DIFFICULT times are around the corner for commercial banks as they have to intensify efforts to remain profitable with nearly N100 billion drop following the Central Bank of Nigeria’s (CBN)’s directive on the phase out of commission on turnover (CoT).
This revenue shortfall follows the implementation of the Treasury Single Account (TSA), that took government funds out of the banks and the application of the zero CoT which took effect from January 2016.
The CBN had in 2013 released the guidelines, “Guide to Bank Charges,” which gradually phased out CoT in the country. According to the guideline, CoT was reduced to N3 per N1,000 in 2013, N2 per N1,000 in 2014 and N1 per N1,000 in 2015, while it would be finally phased out next year.
But Daily Sun findings showed that some banks have continued to charge above the N1 per N1,000 turnover that was effective from January this year, while some others already have accounts with zero CoT. It was learnt that in some banks, the amount charged as CoT depends on the customers’ relationship and negotiating ability with the bank. Revenue from CoT will now be shut down from January 2016. Last year, the apex bank had ordered deposit money banks to refund illegal fees charged customers over a period of one year, giving them 30 days to refund the excess charges or face severe penalties. Specifically, the central bank was worried that some banks had been overcharging customers on the commission while others had imposed illegal maintenance fees on the CoT- free accounts.
Meanwhile, a report showed that the CBN announcement received commendation of a cross-section of bank customers when it was introduced as many saw it as being in tandem with international best practice even though it did not seem to go down well with many deposit money banks. Banks feared its implementation may shrink their profit.
A banking industry insider who spoke on the condition of anonymity said that 2013 was a very challenging year for financial services institutions in Nigeria due to the effects of regulatory-induced reduction in income lines and increase in funding costs.
He said, “you will recall that CoT, which used to be at N5 million maximum, was reduced to a maximum of N3 per million. As you know, CoT is a major component of the income lines for banks. There was also the removal of the N100 that was charged by banks for ATM usage. In addition, there was an increase in savings interest rates leading to costs for banks because significant portion of our deposits comes from savings deposits especially for banks like us that have been around for a very long time.”
Meanwhile, Head of Investment and Research at BGL Securities Ltd, Mr. Femi Ademola, who confirmed to Daily Sun in a telephone interview noted that the combination of the CoT phase out and TSA; the effect of income reduction and cost increase puts a significant pressure on banks’ profits, as one of the reasonable options to sustain profitability would be through cost-cutting, including staff rationalisation.
“There is a potential reduction in income from CoT, which is being phased out and increase in expenses from interest expense and AMCON expenses, which is now 0.5 per cent of total assets (from 0.3 per cent earlier),” he added.
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