Connect with us

BANKING

CHANGE INVESTMENT IS GROWING IN NIGERIA BANKS

Published

on

As the competitive metabolism of the banking industry starts to increase, the survey shows that banks are taking change increasingly seriously. They are currently investing in all aspects of change, with 53 percent expecting to increase their investments over the next 12 months, averaged across all programs. A variety of factors are driving these investments (Figure 1). The most important change investment priorities for the industry are:

• Efficiency and cost control

• Customer service and experience

• Risk and regulatory compliance

• Digital technology and channels

In many banks these investment priorities are tightly interwoven, as new digital technologies are used both to improve the customer experience and lower the cost to serve. Cost reduction is currently a priority for most banks and is the investment category most likely to increase over the next twelve months. This is indicative of some of the short-term pressures on the industry and the stubbornly high cost / income ratios faced by most incumbents in mature markets. Without material change they will struggle to close the gap between themselves and the pure digital banks that have few fixed assets and low running costs.

Unsurprisingly, risk and regulatory compliance is another change priority. Eighty-six percent of banks are investing in it now, with 55 percent expecting to increase their investment. Eighty-five percent of executives believe their strategic change portfolio is inhibited by the need to invest in regulatory change. While this is true, the regulations do serve to protect the incumbents. In the UK, for instance, a number of new banks have acquired banking licences but large entrants from other industries – especially the GAFA (Google, Amazon, Facebook and Apple) – do not want the regulated balance sheets, FS returns on equity or individual executive accountability (including personal liability) that come with being a bank. Despite the burden of mandatory change, 84 percent of banks currently invest moderately or significantly in new digital technologies and channels, and 61 percent expect to increase their investment soon. Among the digital technologies rated as most important for transformation are big data and analytics and mobile banking, closely followed by cloud, social, the digital ecosystem, blockchain and robotics (Figure 4).

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

BANKING

What you need to know about the impact of Presumptive tax on small business In Nigeria

Published

on

What you need to know about the impact of Presumptive tax on small business In Nigeria

Taxes: are paying, should pay more

Whatever was proposed or not proposed at the meeting of senior officials with a Senate commission last week on the 2019-2021 Medium-Term Expenditure Framework, we all know that revenue generation is inadequate even for the modest aspirations of the FGN. Any progress is off a low base: federally collected revenue reached 7.4 per cent of GDP in 2018 according to provisional data from the CBN. The vice-president told an investor gathering in London in December that the next step would be 8 per cent. The Federal Inland Revenue Service (FIRS) has reported total collection of N5.3trn for 2018, below its budget but a record nonetheless.

For a peer comparison for 2018, we see that the ratio was 25.3 per cent in South Africa. We can explain away the underperformance in many ways:  South Africa has a larger formal sector, and more large multinationals within its jurisdiction; its South African Revenue Service is well funded and began to raise its game on compliance in the 1990s; its counterpart, the FIRS, ‘saw the light’ rather more recently; and Nigeria is an oil producer, which should have greatly reduced the differential with its rival for the slot of Africa’s largest economy.

We support a several-pronged approach as the FGN moves towards a tax/GDP ratio closer to South Africa’s. On the oil side, its battle is institutional, namely the sorry fate of the petroleum industry bill in the National Assembly for more than 10 years. If the executive is able to establish a good working relationship with the Senate president and other core officeholders in the next assembly, then we could see movement on the fiscal and non-fiscal elements of the bill. The inability of the authorities to review the industry’s production sharing contracts (PSCs) has been a missed opportunity, and a painful one as production under such contracts is now greater than the output of the oil joint-ventures.

On the non-oil side, the challenge for the executive is to enhance compliance, reinforce the culture of paying tax and, we would argue, hike tax rates. The filing of tax returns saves time for all and funds for the collection agency, and is a boost to transparency. Electronic or not, however, taxpayers still have to want to submit accurate returns.

They are more likely to do their patriotic bit if they can see improvements to their lives, such as new/improved schools and roads that have been funded with taxpayers’ money. This is a very long-term solution, and it ducks the question of how the FGN generates the funding to make the investment to persuade reluctant taxpayers to open their wallets. One answer is responsible government borrowing for capital items. This has been the sensible policy of the current administration. However, it also requires patience because of the size of Nigeria’s infrastructure deficit.

The authorities have to move more quickly in our view. The new national minimum wage has to be funded. More generally, Nigeria has a low government spending/GDP ratio because it has a low tax/GDP ratio in both the oil and non-oil economies. Government could accomplish so much more with additional revenue. We do not know what the FIRS executive chairman said to the Senate about the way to increase collection but we advocate a hike in tax rates, starting with VAT and including some domestic excise levies.

A doubling of the standard rate to 10 per cent would generate close to N1trn gross for the three tiers of government, having made an allowance for non-compliance. It would be particularly welcome with the state governments as funding outside the monthly FAAC payout. Official resistance to a rate increase is misplaced, we feel: low-income (and all) Nigerians would surely benefit from a hike in public investment in the infrastructure. A higher VAT rate for luxury goods would amount to the application of sticking plaster to the wound.

This FGN proposal, however, brings us to a common view that high-income Nigerians and companies are not always pulling their full weight in terms of tax payments. Wealthy citizens already account for the vast majority of tax receipts in developed and developing countries, although for different reasons. That said, in Nigeria’s case the vast majority could be higher still through the reinforcement of existing policies such as the large taxpayers’ office, and a more selective approach to the granting of waivers and exemptions.

While the impact on revenue is far smaller, there is scope to pursue the 67 million members of the labour force of 77 million who are not registered taxpayers. Most have no tax to pay but the SMEs that are liable are generally escaping the net because they cannot meet the documentary requirements of the authorities. It is worth noting that presumptive tax on small business has been a success in Kenya and Tanzania.

Tax revenue, and therefore government spending is very low, while the infrastructure gap is very large. The official response should be dramatic in our view: a sizeable rise in the rate of VAT alongside tighter monitoring of large taxpayers, innovation in the taxation of SMEs and spreading the culture of paying taxes.

 

 

Gregory Kronsten

Head, Macroeconomic & Fixed Income Research

FBNQuest

Continue Reading

BANKING

The equities market moved higher by +1.41% due to late surge in demand across board.

Published

on

Hopeful signs on domestic debt service
Hopeful signs on domestic debt service

The equities market moved higher by +1.41% due to late surge in demand across board. Increased bargain hunting in the big banks – Zenith (+3.84%), Guaranty (+2.68%), UBA (+6.21%) Access (+8.33%) and FBNH (0.66%) early in the session set the tone in which the market activated its blockbuster mood after midday. Subsequently, tier 2 banks – FCMB (9.69%), Fidelity (9.17%) and Sterlnbank (4.63%) rallied due to late aggressive buying which involved local interests. Notwithstanding, Dangcem (+1.04%) remained the biggest influence on the day’s gains. On the flip side, the consumers – Unilever (-1.22%) and Flourmills (-0.51%) retreated

Market turnover inched up to N3.1bn ($8.6m) dominated by offshore crosses in Guaranty ($1.1m) alongside block trades in Zenith ($1m). Ytd return on the index closed at -0.01%. We expect the market to trade sideways in the next session.

Continue Reading

BANKING

The equities market posted a neutral performance of +0.01% on the day.

Published

on

equities market

The equities market posted a neutral performance of +0.01% on the day. Market activities remained muted for extended periods as the recent selling pressure waned in the banks.  Gains in Guaranty (+1.26%) and Zenith (+1.40%) driven by late surge in demand alongside pick up in Seplat (+1.89%) erased declines in NB (-1.23%) and UBA (-1.36%).

Market turnover fell to N2.44bn ($6.7m) boosted by offshore crosses in Guaranty ($1.65m). Ytd loss on the index stood at -2.21%. We expect the market to trade sideways in the next session.

Continue Reading

Trending