Banking Sector Update - CBN Wields Regulatory Stick Again

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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:


  • Current account maintenance charges: Applicable only to customer-induced current account debit transactions, subject to a maximum of N1 per mille


  • Electronic funds transfer:
    • N10 for interbank transfers less than N5,000 (vs. flat N50.00 previously)
    • N25 for interbank transfers between N5,001 and N50,000 (vs. flat N50.00 previously)
    • N50 for interbank transfers above N50,000 (vs. flat N50.00 previously)


  • Card maintenance fees:
    • No charge for cards linked to current account
    • Maximum of N50 per quarter for cards linked to savings account (compared to the current monthly charge of N50)


  • Card issuance/replacement/renewal fees:
    • N1,000 charge irrespective of card type-regular or premium- (compared to different rates for different card types previously)


  • ATM charges (remote-on-us and not-on-us):
    • Maximum of N35 after the third withdrawal within the same month (compared to N65 previously)


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.

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Related News - CBN Circular and Publications

  1. CBN Issues Consumer Protection Regulations
  2. CBN Reviews Charges On ATM, Card Maintenance and Others
  3. Manufacturing PMI Stands at 59.3% in November 2019 from 58.2% in October 2019
  4. CBN Publishes Exposure Draft On The Guidelines For Shared Services Arrangements For Banks And OFIs
  5. CBN Publishes Regulation For The Operation of Mortgage Guarantee Companies in Nigeria
  6. CBN Publishes Lists of Licensed Finance Companies, DMBs, MFBs and BDCs As At Sept 30, 2019
  7. CBN Notifies of The Automation Of Form NXP On The Trade Monitoring System
  8. CBN Issues Revised Guidelines For The Registration Of CIT And Currency Processing Companies
  9. Manufacturing PMI Stands at 58.2% in October 2019 from 57.7% in September 2019
  10. Re: Implementation of Cashless Policy: CBN Notifies of Existing Exemptions Until March 31, 2020
  11. CBN Issues Circular on The Reg. For The Operation of Indirect Participants In The Payment System


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Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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