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Monday, December 23,
2019 / 03:12 PM / by CardinalStone Research / Header Image
Credit: CBN
Yesterday, the Central Bank of Nigeria (CBN) announced new guidelines
for charges by banks and other financial institutions effective January 1st,
2020. Notable highlights of the changes are:
Our Initial Assessment
On a broad basis, the new guideline is likely to be negative for
Nigerian banks given its potential drag on fee-based earnings. Prior to the new
guideline, we had expected banks to boost fee-based earnings in order to offset
the potential compression in interest income that could be stoked by lower
yields. This view was aided by recent investments in e-business channels and
greater focus on retail strategies across our coverage banks. Notably, as at
9M'19, fee and commission income accounted for 57.0% of total non-interest
income (on average) across our coverage. An adjustment for potential
non-recurring gains increases the contribution of fee-based income to about
74.0% on average, highlighting its criticality to non-interest income (NII)
growth.
We believe banks with a high ratio of fee-based income to adjusted
non-interest income-such as FIDELITYBK (98.3%), ACCESS (86.9%) AND FBNH
(78.2%)-are more susceptible to the impact of the new measure. However, we note
that e-business related fees could be supported by extensive expansion of
retail footprint which could in turn boost volume of transactions and offset
the set-back from lower charges. Elsewhere, ZENITHBANK (52.5% fee income to
adjusted NII) and UBA (63.9% fee income to adjusted NII) are likely to receive
additional support from stronger trading income (ZENITHBANK) and wider African
penetration (UBA), to cushion the impact of revised fees on overall NII. The
diversification advantage of ETI is also likely to offset the effect of
regulatory-induced changes in coming quarters.
Overall, we expect equity investors to
price this in in coming trading sessions. We hold the view that the recent high
churn rate of regulatory measures by the CBN has heightened uncertainty in the
Nigerian banking sector.
Related News - CBN
Circular and Publications
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