In the last few days, Nigerians have been assaulted with the humungous sums our Banks have been declaring as profits. Almost all the big banks collectively termed – FUGAZ have crossed the N1 trillion mark in top line revenues leading them to declare billions as dividends leaving their stakeholders smiling to the bank while making the rest of us feel lost. It’s so ‘bad’ that even ‘little’ Ecobank declared profits in excess of N900b making the banking sector the most lucrative in the economy. Reasons for this ‘anomaly’ are not far fetched. People who are raising eyebrows and wondering why this is the case especially with the reality of a deflated economy and its attendant effect on pocket spend, investments, businesses and the rest.
A quick run through of these figures shows that these huge revenues are coming from two major sources. Above the table and under the table transactions.
Above the table, you can break into about 4 major areas: Digital banking, Interest income, fees and commissions and increased investment in IT which can be linked to the first one.
A quick research throws up the fact that seven major Banks generated N109b from e-banking 2023 showing a 24% increase from the previous year. As internet penetration deepens, this will continue to go up and costs will continue to go down and this will ultimately impact operating cost esp human capital costs as they continue to downsize as technology ramps up. Another reason is interest income. Access Holdings for example have recorded a rise in its interest income to N719b from N254b showing a growth of about 189%. Other Fugaz have done same.
A quick discussion with a former Treasurer in one of the Fugaz paints an expert understanding of the markets by the treasury of these banks Interest income from investment is the real bomb for GTCO and the rest. GTCO according to her ‘doubled their deposits and was able to neutralize the increased liability costs by very high rates on Tbills’
She continues –
It’s only if you generate significant cheaper liabilities that you can take advantage. That has been ZB Plc’s bread and butter!. I’m a seasoned treasurer o she screams with glea on the phone.
But I was confused so I ask – does Zenith have cheaper funds than GTCO
Zenith used to she averse. They were heavy on demand deposits! I think GTCO has found a way to ramp up DDA ( demand deposit accounts). DDA – that current accounts- they are the cheapest o. If you have big companies, and public sector accounts. Then loads of retail accounts. You can invest in short term govt securities that are risk free at good yields. Huge retail savings account balances can go into staggered maturity bonds too. All carry the least risks and are profitable. So you see where most of these huge revenues are coming from. With yields at between 35% pa and 45% pa and cost of borrowing to govt hovering at 23% even with the CRR at 50%, the banks are basically minting money. Fees and commissions is another aspect with some Banks recording increases of up to 37.9%. The report I have seen has attributed this to increase in technology which has significantly boosted efficiency, penetration, TAT all impacting revenue growth. So for instance, GTCo from the report that I have seen have increased it’s IT investments by 115%.
Another area the Banks would not want you to look at is the forex hedging part of their business. During the Emefiele era where regulation was lax with a lot of loopholes, some of these Banks had leveraged this to build huge portfolios denominated in hard currency. These portfolios are traded both locally and internationally throwing up average returns when benchmarked against international returns but report huge margins when benchmarked against a dying Naira. So a Naira that has declined from N600 to N1, 500 would impact say a $500m portfolio returning just 5% massively. They recognise that as investment and interest income on their books without even touching the funds and this is why you see, despite the trillions reported the whole banking sector cannot underwrite one major Aviation transaction or one major oil and gas transactions. It has been reported that some of them would even take a 24 hour period to credit a request withdrawal of a huge size and also bank borrowings from the CBN is at an all time high despite all these trillions being declared up and down.
Now the below the table reasons –
Increased political activities and the stringent International money laundering rules has perfectly positioned these banks as quassi legal conduits for these below the table transactions. What with their efficient digital transfers playing key roles in these dark alleys. Some people I have spoken to have adduced 20% of the huge increase in digital banking revenues to politics and its several payments at all levels of government. The case of the missing N500m in the Ministry of Humanitarian affairs being a case in point. The funds went back and forth the banking system with the banks collecting their fees each time the funds went missing and were found in different accounts. When you now extrapolate this across all levels of public sector activities, you begin to see what I am saying
How does all of this impact the real sector?
The CBN’s money and credit data report revealed an expansion in credit to the private sector. Bank lending to private businesses and individuals reached N75.96 trillion in November 2024, marking a substantial increase of 27.3 percent compared to N59.68 trillion recorded in November 2023. On a month-on-month basis, private sector credit grew by 2.6 percent from N74.07 trillion in October 2024. This increase palls to insignificance especially when you juxtapose it with the double digit and in some case triple digit increase on most revenue lines by the Banks. With a seemingly collapsed regulatory environment, a funny judiciary and a distressed macro economic environment occasioned by policy summersaults, hara kiri in policy formulation and execution you cannot really blame the banks who would rather work with their treasury in playing the markets than taking risks no matter how calculated in the macro economic environment. This has now thrown up the expansive Bank CEOs who now wants to intervene directly in developmental issues. You see them playing in infrastructure – National Theatre, roads, bridges etc. You see them funding education, Technology, Media and hospitality as a way of bridging and making atonement.
In all of these, as technology deepens its impact, the Banks are well positioned to keep making this brazen profits and with regulatory weaknesses that pervades the system we will continue to see the trillions flowing in which leaves us with no other option than to now ply more pressure on these mega banks to do more in the areas of impact, CSR and bridging vulnerable sectors and communities since for all intent and purposes, they are now a quasi-government.
Thanks.
Edgar is founder of Barnaby and Edgar a thought leadership consultancy playing within the investment banking sector
Www.barnabyandedgar.com
