Global consulting firm, Mckinsey, have described Nigerian banks as "sleeping giants", following the lower than expected banking penetration in the country, compared with the country's demography which presents a massive opportunity for the sector to expand.
The group stated this in its 2018 report titled: "Roaring to Life: Growth and Innovation in African Retail Banking," obtained at the weekend.
The 54-page report also described Nigeria's oil-producing peer, Angola as a "sleeping giant, noting that at the respective income levels of their financial institutions, banking penetration in both countries ought to be higher.
According to Mckinsey, the prominence of oil in a national economy often steers banks away from lending more to other sectors, or to the consumer market.
"In these markets, we also see credit bureau coverage of only three per cent--the lowest of the four archetypes--and less innovation in areas such as mobile money," it added.
The report identified four archetypes in African banking markets--each with markedly different per capita income, banking penetration, revenue growth, profitability, and financial infrastructure - to include the mature market, which includes countries such as Egypt and South Africa, with higher GDP per capita and asset penetration; the fast-growing transition market, which covers countries like Ghana, Cote d'Ivoire, and Kenya, where banking penetration is ahead of the curve; the sleeping giants, which Nigeria is part of; and the nascent market, which includes countries such as Ethiopia and Tanzania.
Mckinsey pointed out that globally, the banking industry was facing disappointing returns and sluggish growth, adding that for seven consecutive years, its return on equity (ROE) has been stuck in a narrowly defined range of between eight percent and 10 per cent--a level most consider the industry's cost of equity.
But it stressed that banks in Nigeria and other African countries provide a refreshing contrast as their markets were fast-growing and nearly twice as profitable as the global average.
"Although competition is heightening and regulation is tightening, there is still much room to grow: Africa's retail banking penetration stands at just 38 per cent of GDP, half the global average for emerging markets.
"Africa's banks face challenges aplenty, including low-income levels in many countries, widespread use of cash in most economies, and poor coverage of credit bureaus.
"But some banks are already tapping the opportunities inherent in these challenges, for example harnessing Africa's widespread mobile-phone coverage to create low-price offerings and innovative distribution models.
