The Nation Newspaper

Tag: CoT

  • Banks to lose N100b revenue as zero COT begins

    Banks to lose N100b revenue as zero COT begins

    Banks’ revenues will drop by about N100 bilion this year, with the implementation of the zero Commission On Transactions (COT) policy.

    It is the last phase of the “Guide to Bank Charges” policy initiated by the Central Bank of Nigeria (CBN).

    A former Executive Director of Keystone Bank, Richard Obire, explained that of the annual N550 billion average  revenue for the 21 banks, about N100 billion is raked from COT.

    Obire explained that bank’s revenues are made up of interests on loans, which constitute 70 per cent of the total revenue. Fees and commission make up the remaining 30 per cent. Fees and commission covers 30 per cent of the total revenues.  COT constituting 60 per cent of income within the segment.

    Obire said banks should be moving towards income diversification to shore up their revenue base. He said lenders should be creative and think of how to diversify to support activities that generate foreign exchange from local industries. He said aside the COT-free banking, the lenders will face pressure arising from interest revenues on loans.

    The “Guide to Bank Charges” implementation, which started in March 2013, has seen the COT gradually drop to N3 per mille in 2013; N2 per mille in 2014; and N1 per mille in 2015 to Zero COT per mille started on January 1.

    The “Guide to Bank Charges” is an initiative of the Central Bank of Nigeria (CBN) to reduce charges widely seen by bank customers

    In a circular titled: “Implementation of Revised Guide to Bank Charges –Commission on Turnover,” posted on CBN’s website and signed by its Deputy Director, Financial Policy and Regulation Department, Franklin Ahonhai, the regulator said there was no going back on the policy implementation.

    It mandated banks that charged excess COT since the effective date to refund same to the affected customers or be sanctioned.

    According to the CBN, the policy is expected to have implications for both banks and their customers as it is expected to give the regulator more power to deal with banks reluctant to lower service fees considered ‘as the highest in the world’.

    The apex bank said the “Guide to Bank Charges” would make it more difficult for banks to set high fees and charges without having reasons acceptable to regulators. The regulator said banks’ drive to make inroads into the legions of this country’s unbanked, financially illiterate and those isolated from traditional banking services through distance and hard terrain will be hampered by excessive charges.

    It said the guideline was meant to address complaints arising from bank tariffs and other miscellaneous fees charged by banks on their customers’ accounts. The policy is also expected to ensure greater competition in retail banking and achieve real benefits for customers through lower costs, better service and greater access of financial services to poor communities whilst at the same time preserving the stability of the banking system.

    Afrinvest West Africa Plc Managing Director Ike Chioke said banking was confronted with the reality of declining fee incomes, mobile money and dollar denominated capital sourcing.

    In a report titled: “Nigerian Banking League – The fate of small players” Chioke predicted that the era of “real banking” appears to be gradually re-emerging as traditional sources of high income/profitability continue to come under threat from increased competition and tighter regulation.

    He predicted that in the next five years, outlook on yields and fee income remains downwards, necessitating the need for banks to focus on lending to the real sector. Also, banks are expected to develop and grow the depth of their core retail banking businesses to retain and amplify cheap deposits.

  • Enforce COT regulations, expert urges CBN

    Enforce COT regulations, expert urges CBN

    Central Bank of Nigeria (CBN) Governor Godwin Emefiele has been advised to enforce the directive to banks to reduce Commission on Turnover (COT), as it is threatening Small and Medium Scale Enterprises (SMEs).

    Making the call in Lagos, lastweek, Chairman of Builders’ Mart, a provider of building equipment and homes solutions, Mr. Ayobami Biobaku, said the CBN had not been able to enforce the COT rule it set in 2013. He said CBN’s inaction gave the impression that it had decided to look the other way while the banks engaged in all forms of unapproved practices as well as collect spurious charges.

    He therefore, urged the CBN to check the banks on COT charged so as not to cripple the SMEs. According to him, COT was “like cancer that is slowly and silently killing SMEs.”

    The controversial COT is a charge levied on customer withdrawals by banks, and it is calculated at the end of every month, applying the percentage on a customer’s aggregate withdrawals from the first day of the month to the last day of the month.

    Worried by the harmful effect of COT on SMEs particularly, the CBN in 2013 met with the Bankers’ Committee to find lasting solution to the issue and the result was the production of a special guide on bank charges that both parties endorsed. However, up till date that agreement has not been enforced by the CBN.

    Biobaku said no  bank had heeded the CBN’s instruction to refund money collected from depositors since 2013 and that they were still being charged by banks in violation of CBN’s directive. He urged the CBN Governor to come to their rescue because they are losing a lot of money that should improve their business to the banks.

  • CBN urged to review COT policy over weak banks’ earnings

    The Central Bank of Nigeria (CBN) has been urged to review its policy on   Commission on Turnover (COT) charges given the  prevailing headwinds in the financial sector and economy, which are hurting banks’profitability.

    The President, Concerned Banks Stakeholders (CBS), an advocacy group seeking better earnings for banks, Jonathan Chikezie, said only few banks are complying with the new policy, which stipulates the gradual phase out of the COT charges on current accounts by next year.

    The apex bank, he said, had directed  banks to reduce COT from N3 per mile or per N1,000 to N2 in 2014; N1 this year and to a zero charge by 2016. The lenders were also banned from taking COT fees on returned outward clearing cheques, reversal of transactions and all bank-induced debts.

    Chikezie disclosed that only few banks had  complied with the guidelines while others flouted the provisions.

    “We found out that while some banks are charging the prescribed COT on all transactions, others are still charging up to N4 per N1, 000 turnover. This is four times higher than the currently prescribed minimum of N1 per N1, 000,” he said.

    He said banks have been under revenue pressure as a result of the cash reserve requirement policy, adding that compliance with the N1 and eventually zero COT is likely to see further drop in the performance of banks.

    “Many banks see COT as an essential cost recovery mechanism for the branch network and related infrastructure provided for servicing customers. This might explain the unwillingness to comply.  This is why the CBN needs to take a position on whether these guidelines still hold. If so, they should be enforced. The apex bank should take firm action because it is not fair for some banks to be complying while others do not,” he said.

    He explained that the ‘Guide to Bank Charges’, first issued in 2004 provided a standard for the application of charges in the banking industry and minimised conflicts between banks and their customers.

    The policy document was later reviewed because some sections within the document had become obsolete and created room for ambiguity and conflict. These flaws, Chikezie said, led to a review of the guide to bank charges after consulting with banks, discount houses, Bankers’Committee, financial experts/consultants.

    The result was the introduction of a revised guide to bank charges, issued as a regulation on applicable charges on banking services and products offered by banks to customers.

    “Banks and discount houses are obliged to ensure compliance with the provisions of the guide. To date, there has been varied compliance within the banking sector, hence the need for the CBN to step in and correct the anomaly,” he said.

  • MfBs negotiate CoT with banks to cut costs

    MfBs negotiate CoT with banks to cut costs

    Microfinance banks (MfBs) are negotiating with banks for a concessionary Commission on Turnover (CoT) to enable them reduce the rising cost of operations.

    Managing Director, Seed Capital Microfinance Bank, Gbenga Komolafe, made this known during a meeting organised for MfBs by Sterling Bank Plc in Lagos.

    He said some of the banks that had granted concessions on turnover for the MfBs reneged on the agreement, thereby raising the cost of operation for the subsector. He said merged and acquired banks were the worst affected because the new owners denied having anything to do with the concession.

    “We have seen this happened in several cases, especially in merged and acquired banks. They have always denied there were concessions at any time before the merger or acquisitions,” he said.

    Komolafe said some of the banks that retained the concession usually give COT target to MfBs, which is usually above their financial capabilities.

    Managing Director, Sterling Bank Plc, Yemi Adeola, said commercial banks and MfBs could always agree on things that will reduce their cost of operations including CoT slash.

    He said his bank is proactively positioning its key customers in the subsector to benefit from the N220 billion intervention funds from the Central Bank of Nigeria (CBN) expected to be launched this week.

    Other opportunities that the MfBs can key into include the N5 billion small business development funds, $4 million renewable energy project, and another $200 million provided by Ford Foundation to enable MfBs increase their market penetration.

    He said banks concentrate on big customers, not understanding that 50 to 60 per cent of finance in the economy usually comes from the Small and Medium Scale Enterprises (SMEs). He said unless banks refocus on SMEs, the economy will not grow.

    Noting that massive investment is needed to run a bank, the Sterling Bank boss said the lender is committed to channel some of its products and services as well as dedicate competent staff to meet the business needs of MfBs.

    He said the MfBs need enabler, in terms of commercial bank to be able to access the funds and other intervention funds from the apex bank to the subsector. He said there is also a N600 billion agricultural development fund, which the bank has given opportunities for several customers to benefit from.

    Chief Finance Officer, Sterling Bank, Abubakar Suleiman, said the bank believes in strategic partnership and is partnering with some MfBs in relation to electronic business, agricultural finance among others. “We identify with the brand promise of MfBs and believe there is need to leverage on technology to increase their retail penetration and enable their customers enjoy electronic banking facilities,” he said.

    Consequently, he said the bank will be assisting the MfBs on co-branded card issuance, e-payment inflows, global teller, Automated Teller Machine (ATM) deployment and mobile banking. Such services, he said, would enable the bank increase customer patronage, enhance deposits, revenue and boost efficiency through automation of operations.

    He said the bank has increased its exposure to the agricultural sector and will continue to do that going forward.

    Managing Director, Support Microfinance Bank, Sunny Akahmiorkhor, said the step taken by the bank is commendable. He said the process of achieving intervention funds from the CBN has been hectic for the susbsector, adding that the move by Sterling Bank to mediate between the MfBs and CBN on the intervention funds will address such hitches.