Nigerian Banks Have Highest Operating Cost, JP Morgan Say

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JPMorgan-Chase-Bank-HeadquartersNigerian banks have been discovered to have the highest cost base amongst their peers in the Central and Eastern Europe, Middle East and Africa (CEEMEA).

A report by a global financial services firm, JP Morgan listed poor infrastructure, low quality of manpower, epileptic power supply, security of physical assets , as some factors contributing to the his cost of operation in the banking industry.

In addition, the 39-page report also identified the increased levy paid to the Asset Management Corporation of Nigeria (AMCON) as another factor that raised banks’ operating cost.
It explained: “Nigerian banks have higher cost/income ratios versus their Central and Eastern Europe, Middle East and Africa (CEEMEA) bank peers due to lack of necessary infrastructure in form of quality manpower, steady electricity supply, security of physical assets, etc. Higher AMCON levy limits cost/income improvement on our estimates.

“Following the increase in AMCON levy, we believe AMCON charges will rise 130 per cent year-on-year average 2013 estimate versus 28 per cent year-on-year 2012 audited, adding to the operating expenses growth this year and 11 per cent year-on-year per annum average 2014-16 estimate; between 2013-2016 estimates, we expect AMCON charges to form 11 per cent of Nigerian banks cost base versus five per cent previously.”

However, the report predicted that loan growth in the Nigerian banking industry would accelerate from an average 13 per cent year-on-year in 2012, to about 17 per cent between by the end of 2013.

“We expect net interest margin for 2013 ending to stay slightly down as regulatory pressure bodes negatively for funding costs with a pick-up in spreads expected between the end of 2014 and 2016 helped by near-term stability in policy rates, higher loan growth and a shift of asset mix in the banks to higher-yield categories beyond the regular top-tier client focus,” it added.

Furthermore, it anticipated that banks would also strive to make up for loss of revenues arising from regulatory pressure on fee incomes, due to the removal of commissions on turnover (CoT).
It also estimated that average fee incomes as a percentage of total revenue would decline from 24 per cent in 2012 to 15 per cent by 2016.