March 27, 2023

With interest, commission, banks’ profit unaffected by Naira crisis


By Emeka Anaeto, Babajide Komolafe,Peter Egwuatu, Nkiruka Nnorom & Yinka Kolawole

While the three-month cash shortage rocks Nigeria’s economy and Nigerians, banks that are at the centre of it all may emerge unscathed as almost all their income lines appeared unaffected.

Financial experts have been focusing on the likely impacts of the Naira banknote crises on the financial performance of banks as they round up their first quarter 2023, Q1’23, business.

Some believed that the effect would be negative given the attendant slowdown in economic activities.

However, others argued that it would have a marginal impact as the crisis did not affect interest income and commission income, which are the major revenue stream of banks.

Commenting, David Adonri, Vice Chairman, Highcap Securities, explained that the slowdown in economic activities occasioned by the cash crisis, which also impacted banks’ operations would be negative on their financial performance in the Q1’23.

He noted the challenges with mobile payment during the period which resulted in a deluge of failed online transactions.

The Nigerian Interbank Settlement System (NIBSS) had, in its February 2023 e-payment data report, revealed that the value of electronic payment transactions fell by four per cent Month-on-Month (MoM) to N40.6 trillion in February from N42.4 trillion at the end of January.

This is despite the surge in e-payment transactions, which led to increasing in the volume of e-payment transactions MoM by 29 per cent to N1.45 trillion in February 2023 from N1.12 trillion at the end of January 2023.

Adonri said: “Cash scarcity in itself is a big blow to the banking business.

“The inability of banks’ mobile payment systems to function efficiently has an adverse effect on their business.

“Slow down of commercial activities in the economy will also affect banking business negatively.

“Banks’ financial performance in Q1 2023 is expected to decline.”

However, Gafar Bashiru, Senior Associate at Parthian Partners, disagreed, saying: “Cash crises will have little impact on the banks’ Q1’23 performance because, generally, when it comes to the banks’ revenue streams, the key lines are deposit from customers, interest income, commissions income and business.

“These lines, to me, are not directly affected by the cash issues that is happening.”

Commenting also, Prof Uche Uwaleke of Nasarawa State University, said: “I don’t think it would have any significant negative impact as most banks are, on the contrary, making huge income from non-interest sources such as electronic transfers and related charges which surged on account of the currency redesign policy.”

According to the Nigerian Interbank Settlement System, NIBSS, the volume and value of electronic payment transactions rose to 1.539 billion and N77.65 trillion in the first two months of the year.

This represents a 63.3 per cent and 33.4 per cent increase when compared to the 943.17 million and N58.2 trillion recorded in the same period of last year.

This trend is in line with projections by analysts at Cowry Asset Management Limited which said, “The transition to a cashless economy will be majorly driven by the naira redesign and cash swap initiatives of the central bank, as most Nigerians will adopt the use of electronic payment channels for business and personal transactions, which may further lead to a decline in presence in the banking halls.”

Confirming this development, Head of Equity Research, FBNQuest Capital Limited, Tunde Abioye, said: “I believe commercial banks’ e-banking income for banks should be robust in Q1 due to the surge in electronic transfers following the cash scarcity.

“Also, I assume that banks are generating some income from the free float that they are currently enjoying from customers’ inability to access cash.

“Both topline and bottom line growth should be strong because funding (interest) income will benefit from the high-interest rate environment as banks re-price their risk assets.”