Business
New regulations may impact growth in Nigerian bank sector
In March, the central bank published a circular on changes to a wide range of bank charges.
The cuts to commission on turnover, which applies to customers’ debit transactions on current accounts, began in April when banks reduced the charge by 40 percent. Fitch says this move will have a major impact, specifically on banks with large retail operations.
Adesoji Solanke, a banking analyst for Renaissance Capital, agrees: “If you look at the percent of commission on turnover, it’s as much as 50 percent of fee income for big banks like the Zenith International Bank” (currently at position 16 of the top 200 African banks).
While trying to make up for the loss of this revenue, banks will have to contend with higher AMCON levies, which Nigeria’s central bank raised to 0.5 percent of total assets earlier this year from 0.3 percent.
A regulation from Nigreia’s central bank that took effect in July also requires a 50 percent cash reserve requirement on public sector deposits.
This is likely to restrict liquidity, as those funds will sit at the central bank rather than collect interest.
First Bank of Nigeria (currently at position 15 of the top 200 African banks) reported that 27 percent of its deposits come from the public sector, approximately US$5 billion. The move is expected to cause banks, particularly smaller ones, to push up interest rates.
Fitch also says that Nigerian banks can boost volume, widen other fee-based products and focus on low-cost deposits to offset earnings pressure, pointing to AMCON bond maturities in December 2013 and October 2014 as a source of additional liquidity.
