11 January 2016, Lagos — Compounding the existing operating challenges in the banking industry over revenue challenges facing the sector,Central Bank of Nigeria, CBN, zero Commission on Turnover, CoT, directive which began in January, 2016 is widely believed to further compound banks’ revenue generating ability in 2016.
The apex bank had last year unfolded plans to commence a gradual phasing out of CoT in the country in the revised guideline which introduced a gradual reduction of CoT from N5 per mille in early 2013 to N3 per mille, N2 per mille in 2014, N1 per mille in 2015 and has ordered zero CoT in 2016.
The Managing Director of APT Securities and Funds Limited, Mallam Garba Kurfi, explained to our correspondent in Lagos at the weekend that the CBN policy on CoT removal would have negative effect on deposit money banks, DMBs, revenue which might erode profitability and dividend payout to shareholders.
According to him, banks op-eration this year might be facing huge challenges as CBN policy on general provision on loan exposure from one per cent to two per cent and the policy on COT removal might affect profitability.In fact, under this circumstance, the decision of the CBN to reduce COT to zero witnessed strong protest from banks, who felt this process will impede on their revenue source and consequently, their level of profitability.
A former Executive Director of Keystone Bank, Richard Obire, explained that the annual N550 billion average revenue for the 21 banks, about N100 billion is raked from the COT.
Obire explained that bank’s revenues are made up of interests on loans, which constitute 70 per cent of the total revenue. Fees and commission make up the remaining 30 per cent. Fees and commission covers 30 per cent of the total revenues.
Obire said banks should be moving towards income diversification to shore up their revenue base. He said lenders should be creative and think of how to diversify to support activities that generate foreign exchange from local industries. He said aside the COT-free banking, the lenders will face pressure arising from interest revenues on loans.
Meanwhile, our investigation has shown that some financial institutions in the country have failed to oblige with the CoT in-struction issued by CBN guide on bank charges issued last year.Some DMBs are still charging N3 per Mille, while some others have begun the phase two of the road to zero CoT.
In a circular dated June 11, 2014 and titled: ‘Implementation of the revised guideline to bank charges- Commissions on Turnover’, referenced FPR/DIR/GEN/CIR/01/008, the CBN saidinformation at its disposal indicates that some banks continue to charge CoT at the rate of N3 per mile, which was the agreed rate for 2013. It, therefore, directed all banks that have charged customers in excess of the agreed CoT since March 27, 2013 “to refund same to the affected customers, not later than 30 days from (June 11, 2014).”
The CBN noted that the guide was part of efforts to standardise charges for various products and services offered by banks in the country, lamenting a situation where the banks have continued to abuse the portion that says that CoT is negotiable.
This, however, is an indication that all the windows to which banks make their profit are gradmust explore other alternatives to make ends meet.
*Motolani Oseni – Daily Times