The Nigerian insurance sector is expected to witness considerable growth in the medium to long term, despite an interruption in 2020 due to the COVID-19 pandemic.
In specific terms, players in the smaller life insurance segment of the market are expected to grow their collective premiums by 4.8% to N179.81 billion in 2020. This is a downwardly revised forecast due to the country’s weakened economic condition. Meanwhile, the life insurance segment is expected to grow its premiums to as much as N207.96 billion by 2024.
On the other hand, the non-life insurance segment of the market (which is significantly larger), is projected to grow its premiums by a revised 2.9% to N248.85 billion in 2020. In the medium term, growth in the non-life segment is expected to reach N321.53 billion in 2024.
It should, however, be noted that these projected growths are not going to come about easily, mainly due to Nigerians’ general lack of enthusiasm for insurance. According to Fitch Solutions, premiums growth will continue to be limited due to expected low average earnings by the insurance firms.
Widespread poverty was identified as a major factor making it impossible for a lot of Nigerians to access insurance covers. But then again, some wealthy Nigerian are known to avoid spending on insurance covers. This general lack of enthusiasm is known to hamper growth in the Nigerian insurance sector. The report, therefore, called for more action to be taken towards educating Nigerians about the importance/benefits of both life and non-life insurance.
“With a market supported by the country’s steady economy and large population, Nigeria’s insurance sector will enjoy a period of growth and development over the medium and long term, albeit interrupted by a slower pace of growth in 2020 due to the effects of the coronavirus pandemic. The outlook for premiums growth, however, continues to be limited due to low average earnings and widespread poverty, which will weigh on insurance affordability. As even the more affluent middle-class consumers tend to avoid purchasing insurance, which hampers the growth of compulsory basic insurance lines such as motor vehicle insurance, Nigeria’s potential consumer base needs to be educated more about the benefits of both life and non-life insurance coverage to support more robust growth in the sector.
“In spite of Nigeria’s large population, only a small proportion purchases life insurance. Life premiums currently account for 41.9% of overall insurance spending in the country. Low incomes and a lack of understanding of the benefits of life insurance remain the most important obstacles facing life insurers. However, a recovering economy, coupled with rising employment and incomes, will drive demand for life insurance products over the forecast period,” part of the report said.
In view of the competitive and regulatory landscapes, Fitch Solutions noted that the insurance sector in Nigeria is replete with mostly small players. The highly fragmented nature of the market makes it very competitive, even though only a few really command a greater percentage of the market share. In total, there are approximately 57 insurance companies in Nigeria and the report forecasted that the number may shrink in the coming years due to possible mergers/acquisitions.
Note that the National Insurance Commission, NAICOM, had recently revised its capital requirements for various segments of players in the insurance. You may keep up with that development by clicking here.
In the meantime, foreign players have been showing serious interest in the Nigerian insurance sector. A typical example is the French insurance firm – AXA which has stakes in Nigeria’s AXA Mansard Insurance Plc. Other examples are South Africa’s Old Mutual Ltd and Sanlam Emerging Markets (Proprietary) Ltd. As Nairametrics reported, Sanlam recently took over full ownership of FBN Insurance Ltd after FBN Holdings Plc divested all its stakes in the insurance firm which used to be one of its many subsidiaries.
Nigerian banks are expected to experience a slowdown in 2020 due to the COVID-19 pandemic.
1 day ago
June 29, 2020
There is no gainsaying the fact that the Nigerian banking sector will experience a slowed-growth phase this year, due to the COVID-19 pandemic that has ravaged the economy. Several reports have been pointing to this sad reality, with the latest being Fitch Solutions’ Nigeria Banking & Financial Services Report for Q3 2020.
The 57-paged report made some very vital forecasts for Nigerian banks, one of them being that high inflation and increased government borrowing will be responsible for much of the headwinds to banks’ profitability in the medium term. In other words, even though these banks are expected to grow in the medium term, the rate of growth will be determined by the effects of inflation and government’s borrowing from the banks.
“Nigeria’s banking sector is set to grow over the medium and long term, with a slowing of growth in 2020, supported by new lending requirements which will help boost growth. However, we expect high inflation and government borrowing to provide strong headwinds to growth over the medium term,” part of the report said.
READ ALSO: Fitch rates 3 Nigerian banks lower to ‘B’, places others on negative watch
In the meantime, Fitch Solutions has revised its earlier 2020 growth forecast for Nigerian banks, including their total banking asset growth. The decision to change the earlier forecast was made out of consideration for the economic shortfalls caused by the pandemic.
Note that Nigeria’s adoption of the IFRS 9 accounting standards for bad loans had considerably helped to improve asset quality in the banking sector. As a matter of fact, the ratio of non-performing loans (particularly those in the oil and gas sector) had declined by as much as 40.7% between Q4 2018 and Q4 2019. Unfortunately, the pandemic and the dramatic fall in oil prices earlier this year, all combined to negate the recent recorded success. This is why banks’ asset quality is projected to deteriorate this year, according to Fitch Solutions. This will also make banks become more cautious about lending.
READ MORE: CBN to finance renewable energy initiatives, sets up N500 billion fund for manufacturers
“We continue to expect the changed minimum loan requirement to help drive client loan growth over the medium term. We have revised our growth forecast from the previous quarter and expect client loans to reach NGN14.9trn in 2020 with growth of 2.5% from 2019.
“Due to economic headwinds caused by the coronavirus pandemic, we have revised our forecast for total banking asset growth to 5.3% to NGN44.2trn. Over the medium term, we see average annual asset growth of 12.0% to NGN63.8trn by 2024.
READ ALSO: Fitch says Nigerian banks have a risk indicator of 12.14, explains why
“Following the adoption of the IFRS 9 accounting standards for bad loans, including the transition that will protect banks’ capital adequacy ratios, asset quality in Nigeria has improved. Nigeria’s ratio of non-performing loans (NPLs) tied to the oil sector declined by 40.7% from Q418 to Q419 as oil exports rose by 16.1% in 2019. In turn, the total NPL ratio fell from 11.7% to 6.0% over this period. However, due to the combined economic impact of the Covid-19 pandemic and lower oil price, we expect asset quality to deteriorate this year, making banks more cautious about lending.”
Download the Nairametrics News App
Below are the other key forecasts made by Fitch Solutions concerning the Nigerian banking sector:
- At Fitch Solutions, we forecast a deceleration of client loan growth from 14.0% y-o-y in 2019 to 2.5% in 2020, before a small pickup to and 4.3% in 2021. Downside risks are elevated due to the Covid-19 pandemic and a weakened oil sector.
- Demand for credit is set to weaken amid reduced economic activity and elevated uncertainty among consumers and businesses while deteriorating asset quality will make banks more cautious in issuing loans.
- Increased government borrowing from domestic banks will help to support asset growth over the coming years. That said, there are risks of this crowding out private borrowers from receiving credit, hampering the economy’s long-term recovery.
Access Bank apologised to its customers and said it will bear the cost of the stamp duty.
2 days ago
June 28, 2020
Access Bank Plc said it will no longer be going forward with its earlier decision to collect accrued stamp duty charges (for February through to April) from its customers. This followed a serious social media backlash against the tier-1 bank this weekend, as customers expressed their utter dissatisfaction over the debits.
In a statement issued on Twitter, Access Bank explained the decision to cancel the stamp duty collection was because it cared about its customers. The bank, however, maintained that the earlier decision to withdraw the accrued charges was legal.
In the meantime, Access Bank said it will go ahead and bear the cost of the stamp duty (for February through to April 2020 alone) on behalf of its customers. Note that stamp duty charges on bank customers’ transactions are usually collected by the banks on behalf of the Federal Government of Nigeria.
Part of the statement by Access Bank said:
“Stamp duty charge collection is in compliance with the mandate of the ‘Finance Act, 2019 (Stamp Duty Act, Cap S8). We are required by law to apply this charge as applicable and remit all funds to the Federal Government.
“However, we have heard our customers’ feedback that this charge is unwelcome, especially at this time against a challenging economic backdrop. We have considered your feedback and have decided to pay the stamp duty on our customers’ behalf for the affected period only. This means all individual and SMEs who were debited for the accumulated stamp duty charge for February to April 2020, will be refunded.”
We have heard your feedback and we hope this goes a long way to make it better.
Thank you for sticking with us.#AccessMore pic.twitter.com/ZpJLRUBT61
— Access Bank Plc (@myaccessbank) June 28, 2020
To this end, Access Bank said it hopes the decision to refund all those who were debited would go a long way towards making them feel better.
Recall that Nairametrics reported last week about Access Bank informing its customers ahead of the stamp duty debits this weekend. An email sent by the tier-1 bank to its customers, as seen by Nairametrics, had explained that the accrued charges were not debited between February and April when they were supposed to, due to an omission on the part of Access Bank. The bank had, therefore, apologised to the customers for the inconvenience. But apparently, many customers claim they did not receive this notification, hence the backlash.
Investigation by Nairametrics reveal some of the banks customers have started receiving credit alerts on the phones. In a reversal seen by Nairametrics, the account holder was credited N100 at 20.31pm with a description “REFUND OF STAMP DUTY” included in the alert.
The Coronavirus pandemic is top on the list of factors weakening the Nigerian financial sector.
2 days ago
June 28, 2020
Nigerian banks, insurance firms, and other financial services providers have the potential for long-term growth in Nigeria which is undoubtedly Africa’s most populous country. This is one of the top strengths of the Nigerian financial services sector, according to a SWOT analysis carried out by Fitch Solutions Country Risk & Industry Research.
Contained in a new report titled “Nigeria: Banking & Financial Services Report Q3 2020”, the SWOT analysis also identified improvements in the regulatory environment as another top strength.
In the meantime, there is an immense opportunity for growth in the Nigerian insurance sub-sector, especially as it pertains to life insurance. As the report explained, this is another major strength for the financial sector, because there is evidence to show that foreign investors are attracted to the country’s insurance sub-sector. Recall that in early March, Nairametrics reported that German-owned InsuResillience Investment Fund had completed the acquisition of 39.25% equity stake in Royal Exchange General Insurance Limited, a subsidiary of Royal Exchange Plc.
The Coronavirus pandemic is top on the list of factors weakening the Nigerian financial sector. This is mainly because the pandemic has caused a drastic decline in the demands for loans, even as there is now a high possibility that non-performing loans will skyrocket. This position is similar to one detailed in a recent report by The World Bank, as reported by Nairametrics.
Meanwhile, other weaknesses bedeviling the Nigerian financial industry, according to Fitch Solutions, include the following:
- Continued lack of major multinational competitors in the wider banking and financial services sector.
- The limited capacity of a broad section of Nigerians to spend on traditional insurance products due to poverty.
- The prevalence of fraud is another problem, especially so in the motor insurance sector.
- The COVID-19 pandemic and lowered oil price are said to have heightened liquidity concerns in the Nigerian financial sector.
Thanks to reforms imposed by regulators such as the Central Bank of Nigeria, accounting practices are said to have improved considerably, thereby increasing the transparency level, especially in the banking sector.
Still on the opportunities, employers in the financial service sectors are now required to provide group life insurance coverage. This is said to provide an opportunity/improve knowledge of insurance in the country.
Meanwhile, Nigeria’s mostly young population provides immense growth opportunities for current players in the sector as well as future entrants; including foreign investors.
- If the economic recovery doesn’t begin until later in 2021 then domestic demand for banking and financial services will remain muted.
- Perceptions of the Nigerian banking sector were badly damaged by the crisis in 2009 and have yet to fully recover.
- Expected higher inflation will weigh on credit demand.
- Nigeria’s economy remains overly dependent on oil price fluctuations, impacting the potential of the market’s banking and financial services sector.