Banking

Profitability of Nigerian Banks Under Threat—Fitch

Published

7 years ago

09/07/2019

By Dipo Olowookere

Earlier this month, the Central Bank of Nigeria (CBN) directed deposit money banks operating in the country to ensure 60 percent of their deposits are offered as loans to customers or risk severe punishment.

The apex bank had explained that it was taking this step in order to propel the nation’s economy through lending to small business owners as lenders were in the habit of using their deposits to mop up government securities to boost their profits.

In 2016, Nigeria slipped into recession, which affected almost every parts of the economy except the banking sector, which churned out huge profits during the economic downturn, which lasted almost a year.

Though the Africa’s largest economy is out of recession, it is still struggling to regain full recovery and in order to make this happen, the CBN said banks have till September 2019 to raise their loan to deposit ratio to 60 percent or would have to deposit extra unremunerated cash reserves, equal to 50 percent of their lending shortfall, at the central bank.

Reacting to this new development, renowned global rating agency, Fitch Ratings, said this new requirement could have an adverse effect on the profitability of Nigerian banks.

In a report obtained by Business Post, Fitch said it would be credit-negative for the banking sector, because it would push some banks to significantly increase lending to riskier borrowers, potentially with looser underwriting or underpricing of risk.

“Achieving the new LDR requirement in such a short timescale will be very difficult for some banks given their lending levels, particularly if customer deposits continue to grow at present rates. The sector’s overall LDR was 57 percent at end-May, according to CBN data. This is low relative to many markets, and reflects banks’ concern about the risk to asset quality from Nigeria’s often volatile operating environment. Nigeria’s largest banks, with the exception of Access Bank, have LDRs below or close to 60 percent and will be among the most affected by the new requirement,” the rating firm noted.

According to Fitch, “It is unlikely that there is sufficient demand from good-quality borrowers for banks to meet the target without relaxing their underwriting or pricing standards. Banks continue to struggle with high impaired and other problem loans, which is partly the cause for muted lending since 2016. The present operating conditions are not conducive to loan growth, and rapid lending during the fragile economic recovery could increase asset-quality problems in the future.

“Chasing loan growth could also weaken banks’ profitability if they cut margins to attract customers, and because of the need to set aside expected credit loss provisions under IFRS 9 when loans are originated,” it posited.

The CBN is incentivising banks to focus on SME, retail, mortgage and consumer lending in particular, by assigning a weight of 150 percent to these segments when computing banks’ LDRs for the 60 percent target. The SME and retail segments tend to be riskier for banks, and Nigeria’s mortgage market is in its infancy.

It said despite the difficulty of sourcing rapid loan growth and the risks it entails, “We expect banks to make a big effort to achieve the 60 percent target given the severity of the penalty for missing it. Depositing cash at the central bank is highly unattractive for banks as they receive no interest on it, in stark contrast to the high yields they can earn by holding Nigerian T-bills and government bonds.

“We will monitor how lending develops in 3Q19 at the sector level and at individual banks. Fast loan growth, particularly relative to the market average, or other signs that a bank’s risk profile may be deteriorating, could lead to negative ratings actions.

“Asset quality and capitalisation are key rating sensitivities for Nigerian banks, and could deteriorate as a result of fast loan growth. Most Nigerian banks’ Issuer Default Ratings are constrained by the country’s operating environment and ‘B+’/Stable sovereign rating.”

Banking

VAT on USSD, Mobile Transfer Fees Not Introduced by Nigeria Tax Act—NRS

Published

8 hours ago

15/01/2026

Modupe Gbadeyanka

By Modupe Gbadeyanka

The Nigeria Revenue Service (NRS) has denied reports that customers performing financial transactions would pay a Value Added Tax (VAT) of 7.5 per cent from January 19, 2026.

Information about this emanated from messages sent out to customers of a financial institution, informing them of the new development in compliance of Nigeria’s new tax laws, especially the Nigeria Tax Act 2025.

It was claimed that Nigerians, as part of efforts of the government to generate more funds from taxes, would begin to pay VAT for the use of banking services like USSD and others.

But reacting in a statement signed by its management on Thursday, January 15, 2026, the tax collecting agency emphasised that the VAT collection for such services was not new.

It stressed that customers have always paid taxes for electronic money transfers and others, as this is charged on the fee, not from the main amount of the transaction.

“The Nigeria Revenue Service wishes to address and correct misleading narratives circulating in sections of the media suggesting that Value Added Tax (VAT has been newly introduced on banking services, fees, commissions, or electronic money transfers. This claim is categorically incorrect.

“VAT has always applied to fees, commissions, and charges for services rendered by banks and other financial institutions under Nigeria’s long-established VAT regime. The Nigeria Tax Act did not introduce VAT on banking charges, nor (sic) did it impose new tax obligation on customers in this regard.

“The Nigeria Revenue Service urges members of the public and all stakeholders to disregard misinformation and to rely exclusively on official communications for accurate, authoritative, and up-to-date tax information,” the statement read.

Business Post reports that what this basically means is that if a customer sends N10,000 and the bank charges N50 for the service, a 7.5 per cent VAT on the N50, which is N3.75, would be paid by the sender, not N750, which is 7.5 per cent of N10,000.

VAT on banking fees

Banking

Paystack Enters Banking Space With Ladder Microfinance Bank Acquisition

Published

1 day ago

14/01/2026

Adedapo Adesanya

By Adedapo Adesanya

Nigerian-born payments company, Paystack, has announced its entry into the banking sector with the launch of Paystack Microfinance Bank (Paystack MFB) after the acquisition of Ladder Microfinance Bank.

The bank continues Paystack’s push into consumer products and adds a banking layer to its business-focused payment product, coming ten years after the company was founded with the goal of simplifying payments for businesses using modern technology.

In Nigeria alone, the company says its systems process trillions of Naira every month, supporting more than 300,000 businesses and millions of customers. According to Paystack, this growth highlighted a broader need beyond payments, prompting the decision to build a more comprehensive financial offering.

Paystack MFB will begin lending to businesses before expanding to consumers. It will also offer banking-as-a-service (BaaS) products to companies building financial products and treasury management products.

The company explained that while payments are a critical part of the financial journey, businesses and individuals increasingly require a full financial operating system. This includes the ability to store money securely, move funds easily, gain clarity from financial data, and access tools that support long-term growth. Developers, Paystack added, also need reliable, secure, and compliant infrastructure to build new financial solutions efficiently.

To address these needs, Paystack said it has established Paystack Microfinance Bank as a separate and independent entity from Paystack Payments Limited.

The new microfinance bank operates with its own license, governance structure, and product roadmap, although it will work closely with its sister company.

“By adding Paystack MFB to our family of brands, we’re finding the right balance through combining the rapid innovation of a tech-first platform with the stability of traditional banking,” said Ms Amandine Lobelle, Paystack’s chief operating officer.

Last year, it launched its controversial consumer payments app Zap, and now it is taking a step further with the company securing regulatory backing to become a deposit-taking institution. According to a statement, the bank will be guided by the same principles that shaped Paystack’s early success, including reliability, simplicity, transparency, and trust.

Paystack MFB has begun operations with a small group of early members and plans a gradual rollout to more businesses and individuals. The company also announced the opening of a waitlist for interested users and confirmed it is recruiting a dedicated team to help build its long-term banking infrastructure.

Banking

N1.3bn Transfer Error: EFCC Recovers N802.4m from Customer for First Bank

Published

2 days ago

13/01/2026

Modupe Gbadeyanka

By Modupe Gbadeyanka

The Economic and Financial Crimes Commission (EFCC) has helped First Bank of Nigeria to recover the sum of N802.4 million from a suspect, Mr Kingsley Eghosa Ojo, who unlawfully took possession of over N1.3 billion belonging to the bank.

The funds were handed over the financial institution by the Benin Zonal Directorate of the anti-money laundering agency on Monday, January 12, 2026, a statement on Tuesday confirmed.

First Bank approached the EFCC for the recovery of the money through a petition, claiming that the suspect received the money into his account after system glitches.

The commission in its investigation; discovered that the suspect, upon the receipt of the money, transferred a good measure of it to the bank accounts of his mother, Mrs Itohan Ojo and that of his sister, Ms Edith Okoro Osaretin, and committed part of the money to completion of his building project and the funding of a new flamboyant lifestyle.

With the recovery of the money from the identified bank accounts, the EFCC handed it over in drafts to First Bank.

While handing over the lender, the acting Director for the Directorate, Mr Sa’ad Hanafi Sa’ad, stressed his organisation would continue to discharge its mandate effectively in the overall interests of society.

“The EFCC Establishment Act empowers us to trace and recover proceeds of crime and restitute the victim. In this case, First Bank was the victim and that is exactly what we have done.

“We will continue to discharge our duties to ensure that fraudsters do not benefit from fraud and that economic and financial crimes are nipped in the bud,” he said.

In his response, the Business Manager for First Bank in Benin City, Mr Olalere Sunday Ajayi, who received the drafts on behalf of the bank, commended the EFCC for the swiftness and the professionalism it brought to bear in the handling of the matter and expressed the bank’s gratitude to the commission.

He described the EFCC as one of Nigeria’s most effective and reliable institutions.

Meanwhile, Mr Kingsley and all other suspects in the matter have been charged to court for stealing by the EFCC.