Bank profits have been growing at a slower pace in 2018 as a lower-yield environment signalled the end of free money.
That means managers of financial institutions will have to think out of the box and embrace digital transformation so that fees and commission income can help add impetus to earnings and margins.
Analysts are optimistic that non-interest income will be a major driver of revenues because of the proliferation of applications among the populace, and also the use of Point of Sales Transactions and internet banking across all segments.
Between December 2013 and 2017, the 13 largest banks made N2.41 trillion in fees and commission income as they continued to scramble for market share.
A breakdown of the figures shows cumulative fees and commission income increased by 10.18 percent to N556.63 billion in December 2017, from N502.19 percent as at December 2016.
However, in 2015, there was a 2.09 percent drop in the combined figure as banks had to suspend letters of credit and scale back other services for which they charged fees at the height of the foreign exchange crisis.
“We expect that that there will be more commission income because online banking is becoming increasingly convenient as more customers are adopting technology to carry out transactions,” said Ayodeji Ebo, managing director and CEO, Afrinvest Securities Limited.
“When small and medium enterprises are able to use these applications, it means a lot of earnings for lenders in terms of their commission,” said Ebo.
Banks and companies are increasingly tapping into Nigeria’s digital potential as the economy recovers.
Mobile phone subscribers in the nation of almost 200 million people reached 162 million in September 2018, according to the Nigerian Communication Commission (NCC).
Fidelity Bank plc had already hiked spending on digitalisation by more than 40 percent in 2018, according to Gbolahan Joshua, chief operations officer.
The tier-2 lender’s mobile/internet banking revenue was up 31 percent to N1.81 billion in September 2018, from N1.38 billion as at September 2017.
“Over 40 percent of customers are now self-enrolled on mobile/internet banking products while over 80 percent of customers’ transactions are now done on electronic banking channels,” said the bank.
Access Bank’s focus on digital and mobile banking continues to gain traction with y-o-y increases in mobile revenue and app usage.
Access Bank’s mobile and internet banking revenue increased by 13 percent to N1.42 billion in September 2018 from N1.25 billion the previous year.
The lender’s revenue from POS was up 25 percent to N139.60 billion in September 2018, from N112.0 billion as at September 2017. Debit/credit card was up 36 percent to N19.47 billion.
“Interest income has reduced across banks in third quarter of 2018 and what has supported gross earnings in the period under review was non-interest income. The major driver of non-interest income was fees and commission income,” said Ifedayo Olowoporoku, equity researcher at Vetiva Capital Management Limited.
“Stronger commercial activities have driven commission income and we see surge in non-interest income driving gross earnings,” said Olowoporoku.
For the first nine months through September 2018, 13 largest banks made N384.47 billion in fees and commission income, which is 55.87 percent of cumulative non-interest income.
Combined non-interest income of N687 billion is 30.69 percent of cumulative interest income of N2.23 trillion as at September 2018.
“We forecast single-digit loan growth expectation for FY’19, and expect the interest income line to buck the downward trend recorded in 2018 to deliver notable growth in FY’19,” said analysts at Vetiva.
BALA AUGIE
