Recently released results of the banks in the Nigerian Stock Exchange was received with mixed reviews. Whilst some banks performed well and beat prior year results others faired well below expectations. However, overall earnings growth were not as fantastic as seen in 2012 and thus investors expect things to get tougher in the coming months. The banking index for example has risen 17.8% YTD and 2.83% QTD compared to the overall index 34.5% and 3.23%. So what are the likely factors affecting banks results this year and possibly in the coming years;
1. Path to Zero C.O.T – COT reduced from 5 per mile to 3 per mille. 2per mille next year and 1 per mille the year later and zero. This will likely reduce bank commission and fees and integral part of banks income base.
2. No ATM Charges – N100 charge for ATM withdrawals on third party banks as well as N100 monthly ATM charge also removed. This affects banks revenue as well
3. Increase in operating cost and competition – The operating environment for banks is still very challenging with pressures on cost of funds. This was evident in banks percentage of operating expenses to income or cost to income ratio. Banks also face renewed competition amongst each other as efforts are now geared towards the retail sector as well as SME’s.
4. Tight CBN Regulations restricting risk taking – The CBN has been tightly regulating banks in a bid to avoid the banking sector crisis of 2008/2009. This has put several limits on banks borrowing abilities.
5. IFRS Accounting – The International Financial Reporting Standards has provisions that requires new classifications for preparation of financial statements. This provides that certain assets which are hitherto carried in the balance sheet may have to be written off in the event that the assets are not proven to be recoverable or operational.
6. CBN CRR – The CBN CRR policy on banks restricting the utilisation of public sector funds in their disposal also affects income potentials from fixed income securities
7. Deposit Rates – The CBN has been clamping down on banks to increase their deposit rates to customers. Banks now pay as much as 3% on savings deposit as against 1% average in 2012. This is an additional cost to banks as they now have to pay more for deposits in the custody.
