In the past eight years, Nigeria’s largest banks have collectively realised N3.42 trillion in fees and commission income, according to data gathered by MoneyCentral.
However, charges on trading have been growing at a very snail pace since the start of last year, no thanks to a reduction in fees from electronic banking by the regulator.
For instance, the combined fees and commission for the largest lenders was flat at N548 billion as at December 2020, based on their audited financial statement.
That compares with 16.75 percent growth in 2019; 2017, (+8.92); 2016, (10.82 percent), and 2015, (8.74 percent), according to trend analysis by MoneyCentral.
Fee income is the revenue that a financial institution earns on services rather than interest payments.
Fee income is the revenue taken in from account-related charges. Charges that generate fee income include non-sufficient funds fees, overdraft charges, late fees, over-the-limit fees, wire transfer fees, monthly service charges, and account research fees, among others.
The CBN’s downward fee revisions to electronic banking charges, which took effect in January 2020 and were designed to ensure the protection of consumer rights as more individuals are financially included, have had a negative effect on banks’ fees and commission income.
That is on top of the increase in the cash reserve ratio to 23.50 percent that is putting profitability under pressure while the hike in loans and deposit ratio to 65 percent is likely possible to stoke non-performing loans (NPLs).
The dovish tone of the central bank that sent yields crashing dealt a great blow on interest income while the coronavirus pandemic that elicited rising loan loss provision due to huge write-offs as customers were unable to pay back interest on money borrowed as economic activities were paralyzed.
“Short-term and medium-term impacts on revenue pools will primarily be due to margins, where a decline in fee income will likely offset the increase in interest revenues,” said analysts at global management consulting firm, McKinsey.
“Client-driven banking revenues could fall by as much as 18 percent by 2021 before regaining a slow recovery path,” said the analysts.
Drilling down the books of lenders shows Zenith Bank’s fees income dipped by 20.74 percent to N79.33 billion in December 2020 from N100.10 billion.
The largest bank by profit in Africa’s largest economy saw fees on electronic products, a major component of total fee income, slump by 36.11 percent to N27.07 billion as at December 2020 from N42.57 billion the previous year; in the last eight years, it realized N606.26 billion from fees income.
Guaranty Trust Bank’s fee income fell by 21.04 percent to N59.44 billion as at December 2020 from N46.93 billion the previous year;
The largest lender by market capitalization attributes the sharp drop to Covid-19 which caused disruption to businesses with attendant negative impact on fee-based transaction volumes.
United Bank for Africa (UBA) Plc’s fee income increased by 3.23 percent to N82.60 billion as at December 2020.
Despite the harsh regulatory and difficult business environment, some banks have seen their retail banking businesses grow consistently across all income lines, driven by strong focus on consumer lending, payments and remittances, digitization of customer journeys, and customer acquisition at scale
Access Bank’s fee and commission income was up 27.12 percent to N116.70 billion in the period under review, largely underlined by the increased transaction velocity across our Channels and other E-business during the pandemic.
Access Bank’s customer via agency reached 2.30 million as at December 2020, while 3.6 million accounts were opened through Telco partnership across the country.
FBN Holdings Plc’s fees and commission income was up 24.55 percent to N103.25 billion in the period under review as against N82.89 billion the previous year.
FBN Holdings had 15 million digital customers at the end of 2020, and there was a 23 percent increase in Firstmobile users to 4.2million.
Interestingly, USSD recorded over 1.0 billion in transaction count and transaction value of N3.7 trillion, reaffirming the lender’s position in the USSD subscriber base.
The e-payment continues to show promise as evidenced in stellar numbers released by the statistics body’s selected banking sector report for the last quarter (Q4) 2020.
The report showed, as of Q4 2020, transactions worth 3.46 billion and N356.47 trillion were done through Electronic Payment Channels (EPC) in volume and value, respectively.
In total, 5.55 million cheques were drawn on the bank for payments totaling N4.22 trillion, representing a respective volume and value growth of 10.72 percent quarter on quarter (q/q) and 10.28 percent (q/q) on the third quarter (Q3) 2020.
Furthermore, Point of Sales (POS) transactions continued to grow on the back of limited transactions in the banking hall, hence, the growth in volume (32.1 percent q/q) and value (25.49 percent q/q) in Q4 2020.
Nigerian banks have denied owning MTN Nigeria and other companies for using telecommunication platforms to provide services.
In March, telecom operators through their umbrella union, the Association of Licensed Telecommunications Operators of Nigeria, threatened to disconnect banks from providing payment services on telco platforms until they paid a N42 billion allegedly due to its members from end-user billing.
BOTTOM-LINE
As interest income becomes increasingly squeezed banks are relying more on fee income to plug the gap. Those with major electronic channels that are customer facing have a major advantage in this regard.