Banks’ Performances Suffer Under the Burden of Multiple Deductions

While the introduction of the AMCON fee in 2011 was seen by Analysts as being pivotal to averting a financial system collapse and (in many cases) a means of protecting depositors, shareholders, and employees from the impact of a bank failure, the perpetual nature of the charges paid to the Asset Management Corporation (AMCON) despite a deposit premium paid to the National Deposit Insurance Corporation (NDIC) constitutes a duplicate levy and a pain point for stakeholders.

Together, AMCON fees and NDIC premiums represent some 17.25% of banks’ operating expenses, cumulatively the second biggest expenses for most banks, after human capital cost. Research shows that this has continued to undermine profitability and subsequent returns to shareholders. It undercuts return on average assets (ROAA) and returns on average equity (ROAE) by as much as 60 basis points (bps) and 400bps respectively. That’s like a 25% erosion to the bottom line of Nigerian banks, making them less profitable compared to their frontier and emerging market peers.

At its inception, the Central Bank of Nigeria (CBN) contributed N50bn to the Asset Management Corporation while banks were required to contribute an equivalent of 0.5% of their total assets annually for ten years, a period which has since elapsed on January 2, 2021. At the same time, Banks still must pay between 0.35% and 0.5% of insured deposits as a premium to the NDIC.  Analysts believe that the duplicate nature of these levies weighs on not just the operational expense of banks but their margins. It is the view of analysts that the two levies need not be retained especially as such may motivate moral hazards on the one hand. On the other hand, Banks would in as it inherently discourages well-governed banks from growing their balance sheet, given the probable perception of funding less efficient peers, whose resolution is being funded by those with sound governance and strong asset quality