The Central Bank of Nigeria’s (CBN) gradual phasing out of Commission on Turnover (COT) by 2016, restriction on public and private sector deposits, declining yield in the fixed income market, and introduction of interest on savings account have impacted banks’ earnings significantly.
This is evidenced by the moderating growth of industry gross earnings from 40.9 percent in 2012 to 15.8 percent in 2013, according to a report by Afrinvest, a foremost investment banking firm.
Consequently, analysts at Afrinvest expect banks to begin to device new ways of attracting deposits, perhaps including the option of paying interest on current accounts.
In the United Kingdom (UK), there have been signs of increasing competition between current account providers over the past year, with several current accounts offering better rates of interest than a
customer would expect from an easy access savings account.
“In Nigeria, rather than paying interest on current accounts, banks will even charge you Commission on Turnover (COT),” a bank customer told BusinessDay.
For instance, TSB and Nationwide offer current accounts with a 5 percent rate of interest; Lloyds Bank offers a current account paying up to 4 percent interest; Santander’s 123 account pays 3 percent interest plus cashback on household bills. Halifax offers an account that pays £5 a month as well as up to £100 to people who switch to it. The Co-operative Bank is offering people £100 to switch to it plus a £25 donation to charity; First Direct, the internet and telephone bank, which regularly tops consumer satisfaction surveys, is also offering £100 to switch.
According to Afrinvest, banks have had to compete within a much stiffer operating environment for funds and as such have had to pay more for deposits, which increasingly have been engaged in creating risk assets.
The limited number of bankable deals emerging within the corporate finance space and the payback timeline in infrastructure project financing may also have contributed to the reasons for this shift to
risk assets creation, the analyst said in the report, indicating that the era of ‘real banking’ may have begun.
The report revealed that tier 1 and tier 2 banks deposits grew by an average of 18.4 percent and 15.3 percent to N13.2 trillion and N5.7 trillion, while the loans grew by 25.3 percent and 24.1 percent to N8.3 trillion and N3.6 trillion in full year: 2013, respectively. Overall, lending to the private sector by deposit money banks increased by 8.1 percent and 2.8 percent in Q2, 2013 and Q4, 2013, respectively, to N17.0 trillion in Q2, 2014.
However, many banks are already engaging in aggressive banking push in their efforts to win customers. “Consumer banking is also of critical importance to the domestic economy, as it enables us to mobilise customer deposits that allow us to provide loans to our retail and business customers, generating employment and wealth in the process,” says Ayoola Adio, head, personal banking, Stanbic IBTC Bank, in an e-mail response.
Speaking on how this product is being administered, Adio says, “We have designed our workplace banking as the channel to attract new customers and expand relationships with existing clients in the
consumer banking space. We team up with the employer to service the financial needs of employees – this becomes an added benefit to their employee value proposition.
“This is the ultimate in convenience, as our relationship managers visit employees at their workplaces, giving them access to a wide range of financial services during office hours, thus making them more
productive, as there will be no more wasted time travelling to the bank.
“It gives us the opportunity to cross-sell and deepen relationships – to understand the needs of the employees and provide tailor-made solutions to address them. This puts our teams constantly in front of prospects and customers.”