New rules to burden banks as AMCON charge makes up 30% of expense

A proposed new rule by the regulator will be a burden on banks who are already struggling with regulatory induced costs that form the chunk of total operating expenses.

The Federal Government through the central bank plans to start a fund that will operate as a bridge bank to help invigorate beleaguered companies.

Every lender will be required to make an annual contribution of 10 bases of their total asset, which is higher than the existing Asset 5 basis that Management Corporation of Nigeria (AMCON) charges them.

AMCON was established to help buy bad loans and savage the industry from collapse following the financial crisis of 2009, and it will wind up by 2023.

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However, the resolution costs have been a burden to lenders who are reeling from a punitive regulatory environment, as impairment charges on financial assets have ballooned due to the Covid-19 crisis that hindered customers from meeting their obligations.

That’s worrisome because low yields on the back of an accommodative monetary policy environment have pressured interest income, and there has been slow growth in profit.

The largest Nigerian banks collectively incurred N165.92 billion in AMCON charge in the second quarter of the year, and the figure is 26.46 percent of other operating expenses, and 18.49 percent of total operating expenses (Staff cost plus other operating expenses)

A breakdown shows combined charges increased by 19.43 percent to N165.92 billion in the period under review as against N138.92 billion the previous year.

Zenith Bank incurred regulatory induced costs of N30.92 billion as at June 2020 that was 31.05 percent of other operating expenses.

Access Bank, the largest lender by total asset saw AMCON charge surge by 56.48 percent to N35.43 billion as at June 2020, as the acquisition of Diamond Bank last year resulted in spiralling expenses and Non-performing Loans (NPLS).

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