The complete phase-out of commission on turnover (COT) from the Nigerian banking industry, which began on Monday, is expected to negatively affect banks' non-interest income this year.
The Central Bank of Nigeria (CBN) had in a 2013 circular, outlined plans to gradually phase-out the COT charged current account by 2016.
Specifically, the central bank had directed all banks to reduce COT then from N3 to N2 by 2014, N1 by 2015 and to zero charge on current account transactions by 2016.
The impact of this policy as well as other earnings-constraining policies that banks had to contend with in 2015 are expected to hamper banks' earnings profile this year, according to analysts.
Commenting on the complete COT removal, analysts at CSL Stockbrokers Limited, noted that banks that received a significant portion of their fee and commission income from COT would suffer a stronger impact of the policy.
A look at the nine month results as at September 31, 2015, showed that the total COT for the nine banks was N54.725 billion. The banks are Diamond Bank Plc (N2.301 billion); Stanbic IBTC (1.929 billion); FBNH (N9.981 billion); Sterling Bank (N1.062 billion); Access Bank (COT and handling commission - N2.507 billion); Zenith Bank (N18.713 billion); Guaranty Trust Bank (N8.387 billion); United Bank for Africa Plc (N8.237 billion); and Fidelity Bank (N1.608 billion).
But based on their nine month 2015 numbers annualised, the total COT for full year 2015 for the nine banks listed amounted to N73 billion.
"We expect the total eradication of COT to weigh on bank’s Non-Interest Income this year, albeit marginally in some cases. Nevertheless, we believe they will find other ways of making up for at least part of the lost income," analysts at CSL Stockbrokers stated.
The central bank's Guide to Bank charges, first issued in 2004, was meant to provide a standard for the application of charges in the banking industry, and to minimise conflicts between banks and their customers. Over time, it was observed that the various charges in the Guide had become out of tune with current realities in the market, and some provisions/terms in it allowed room for ambiguity and conflict.
“In order to reflect current developments in the market and provide clarity, on banking terms, the CBN recently conducted a review of the “Guide” in consultation with all the banks and discount houses, Bankers’ Committee, financial experts/consultants and also considered inputs received from other stakeholders to produce the Revised Guide to Bank Charges.
“To reduce the ambiguity in loan transactions, minimum disclosure requirements for loan contracts have been stipulated. Banks and discount houses are enjoined to ensure compliance with provisions of the Guide,” the central bank had states.
The document also stated that for savings deposit accounts, a minimum charge of 30 per cent of Monetary Policy Rate (MPR) would be charged, while for term deposit, the charge is negotiable.
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