Pandemic pushes customers out of branches, banks ramp up closures

S&P Global Market Intelligence
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Pandemic pushes customers out of branches, banks ramp up closures

The pandemic has dampened branch visitation over the past year and already sparked long-term reallocations of capital as banks have accelerated branch closures.

One year after the pandemic began, over half of respondents to S&P Global Market Intelligence’s annual Mobile Banking Consumer survey reported visiting branches less frequently, and several expressed concerns regarding the safety of branch visits. As the pandemic has persisted for over a year and influenced all aspects of consumer behavior, the likelihood that new branch-related behavior will become entrenched remains high.

Customers may start to explore returning, tentatively, to their pre-pandemic routines as vaccination rates climb and COVID-related guidelines and restrictions are relaxed. But banks have already responded to the shifts in consumer preferences by slashing their physical footprints at an accelerated rate.

Closing branches tends to reduce costs for banks. A portion of those savings is expected to be diverted into digital investments in response to the customer rotation toward digital channels and the success many banks have enjoyed in using digital channels to effectively gather deposits.

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Photo by Pickawood

Commentary from banks and industry experts over the past year have corroborated the idea that pandemic fears are driving down branch traffic; survey data suggests that these safety concerns and behavior changes have affected roughly half of respondents.

Nearly 52% of respondents to S&P Globals’s 2021 Mobile Banking Survey, fielded in February and March of this year, indicated that they were visiting branches less frequently since the pandemic began, down from 58% of consumers in last year’s survey, fielded in June and July 2020. The split between customers who view branch visits as less safe and those who do not is roughly even.

Customers are replacing some of these foregone branch services with digital substitutes. Approximately one-third of respondents indicated that their decreased branch utilization coincided with increased usage of their bank mobile apps, highlighting a significant rotation toward digital banking. As they lean more heavily on digital services, these customers are discovering new features for the first time, several of which may serve as viable long-term replacements for branch services.

Features like photo-check deposit and peer-to-peer money transfers could serve as a replacement for some activities customers usually performed at branches. Over 36% of survey respondents indicated that they had visited a branch at least once in the 30 days prior to responding to the survey. Among them, the most popular services sought were deposits, withdrawals and ATM use. These types of commonly sought out branch facilities can often be substituted by digital features.

We have argued that the discovery of digital utilities like photo-check deposit and peer-to-peer transfers by more than 20% of survey respondents will likely contribute to the stickiness of new consumer behavior developed during the pandemic.

Consumers seem to be anticipating something similar; approximately 64% of respondents who indicated they were visiting branches less frequently since the pandemic began also anticipate continuing or further decreasing their current levels of branch utilization after the pandemic officially ends.

The banking industry aggressively slashed its branch footprint in 2020. Banks have regularly closed more branches than they have opened over the last decade, but the pace of closures slowed in 2018 and then declined again in 2019. But the pandemic has changed how customers and banks view branches as digital adoption grew and deposits flooded into the financial system.

Last year, the country saw the highest level of net branch closures since at least 2010. The cuts were driven, in part, by a search for efficiency as high deposit growth and low loan growth left banks with excess liquidity and depressed margins. But they also speak to a growing appreciation among banks of the potential for digital channels to alleviate the need for branch density and a growing proclivity among consumers to rely on those platforms for convenience.

Between January 2020 and April 2021, U.S. Bancorp closed more branches than any other U.S. bank. The company doubled the branch closure plan it had announced in 2019 due to COVID-19, claiming that it needs fewer branches now than it did even a few years ago. JPMorgan Chase & Co. also thinned out its network since January 2020; its 334 facility closures represent the fourth-most of any bank in the U.S.

However, the company also expanded the scope of its footprint by 222 new branches in the same time period. The bank will have a presence in all of the lower 48 states by the end of July this year.

Banks have been undergoing a process of optimizing branch efficiency for several years. Median deposits per branch figures increased by double-digit percentage points across all asset buckets between 2015 and 2020; collecting deposits are seen as one of the main functions of bank branches. These efficiencies have been achieved through a combination of branch closures, M&A activity and digital investments.

Banks that invested in digital-only banks, like Midland Financial Co. and Capital One Financial Corp., saw some of the largest increases in deposits per branch since 2018. A large swathe of retail customers has indicated that they are open to banking with digital-only banks, though only a minority have actually opened accounts at such banks, according to survey data.

Just over 8% of survey respondents already have an account with a digital bank but nearly 44% say they are likely to open an account with a digital bank. Should that openness continue to translate to new business, we may see incumbents invest more heavily in digital deposit gathering strategies in the ongoing search for greater efficiencies in their business model.

Bank customers cementing new relationship with digital channels

S&P Global Market Intelligence
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Bank customers cementing new relationship with digital channels

Bank customers‘ shift toward digital channels during the pandemic is likely here to stay.

A significant portion of retail banking consumers continue to visit branches less often and use their mobile apps more frequently nearly one year after the COVID-19 pandemic began, and many anticipate continuing their new behaviors well after the pandemic ends.

Nearly 52% of respondents to S&P Global Market Intelligence’s annual consumer mobile banking survey, conducted in February and March of 2021, indicated that they were visiting branches less frequently since the pandemic began. Among those respondents, more than 65% were also using their mobile apps more frequently during the same time frame.

Bank customers digital channels
Bank customers cementing new relationship with digital channels

The trend of consumers shifting activities out of branches and towards mobile channels appears relatively stable over the course of the past year. According to our 2020 mobile banking survey, conducted in June and July of 2020, approximately 58% of respondents indicated they were visiting branches less frequently due to the pandemic; among them, over 61% indicated they were also using mobile apps more frequently.

And the new behavior appears sticky; nearly 88% of respondents who were using their mobile apps more frequently anticipate continuing or increasing current usage levels once the pandemic officially ends. Utility features like photo check deposits and money transfers, which were discovered by a significant portion of consumers after the pandemic, may be contributing to the stickiness of these new patterns.

Bank customers

Banks of all sizes are feeling the effects of changing consumer tendencies. JPMorgan Chase & Co. announced in its first-quarter earnings call that the active mobile user count grew by 9% to 42 million while branch transactions remained suppressed. Michigan City-based Horizon Bancorp Inc. saw monthly digital transactions climb to 74% of all transactions by the end of the first quarter, compared to 57% in 2019.

Younger generations, namely Gen Z, Millennials, and Gen X, were more likely to reduce branch frequency than older generations by a slight margin. The discrepancy between generations was larger with respect to increased mobile app usage.

The proportion of younger consumers using their mobile apps more frequently was above 50% while the percentage of Baby Boomers and seniors leaning more heavily on mobile apps during the pandemic hovered closer to 40%.

Older generations demonstrated a higher propensity to maintain their old behavior patterns despite the pandemic. Still, this data suggests that the trend towards digital appears strongly across age demographics.

Banks are already responding to the overall shift towards digital. Aside from making continued investments in augmenting their digital capacities, banks made significant cuts to their branch footprints in 2020. Net branch closures in 2020 hit their highest level since at least 2012, as banks sought to boost operational efficiencies in an environment where net interest income remains under pressure due to low interest rates, explosive deposit growth and lacklustre loan growth.

As more consumer behavior shifts to digital channels, the relative value of maintaining a dense branch footprint has decreased. However, consumer demand for branch services has not disappeared. Many customers were still using branches during the pandemic. About 36% of survey respondents indicated that they had visited a bank branch in the prior 30 days. Most of these respondents visited multiple times.

The primary services they sought at branches were related to depositing and withdrawing cash and checks. Nearly 54% withdrew or deposited cash during their most recent branch visit, 40% deposited a check, and 26% cashed a check. Approximately 50% used an ATM.

While mobile apps may not be able to easily service certain cash-based needs, most mobile apps are equipped with check deposit functionality. Approximately 24% of survey respondents indicated that they had used photo check deposits for the first time since the pandemic began, more than any other feature.

Other features that were recently discovered by over 20% of survey respondents include utilities like account-to-account money transfer, bill payment, and peer-to-peer payments. These features also tend to be highly valued by customers in general.

The new discovery of highly valued mobile utilities may speak to why most users who have started using mobile apps more frequently anticipate continuing to lean on mobile apps after the pandemic ends. Nearly 88% of respondents who indicated that they use their mobile apps more frequently due to the pandemic also said that they anticipate continuing or increasing their current level of mobile usage after the pandemic ends.

Conversely, 92% of respondents who indicated no change in mobile app related behavior anticipate continuing their current level of usage after the pandemic ends. Judging by customers’ anticipation of their own future mobile app usage, it seems that the behaviors that customers have established in the 12 months since the pandemic began are likely entrenched to a significant degree.

Though users discovered several new features in the past year, most customers had used their bank’s mobile app in one way or another prior to the start of the pandemic. The percentage of respondents who used a mobile app for the first time in the past year was small, less than 2%.

Unlike other consumer fintech apps which saw dramatic increases in new account openings in 2020, mobile banking apps appear to have experienced a shift in the role they play in users’ lives.

Many retail banking consumers who may have previously used their mobile apps rarely and sporadically, now appear to be leaning on them as a regular channel for accessing important banking needs. As the pandemic persists, these customers appear to be getting more comfortable with this new relationship.

This is the first in a series of articles covering the results of S&P Global Market Intelligence’s annual Mobile Banking Survey.

7 billion trees outside forests in Africa reported for the first time in new data survey

Esan Bolaji
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7 billion trees outside forests in Africa reported for the first time in new data survey

July 14, 2021 – A data collection and analysis initiative led by the Food and Agriculture Organization of the United Nations (FAO) and the African Union Commission (AUC) has revealed 7 billion trees outside forests for the first time, among other findings. The survey is the first consistent land use representation of the continent and discloses more forests and more arable lands than were previously detected.

FAO and the AUC presented the findings today of the Africa Open DEAL (Data for Environment, Agriculture and Land) initiative which has made Africa the first continent to complete the collection of accurate, comprehensive and harmonized digital land use and land-use change data. It provides a detailed snapshot of the continent, captured through more than 300 000 sampling points between 2018 and 2020.

trees forest

“The Africa DEAL shows that science and innovation can provide real solutions and that collaboration and pooling experience leads to the best results. It supports the transformation to more efficient, inclusive, resilient, and sustainable agri-food systems for better production, better nutrition, a better environment and better lives for all,” said QU Dongyu, FAO Director-General, speaking by video at the online event.

Other findings announced today are that the area of the continental Great Green Wall initiative has 393 million hectares of land with restoration potential and opportunities and that 350 million hectares of cropland are cultivated in Africa, more than double that of the European Union.

The findings reveal huge opportunities for the management of the environment, agriculture, and land use in Africa, and increase countries’ ability to track changes and conduct analyses for informed sustainable production, restoration interventions, and climate action.

Attendees at today’s event also heard how countries can detect where deforestation is happening, where settlement land is encroaching on cropland or grassland, and where the wetland is being lost.

“This collaboration has provided an assurance that we can still turn the tide, that we can still restore degraded land for agricultural use, through models such as agroforestry, that we can still halt desertification, that we can still fight climate change, and above all that we can still restore hope for humanity despite the odds,” said Josefa Sacko, the African Union Commissioner for Agriculture, Rural Development, Blue Economy and Sustainable Environment.

Pan-African environmental data collection brings exciting knowledge

FAO and the AUC, with the support of the Panafrican Agency for the Great Green Wall, the Southern Africa Development Community (SADC), and 30 African countries, coordinated the data collection operation on a scale unseen before in agriculture, environment, and land use.

Analysts were trained to use Collect Earth, an open-source tool developed by FAO with the support of Google. Over 100 parameters were collected on each sampling point of about 0.5 hectares, including tree counts, farmlands, wildfires, and existing infrastructure.

Data were analysed to highlight land-use change over the past 20 years and the potential for restoration at the national level for every country. The very high-resolution imagery allowed analysts to assess places with difficult field accessibility which led them to discover the 7 billion previously unrecorded trees.

“The Africa Open DEAL tells us there are 350 million hectares of cropland cultivated in Africa, double the amount of the European Union. So why should we still be talking about continued hunger in Africa? We now have new, accurate information to use in our fight against hunger on the continent,” said Abebe Haile-Gabriel, FAO Assistant Director-General and Regional Representative for Africa.

Empowering data users with geospatial technology

This new digital geospatial technology brings great opportunities to data users and provides open access to earth observation and climate data with free computational capacity. Africa Open DEAL data and information are embedded within FAO’s Hand-in-Hand Initiative geospatial platform and are accessible to anyone through EarthMap (bit.ly/3kcEJ74).

The fact-based information builds on the data foundations of the Great Green Wall which have created unique knowledge and biophysical baseline data through the Action Against Desertification programme.

“The proof of the concept of the Africa Open DEAL is firmly anchored in FAO’s large-scale restoration model in support of the Great Green Wall,” said Moctar Sacande who coordinates the Action Against Desertification programme at FAO.

The Africa Open DEAL initiative is possible thanks to partnerships with and funding support from the European Union, Germany, and Turkey.

With One in Five Africans Facing Hunger, UN Calls for Transforming Food Systems, Nature-Based Solutions

Oreoluwa Aderinkomi
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With One in Five Africans Facing Hunger, UN Calls for Transforming Food Systems, Nature-Based Solutions

Following are UN Deputy Secretary-General Amina Mohammed’s remarks at the Africa Regional Food Systems Summit Dialogue

July 14, 2021 – It is a pleasure to speak to you today, at this Africa Regional Dialogue in support of the Food Systems Summit.  We meet at a time of rising food insecurity and hunger.  Between 720 million and 811 million people in the world faced hunger in 2020 — as many as 161 million more than in 2019.

No region of the world has been spared; but the numbers show persistent regional inequalities.  About one in five people in Africa faced hunger in 2020 — more than double the proportion of any other region.

Pandemic year marked by spike in world hunger Africa posts biggest jump Brandspurng
WFP/Grant Lee Neuenburg, Woman and her baby standing in front of a tent in a resettlement camp, Cabo Delgado, Mozambique

The high cost of nutritious diets, coupled with high levels of poverty and income inequality, continue to keep healthy diets out of reach for around 3 billion people in every region of the world. Of these, 1 billion of our African sisters and brothers could not afford a healthy diet in 2019.

Malnutrition in all its forms remains entrenched, particularly among women and children.  Most children under 5 years with malnutrition live in Africa and Asia.  Thirty-seven per cent of the world’s stunted children can be found in Africa.

These tragic numbers are not new.  Hunger was on the rise even before the onset of the COVID-19 pandemic. Nor do these numbers tell us the whole picture.

While we are severely off-track to achieve Sustainable Development Goal 2 — zero hunger — by 2030, this Goal cannot be achieved in isolation.  Ending hunger requires us to consider food as a system, revealing a range of intersecting challenges that are undermining our progress towards all the SDGs.

Take the climate crisis. Globally, one-third of greenhouse gas emissions originate in our food systems.  Agriculture is also responsible for up to 80 per cent of biodiversity loss, and continues to overuse our diminishing natural resources, including land and water.  Around the world, an estimated 600 million people — almost 1 in 10 — fall ill after eating contaminated food each year.

Despite all these worrying trends, I remain optimistic.  But we must act with urgency.

Science has confirmed that transforming our food systems offers an opportunity to drive progress across the board, from climate action to reducing pollution.  This is the rationale of the Food Systems Summit.  Over 140 Member States have responded to my invitation to convene national Food Systems Summit Dialogues.  The majority of the African continent is participating:  44 countries, over 80 per cent of all African Governments, are leading national dialogues.

Governments everywhere recognize the importance of this issue, particularly at a time of crisis.  But there is no “one-size-fits-all” solution.  Food systems vary by location; our approaches must be rooted in local and regional realities.

Food systems dialogues are engaging a diverse range of participants.  Where they are present, United Nations resident coordinators and country teams are playing a fundamental role.

Like the power or transport sectors, food systems can and must contribute to the green and blue transitions.  This means, for example, being less dependent on fossil fuels-based fertilizers and more attuned to nature-based solutions such as natural soil regeneration.  Solutions exist, and they can be deployed at scale, to fight in the same stroke climate change, hunger and malnutrition while preserving our planet.

Through the 2030 Agenda, the world has agreed on a bold vision for the future. Through Agenda 2063, Africa has articulated its master plan for transforming itself into the global powerhouse of the future.  Our task now is to keep our promises by delivering on the commitments we have made, through accelerated action.

The aim of this Dialogue is to help you to think through how to strengthen national pathways for food systems transformation to achieve the 2030 Agenda [for Sustainable Development].  This should be one of the main outcomes of the Food Systems Summit.  In addition to your national progress, this dialogue can help bring a unified African voice to the upcoming Pre-Summit in Rome at the end of July, and to the Summit in September in New York.

In Rome, the outcomes of regional dialogues around the world will converge with the other workstreams of the Summit process.  These strands are generating ideas for enhanced global cooperation in support of the country and regional priorities.

By the time of the Summit in New York, we will be able to show how countries and regions around the world have articulated their own pathways to 2030, joined by a range of partners to accompany them on their journey.

I am encouraged to see African countries come together at this Dialogue.  We need African leadership to realize our vision and meet the Goal of zero hunger by 2030.  I wish you every success at this meeting and look forward to an outcome that puts us on track to delivering a more sustainable and resilient food future for all of Africa’s people.

New Infection Wave Raises Pandemic Risks for African Sovereigns

Brand Spur
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New Infection Wave Raises Pandemic Risks for African Sovereigns

07 July 2021: A new wave of Covid-19 infections in a number of African countries, exacerbated by the Delta variant, has increased the risk of pandemic-related setbacks for rated sovereigns in Africa, says Fitch Ratings. Slow progress on vaccination suggests that pandemic risks will persist until at least 2022.

Among Fitch-rated sovereigns in Sub-Saharan Africa (SSA), the number of confirmed infections relative to populations has risen in Lesotho, Mozambique, Namibia, Rwanda, Seychelles, South Africa, Uganda and Zambia since May, with the Delta strain already becoming dominant in some of these countries.

The region’s generally young populations do not appear to have prevented a rise in pandemic-related morbidity. However, differences are large even within sub-regions, and western Africa’s infection rates remain generally very low.

Infection Wave , Pandemic Risks , African Sovereigns

Our assumption is that governments in the continent will seek to avoid strict generalised lockdowns that ban people from moving to workplaces, although more contained measures, such as the closure of bars and restaurants in place since 28 June in South Africa, may be seen in some countries.

The capacity to enforce tougher restrictions is weak in the region, and restrictions can be unpopular. Moreover, structural factors, including low levels of technology penetration and formal employment, would impede trends that have helped to mitigate the economic impact of tough lockdowns in other regions, such as shifts to online retail and working-from-home practices.

WORLD BANK GLOBAL ECONOMY African woman wearing disposable medical mask and gloves shopping in supermarket during coronavirus pandemia outbreak. Epidemic time.
African woman wearing disposable medical mask and gloves shopping in supermarket during coronavirus pandemic outbreak. Epidemic time. | www.brandspurng.com

We believe there is little likelihood of large fiscal stimulus packages in SSA, even where Covid-19 outbreaks become severe. This should cushion the impact of new infection waves from a rating perspective, but partly reflects the strained starting point of public finances in many countries.

There will nonetheless be some effects, even if the stimulus is limited. Weaker levels of economic activity may depress fiscal revenues, and expenditure may rise – for example, in South Africa, there have been calls to reopen the country’s furlough programme, the Temporary Employer/Employee Relief Scheme. There may also be some upward pressure on healthcare spending, though this is likely to be modest, not least because sectoral capacity constraints mean that there will be limits to how effectively additional funds can be spent.

The pandemic continues to pose downside risks to regional sovereign ratings, but its effects may also make external financing from bilateral and multilateral sources easier to obtain than in more normal times.

Notably, the IMF’s distribution of new special drawing rights (SDR) could ease financing for some sovereigns in the region in 2H21, and the Fund has adjusted lending conditions for countries facing pandemic-related strains. An unusually high number of sovereigns are in IMF programmes or conducting negotiations to obtain one.

Vaccination levels in Africa remain generally very low despite some recent progress. The median number of doses administered among Fitch-rated SSA sovereigns stood at around 2.6 per 100 population as of 1 July (full vaccination generally requires two doses).

The pace of vaccination may pick up from 4Q21 as vaccination programmes wind down in developed countries – assuming no boosters are required – freeing supply for elsewhere, although the low starting point in Africa suggests populations in the continent will remain vulnerable to further outbreaks well into 2022.

African sovereigns that have managed to avoid Covid-19 infection waves have still faced pandemic-related strains, notably through its earlier depressing effect on oil prices and demand in developed countries and China.

However, these effects have receded. More recently, stronger commodity prices have proved a boon for external positions in commodity exporters. For oil exporters like Angola, the associated rise in government revenues would be likely to outweigh any financial hit from new Covid-19 infections in 2021.

Q2 2021 Review – Strengthening Economic Recovery: The Need for Speed and Urgency

Brand Spur
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Q2 2021 Review – Strengthening Economic Recovery: The Need for Speed and Urgency

FSDH Macroeconomic Projection for 2021

  • Growth at 1.3%
  • Inflation Rate at 16.6%
  • External Reserves at US$34 billion
  • Average Exchange Rate at N430/US$

IMF updates global GDP growth projection for 2021 to 6%

  • The International Monetary Fund (IMF) in April revised upwards its projection for 2021 for many economies. The Fund projected a global GDP (Gross Domestic Product) growth of 6.0% for 2021, an increase from 5.5% projected in January.
  • In addition to the relaxation of lockdowns due to improved vaccine roll-out, the continued fiscal and monetary support across economies will drive the higher growth projections.
  • However, there are expectations of diverse performance across countries due to the differences in the pace of vaccination and government interventions.
  • For 2022, the global economy will expand by 4.4%.

Many African economies poised to recover in 2021

  • Sub-Saharan Africa is projected to grow by 3.4% in 2021.
  • Growth will be mainly driven by rising commodity prices, improving consumer demand, higher government spending and effective vaccines administration in countries with high COVID-19 cases.
  • The economies of Nigeria and South Africa will expand by 2.5% and 3.1%, respectively.
  • Nigeria posted positive growth in 2021Q1, South Africa recorded its fourth consecutive quarterly contraction following the spread of COVID-19.
  • Non-oil economies are expected to experience relatively higher growth in 2021 as Ghana and Kenya are projected to grow by 4.6% and 7.6% respectively.
Economy Slip Into Recession: Weak Oil Output Dampens Economic Growth Prospects
Economy Slip Into Recession: Weak Oil Output Dampens Economic Growth Prospects – www.brandspurng.com

FSDH Analyst Views on the Global Economy and Africa

  • The massive vaccination going on across countries alongside fiscal and monetary stimuli will continue to be the major driver of growth as we have been witnessing in some countries.
  • However, we believe the pace of recovery as projected by the IMF and World Bank for the global economy alongside regions and countries appears to be too optimistic.
  • Some countries like the USA, China and Nigeria are already on the path to recovery for 2021 but the reality is tough for some countries as constraints to economic growth abound. Key risks include a surge in COVID-19 cases and high oil prices for importing countries
  • In 2020, only 13 African countries recorded positive annual GDP growth.
  • For 2021, the outlook is brighter as many African economies will recover from the pandemic.
  • In essence, the pace of recovery will be more divergent for African countries and for commodity-exporting countries, those that are able to reap the benefits of high commodity prices will recover faster.
  • Crude oil-exporting countries like Nigeria and Angola could be in for some positives.
  • The AfCFTA agreement commenced in 2021. However, we do not expect it to contribute to the recovery process as most African countries are still working out programmes to enable them to tap into the benefits of the deal.

Nigeria’s Macroeconomic Update

  • Nigeria maintained positive growth in 2021Q1, Q2 growth will be higher
  • In the first quarter of 2021, the Nigerian economy grew by 0.5%. This represents a consecutive positive quarterly growth since the recession in 2020.
  • The non-oil sector remained the driver of growth with an expansion of 0.8% while the oil sector contracted by 2.2%.
  • Specifically for the second quarter of 2021, economies that recorded deeper GDP contractions in the second quarter of 2020 due to lockdowns will emerge with significant growth in the corresponding quarter of 2021.
  • This is mainly due to the base effect.
  • As a result, real GDP growth in Nigeria is expected to improve significantly in 2020Q2.
  • We expect growth to at least fall in the range of 1%-3% in Q2.

Inflation: Increase in price of goods and services slowed down in 2021Q2

  • The upward trend in the inflation rate was halted in the month of April.
  • The inflation rate declined marginally by 10 basis points in April to 18.1% from 18.2% in March. In May, it declined further to 17.9%.
  • The slowdown in price increase was driven by the food inflation rate, which also fell from a peak of 22.9% in March to 22.3% in May.
  • The month-on-month inflation rate also slowed to 0.97% and 1.01% in April and May, respectively from 1.56% in March 2021.

Real interest rate improves on the back of rising interest rate and falling inflation

  • As anticipated in our previous Macroeconomic outlook reports, the gap between interest rate and inflation narrowed further in 2021Q2.
  • While the average interest rate continued its upward trend to 9.7% in May 2021, the inflation rate subsided in both April and May.
  • Given these, the real interest rate improved in April and May 2021.
  • Although the real interest rate remained negative in May 2021, we expect to see further improvements particularly a moderation of inflation in the coming months. This is based on the expectation that the security situation will improve in subsequent quarters.

Exchange rate stabilizes in the I&E window but external reserves felt the pressure

  • In the second quarter of 2021, the Naira was fairly stable in the I&E window, relative to the previous quarter.
  • The Naira closed the quarter at N411.5/US$, having opened the quarter at N409.3.
  • This relative stability in the I&E window was reflected in the performance of external reserves which was severely pressured in the quarter. Reserves lost 4.4% of its value in the quarter.
  • In the parallel market, the Naira depreciated, reaching N500/US$ due to forex scarcity and speculative activities, following the CBN’s adoption of the NAFEX rate in May.
  • Consequently, the gap between the NAFEX rate and the parallel market expanded in the quarter.
  • We expect forex pressure to continue into the third quarter owing to limited inflows from both crude and non-oil sources and rising imports.

Unification of the official Exchange Rate by the CBN

  • On Monday, May 24, 2021, the CBN displayed the NAFEX exchange rate on its website.
  • The Naira exchanged at N410.25/US$, an adjustment of 8.2% from N379/US$ in the early part of May 2021.
  • Recall that the IMF in its Article IV recommended “establishing a market-clearing unified exchange rate with the near-term focus on allowing greater flexibility and removing the backlog of requests for foreign exchange”.
  • Likewise, the Federal Government’s Economic Sustainability Plan (ESP) proposed to “unify exchange rates to maximise naira returns to FAAC from foreign exchange inflows”.
  • The adoption of rates in the I&E window is long-awaited and is among measures to regain market confidence and unlock funds from multilateral agencies including the World Bank and the IMF.
  • Previous exchange rate adjustments by the CBN were not aligned with prevailing market rates. They were below the rate in the I&E window.
  • This time, however, the CBN adopted the rate in the I&E window as its official rate.
  • We believe this is a first and major step towards gaining back investor’s confidence in the economy, which in turn could improve forex inflows into the economy.
  • The federal government has also hinted at the issuance of Eurobond which is expected to improve reserves position and ease pressure on the exchange rate when issued.

Huge gap between announced and actual investment points to doing business hurdles

  • Nigeria’s investment climate remains challenged despite the huge potentials of the economy.
  • This is evident in the gap between announced investment and actual FDI inflows into key sectors.
  • In the first quarter of 2021, announced investments in Nigeria was US$8.4 billion, 50% short of the figure in the previous quarter.
  • The manufacturing sector accounted for the highest share (60%) of announced investment, followed by construction (34%).
  • FDI is expected to remain under $300 million in the quarter, especially given the tough doing business environment.

FSDH Analyst Views on GDP Growth, Inflation, Investment and Foreign Trade

GDP Growth

  • Nigeria recorded real GDP growth of 0.5% in 2021Q1. This represents the second positive growth since 2020Q3.
  • We expect growth in 2021Q2 to be higher than the corresponding and previous quarter mainly due to the base effect.
  • In 2020Q2, Nigeria implemented lockdown and restrictions which limited economic activities. Because GDP calculation compares one quarter with the previous corresponding quarter, this is expected to significantly influence Q2 results.
  • Key sectors that will drive GDP growth in Q2 include Agriculture, Information and Communication and Healthcare.
  • Factors that will influence growth will include consumer spending on food and transport as well as government spending on construction, defence and other areas.
  • In terms of structure, we do not expect any significant change in the structure of the economy.

Trade and Investment

  • Nigeria’s investment climate remains tough, compounded by insecurity in different parts of the country. As a result, investment inflows into the real sector will remain subdued until there are improvements in the security situation.
  • For trade, imports will continue to trend upwards mainly due to challenges associated with local production as well as a huge and growing appetite for imported products. This will have negative implications on foreign exchange and add pressure on the reserves.
  • We expect marginal improvements in exports following improved demand conditions across the globe and the reopening of land borders. We believe that trade deficit will begin to narrow in the third quarter as oil production and export improves.
  • Nigeria’s investment climate remains tough, compounded by insecurity in different parts of the country. As a result, investment inflows into the real sector will remain subdued until there are improvements in the security situation.
  • For trade, imports will continue to trend upwards mainly due to challenges associated with local production as well as a huge and growing appetite for imported products. This will have negative implications on foreign exchange and add pressure on the reserves.
  • We expect marginal improvements in exports following improved demand conditions across the globe and the reopening of land borders. We believe that trade deficit will begin to narrow in the third quarter as oil production and export improves.

Inflation

  • We noted in our previous report that the rate of change in prices (inflation) will moderate as the government will intensify efforts to address insecurity concerns. This materialized in 2021Q2.
  • However, we believe that inflation-stoking factors such as high fuel cost, logistics bottlenecks and infrastructure deficit will persist in the year.

Foreign Exchange Situation

  • The action by the Central Bank to unify the exchange rate is a positive move for the economy. This was a recommendation in our Macroeconomic Review for 2021Q1. With this move, the CBN has taken a step towards ensuring clarity and improving market confidence. Nigeria can also unlock funding from several multilateral organisations such as the IMF and World Bank and ease the pressure on the exchange rate in the medium term. However, exchange rate unification is not a sufficient factor in attracting significant capital into the country. What should follow the CBN’s recent actions, in our view, are a set of consistent forex policies that seek to improve market liquidity and prevent every form of forex arbitrage and unnecessary forex subsidies. The CBN will also need to clear forex backlogs to further instil confidence in the market. In February 2021, the IMF estimated backlogs at US$2 billion. We believe this will be done gradually.
  • As much as Nigeria needs effective management of forex and unification of exchange rate to breed confidence, the supply shortage of forex is still a major problem. Increasing forex supply from non-CBN sources is vital in maintaining exchange rate stability in the I&E window and reducing speculative activities. In addition, the planned issuance of Eurobond by the government is expected to provide some relief in the market and boost external reserves in the short term.
  • From the fiscal and trade perspective, Nigeria will need to leverage on the African Continental Free Trade Area (AfCFTA) Agreement to boost non-oil exports and increase forex inflows. Providing direct incentives for businesses to produce for exports, implementing port reforms as well as developing comprehensive industrial and trade strategies are important steps that the government must take.
  • We believe that the Naira will settle around N430/US$ in the later part of 2021. Forex inflows are expected to also improve, especially when the Eurobond is issued, but increasing demand pressures from imports and other payments will continue to exert pressure on the rate and on the reserves.

Total Public Debt rose marginally in 2021Q1 to N33.1 trillion

  • Nigeria’s public debt stock rose marginally to N33.1 trillion (US$87.2 billion) in the first quarter of 2021.
  • The IMF estimated debt to GDP in 2020 at 34.4%, when CBN Ways and Means and AMCON bonds are included.
  • Debt is expected to rise further in 2021 following the anticipated revenue shortfall (against projected revenue). The key challenge to debt sustainability is Nigeria’s low revenue profile.

FSDH Analyst Views on Fiscal and Monetary Policy

Fiscal Policy

  • Nigeria’s fiscal performance in the first five months of 2021 showed mixed outcomes of fiscal indicators, although the outcomes were largely negative.
  • As with previous budget periods, revenue was short of its targets while expenditures (except capex) were either close to or exceeded their targets. This was the case for non-debt recurrent expenditure and debt service.
  • On a positive note, there was an improvement in non-oil revenues due to higher VAT and CIT. This is a welcomed development that must be sustained in the second half of the year.
  • Actual oil revenue was 49.5% below its target in the period. This has grave consequences on the economy as reflected in declining reserves and exchange rate pressure.
  • For full-year 2021, we expect the actual deficit to be higher than the budgeted deficit of N5.6 trillion mainly due to revenue shortfalls.
  • This implies the total public debt will increase further, and this will raise concerns on debt servicing costs going forward.

Monetary Policy

  • All through the year, Monetary Policy Committee will be caught in the battle of either raising rates to attract foreign exchange inflows into the economy or reducing rates to support economic growth.
  • Since the last MPC meeting in May, Reserves have fallen below US$34 billion, while interest rates have risen to pre-COVID-19 levels as we envisaged in our previous outlook reports.
  • The MPC’s decision in the next meeting will be based on the need to strike a balance between growth and foreign exchange stability. This decision will also be influenced by 2021Q2 GDP growth figures and the performance of the Purchasing Managers Index.
  • Following that inflation rate trended downwards in Q2 and given our expectation of improved Q2 GDP performance due to the base effect, we believe the Committee will keep rates stable to allow for further improvements of these two indicators.
  • At the moment, Nigeria needs to attract foreign inflows and a high-interest rate will serve as an incentive. Rather than increasing the MPR, we believe the CBN will adopt other measures to tighten monetary policy.

Market Performance

Market participation suggests a switch in investors sentiment from equity

  • Following the dousing momentum in the NGX, investors’ participation in the equity market persistently contracted as market participation fell short of N100 billion in May 2021.
  • Market participation over the first five months of 2021 stood at N933.65 billion, representing a 6.74% rise when compared with the corresponding period of 2020.
  • Foreign participation continued to decline and was significantly lower when compared with domestic participation. Particularly, foreign participation over the first five months of 2021 was 41.66% lower than the corresponding period of 2020.
  • The dominance of domestic investors in the market persisted, with participation in the market increasing by 37.56% when compared with the corresponding period of 2020.
  • Participation in the market was dominated by outflows from both foreign and domestic investors, but largely from domestic investors.
  • Foreign investors continued to use the dual-listed stocks as an avenue for capital mobility as the shortage of forex bites harder.

Capital Market: FSDH Analyst Views – Outlook and Expectations

Fixed Income

  • The 2021 budget of the federal government was heavy on borrowing with a deficit of N5.6 trillion. The Federal Executive Council (FEC) has approved a draft supplementary budget of N895 billion, part of which will be funded by borrowing.
  • In addition, the huge gap between actual and targeted revenue in the first five months of the year means that government debt will increase further in the year.
  • Consequently, interest rates on the various segments of the fixed income market will experience further expansion.
  • The existence of the CBN Special Bill will continue to support the OMO auctions in managing the liquidity in the system. As such, we do not expect any shock of liquidity surge despite an estimated N2 trillion in maturities of FGN Bond, NT-Bill and OMO to come in 2021Q3.
  • Hence, we anticipate yields to settle at double-digit towards the end of the year.
  • Lastly, falling reserves raises the possibility of the issuance of dollar-denominated bond in H2.

Equity Market

  • In our previous reports, we anticipated recovery in the market deep into the second and third quarters on the back of dividend payment. However, the outcomes from companies’ financial reports have not been impressive enough to drive recovery in the market.
  • The increasing interest rate appetite of the government following the expanded government’s debt programme and its impact on interest rates in the fixed income market have continued to trigger negative sentiments towards the equity market.
  • Moreover, the enduring impact of COVID-19 on the economy and associated uncertainties continue to influence investors’ participation in the market negatively. This impacts the general performance of listed stocks and continues to subdue market performance.

Positioned for Growth: GTBank Completes Corporate Reorganization

Oreoluwa Aderinkomi
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Positioned for Growth: GTBank Completes Corporate Reorganization

July 14, 2021 – Aiming to strengthen its long-term competitiveness and growth prospects, Guaranty Trust Bank (GTBank) plc has completed its re-organisation to a Holding Company Structure. Under the terms of the re-organisation, a new operating company has been established and amendments made to the articles of incorporation for a corporate name change. The corporate name of Guaranty Trust Holding Company Plc and GTCO Plc will be used by the newly established operating company.

The newly established Guaranty Trust Holding Company Plc is also pleased to announce its new Board of Directors as well as changes to the Board of its banking subsidiary, Guaranty Trust Bank Limited. All the appointments have been approved by the Central Bank of Nigeria and disclosed to the Securities and Exchange Commission and the Nigerian Exchange Group.

Guaranty Trust HoldCo Plc Commemorates Listing on Nigerian Exchange
L-R: Mrs. Cathy Echeozo, Chairperson, NGX Regulation Ltd; Mr. Hezekiah Oyinlola, Non-Executive Director, GTBank Nigeria; Ibrahim Hassan, Non-Executive Director, GTBank Nigeria; Mr. Segun Agbaje, Group Chief Executive Officer, Guaranty Trust Holding Company (GTCO) Plc; Mr. Temi Popoola,CFA Chief Executive Officer, Nigerian Exchange (NGX) Limited; Mrs. Osaretin Demuren, Outgoing Chairman, GTBank Nigeria; Mrs. Miriam Olusanya, Executive Director, GTBank Nigeria; Mr. Seyi Osunkeye, Non- Executive Director, NGX Ltd and other NGX Ltd Executives during the Closing Gong Ceremony to mark the listing of GTCO Plc on the NGX yesterday in Lagos | www.brandspurng.com

Guaranty Trust Holding Company Plc (GTCO Plc) will be governed by a Board of Directors comprising, Mr. Sola Oyinlola as Chairman of the Board and Mr Segun Agbaje as the Group Chief Executive Officer, Mr Adebanji Adeniyi as Executive Director, Mrs Cathy Echeozo as Non-Executive Director, Mr. Suleiman Barau and Mrs. Helen Bouygues as Independent Non-Executive Directors

The Banking subsidiary, Guaranty Trust Bank Limited will be governed by a Board of Directors comprising, Mr Ibrahim Hassan as Chairman of the Board, Mrs Miriam Olusanya as Managing Director, Mr Jide Okuntola as Deputy Managing Director, Mr Haruna Musa as Executive Director, Mr Olabode Agusto as Independent Non-Executive Director, Ms Imoni Akpofure and Mrs Victoria Adefala as Independent Non-Executive Directors.

Commenting on the completion of the Corporate Reorganization, Mr Segun Agbaje, the Group Chief Executive Officer of Guaranty Trust Holding Company Plc, said:

“We believe that a Holding Company Structure will allow us to take advantage of new business opportunities in the emerging competitive landscape and strengthen our earnings base. We are very excited to get started on the next phase of our incredible journey to driving Africa’s growth by making end-to-end financial services easily accessible to every African and African Business by leveraging Technology and Strategic Partnerships.

As a bank, we were always looking to meet every customer need; with our corporate reorganization, we will be able to do more to help our customers thrive in this new world of digital technologies and unprecedented possibilities”.

He further stated that

“Whilst we are evolving as an organization, we remain committed to our founding values which have endeared our brand to millions of people across Africa and beyond, and which continues to drive our financial success. As a Proudly African and Truly International band, we will continue to live by these values—of excellence, hard work and integrity, even as we create faster, cheaper, safer and more diverse products for people and businesses of varied types and sizes.” 

Prior to its corporate reorganization to Guaranty Trust Holding Company Plc, Guaranty Trust Bank Plc has been at the forefront of delivering innovative banking products and services to customers and best-in-class Return-on-Equity to shareholders.

It is widely regarded as the best managed financial institution in Nigeria and has, over the past decade, embarked on a period of unparalleled growth, growing its customer base from less than 3 million customers in 2011 to over 24million customers in 2020, and profit before tax from ₦45.5 billion at the end of the 2010 financial year to ₦238.1billion at the end of the 2020 financial year.

Cellulant Introduces New Digital Payment Platform For The Retail Sector

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Cellulant Introduces New Digital Payment Platform For The Retail Sector

Payment technology over the years has completely transformed how retailers operate. Thirty years ago, most retailers across Africa did not accept credit cards, and mobile money was still an idea.

Over the past decade and a half, mobile money has transformed how African consumers access and use their money to pay for goods and services. But the most significant shift in the use of digital payments has happened in the last year, where the Covid-19 pandemic has accelerated digitization for the retail sector.

Unfortunately, retail businesses in major urban areas that were not equipped to handle card or mobile payments found it challenging to survive the COVID-19 pandemic. In Zambia, where multiple mobile money players are fighting for market share, merchants and retailers have set up fragmented payment processes, contracts and accounts to accept all forms of payments. In turn, this means that the retailer is managing varying user payment experiences to collect from multiple mobile money networks and processes for settlement and reversals daily.

Cellulant, a Pan-African payments company, is addressing this fragmentation in payment processing for retailers by rolling out Tingg, a digital payments platform enabling businesses across Zambia to accept payments from their customers seamlessly.

“Today, roughly 50% of retail customers request to pay for their purchases using digital payment options. Therefore, for all businesses – small, medium, large- digitising their payments has moved from a good to have to a game-changer in what has become the new norm.  However, this demand presents several challenges for most merchants who might not always support the customer’s preferred payment method, resulting in merchants having to enable multiple solutions to support multiple wallets.  We want to partner with these businesses and makes it easy for them to conveniently and affordably accept payments with fewer hoops,” says Gilbert Lungu, Country Manager for Cellulant Zambia.

A single integrated solution, Tingg offers simplified payment tools and processes for a merchant to manage their payments. As a result, businesses can allow their customers to make payments for goods and services using locally relevant payment options.

“In rolling out this digital payments platform, we are slowly removing the dependency on cash and POS terminals. Retailers can accept as many payment methods as possible whilst simplifying the collections and settlement processes. For retail customers, the solution provides a standard and unified payment experience regardless of the payment method.,” add Mr Lungu.

More than 70% of businesses in Africa are small or medium businesses and remain a backbone for economic growth for many other countries in Africa. Yet, 90% of these businesses collect payments in cash and lack digital payments options that cater to their customers. Cellulant aims to leverage its digital payments platform to boost growth for the retail sector by making it easy for businesses to conveniently and affordably accept payments and address the complex needs of managing payments.

YouTube Shorts Arrives In Nigeria

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YouTube Shorts Arrives In Nigeria

YouTube has announced the arrival of the beta version of YouTube Shorts in Nigeria, the company’s new short-form video experience to create short, catchy videos from mobile phones.

First announced in September 2020, YouTube has since expanded Shorts to 26 countries and will now be available across more than 100 countries around the world where YouTube is available.

While short-form videos were already viewable in the platform, users in Nigeria will be able to access for the first time Shorts’ creation tools which include a multi-segment camera to string multiple video clips together, the ability to record with music, control speed settings, and more. 

Users will also have the ability to sample audio not only from other Shorts but also from videos all across YouTube — which includes billions of videos worldwide — unlocking a new playground of creativity like never before. This means that users can give their own creative spin on the content they love to watch on YouTube and help find it a new audience — whether it’s reacting to their favorite jokes, trying their hand at a creator’s latest recipe, or re-enacting comedic skits. Creators will be in control and will be able to opt out if they don’t want their long form video remixed. 

In addition, and timed with the product’s international expansion, we’re bringing a new set of features to all existing and new markets such as:

  • Add text to specific points in your video
  • Automatically add captions to your Short
  • Record up to 60 seconds with the Shorts camera
  • Add clips from your phone’s gallery to add to your recordings made with the Shorts camera
  • Add basic filters to color correct your Shorts, with more effects to come in the future

“We want to make it easy and fun to create Shorts” said Todd Sherman, Global Product Manager for YouTube Shorts. “As we continue to build Shorts alongside our creators and artists, we’ll be adding more features for users to try”, he added.

When it comes to music, artists and creators will have a large library of songs to use in their Shorts from over 250 labels and publishers around the world, including Universal Music Group’s labels and publishing companies, Sony Music Entertainment and Sony Music Publishing, Warner Music Group and Warner Chappell Music, Believe, Merlin, Because Music, Beggars and Kobalt. 

Delivering a seamless viewing experience across YouTube

Helping people find Shorts to enjoy and creators get discovered is also a key component of the product experience. That is why even before announcing the creation tools, we had introduced a row on the YouTube homepage especially for Shorts, launched a new watch experience that lets you easily swipe vertically from one video to the next, and have added a Shorts tab on mobile that makes it easier for users to watch Shorts with a single tap.

As of today the YouTube Shorts player has surpassed 6.5 billion daily views globally.  

Shorts will be integrated to the YouTube experience users already know and love. For example, if a user hears a snippet of a song on Shorts, they can easily find the full song, watch the music video, or learn more about the artist — all on YouTube. 

Supporting mobile creators 

YouTube has helped an entire generation of creators turn their creativity into businesses and become the next generation of media companies. Over the last three years, we’ve paid more than $30 billion to creators, artists, and media companies.

With Shorts being a new way to watch and create on YouTube, the company has been looking at various ways to monetize Shorts and reward creators for their content, including the recently announced YouTube Shorts Fund, a $100M fund distributed over the course of 2021-2022. 

“We know that it will take us time to get this right, and we’re just getting started. We can’t wait for you to try Shorts and help us build a first-class short-form video experience right on YouTube” Sherman said.

The Shorts beta will be available to everybody in Nigeria by Wednesday, July 14th.  

Flutterwave Appoints Oluwabankole Falade As Chief Regulatory And Government Relations Officer

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Flutterwave Appoints Oluwabankole Falade As Chief Regulatory And Government Relations Officer

Flutterwave, Africa’s leading payments technology company, has appointed Mr. Oluwabankole Falade (Bankole) as the new Chief Regulatory and Government Relations Officer.

In his role, he will support Flutterwave’s vision by providing strategic oversight and government relation strategies, while ensuring that the interest and needs of the business are aligned with that of the regulators.

Bankole brings 18 years of experience in law, regulatory affairs, government relations, and business development across financial and telecoms industries. Before joining Flutterwave, Bankole was the Director, Regulatory Affairs and Government Relations at IHS Towers. He also held key leadership roles at VISA and MTN, where he managed interactions with key government stakeholders and regulators in key markets across Africa.

Olugbenga ‘GB’ Agboola, Founder and CEO of Flutterwave said: “We’re grateful for the conducive regulatory environments that have helped us carry out our business, safely and in the best interest of the customers. With Bankole joining our team, we believe he is well placed to strengthen our existing relationships as well as support us create new relationships. Bankole will play an instrumental role in supporting us achieve our goal of creating endless possibilities for our customers with our key stakeholders in mind,”

Bankole Falade, Chief Regulatory and Government Relations Officer at Flutterwave said: “I’m excited about the work Flutterwave has done so far in building trust with regulators. We want the same things with the regulators; to grow businesses and economies through technology. My role remains to proactively work with stakeholders to better understand our interests and needs whilst ensuring we are always aligned with set standards and regulations. I am happy to get to work.”

Bankole is an alumnus of the University of Aberdeen, Scotland with a certificate from the Harvard Law School Program on Negotiation. He is also a fellow of the Institute of Chartered Secretaries and Administration, Nigeria, and an Associate Member of the Chartered Institute of Arbitrators in the United Kingdom.

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