Are the big dogs slowing down?
Huge profits may be slowing; it's time to compete or go home
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Nigerian banks are turning in their report cards
It’s been an incredibly slow news week, and the banking sector is where most of the action has been happening. Let’s pick up where we left off last Friday, when I mentioned that the CBN asked customers to return unused FX. It turns out that asking nicely didn’t work. Now the Central bank is telling banks to publish the names and Bank Verification Numbers (BVN) of people using fake flight tickets and travel documents to get FX on their websites. The CBN is taking a page out of the books of digital lenders here, with some good ‘ol public shaming.
All this police and thief business is tasking. It may be why the CBN has not found time to approve Nigerian banks' Q2 2021 financial results. This week, Guaranty Trust Holding Company Plc and Stanbic said they have their results ready to go but that the CBN is holding back the process. Despite this, we have seen some early results from Zenith Bank, Nigeria's biggest bank, and Access bank. These results are interesting to me mainly because we’ve spent the last month speaking about the incredible valuation of digital banks.
Despite reporting a fraction of the revenues of the big banks, digital players like OPay — recently valued at $2 billion — are worth more than the big old dogs. But, here’s what to consider, the valuations for the new digital players are based on the expectation of massive revenue growth in the future. Like it or not, the big dogs look like they’re slowing down. While they’re reporting growth, it’s hardly as impressive as it was years ago.
Here are some highlights from Zenith Bank’s Q2 2021 results, for instance:
Gross earnings fell by -0.15% year-on-year (Y-o-Y) to N345.56bn in H1 2021 from N346.09bn in H1 2020.
Profit Before Tax came in flat at ₦56bn, thanks in part 14% year-on-year rise in operating expenses.
Profit After Tax, after other comprehensive income (OCI) fell -18% y/y to NGN51.6bn
The group's loan-to-deposit ratio declined by -9.11% Y-o-Y to 51.90% despite a CBN regulation that states banks must lend 65% of their deposits.
Presently, restructured loans account for about 24% of all loans — about 74% of those loans are in the oil and gas sector.
While Zenith Bank’s Q2 results look unimpressive, Access Bank posted better results, showing 42% growth in profit after tax. Yet, some will argue that Access Bank’s growth isn’t organic — they’re growing by acquiring other businesses. Yet, they might prove to be outliers as the rest of the big five — First Bank (are they still a top-five bank?), UBA and GTCO — release their results. While those results will reveal some details, there will be more to learn from their earnings calls, and I'll listen to those calls and let you know what's coming.
TL;DR: Fintech startups are eating into banks' revenue, and every serious bank already knows this and is preparing for the future. It’s a bit like in telecoms where, although a big chunk of the revenue is from voice calls, data and Fintech revenue are the future for telecoms. It’s why Airtel and MTN are making investments in network infrastructure, extending their 4G footprints faster than we’ve ever seen.
For the banks, the switch they need to compete in Fintech will come in the form of restructuring their businesses (GTCO, Sterling). Because this reorganisation isn’t happening quickly, early commentators have mocked the banks and predicted that they will fail in the payments space. I don’t share those sentiments, mainly because some banks have a clear sense of what they’re trying to achieve.
Here’s GTCO’s Segun Agbaje last year:
“[T]he people that will win the payment space won’t operate within the traditional banking framework, they will operate outside of the traditional banking framework, kind of like what you saw with Worldpay.”
“[GTBank’s fintech] will definitely be a separate business unit. We will then watch and see whether we want to list it somewhere else. But I think if you are going to leverage the current advantages we have as an organisation it will start as a separate business unit.”
“Anybody who has the guts to pilot at scale, and has the money, and has the will, and has the drive is someone you really have to watch…. those models are the reason why I’m very encouraged that Guaranty Trust Bank going into the payment space will do very well, because we will pilot at scale and we will be very aggressive.”
Don’t count the banks out just yet. Away from the banks, another sector with some exciting news is video streaming, which we talked about on Sunday.
Will Filmhouse hit gold with its streaming experiment?
Sometime this week, the Film House app added the “watch now” feature, allowing the 5k+ Android users who have the app to watch all the movies showing at the cinemas on their phones or laptops. It’s an interesting attempt to capture extra value and make more money as Nigerian movies draw crowds to the cinemas. In February, “Omo Ghetto” grossed N501 million in box office receipts, a new record for a Nigerian film.
But like everyone who went to see Omo Ghetto or other popular fares like Living in Bondage or The Wedding Party will tell you, trying to see these movies at the cinemas can be tricky. Their popularity means that tickets are almost always sold out no matter the viewing time. If you love to rewatch good movies, it’s bound to be frustrating. So, FilmHouse’s streaming may be able to capture that section of the movie-watching audience that a) Can’t deal with the crowds at cinemas for popular movies b) Can’t wait to see new movies because their Twitter followers are wicked people who will tweet spoilers c) Don’t quite mind watching movies on phones or computers.
There’s no big risk that streaming can replace the experience of watching movies at the cinema, especially if we’re talking IMAX and 3D, so it looks win-win. I spoke with someone who worked with Filmhouse on developing their streaming service, and he told me it was borne out of Covid-19 and the freeze it put on the cinema business. While the feature was reportedly ready since late 2020, some issues with third-party providers and complexities with payments systems on the Apple Store caused delays.
While he said that the original idea was for the streaming service to have tiered payment plans, the shipped version doesn’t have standalone plans for the streaming service. Instead, the streaming service is an add-on to existing subscription plans. In a way, it doesn’t feel like Filmhouse has really committed to this, but my mind’s still open — if you get around to using the app, please share your experience!
That’s enough reporting for one day, so let me share what I’ve been reading all week.
What I’m reading
Fraud or improper payments accounted for more than $90 billion of the US government’s emergency pandemic aid for the unemployed and small businesses.
Monkeys and humans are fighting for space in Indian cities. Right now, it doesn’t look like a winnable war.
“Tragic optimism” is the search for meaning during the inevitable tragedies of human existence, and is better for us than avoiding darkness and trying to “stay positive”
Don’t run off yet, I’ve still got some news….
Since I'm not doing any drinking, I figure we might as well introduce a section about you. It’s a simple idea I found in the Daily Skimm newsletter that I think is worth borrowing.
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