Nigerian banks’ revenue from other sources could come under pressure next year given a recent directive reviewing downward their charges on customers, analysts have said.
The analysts said the move could dampen capital-raising activities and impact banks’ fee-based income.
The Central Bank of Nigeria (CBN) on Sunday issued a new “guide to charges” to banks, non-bank financial institutions and other financial institutions with effect from January next year.
The new directive, which replaces the Guide to Charges by Banks and Other Financial Institutions issued in 2017, will see the slashing of various charges by banks on electronic transactions, card maintenance fee, ATM usage as well as other related costs.
“The new directive would affect banks’ profitability,” Gbolahan Aina, head of investment at Cordros Asset Management, told BusinessDay.
Fee-based income has been the major boost for banks in the wake of a fragile economy that has seen an average growth of 2 percent, below population growth.
Ayodeji Ebo, managing director/CEO of Lagos-based investment and securities firm, Afrinvest, said there may be a reduction in fees and commission, especially for online transactions, in the short run.
“However, we expect that volume of the transaction would increase in the middle and long-term to cover up for this gap,” Ebo said.
The banking stock index dipped further by -0.82 percent to close 352.49 points at the close of trading, Monday, as investors continue to react to likely implication of the move on their investments.
According to the CBN, the cut in charges will incentivise stakeholders, especially those making micropayments, to further embrace electronic banking channels, thus improving financial inclusion.
Banks in Africa’s largest economy have leveraged non-interest income to boost bottom-line given the macroeconomic challenges facing the nation. This is even as the banks have been discouraged by the CBN from investing in high yield government securities at the expense of economic growth.
The non-interest income of a bank is derived primarily from fees including deposit and transaction fees, annual fees, monthly account service charges, inactivity fees, cheque deposit slip fees – all charged by banks in rendering effective financial services to customers.
In the nine months of 2019, six Nigerian lenders (UBA, EcoBank, First Bank, Zenith Bank, Stanbic IBTC and Union Bank) generated a total sum of N675.9 as non-interest income, according to BusinessDay data. This is a 12 percent increase when compared with the N606 billion generated in the same period the previous year.
The year 2020, would be a busy year for banks as the CBN continues to roll out policies that it hopes would lift an ailing economy.
The CBN is planning on raising the loan to deposit ratio of deposit money banks to 70 percent next year, according to a statement by Hassan Mahmoud, its deputy director, financial policy & regulation department. This is despite struggle by banks to meet the second target of 65 percent LDR by December year-end.
The apex bank had in July this year raised the loan to deposit ratio of banks to 60 percent in a bid to force banks to lend to the real sector of the economy.
Following the directive, loans by banks to the private sector increased by 7.39 percent to N16.25 trillion in the third quarter, up from N15.13 trillion in the second quarter, with the manufacturing sector benefitting greatly from the impact.
Without allowing the dust to settle, the CBN further raised the LDR for banks to 65 percent with a December 31 deadline.
The apex bank later barred non-bank foreign investors from partaking in its N14 trillion OMO market, pushing individuals and local firms to pack liquidity in short-term treasury bills. This sent yields of one-year treasury bills to lower lows at 6.17 percent, according to FMDQ data.
MICHAEL ANI
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