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Banks urged to develop new sources of revenue

By on September 23, 2014

As earnings-constraining regulations continue to eat deep into deposit money banks’ (DMBs’) traditional sources of revenue, the financial institutions have been advised to look for new sources of revenue in order to continue to play their intermediary role in the system.

Managing Director, IBFC Alliance Consulting, Mr. Funmi Agusto stated this in a chat with THISDAY, on the sidelines of a seminar organised by his firm in Lagos.

Agusto, who expressed optimism that the banking industry would continue to grow because of opportunities and the size of the Nigerian economy, however maintained that developing new sources of revenue would enable banks to partly offset the revenue that would be lost from policies such as the gradual removal of commission on turnover (CoT), among others.

“In the next five years, we believe that the banking industry would grow. In the next five years, we believe that the industry would need to find new sources of revenue because more likely, we would have a higher rate of growth in loans and advances, so that interest income from those loans and advances would partly offset the revenue that would be lost from things such as the removal of CoT,” he explained.

He pointed out that with the rate at which the Nigerian economy is growing, there are huge opportunities for banks to grow their balance sheets as well as their businesses.

“But for a bank to grow its balance sheet, it has to grow its capital base and the amount of capital we are talking about are not small sums of monies. So banks really need to be very efficient with the issue of capital,” he added.

Commenting on the likely impact of the implementation of the Basel II and III accords in the banking industry, he said, the regulation would require banks to beef up their capital in order to sustain their businesses, adding that “they would also have the challenge of ensuring that they generate more profits.”

Meanwhile, a report by IBFC Alliance titled: “The Nigerian Banking Industry: A Strategic Outlook,” showed that over the past eight years, there have been significant development in the banking sector.

Furthermore, it noted that although the country has enjoyed a stable macroeconomic, steadily increasing banking penetration, important regulatory changes, it has on the other hand suffered from worsening security situation.

According to the report, the improving ICT infrastructure would continue to drive incremental banking penetration. It also stated that the power sector reforms, if successful, would further drive down operating costs, saying it has the ability to raise profitability.

“Balance sheet growth prospects look promising. Banks need equity capital to maximise the growth opportunities,” it stated.

 

[This Day]