… As Banks preoare to lose N100b revenue over zero COT
The naira volatility continued almost throughout last year in both the parallel and interbank markets. At the last trading day for the year last Thursday, the naira crashed further against the dollar while the stock index rose.
Naira closed on the interbank market at 199.50 to the dollar on Thursday, compared with 181.50 to the dollar a year ago, down 9.91 per cent at the official window. On the parallel market, the naira traded at 266 to the dollar, weaker by 39.26 per cent from 191 to the dollar at the close of last year.
The naira has continued to come under pressure against the dollar, as Brent crude price continues to decline. The oil price declined to $35 per barrel on December 11, its lowest price since February 2009, before increasing to $38.45pb on December 15 and closed the year around $37pb. This has adversely affected almost all indicators in the economy including the naira.
The stock market rose 3.11 per cent for the day. But it ended down 17.35 per cent for last year. For the naira, it has been a tough road to survival. At the parallel market, the local currency depreciated by 8.44 per cent to N270/ dollar on the 16th of December, touching a new all time low.
At the interbank market, the naira remained relatively stable and appreciated marginally by 0.53 per cent to N197.49/ dollar. The external reserves level declined during the review period by 2.25 per cent ($680 million) to $29.48 billion as at December 15.
Managing Director, Financial Derivatives Limited, Bismarck Rewane, said for the sake of the naira, the Central Bank of Nigeria (CBN) has continued to checkmate liquidity needs in the economy through various monetary measures like the weekly sale of dollars to BDCs, Open Market Operation (OMO), the Monetary Policy rate (MPR), Net Open Position (NOP) and most recently the Cash Reserve Ratio (CRR).
Rewane said despite these measures to reduce pressure on the currency, it has continued to come under severe pressure from internal and external factors.
Other economists believe the incorporation of a long-term diversified strategy in fiscal policy is required to deliver the cushioning support for shocks in various segments of the economy.
For them, the persistent pressure on the naira could have been minimized if a counter cyclical fiscal policy is developed, as the CBN cannot continue to defend the naira with foreign reserves. To reduce this pressure, an inward looking policy (tax incentives, infrastructure development and production subsidy) should be emphasized to reduce the dependence on imported goods.
Asides from oil receipts, the development of the Agricultural sector will in the short term reduce the foreign exchange burden of food imports and over the long term enhance foreign receipts if its comparative advantage in the sector is efficiently deployed.
The CBN had pegged the naira exchange rate at 198 to the dollar in February and scrapped a two-way interbank quote as global oil prices fell, to conserve foreign exchange reserves.
Also in June, the regulator introduced more foreign exchange limits, excluding about 41 items from access to foreign exchange at the official window to further reduce pressure on available dollars.
In the meantime, banks’ revenues will drop by about N100 bilion this year, with the implementation of the zero Commission On Transactions (COT) policy.
It is the last phase of the “Guide to Bank Charges” policy initiated by the Central Bank of Nigeria (CBN).
A former Executive Director of Keystone Bank, Richard Obire, explained that of the annual N550 billion average revenue for the 21 banks, about N100 billion is raked from 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. COT constituting 60 per cent of income within the segment.
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.
The “Guide to Bank Charges” implementation, which started in March 2013, has seen the COT gradually drop to N3 per mille in 2013; N2 per mille in 2014; and N1 per mille in 2015 to Zero COT per mille started on January 1.
The “Guide to Bank Charges” is an initiative of the Central Bank of Nigeria (CBN) to reduce charges widely seen by bank customers
In a circular titled: “Implementation of Revised Guide to Bank Charges –Commission on Turnover,” posted on CBN’s website and signed by its Deputy Director, Financial Policy and Regulation Department, Franklin Ahonhai, the regulator said there was no going back on the policy implementation.
It mandated banks that charged excess COT since the effective date to refund same to the affected customers or be sanctioned.
According to the CBN, the policy is expected to have implications for both banks and their customers as it is expected to give the regulator more power to deal with banks reluctant to lower service fees considered ‘as the highest in the world’.
The apex bank said the “Guide to Bank Charges” would make it more difficult for banks to set high fees and charges without having reasons acceptable to regulators. The regulator said banks’ drive to make inroads into the legions of this country’s unbanked, financially illiterate and those isolated from traditional banking services through distance and hard terrain will be hampered by excessive charges.
It said the guideline was meant to address complaints arising from bank tariffs and other miscellaneous fees charged by banks on their customers’ accounts. The policy is also expected to ensure greater competition in retail banking and achieve real benefits for customers through lower costs, better service and greater access of financial services to poor communities whilst at the same time preserving the stability of the banking system.
Afrinvest West Africa Plc Managing Director Ike Chioke said banking was confronted with the reality of declining fee incomes, mobile money and dollar denominated capital sourcing.
In a report titled: “Nigerian Banking League – The fate of small players” Chioke predicted that the era of “real banking” appears to be gradually re-emerging as traditional sources of high income/profitability continue to come under threat from increased competition and tighter regulation.
He predicted that in the next five years, outlook on yields and fee income remains downwards, necessitating the need for banks to focus on lending to the real sector. Also, banks are expected to develop and grow the depth of their core retail banking businesses to retain and amplify cheap deposits.
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