Over the years, the Nigerian banking industry has been in the public eye and as the safe keepers of the wealth of Nigerians, they have not only been constantly in the news, their operations have been highly regulated.
From the industry regulators to the government, banks have not been spared the rod with the latest being the windfall tax which had generated a lot of controversy. Posting billions of naira in profits may have made many see banks as pots of gold to be harvested.
From government to non-financial regulators, banks have recently been fined and charges imposed on them. In June this year, the Nigeria Data Protection Commission (NDPC) had fined four banks alongside three other institutions a total of N400 million.
The federal government had in July sought to tax the realised profits from all foreign exchange transactions of banks in the 2023 financial year. The measure contained in the Finance (Amendment) Bill 2024, provides for a one-off tax of 50 per cent on such realised profits.
Nigerian banks had recorded an impressive performance in 2023, driven by policy shifts including increased interest rates to combat inflation and Naira devaluation, which led to foreign exchange gains and substantial growth in interest income.
These conditions had seen four Tier-1 banks; Access Holding, Guaranty Trust Holding Company, United Bank for Africa, and Zenith Bank, grow their gross earnings by 114.40 per cent Year-on-Year, reaching N7.988 trillion in 2023. This impressive growth contributed to a cumulative 233 per cent YoY increase in pre-tax profit, totaling N2.892 trillion.
Minister of Finance and coordinating minister of the Economy, Wale Edun, had explained that the monies to be taken from the banks should not be considered as tax but levies, dismissing views that the levies would be passed on, implicitly, to banks’ customers.
According to him, all over the world, it is common that the society takes a share of such profit. “This is an important contribution to the finances of the government at this time; however, it is important to say that has been robust without raising taxes, there is a minimisation of taxes,” he stressed.
Meanwhile, banks are also being fined even after they had cleared themselves of allegations of data breach. NDPC’s National commissioner, Vincent Olatunji, had noted that, more than 1,000 financial institutions, schools, insurance companies, and consultancy firms are currently undergoing investigations for various degrees of breaches of citizens’ data.
Whilst the allegation of data breach had been denied by some of the banks, the NDPC had gone ahead to impose the fines on the banks.
Recently, Fidelity Bank which had been among those sanctioned, in a statement said despite the fact presented that there was no evidence to the claims made by the NDPC, it had been fined up to N555 million.
Divisional head, Brand and Communications at Fidelity Bank, Meksley Nwagboh, had explained that an internal investigation had been carried out around the claim of data breach and that the account opening process cited in the allegation was not completed due to missing documentation.
“In compliance with our Data Protection policy, accounts created online without full documentation are not allowed to be operational and are closed after 30 days if the outstanding documents are not provided to authenticate the identity of the person seeking to open the account,” he said.
The bank clarified that the account was immediately placed on “Post No Debit” status due to the absence of necessary documents, such as a passport photograph and BVN.
Fidelity Bank explained that the account was eventually closed after the applicant failed to provide the required documentation within the stipulated 30-day period.
The situation escalated on July 7, 2023, when Fidelity Bank representatives attended a Pre-Action meeting with the NDPC. Despite presenting their case and providing evidence to support their claims, the NDPC concluded that a penalty would be imposed on the bank.
On December 5, 2023, Fidelity Bank received a letter from the NDPC demanding the payment of a “remedial fee” of N250 million within 21 days. The bank immediately initiated further discussions with the Commission, convinced that no laws or regulations had been breached. However, on August 20, 2024, Fidelity Bank said it received another letter from the NDPC, this time increasing the demanded penalty to N555.8 million, making the situation much more precarious.
Analysts posit that the fines and levies on the banking industry particularly at a time that they are seeking investments from foreign investors to shore up their capital is counterproductive. The Central Bank of Nigeria (CBN) had earlier this year revised the capital requirement for banks in the country with a 2026 deadline to meet the new capital base.
Whilst some banks had already commenced recapitalisation efforts through rights issue and public offers, many of the funds that will come into the banking industry is expected to come from new investments and foreign investors.
However, the focus on harvesting income from the banks may hinder their ability to raise fresh capital particularly from foreign investors. Rating agency, Agusto & Co, in its report titled “Nigeria’s Retroactive Windfall Tax: A Short-Term Fix, Long-Term Risk” noted that, asides hindering banks ability to raise the needed capital, the move by the federal government would see banks cut back lending leading to stifling of economic growth in the country.
The rating agency noted targeting the banking sector, a critical economic intermediary, seems counterintuitive to stimulating growth, adding that, the windfall tax is an unwelcome distraction that could further strain the industry’s ability to raise the necessary capital, particularly, from foreign investors. Moreover, the tax could negatively influence bank share prices in the short term, compounding the challenges faced by the industry.
“Many now believe that the banking industry could merely be an initial target of this policy and there is a real risk that it could be extended to other industries in the future, further exacerbating investor anxiety.” It stated.
Chairman board of directors of Bank Directors Association of Nigeria (BDAN), Mustafa Chike-Obi whilst noting that banks in Nigeria are one of the most heavily taxed across the world, said high levying on the industry has the potential to stifle growth and innovation within the banking sector; ultimately affecting the quality of services we provide to our customers and the broader economy.”
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