Nigeria’s biggest banks see 10% drop in H1 account maintenance, e-banking income

Nigeria’s tier-1 banks saw a 10 percent decline in net income generated from fees and commission in the first half of the year, according to an analysis done by TheCable.

The five biggest (tier-1) banks generated a total of N181.72 billion on net fees and commission in the H1 for the period ended June 30 compared with N203.4 billion recorded the same period last year.

Fees and commission account for a significant percentage of non-interest income for banks, and represents income from account maintenance fees, electronic banking fees, and other credit-related commission.

The drop is coming on the back of a slew of new regulations by the central bank in recent times which has culminated to pressure the banks’ earnings potential.

Some of the new regulations include a multi-layered 30-70 percent cut in transaction fees across multiple non-interest revenue lines; continued hiking of the credit reserve ratio (CRR); introduction of a regulated loan-to-deposit ratio (LDR) which is computed as a loan to funding, with CRR-related penalties attached for noncompliance; restricting local private individuals and institutions from the high yielding OMO market.

First Bank, the oldest of the tier-1 banks, recorded a 13.69 percent jump in fee and commission income at N55.87 billion in the half-year compared to N49.06 billion in H1 2019, while fees and commission expense stood at N9.03 billion from N8.9 billion leaving net income at N46.75 billion, the highest by any of the banks, from N40.16 billion.

During the period under review, electronic banking fees was flat at N21.71 billion from N21.83 billion, income from account maintenance dropped slightly at N5.58 billion from N6.58 billion in half-year 2019.

Access Bank, the biggest bank by customer base, fees and commission income surged 23.63 percent to end the period at N51.74 billion from N41.85 billion.

Fees and commission expense stood at N11.18 billion from N4.32 billion, leaving net income at N40.59 billion from N37.52 billion.

Revenue from account maintenance charges and handling commission increased to end at N7.13 billion compared to N6.15 billion in 2019.

Zenith Bank, the most profitable bank as at H1 2020, saw a 26.82 percent decline in income from fees and commission during the period under review, as income stood at N46.15 billion from N63.07 billion.

However, fees and commission expense increased faster at 74 percent at N12.64 billion from N7.25 billion, leaving net income fees and commission at a meager N33.5 billion from N55.82 billion.

Account maintenance fee stood at N9.43 billion from N9.57 billion, while fees on electronic products stood at N8.93 billion from N27.07 billion.

United Bank for Africa (UBA) recorded the biggest in terms of fees and commission income at N55.86 billion from N52.34 billion.

Fees and commission expense increased to end at N17.28 billion from N16.28 billion, leaving net fees and commission at N38.58 billion from N36.05 billion.

Income from maintaining customers’ account was however flat at N3.58 billion from N3.38 billion, with electronic banking income at N17.93 billion from N16.86 billion.

Guaranty Trust Bank (GTBank), the biggest bank by market capitalization,  saw its fees and commission income negatively impacted finishing at N24.72 billion from N35.34 billion.

Account maintenance charges stood at N5.54 billion from N5.70 billion, e-business income also declined at N4.83 billion from N7.13 billion.

Against the double-whammy impact of tough regulations from the CBN, and the COVID-19 pandemic, the challenge for Nigerian banks today is how to deliver sustainable earnings growth.

Renaissance Capital in a report titled “Nigerian Banks Surviving the Squeeze” said Nigerian Banks should evolve to a holding company model with sizable subsidiaries in fast-growing sectors.

“In addition to giving Nigerian banks a route to explore earnings growth outside of the challenging banking sector, as well as room to explore cross-selling opportunities across a larger group, one key benefit to investors from a bank adopting this structure is the earnings see-through it gives,” the report said.

The report suggested that banks should build low-cost business models to penetrate the bottom of the pyramid noting that half of all Nigerians work in the agriculture sector, while half of the people working in agriculture belong to the poorest 40 percent of the population, 64 percent of all poor lived in rural areas and 52 percent of the rural population lived below the poverty line in 2016.

“This implies that growth benefits from the bottom of the pyramid cannot happen while ignoring the agricultural sector and rural areas,” the report noted.