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The largest banks in Africa’s largest economy are choking on the Asset Management Corporation of Nigeria (AMCON) levy even as they operate in a punitive regulatory environment that undermines revenue.
For the year ended December 2020, lenders that have released full year financials collectively paid N188.44 billion, 18.69 percent higher than 2019’s N158.76 billion, according to data gathered by MoneyCentral.
If those charges were added back to their bottom line, they would have realised N1.075 trillion in net income, which is greater than the N886.75 billion that they collectively posted in the period under review.
Interestingly, the levy makes up 15 percent of total operating expenses of N1.15 trillion as at December 2020, MoneyCentral calculations show.
Nigeria set up AMCON in 2010 to help stabilise the banking sector after a $4 billion bailout of eight lenders in 2009. Prior to that, distressed banks were left to fail while the NDIC stepped in to redeem deposits.
The agency, due to be wound up in 2023, has acquired a total of N3.7 trillion naira in bad loans from 22 lenders and has recovered more than N1 trillion naira. It owes N4 trillion to the central bank, its guarantor.
However, the bank may not be liquidated in the next two years, which means lenders’ pains will linger, as the National Assembly had passed a bill that would establish a resolution fund saddled with the responsibility of bailing beleaguered firms who are unable to meet their obligations.
Under the new banks and other financial institutions act signed by president Muhammadu Buhari last year, the central bank will invest N10 billion, while the NDIC will contribute up to N4 billion.
Commercial banks and other lenders will pay annually 10 basis points of their total assets into the fund, but the new charges are higher than the 5 basis that they are paying from total assets.
Banks have attributed rising operating expenses to inflationary pressures, foreign exchange devaluation, and heightened regulatory cost.
Nigeria’s annual inflation climbed to a more than four-year high in March, rising 82 basis points from a month earlier to 18.17 percent, according to recent data from National Bureau of Statistics (NBS).
Analysts say the bad bank should be wound up when the economy stabilises, but they added that it is important to bail out beleaguered companies that are capable of creating financial crises.
“I do not think the levy is a burden because there are gaps to fill,” said Ayodeji Ebo, an equity research analyst with one of the investment banks.
“The question we should be asking is how much liquidity CBN provides to solve the problem. With the bad bank, customers have confidence in the banking system as they will not lose their money,” said Ebo.
Access Bank’s AMCOM charge of N35.43 billion is 20.12 percent of other operating expenses. The largest lender by total asset saw regulatory levy spike by 56.43 percent as at December 2020.
FirstBank Holding Plc’s levy of N44.82 billion makes up 23.12 percent of other operating expenses of N191.12 billion.
United Bank for Africa’s AMCON charge of N23.12 billion is N14.13 percent of other operating expenses of N162.30 billion, while charges rose by 15.69 percent as at December 2020.
Zenith Bank’s regulatory cost of N30.94 billion constitutes 12.13 percent of other operating expenses of N253.33 billion. The largest lender by profit saw charges go up by 8 percent as at December 2020.
Guaranty Trust Bank (GTBank)’s AMCON charge of 17.20 billion is 16.15 percent of other operating expenses of N109.83 billion. The largest lender by market capitalization saw regulatory dues increase by 11.06 percent as at December 2020.
As the economic recovery is slow even amid a vaccine rollout and regulatory keeps imposing stringent policies, commercial banks may find it difficult to record double digit growth in profit as they did a few years when the macroeconomic environment was benign.