The recent upward review of banks’ contribution from 0.3 to 0.5 percent, to the Asset Management Corporation of Nigeria (AMCON) sinking fund, will cost banks and their investors a whopping sum of N81.7 billion in the 2013 financial year, BusinessDay analysis has shown.
The amount is 68 percent, or N32.7 billion higher than N49 billion the banks paid last year at 0.3 percent of their total assets. The figure is arrived at on the basis of N16.3 billion total banking industry assets, according to the third quarter financials of the 15 banks quoted on the nation’s stock Exchange.
Analysts said yesterday that the levy would reduce dividend payout to investors and further contribute to the dearth of credit in the economy, since loanable funds at the disposal of banks will shrink.
The 15 banks on which our analysis was made, are FirstBank, Zenith, UBA, Access, GTBank, and Ecobank. The others are Skyebank, Union, Diamond, FCMB, Fidelity, Stanbic IBTC, Sterling, Unity and Wema.
FirstBank, which is the biggest Nigerian bank by assets, at N3.11 trillion, according to the third quarter financials for last year, will contribute about N15.6 billion, as against N9.3 billion it contributed last year. Zenith Bank, with N2.5 trillion as at September last year, is to contribute N12.3 billion, as against last year’s N7.4 billion.
UBA, with N2.2 trillion, will contribute N10.8 billion this year, as against N6.5 billion last year, while Access Bank, with N1.6 trillion, will contribute N8.2 billion, as against last year’s N4.9 billion and GTBank, with N1.6 trillion, will contribute N7.9 as against N4.8 billion last year.
BusinessDay investigations further show that the top three banks, with cumulative assets of N7.73 trillion, control about 41 percent of banking assets, while the top five banks account for 60 percent of the assets of the 15 quoted banks on the Nigerian Stock Exchange (NSE).
Underscoring the impact of the review, analysts at Rennaisance Capital, (Rencap) in their release “ Nigerian Banks: Still going strong,” said “We estimate that for most of the banks under coverage, this increase represents about 3-4 percent of total operating costs.”
Bismarck Rewane, CEO of Financial Derivatives Company agrees, said the review will “lead to increase in the total cost.”
Rewane, in a recent presentation at the Lagos Business School Executive Breakfast Meeting, lamented the concentration in the banking industry, saying that “the current imperfect competition still prevails , where five Tier 1 banks control about 70 percent of the market and 80 percent of profit before tax (PBT).
Razia Khan, analyst with Standard Chartered Bank, London, linked the development to the unexpected expences on the bailout exercise by AMCON.
Khan also said that “the authorities see this as an important means of guarding against moral hazard and preventing future banking crises.”
Ken Iwelumo, former Senior Vice President ,Investments, Bank of America/Merrill Lynch, however said, “Increase from 0.3 to 0.5 is negligible and will not have any material impact on operations or profitability of banks. However the increase is justifiable as a way to write off troublesome debts at a faster pace and to pay for increase in costs associated with AMCON’s task as a debt collector.”
Indeed, the banking sector resolution process seems to be largely complete, with AMCON said to have purchased non-performing loans (NPLs) for over N5 trillion, at the rate of over N2 trillion. AMCON is also expected to pay for the bailout and meet other costs, through the sale of the recovered debtors’ assets, in addition to the 0.5 percent levy on banks and the N50 billion contributions from the Central Bank of Nigeria (CBN).