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McKinsey & Company Predicts Equity Recovery For Nigerian Banks

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  • Expects more billion-dollar valuations for Fintechs

McKinsey & Company has released its Global Banking Annual Review predicting that Nigerian banks will recover from the vagaries of the Covid-19 pandemic which affected business globally.

The 11th edition of the Banking Review is based on insights and expertise from McKinsey’s Global Banking Practice, examines how banks fared in the whirlwind of 2020. It details the factors that will influence their economic fate in the coming years (such as geography, customer base, scale, and business model); and looks at the forces lifting one set of banks above the rest.

“In Africa, average banking return on equities (ROEs) dipped from 15 percent in 2019 to 9 percent in 2020, a steeper fall than global ROEs. The industry is set for a recovery that could put African banking ROEs at between 13 and 15 percent by 2025. In Nigeria, average ROEs dropped from 20 percent to 18 percent between 2019 and 2020, and are expected to recover to between 19 and 21 percent, said Mayowa Kuyoro, a Partner in McKinsey’s Lagos office.

Overall, fintechs and specialized financial-services providers—in payments, consumer finance, or wealth management—are generating higher valuation multiples than most global universal banks. This is no different in Africa. Over the last 12 months, we have witnessed some of these institutions achieve valuations that have been higher than universal banks. Some fintechs are going from a rough sketch to billion-dollar valuation in a few years.

There is a significant competitive advantage linked to scale. In Africa, the top three largest banks in each country are on average 10 points more cost-efficient than the rest of the market. Banks often can’t change their geography, scale, or segment, but the business model they adopt is in their control. Yet many traditional banks have pursued a commoditized universal bank business model based on retail deposits and corporate lending.

According to the report, African banking is now more profitable, and revenues are expected to grow faster than the rest of the global industry with an average growth rate of between 7 and 9 percent.

“We are seeing an accelerating divergence of returns between top and bottom African banking players,” said Francois Jurd de Girancourt, Head of McKinsey’s Banking Practice in Africa. “Winners are benefiting from the great divergence in three ways: (i) by focusing on customer ownership—leveraging technology to increase contacts points and leveraging customer data to personalize offers; (ii) by growing the fee part of the business on the continent—leveraging consumer and merchant payments, corporate transaction banking services and wealth products; and (iii) by deploying the balance sheet outside of their traditional customer base—lending to the unbanked/low-data consumers and SMEs, and offering new products, e.g., through apps and wallets.”

The next few years are crucial for any African bank with aspirations to land on the right side of the divergence described in this year’s report. Not only is there simply no value to waiting, but also history shows a pattern in which institutions that take bold steps toward growth in the first years after a crisis generally hold on to those gains for the longer term.

Key 2021 report findings include that:

  • Financial services as a whole (including banks, fintechs, and specialists) is trading at 1.3 times equity book value globally, well below the remaining sectors at 3.0 times book value. Globally and in Africa, banks are trading at 1.0 times, while Nigerian banks are trading at 0.4 times the equity on their books.
  • Payments specialists, exchanges, and some securities firms captured more than 50 percent of the $1.9 trillion in market cap that the industry added globally.
  • The gap between the banking industry’s leaders and laggards, as measured by total return to shareholders (TRS), has steadily widened. In Africa, TRS for the top-quintile performers was 159 basis points higher than the bottom quintile in 2021. This gap has tripled in the past ten years, with most of the divergence happening in the past four years.

The analysis shows that there are four primary sources for the divergence. The first three—geography, scale, and segment focus—are difficult for banks to change. The fourth—business model—is well within banks’ power to adapt, and our analysis found that banks with capital-light and specialized businesses focused on fees typically thrive. Weak performers can catch up, but time is short. Two-thirds of the value generated (valuations/market cap) during an entire economic recovery cycle is created during the first two years after a crisis.

The report concludes with important business-model questions for CEOs and strategists to consider, along with examples of what is possible for banks in their search for growth and profitability.

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How MTN’s Endorsement Changed 17-year Davido’s Musical Career

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Davido’s reputation as “Omo baba Olowo” (son of a rich man) has never been in question but even the wealthy have been known to enjoy a financial boost from time to time. The Afro-pop star revealed he received his big boost as a teenager when telecommunications giant, MTN Nigeria came calling with a N20 million naira endorsement deal.  

“I remember when MTN, a telecommunication company, came, and they were like they want to do endorsement, but then he (Dad) was like how much, and I said 20 million. I was like I’m 17. Nobody (had) seen that kind of money. Wow, this is from music, and it’s off like two songs, of course.”

Davido further explained that the deal came at the right time as it proved to be the incentive needed to convince his multi-billionaire father, Dr Adedeji Adeleke of the potential in the music business.

“I’m like, ‘Daddy see, we can do this’. “He built me a studio and gave me some money to run my stuff and did my first album, and it came out really really successful.”

Davido was the face of MTN Pulse between 2012 and 2016 and during that time the pop star dropped hit songs like Aye, Skelewu, and Gobe to mention a few whilst picking up a number of awards along the way.

Davido has since risen to become one of Africa’s biggest musical export, selling out various venues across the world including the O2 Arena in London, performing at the 2022 FIFA World Cup in Qatar, earning billions of streams across multiple platforms and collaborating with some of the world’s biggest artistes. He recently released his fourth studio album “Timeless” which peaked at number 2 on the World Album charts.

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ITU Targets $100bn By 2026 To Accelerate Global Digitalization

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The International Telecommunication Union (ITU) issued yesterday a worldwide appeal calling to increase the value of pledges for digitalizing the world from the current $30 billion to $100 billion by 2026. 

The appeal by the United Nations specialized agency for information and communication technologies includes a focus on raising the level of resources for universal and meaningful connectivity and digital transformation in the world’s least developed countries (LDCs). 

The announcement of the target was made on World Telecommunications and Information Society Day, observed annually to mark the signing of the first International Telegraph Convention and ITU’s founding in 1865. 

ITU secretary-general, Doreen Bogdan-Martin, “Tech is at the top of the global agenda, but the benefits of digital technology are still out of reach for too many people,” said “If we are serious about digitalizing the world in a way that is meaningful and sustainable, we must take action to accelerate digital transformation for everyone.” 

In 2023, ITU’s anniversary is focused on empowering the least developed countries through information and communication technologies using the Partner2Connect Digital Coalition and its online pledging platform. 

The ITU appeal to the public and private sectors encompasses a campaign launched in February 2022 by Partner2Connect to mobilize direct funding or other contributions for connectivity projects in countries registering the lowest on development.

Of the $30 billion already pledged overall, Partner2Connect has identified commitments worth $12 billion to bring the LDCs online as quickly as possible.   

The United Nations defines LDCs as countries that have low levels of income and face severe structural impediments to sustainable development. The call for resources, which comes as the UN strives to rescue its Sustainable Development Goals (SDGs) by 2030, stresses the need for the globe’s digital transformation to be environmentally friendly. 

“The digital revolution is a defining force of our era,” said United Nations Secretary-General António Guterres. “As the Internet becomes ever more central to value creation and innovation, least developed countries risk falling further behind. We must dramatically improve accessibility and inclusivity and eliminate the digital divide.” 

According to ITU data, 2.7 billion people worldwide were offline in 2022. The digital connectivity divide separating the least developed countries from the rest of the world is widening on key factors such as access, digital skills and affordability. 

Though the globe’s 46 least developed countries are home to almost one-third of the world’s offline population, the Internet is considered to be affordable in only two of those countries. 

At the event marking ITU’s anniversary in Geneva, ITU Secretary-General Bogdan-Martin announced SDG Digital Day, scheduled for 17 September in New York in advance of the UN SDG Summit to review the 17 Sustainable Development Goals.

The SDG Digital Day, powered by ITU on behalf of the UN system, will showcase high-impact, sustainable, digitally based solutions that have a game-changing potential to accelerate progress on the SDGs. 

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SmartParcel Introduces Tech-driven Parcel Delivery Service across Nigeria

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SmartParcel, Nigeria and Africa first innovative logistics parcel solution provider has began deployment across strategic locations in Lagos and across Nigeria.

The co-founder/COO of the company, Benjamin Adeyemo spoke during the opening of the Lagos Island Smart Locker locations at Mandilas Building and Andora Best Shopper Mart on Broad Street.

He said, “Businesses and individuals on the Island and across Nigeria now have a new, easy to use, and convenient delivery service powered by smart and innovative technology.”

Adeyemo noted that the easy-to-use solution aims to solve logistics and delivery challenges by creating seamless, smart lockers positioned in strategic locations where users can send and receive items meant for them.  

“The first step is to download the SmartParcel app on Google PlayStore or Apple store. Sign up to get your unique Locker code. The depositor will then use the code to deposit his/her item in the Locker. SmartParcel will then assign a trusted rider to pick up and deliver the item at the recipient closest or preferred SmartParcel collection centre.

 “he recipient gets an instant notification when after the rider drops the parcel at the SmartParcl Locker. The depositor also gets an alert after the parcel is collected by the recipient. Adeyemo further said that the businesses on Lagos Island will enjoy a maximum of 12 hours delivery circle,” he added.

Speaking at the launch, a business owner, Aisha, who uses the service said, she discovered “I discovered SmartParcel at VGC. I downloaded the app “Smartparcelng” and I was signed to the service within minutes. I contacted my client and told him about the SmartParcel locker which coincidentally happened to be very close to his house and he was able to retrieve his item easily just by using the code.”

SmartParcel currently has location partnership with NIPOST that allows this innovative service to be enjoyed by all Nigerians across the 774 local government areas of the country.

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