Adeduntan predicted that the sustainability of foreign debts, particularly for developing countries, would require a re-evaluation by lenders due to 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 stated that rising debt costs and declining demand would exacerbate the challenges that businesses would face this year, particularly those operating in low-margin industries.
Locally, he predicted that rising inflation would reduce most consumers’ disposable income and reduce demand for non-essential goods and services.
Despite the expected macroeconomic challenges in 2023, he noted that there were emerging business and revenue opportunities that discerning players in the financial services industry could capitalize on.
He specifically identified payments, digital security, mergers and acquisition (M&A) opportunities, partnership across segments, and consumer lending as areas that would provide significant opportunities to players in the financial services industry.
Adeduntan further explained that “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.”
Addressing digital security issues Adeduntan 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.”
“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.”