Banks Dump Branch Expansion e-Payment Channels

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By Nse Anthony-Uko with agency reports

(Sunidata Finance) — Nigerian banks are no longer investing massively in opening brick and mortar branches as the appeal for use electronic payments channels spread among customers.

Data from the National Bureau of Statistics (NBS) shows that banks have not opened any branch in the last five years but have instead shut down many unprofitable branches.The NBS data shows that banks added 110 new branches between 2011 and 2012 to increase total bank branch network across the country to 5,564 in 2012 from 5,454 in 2011.

Banks added a further 75 branches in 2013 to bring total branch network across the country to 5,639 and this the highest number of bank branches in the last five years. Since 2013, the number of bank branches has been steady decline, to 5,470 in 2015 despite the fact that the number of licensed commercial banks in the country have increased from 21 in 2012 to 25 in 2015.

In the electronic payment space, the volume of Automated Teller Machines (ATM) transactions rose by 132.92 percent to 433, 587,623 in 2015 from 186,153,142 in 2010.

In terms of value, it increased significantly, from N954.04 billion in 2010 to N3.97 trillion in 2015, representing a 316.16 percent increase, data from the Central Bank of Nigeria (CBN) indicates.

The number of ATM machines deployed in 2015 stood at 16,406. Although the figure for 2010 not available, when compared with the 2011 figure, it rose by 70.19 percent from 6,766 (2011).

Analysts have linked the decline in bank branch network expansion to the increased preference for digital channels by Nigerian banks.

Johnson Chukwu, managing director/CEO Cowry Asset Management limited, said alternative electronic channels have reduced the need for physical branches and that is why the banks have not deployed more branches over the past five years.

“Banks are leveraging telecommunications infrastructure, such as ATMs, POS, internet banking, among others, to provide services to their customers. this being more cost efficient, banks have no compelling need to open brick and mortar branches any longer”, he told BusinessDay by phone.

Chukwu stressed that what this means for the banking sector, is that will drive banking operations going forward, displacing human labour for routine services that can effectively be done by robots.

In his emailed response, Ayodeji Ebo, managing director, Afrinvest Securities limited, said this can be attributed to the advent of in the financial sector, adding that banks have come to the realisation that the number of branches does not determine the size of a bank but its profitability.

“As a result, in the last few years, banks have had to close several unprofitable branches, except those set-up for strategic purposes. The increasing internet (53.0%) and mobile (81%) penetration, have made it easier for bank customers to adopt electronic banking”, Ebo said.

According to him, the adoption of e-banking services have provided better platform to grow their customer base as well as earn more revenue in terms of charges for using the platforms.

Taiwo Oyedele, PwC, head of tax and regulatory services, West Tax Leader, was not surprised that the branch network of banks has remained stagnant in the past five years.

“In fact I would have expected a decline for two reasons. One is the disruption of technology, which has made it possible for banking transactions to be done online and with machines such as ATMs, which I am sure have increased in number over the same period”, Oyedele said in an emailed response.

These and other innovations, such as mobile money, crypto-currency and 24-hour call centres, he said, would continue to make physical branches less relevant, as more and more customers move from physical to virtual banking. The second reason is the need to cut cost. A good number of bank branches are not profitable, so with the slowdown in economic activities since 2014, there was no appetite for huge capital outlay new branches.

The NBS data shows that Lagos State has the highest number of bank branches in the country and has had the highest number of bank branch network between 2011 and 2015 even though the number of bank branches in the state has declined from a high of 1,692 bank branches in 2012 to 1,486 branches in 2015 but this accounts for approximately 27 percent of total bank branch network in the country. The Federal Capital Territory Abuja, ranks a distant second in terms of the number of bank branches, with total bank branch network of 369 while Oyo State follows closely in third place, with a total branch network of 343. Except for Anambra which has 218 bank branches, all other states in the country had less than 200 branches as at 2015.

Kogi and KebbiStates had the least number of bank branches as at 2015 with just 37 bank branches in both states, followed closely by Zamfara, which had just 38 bank branches as at 2015. Also Yobe and Gombe had just 41 bank branches in both states, despite their huge land mass and population.

Data from the Nigerian Inter-Bank Settlement System (NIBSS) Plc shows that the volume of transactions Point of Sale (POS) terminals has grown by 123 percent on a cumulative average growth rate basis, between 2012 and 2016 indicating that more Nigerians are increasingly going digital in their financial transactions.

The total value of POS transaction in 2016 stood at N759 billion, which was 69 percent higher than similar transactions in 2015. However, like bank branches, POS transactions are mainly done in Lagos. The NIBSS data shows that over 51 percent of POS transactions in 2015 were done in Lagos, while a significant part of the remaining transactions are concentrated in the Federal Capital Territory and Rivers state, indicating a poor spread of digital transactions across the country.