Going, Going, Gone...

The scheduled plan to completely phase out Cost of Transaction in the country’s banking sector next year has not only received the backing of financial experts and economists, they are also of the opinion that banks will not lose sleep over the development as the deadline approaches, writes Olaseni Durojaiye

Upon the announcement of a gradual phase-out of Cost of Transaction among money deposit banks (DMBs) via a circular from the Central Bank of Nigeria (CBN) in March 2013, the policy has since then taken its course and seen to the gradual reduction of Cost of Transaction in the country’s banking sector, stakeholders in the sector have returned their attention to the topic and expressed hope that the deadline of a zero CoT by 2016 will become a reality.


The announcement received commendation among a cross section of bank customers when it was introduced as many saw it as being in tandem with international best practice even though it did not seem to go down well with many DMBs at the time as it was believed then to be capable of shrinking the revenue base of the banks.


A banking industry insider who spoke to THISDAY on the condition of anonymity said that 2013 was a very challenging one for financial services institutions in Nigeria due to the resultant effects of regulatory induced reduction in income lines and increase in funding costs.


He said, “You will recall that Commission on Transactions (COT), which used to be at N5mille maximum, was reduced to a maximum of N3 per mile. As you know, COT is a major component of the income lines for banks. There was also the removal of the N100 that was charged by banks for ATM usage. In addition, there was an increase in savings interest rates leading to costs for banks because significant portion of our deposits comes from savings deposits especially for banks like us that have been around for a very long time.


“Whilst these happened in the second quarter of that year (2013) another major one was thrown in by the third quarter. The cash reserve ratio for public sector deposits was increased from 12 per cent to 50 per cent, meaning that for every N100 that you generate from public sector you must sterilise 50 per cent of the amount or keep N50 at zero yield. All of that made it a challenging year for the banks at the time because the policies were new and we all know how human beings initially react to change,” he stated.


However, THISDAY findings revealed that the banks have seen put on their thinking caps and devised more creative ways of generating revenues, which many traced to the growing adoption of the financial inclusion policy introduced by the same apex bank.
According to THISDAY source who is an economist and financial expert, a good number of the banks post 2013 decided to rev up there electronic banking services. E-payment due to card usage (point of sale usage) and other income associated with e-banking have increasingly been generating remarkable revenue for the banks. Again, many of the banks have also found out that Card usage also reduced their costs as customers continued to migrate transaction from the banking halls to the electronic space.


“Many of the banks have since discovered that serving bank customers through electronic banking is a mere fraction of what it actually cost them to serve the same customers through the banking hall. In other words, increased electronic banking revolutionalised revenue models of many of the banks; it significantly reduced their operational cost and increased income level at the same time,” the source argued.

http://www.thisdaylive.com/articles/as-2016-zero-cot-deadline-approaches-/217571/ lalasticlala

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