Account maintenance charges contribute 18.99%
Business model not sustainable – Economists
BY KENNETH EZE
Three Deposit Money Banks in Nigeria declared a total income of N174.4 billion from fees and commissions, in the first six months of 2021.
One major contributor to this is account maintenance charges, which account for N33,133,949,000.00 (18.99 per cent).
The figures are contained in the mid-year financial reports of Access Bank Plc, Guaranty Trust Holding Company Plc, and Zenith Bank Plc, assessed by in-house analysts at The Point.
For the three banks, The Point considered their H1 2021 financial statements. Access Bank Plc declared N73,714,813,000.00 as ‘fee and commission income,’ for H1 2021, as against N51,774,914,000.00 earned from the same sources in the corresponding period of 2020.
Of this figure, account maintenance charge and handling commission contributed N10,855,275,000.00, which translates into about 14.73 per cent during the period.
In the same vein, Guaranty Trust Holding Company Plc declared N38,284,192,000.00 as fee and commission income for H1 2021, as against N26,457,209,000.00, earned from the same source in the similar period of 2020.
For the earning for H1 2021, account maintenance charges contributed N7, 802,674,000.00, an equivalent of 20.28 per cent.
In the case of Zenith Bank Plc, the total fee and commission income amounted to N62,521,000,000.00 for H1 2021 as set out under Net Income on Fee and Commission in the company’s Interim Report, June 30, 2021.
This is up from the sum of N46,151,000,000.00 earned by the bank from similar sources in the corresponding period of 2020.
The account maintenance fee debited against customers’ accounts during the period contributed N14,476,000,000.00, which translates into 23.15 per cent of the bank’s earnings from fees and commissions during the period.
In addition, the bank also earned N1,429,000,000.00 as commission on turnover during the period under review.
Commission on turnover is a charge deposit money banks in Nigeria levy on current account holders based on the volume of transactions carried out over a period.
“the banks apply kobo-debits, knowing that people would not create the time to seek resolution of infinitesimal charges of that nature, while being fully minded that little drops of water would end up a mighty ocean for them in terms of revenues
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Concerned members of the public, particularly depositors, would not stop wondering how the deposit money banks and similar institutions have been thriving and declaring colossal profits. Their worry is worsened by the fact that the macro-economy is literarily bleeding to death, owing to the harsh operating environment.
Many depositors contend that the deposit money banks are fully aware that no depositor would spare the time to seek clarification for, reimbursement or reversal of multiple short-message-service debits, even though they feel aggrieved about it.
In Nigeria, most banks charge four naira for each transaction alert and often send ‘multiple alerts’ over one transaction or even failed transactions, while consistently charging the customer for what many classify as service failure from the bank.
Several depositors told The Point that they considered this as a tactical way of fleecing them by the banks.
They maintain that the banks apply kobo-debits, knowing that people would not create the time to seek resolution of infinitesimal charges of that nature, while being fully minded that little drops of water would end up a mighty ocean for them in terms of revenue.
Economists and financial analysts warn that this is not a sustainable business model because those who trust the banks with their money seem to be paying dearly for the ‘custodian or whatever services’ the banks are rendering at the moment.
They further warn that because many bank customers are not seeing value in their relationship with the banks, they would eagerly embrace alternatives, any time such is seen on the horizon.
This, they maintained, constituted a major threat to the business of banking in Nigeria.
An economist and business development expert, Ikenna Ochuko, told The Point, “What is happening in Nigerian business circles is turning the rule on its head. The macroeconomic environment is what each business within that particular environment feeds from, and it should never reflect that only one inhabitant is thriving, while others are being stifled.”
“The banks’ resorting to depositors’ funds to boost their profit levels is akin to Darwin’s theory of survival of the fittest, where certain creatures prey upon others to survive.”
He opined that the banks only had depositors because there were no alternatives, else “who would want to pay to any bank just to be a custodian of his hard earned money”, he asked?
With vivid illustrations drawn from nature and the ecosystem, Ochuko explained that if the banks opted to adopt a business model that would see them exercise authority over customers’ deposits, it would thrive so long as the said customers had no options to choose from.
He said, “Wherever you find natural habitat, you’ll notice that all plants in a certain area are either malnourished or well nourished. They feed from the nutrients supplied by the environment. That is what the macro environment, otherwise called operating environment, does to businesses. Hardly can you find a business segment isolated for good or for bad.”
Group Chief Executive Officer, Guaranty Trust Holding Company Plc, Segun Agbaje, in what appears like an affirmation of Ochuko’s stance, noted, “The growth of the Oil Sector dipped to -12.65 per cent in Q2-2021 from a contraction of 2.21 per cent in Q1-2021.”
Barring his mind in the Group CEO’s Letter to Shareholders, which formed part of his company’s interim report, Agbaje acknowledged that the bank was operating in a tough environment.
However, he maintained, “The present realities of the operating environment, notwithstanding, we turned in a good financial performance in the first half of the year.”
He expressed optimism that Nigeria, being an oil dependent economy, would witness a turnaround, with positive impacts on the non-oil sector.
“We also expect a turnaround for the Oil-Sector, with the projection that crude prices will remain stable at its current levels, and crude production will increase as OPEC tapers its production quota (effective August 2021).
“Similarly, we expect the strengthening of the Non-Oil Sector, with the speedy recovery of the global supply chain and the rebounding domestic consumer and producer confidence, evidenced by improvements in the Manufacturing Purchasing Managers’ Index,” he added.
Other areas that the banks earned well on commissions and fees include, “Credit related fees and commissions”, which Access and GTCO explained to mean charges “to customers other than fees included in determining the effective interest rates relating to loans and advances carried at amortized cost,” and charges related to “loans and advances related fees that are not integral part of effective interest,” respectively.
Other key components of the fee and commission income for the banks considered by The Point include: Commission on foreign currency denominated transactions; Channels and other E-business income or Fees on electronic products or E-business Income; Transfers related charges and Commission on touch points.
Those who know told The Point that the banks could not be held culpable in isolation.
The banks, the analysts say, have not violated any law or policy.
“The banks can only be seen as executing the monetary policies in place at any point in time,” a notable banker, who craved anonymity, said.
She recalled that SMS charges had to be reviewed down to N4.00 in compliance with fiscal and monetary policies.
“Financial services are regulated in all climes, Nigeria being no exception and I count on Nigerian banks to comply with any policy guideline issued by the government or regulatory authorities,” she added.
Several sources, however, hold the opinion that the synergy between deposit money banks and the regulators is such that the banks enjoy the undue privilege of influencing who would regulate them, unlike other sectors of the economy.
“The present Governor of the Central Bank of Nigeria, Godwin Emefiele, was a managing director of a deposit money bank and you can bet that, even with his tenure yet to expire, the banking constituency is already scheming on who would replace him,” they observed.
She described the situation as the ‘Lagos cat and mouse relationship,’ which is predicated on common interest.
“deposit money banks might be seeking safety-valves from the banking public via charges and commissions that people find difficult to understand
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According to her, in Lagos, the cat and the mouse align to ‘obtain’ from landlord and tenants, by unity of action (stealing) and apportionment (sharing what has been stolen).
However, another school of thought said that the banks had been exploring other avenues of mitigating the risk of a volatile oil segment.
“The big ticket deals available in the Nigerian economy are either oil industry or related to it. And many a Nigerian bank had burnt their fingers on exposures to the oil industry.
“A look at the history of failed banks in Nigeria will show you that the likes of Intercontinental Bank, Bank PHB, AfriBank and Oceanic Bank are examples of sad tales of impact of the vagaries of the global oil market on their operations and existence.
“The present set of deposit money banks might be seeking safety-valves from the banking public via charges and commissions that people find difficult to understand. The regulator might be tolerating them because of the implications of multiple bank failures on the economy,” a well-informed banker observed.
