The recent market data has revealed that the fixed income market that provided alternative earnings window for deposit money banks, DMBs, is passing through a change. Some fixed income market analysts told BusinessHallmark that yield on fixed instruments is moderating and this is expected to impact on banks performance, as the industry’s loans and advances slid.

On the back of declining yield from government securities which started from the beginning of the year, some analysts said that non-interest income is expected to drive banks’ earnings in 2019. In its recent update on banking sector, Vetiva Capital estimated that growth in alternative financial technology solutions (FinTech) has prompted banks to deliver essential financial services through cost-effective digital avenues with mobile applications becoming genuine alternatives to traditional banking operations.

It would be recalled that many deposits money banks became bearish on the economy at the heat of 2016 recession. The need to diversified earnings sources saw massive investment in government securities, the low risk end of the financial market. Since then, many banks have continued to leverage on high yield fixed earnings sources with lower default rate to boost performances. This came in the wake of the massive non performing loans, NPL, accumulated by most banks following the recession.

Their refusal to book more loans however resulted to improve assets quality as revealed in their recent financial statements. This was achieved as banks aggressively followed up on debtors and raise assets quality as they booked significantly lower impairment charges on credit losses. By the end of financial year 2018, the industry’s non-performing loans closed at 11.7% as against more than 14% previously recorded in 2017.

Vetiva Capital, one of the leading investment banking firms believes that fees and commission from banking transactions, especially digital banking, will account for a larger part of banks’ revenues in financial year 2019, with relatively low implementation costs involved in delivering services on a larger scale.

In 2018, most banks across the industry recorded notable declines in interest income due to lower yields on fixed income securities and contractions in loan book. This consequently led to a decline in net interest income during the fiscal year.

“In 2019, banks are likely to record stronger loan growth, while yields on assets are forecasted to fall, largely a reflection of the reduction in the Monetary Policy Rate (MPR) and declining fixed income yields”, Vetiva Capital estimated.

The recent results showed that many banks reported substantial growth in transaction volumes from digital and mobile banking channels with the total number of Unstructured Supplementary Service Data (USSD) transactions reaching 261.7 million in 2018, a significant jump from 92.4 million in the corresponding year in 2017.

“We believe that Fees and Commission from banking transactions, especially digital banking, will account for a larger part of banks’ revenues in financial year 2019, with relatively low implementation costs involved in delivering services on a larger scale”, analysts stated.

Kingsley Ezoh, a banking sector focused analysts told BusinessHallmark that some banks have started shifting attention to non-interest related earnings sources to support their performances.  It would be observed that non-interest income propped up Tier I class banks’ profits in 2018 and the pattern has also started to build as reflected in first quarter 2019 results.

BusinessHallmark review of the industry data shows that GTB Plc overcompensated for the lag in core banking activities with a surge in non-interest income of 39% year on year to ₦127.7 billion in 2018. This performance was spurred by a 22 % increase in fees and commission income in the period.

Zenith Bank Plc deviated from industry trend to report a decline in non-interest income of 30% from ₦270.6 billion in financial year 2017 to ₦190.3 billion due to a 49.2% slump in trading gains. This development was unable to offset the cost efficiencies realized in delivering an 8% growth in operating income.

In the build up to full year result, Access Bank interbank window activities dwarfed fees and commission income performance. Non-interest income declined by 4.3% year on year due to FX related losses, while other operating income increased 64% to ₦13.2 billion.

The numbers showed that UBA Plc interest income and non-interest income operating lines contributed 73% and 27% to gross earnings in financial year 2018 respectively; while the former grew by 11% driven by strong interest income on treasuries, the latter declined by 13.8% from the combination of an elevated expense ratio in fees and commissions from 20.5% in 2017 to 30.4% in 2018 and a 35.4% decline in net trading and foreign exchange income.

“Our concern is with the sharp increment in fees and commission expense that ramped up by 68.3%, as peers have demonstrated improved efficiencies in this line item through the use of technology. We do not rule out the possibility of this being a one-off expense – new software acquisition, IT solution etc.”, Vetiva Capital noted.

For FBNH Plc, the main contributor to non-interest income in 2018 was fees and commissions, increasing to 70.4% from 65.5% in 2017. This line item was supported by improvements across the electronic banking fees ₦34.0 billion up 36.2% , account maintenance fees ₦12.3 billion up 84.4% year on year and brokerage and intermediation fees ₦11.9 billion up 665.9%. In 2019 analysts at Vetiva Capital expects increased support from groups Merchant Banking and Insurance businesses that contributed ₦23.3 billion to pretax profit in 2018 while ₦31.4 billion has been estimated for 2019.

FCMB Plc embarked on strategy to diversify its earnings base. Management’s strategy of increased customer acquisition – with the bank adding about 800,000 new customers in 2018 and planning to add 1 million in 2019 – through further expansion of mobile and internet banking channels as well as a planned increase in agency banking.

Management plans to treble the number of FCMB agents to 1500 through partnerships and collaborations which is expected to drive customer growth, while further leveraging of group synergies expected to yield improved revenue per customer. On that note, Vetiva capital forecast of 29% growth in fees and commission income for FCMB in 2019.

More Tier II capital banks leveraged more on non-interest earnings to raise performance in 2018 compare with big size in relative term.

Waiting for the next four years:

Any objective Nigerian would readily admit that the last four had been very challenging, to put it mildly. There is hardly any aspect of the nation that brings smile to the face when mentioned or being discussed. Even national unity which used to taken for granted by some notable people such as former president Obasanjo, Gen. T.Y Danjuma etc is now doubtful and contested.

All the indices of economic development have plunged from where they were before this government. All the promises by and expectations of this government have been unmet and unfulfilled; and all the hopes of most Nigerians in the past four years had sadly been dashed. This is not politics or debatable; they are real facts that stare all Nigerians in the face. And the proof is this: Hardly any non politician who supported the regime in 2015 is still behind it today – mention any name.

Even government and its supporters have admitted as much; but plead mitigation that it will improve and try to address the identified failures. However, all these issues are not the real problem facing Nigeria? The real question is why did this government and President Buhari fail so spectacularly against the massive public good will and expectations of the government? The simple answer is twofold: the personality of the president and the nature of the regime.

First, President Buhari was neither present nor presiding; in other words, he was only in government but not in power. His presence was hardly felt in the past four years – the reason is irrelevant. It was a delegated leadership and government where others did what they pleased in the name of the president – good or bad. The second reason is that the government came in with anger at the prosperity of the past 16 years and a clear mandate to redress the perceived injustice to the north. All its policies were intended to do just that; and the nation was the worse for it.

Many Nigerians waited patiently for the past four to elapse and the government to be gone. And they had good reason to do so. Their lives in the past four years had worsened progressively both qualitatively and quantitatively. Even those who benefitted directly from the government were in peril of their lives and property. A national lawmaker even cried on the floor of the House over his exile from home on account of insecurity. In spite of this, the government was reelected for a second term fortunately or otherwise.

However the next four years will be a tragic disappointment for many Nigerians as they are likely to be worse off than today, because the damage of the past four years is too deep and now complicated to be resolved in the next four years. Those promising change and improvement are merchants of hope; a hope that has no basis in reality. The truth is that this government has already played its hand; the coming years are to consolidate.

Historically, no tenured democracy does better in the second term. First terms are usually the preconditions for the second term; and no government that clearly failed in the first ever gets a second term. Nigeria is the first to achieve this. As they say, the taste of the pudding is in the eating. Second terms are usually for transition and involve essentially completion and consolidation of first term policies and projects. It is hardly a time for new policies and projects because they are not likely to be completed. So where lay the hope of change and improvement?

If the first term is usually a foretaste of what the second presages, then the waiting will be most economically agonizing and politically destabilizing. Judged by its three cardinal promises and programmes – security, anti-corruption and the economy – there is little to recommend the government for a fruitful second term; and most experts – local and foreign – have said so repeatedly.

In the first term, Nigeria went into recession, only the second time in history. It was not inevitable and a consequence of the past government mismanagement as regime apologists explained it away. This is nonsense. It was only inevitable to the extent of the regime’s wrong- headed and vindictive policies necessitated. The truth is that the government did not have Nigeria in mind when it came to power; it had only the north to reckon with.

Again, Nigeria became the world’s headquarters of poverty, overtaking India with 81 million people living below poverty line. If that is not convincing as regime publicists would aver, the admission of Minister of Education, Mallam Adamu Adamu that under his watch the number of out of school children rose from 10 million in 2014 to 13 million in 2018 is instructive. Unemployment increased from 14 percent in 2014 to 23 percent in the first quarter of 2019, while national debt rose from N11 trillion to N23.9 trillion over the period.

At the same time, population is growing at the annual average of 3.2 percent whereas GDP averaged less than two percent in the period. Simple arithmetic shows that our situation is unmanageable with population rate higher than growth rate. Only an economic ‘miracle’ will salvage the situation but that, unfortunately, takes time, which this government no longer has; average period of such miracle in history is 20 years.

President Buhari’s strongest point for being elected was resolving the challenge of insecurity. Insurgents had held part of Nigeria’s territory and his promised to end it resonated with the people. Four years later, those who declared triumphantly that corruption will kill Nigeria have been silenced; insecurity has become Nigeria’s greatest problem and corruption is no longer mentioned. Last week the Police IGP, Ibrahim Adamu reported that 1071 Nigerians were killed in the first quarter of 2019, the highest is peace time Nigeria.

Government claim that the insurgents have been technically defeated is true since they no longer hold a large swath of territory; but it is Pyrrhic victory deriving from a lack of strategic understanding of the dynamic nature of asymmetric warfare. Before the regime they were restricted to the three states in North east; today no part of Nigeria is safe. Having defeated them in the north east they have diffused into a national threat.

The greatest deception of this regime which most unwary Nigerians fell for was the propaganda that corruption is our biggest problem. It is not and can never be. Admittedly, there is a problem of corruption in the country and this obviously has stifled development strides. But it is neither our biggest problem nor the cause of our lack of development.

Corruption properly understood is an effect, not a cause; it is the unholy attempt by the northern dominated military establishment to reverse the course of national and natural history that has bred the corrupt society we have today. Those who blame and chant corruption want to avoid confronting this brutal fact. Is Nigeria better today than it was four years ago corruption-wise? It is only a matter of opinion, which is an indication that the war is suspect if not a failure.

The challenge of the last four years is not likely to change: President Buhari is not going to provide more leadership than in his first term; perish the thought. The drift is likely to continue because his apparent lack of personal capacity to provide modern democratic leadership.  Second, there will be some tokenist appointments to assuage frayed sensitivities on account of his acclaimed nepotism to convey a semblance of national spread and inclusiveness. But don’t be fooled by it; nothing really will change.

Just look at the contest for NASS leadership and you get a feel of their mindset. However, the area of the greatest concern by Nigerians is where nothing will really change – the security apparatus. This government is extremely insecure and insensitive to leave its fate in the hands of people it does not trust, especially given its failure at the polls. He is not likely to change them to avoid altering the present structure. If at all, not immediately.

But in spite of all this, the beauty of democracy is that it will come to pass; any other government even from the north but this one will be better. Waiting for the next four years will be difficult and really burdensome but we have to endure it for good or evil