GTB: Cut in charges threatens banks’ non-interest income

As reactions continue to trail latest results released by Deposit Money Banks (DMBs) in the country, Guaranty Trust Bank (GTB) has said that lenders’ earnings this year will be impacted by the Central Bank of Nigeria’s (CBN) downward review of bank charges.

The bank made the prediction in a report entitled, “Macroeconomic and Banking sector themes for 2020,” yesterday.

The Tier I lender also forecast more competition in the industry this year due to the combination between Access Bank and Diamond Bank, the licensing of two new commercial banks, as well as the licensing of Payment Service Banks (PSBs), Fintechs and Super Agents by the CBN to deepen financial inclusion.

GTB said: “We also expect that non-interest income will come under pressure in 2020 in the wake of the CBN’s down ward review of bank charges across payment and alternative channels.

“The apex bank reviewed electronic transfer charges from a flat charge of N50 per transaction to graduated charges of N10 for transfers below N5,000, N25 for N5,001 to N50,000 and N50 for transfers above N50,000 effective January 2020. Maintenance fee charged on debit cards have also been reviewed such that only debit cards linked to savings accounts will be charged subject to a maximum of N50 per quarter.”

Continuing, the lender said: “As regulation hinders robust earnings, non-bank competitors have continued to further deplete the already challenged earnings of commercial banks using asset-light technology to offer customers a bouquet of financial services across payment, lending and investment options.

“Put differently, the earnings of banks have come under pressure in the wake of licensed payment service banks (PSBs) and super-agents. In addition, the increase in Fintechs and digital banks has also seen banks’ earnings take a blow.”

According to GTB, while the spate of measures, especially the 65 per cent Loan to Deposit Ratio (LDR) introduced by the CBN to boost lending to the real sector of the economy has resulted in an increase in bank credit to   the private sector, “There are concerns within the industry that the drive for banks to achieve 65% LDR will put pressure on the banks’ ability to maintain minimum regulatory liquidity ratio of 30%.”

Furthermore, on its outlook for the Nigerian economy, GTB said it is projecting that the economy will expand by 2.4% in 2020 on the back of increased capital expenditure spend occasioned by the country’s return to the January – December budget cycle. It also hinged its projection on favourable oil prices, increased government revenue and stronger non-oil sector growth.

“Our forecast is largely in line with growth projections of IMF and the World Bank of 2.5% and 2.1% respectively. We expect the non-oil sector to be driven by activities in the agriculture, manufacturing and services (ICT and Transport) sectors. Specifically, growth in agriculture would be supported by declining farmers-herdsmen clashes, favourable weather conditions, sustained CBN interventions and short to medium term positives from land border closure,” the lender stated.

On concerns over the Federal Government’s debt service to revenue ratio, which it said was “estimated at over 50% as at June 2019,” GTB said:  “We expect to see increasing concerted efforts by the government aimed at increasing its revenue base in the coming months. There is, however, a need for government and its agencies to adopt a holistic approach towards driving the fiscal policy activities required to achieve this objective. Policies and pronouncements must engender private enterprise and lead to increased business activities which can then enhance revenue generation through tax efficiency.”

It further stated that: “We believe a more sustainable solution would be the introduction of reforms and policies that engender the widening of the tax base with a view to achieving a significant improvement in the country’s tax to GDP ratio, which currently hovers around 6%, to more tenable African average of 17.2%.

“We believe this is possible given that the current tax base consists of about 10 million of the estimated 77 million workforce. Despite the increase in taxes and other projected revenue streams of the government, there are concerns that the 2020 revenue target of N8.5 trillion might not be achieved,” the lender added.

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