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Diamond Bank Transformation From A Commercial Bank To A Retail Bank Case Solution
Retail and commercial banking plays a significant role in economic development. Modern banks facilitates saving habits, helps in capital formation, streamline trade and commerce activities and help in implementation of monetary policy. (KALPANA & RAO, 2017) Specialized financial institutions like banks have the required expertise to channelize funds in the economy in an efficient manner. In case of Nigeria there were many potential benefits of entering in retail banking. First, Diamond bank had a vision to be a leading financial institution, but given its position as shown in exhibit 8 it was far from being the big player with very low market cap as compare to the big banks of Nigeria. In order to get more share in market Diamond bank can focus on retail segment development. Secondly the financial performance of Diamond bank was sound and can further be improved. The capital adequacy ratio (CAR) requirement of regulator were met by maintaining a CAR of 17% and bank had adequate capital reserves from multiple resources. The net interest margin which is the difference between interest paid and received was highest in industry (Exhibit 3) and their Return on average equity is also good given their size and position in industry i.e. 21.7% closer to big names like Zenith (Exhibit 4). That shows that funds were invested efficiently. However bank has significant number of Nonperforming loans (Exhibit 2) which could be because of higher interest rates.
Following questions are answered in this case study solution
In your opinion was there a viable opportunity in serving the retail segment of the Nigerian Bank industry? If yes, explain in detail; If no, give your reasons.
What specific segments exist in the Nigerian retail market and what’s the size of the opportunity in each segment?
What resources and specific capabilities do you think Diamond Bank would require to serve the needs of the Nigerian retail market?
Develop a detailed market entry strategy for entry and growth into the Nigerian retail banking space for Diamond Bank
Developed a detailed execution plan that operationalizes in great detail the strategy developed in (4) above
Case Analysis for Diamond Bank Transformation From A Commercial Bank To A Retail Bank
In order to build customer loyalty and retention bank have to build strong relationship with its customer. Branches can act as customer contact points and an important source of relationship development and feedback of customers. Studies have shown that customer loyalty is a result of overall experience of customer with banks including services, convenience and value that creates an emotional experience for customer (Jeevan, 2014) Customer loyalty is the decisive factor for client retention if customers are satisfied with their experience they will likely to maintain their relationship with the bank. That means that bank will have capital in the form of deposits for the longer period of time. Diamond bank had the opportunity to build long term relationships with its customer as majority of population was young under the age of 35, if these customers are attracted and retained than bank can increase its presence in market.
Diamond bank started as a private limited company and then transformed to publicly limited company. It also got a universal operating license. Bank has experience in designing multiple unique and innovative products for different type of customers. They introduce products for daily savers, women and tech savvy individuals by combining their services with a telecommunication company. There tech partner MTN had 40 % market share in telecommunications. Collaboration with these type of giants can result in increased market share. It can help in bringing a Fin tech revolution which is very important for an emerging economy. This partnership can open new doors for Diamond bank and it can reach to even remote segments of market .Bank can then further increase its retail branches network to attract and retain more customers. Thus the idea of entering in retail banking is sound based on banks strengths and already achieved milestones. It can help in further development of banking channels in the economy and increasing the customer base of bank. Financial sector growth is directly linked to economic growth (Ahmed, 2019) Therefore growth of banking channels lead to economic efficiency.
2. What specific segments exist in the Nigerian retail market and what’s the size of the opportunity in each segment?
The Nigerian banking Industry had huge potential both in SME and Individual customer’s segment. SME financing is crucial in development of emerging markets and at the same time challenging. Because of doubtful projects and lack of assets to serve as collateral this sector does not receive its adequate share of financing facilities.(Badulescu, 2010).Nigerian SME sector was no exception and the issues were lack of management, innovation and technical expertise. They were not able to deal with the economic and technical challenges. Diamond Bank‘s focus on this segment could bring a positive change in the industry. If it able to assess the financial needs of SME sector and design products to cater their particular needs it could appear as the industry leader in SME financing. The capital re structuring of SME with debt issuance from bank would lead to leveraged profitability at the companies end and extend the customer base of bank.
Another important factor was large segment of Nigerian society comprised of millennial generation. This segment of market was not tapped to utilize banking channels. The young generation could be targeted with specialized marketing strategies catering their needs. Research have shown that financial institutions could develop a long term relationship with young generation by improving their strategies to attract them (Cudmore, et al., 2010). This generation is tech savvy and prefer digital mediums like mobile and internet banking over traditional channels, so developing Alternate delivery channels (ADC) would be a good way to attract them. Another characteristic of young banking customers are student loans. Advances are important financial assets for banks as compare to traditional deposits. If bank design suitable products for this segment of society they will gain massive market share and loyal customers for a long period of time.
The third segment of market was business banking clients that were formerly commercial clients. This sector is characterized with strong assets and large project financing requirements. To increase the performance of this sector bank has to design specific products for them and provide very good services. These clients do not change their financial institutions rapidly and can be retained for longer periods of time. Corporate clients provide huge capital as they have large accounts for salaries and expenses. They are considered high net worth clients with more business intelligence. (Abbasi, et al., 2016) The large customer base of these clients is directly linked to profitability of bank.
The size of opportunity in each of these segments was huge. As Nigeria is an emerging market there is lots of untapped potential. This population ban be considered unbanked because of lack of relevant products for each segment. The individual customer segments can be further divided into low. Middle and high income clients and different type of products and services can be designed for them as per their needs. Since there is lack of specialization in banking products, any institution who come up with innovative products would lead the market. The development of financial institutions are linked with both short and long term growth of any economy (Ahmed, 2019) It is one of the main causes for sustained development because increased channelization of funds leads to better investments in the economy.
3. What resources and specific capabilities do you think Diamond Bank would require to serve the needs of the Nigerian retail market?
In order to maximize the benefits of retail segment diamond bank have to develop certain expertise. First of all there should be product development for each and every segment of economy. The new product should be innovative and enhance the brand image for better performance. ( Fong, et al., 2014) For SME segment short term financing facilities are important as they do not have excess cash and rely on loans to meet their seasonal demands. Accounts with low minimum balance requirements along with free cheque books can also attract customer. For individuals different categories of accounts can be introduced with different limits of debit cards suitable for their needs. For young generation innovative products with focus on electronic and digital mediums would help.
After products the second important thing is customer touch points. Increase number of branches is important but service quality will play a crucial role in retention of customer. To improve service quality, a department can be formed which would set rules and regulations to monitor the quality of services provided. Customer feedback should also be taken by providing them a medium to share their opinion for improvement of services. This could be done by setting a help line number or email system for providing feedback. Empathy and responsiveness to customer needs are most important factors of service quality that help in customer retention (Nsiah & Mensah, 2014) Sometimes service quality is the main reason other than reliability of brand for attracting and retaining new customers.
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