Alternative Source of revenue in banks, Study Guides, Projects, Research of Credit and Risk Management

Download Alternative Source of revenue in banks and more Study Guides, Projects, Research Credit and Risk Management in PDF only on Docsity! CHAPTER ONE INTRODUCTION 1.1 Background of the Study Traditionally the business of banking has been to accept deposits from customers and use these deposits to fund loans that they kept on their balance sheets until maturity. The bank-customer relationship traditionally appeared to have allowed banks make arbitrary income from their customers without stiff opposition (Fitsum & Asimerom, 2016). Banks used to be sought after by the customers especially during the era of armchair banking when bankers were kings and customers; the servants, but things have changed, and customers can no longer be charged anyhow (Ayanda, Christopher, & Mudashiru, 2013). Unlike what could be taken as normal bank interest on loan or charges on other transactions, it seems difficult nowadays for banks to make a questionable profit, perhaps due to competition, economic downturn when liability generation is tasking, enhanced socialisation, globalisation and financial education. Bankers are forced out of their comfort zone to do more than mobilise liability and book portfolio to stay afloat and satisfy their customers. It is through customer satisfaction and retention that profitability results due to good service delivery by the banks. The need then arises for banks to be creative in profit generation such that customer satisfaction is not adversely affected (Adedeji & Adedeji, 2018). Due to the competition, Banks, the world over, are however transcending their normal business operations and diversifying their activities in response to economic and financial sector reforms (Amediku, 2012). To remain in business, banks are involved in different activities such as investments, trading and money transfer through which non-interest income is earned. This has also been attributed to recent structural forces of change that have caused banking in emerging 1 markets to experience a decline in its traditional activities and leading them to diversify into new business strategies (Gamra & Plihon, 2017). The Nigerian banking industry too has been seen steadily shifting away from traditional sources of revenue like loan-making etc, towards non- traditional activities that generate fee income, service charges, trading revenue and other types of non-interest income (Amakiri, 2016). Due to the attending financial regulation that follows the financial crises in the last decade, the banking system faced major changes in the form of increased competition, concentration and restructuring. In the context of these changes which had an impact on both the bank balance sheet and the income statements and in response to these changes, banks widened the range of products that banks offer to their customers (Adedeji & Adedeji, 2018). With regard to these changes, although the interest margin banks earn by intermediating between depositors and borrowers continues to be a source of profits for most banks, they also earn substantial amounts of noninterest income by charging their customers fees in exchange for a variety of financial and non-core services (Adedeji & Adedeji, 2018). In the turn of last decade, deregulation and technological innovation has permitted almost all financial institutions to capture an increasing share of their income stream from alternative sources (Amediku, 2012). According to DeYoung and Rice (2004, as cited in Jaffar, Mabwe, & Webb, 2016), US commercial banks, for example, generated 42% of operating income from non- interest sources in 2004 compared to 32% in 1990 and 20% in 1980. While part of the increase in alternative source of income is due to diversification into lines of business such as venture capital and insurance underwriting, growth in fee-paying and commission-paying services linked to traditional retail banking services has also been significant. However, the shift towards alternative source of generating income did not improve the risk-adjusted returns of banks at the period under review. Clark, Dick, Hirtle, Stiroh, and Williams (2014) detect a shift in the 2 1.3 Aim and Objectives of the Study The aim of this study is to analyze the impact of alternative source of revenue of the profitability in Nigerian banking industry; using selected banks as case study. Flowing from the problem statement, this study has the following specific objectives; I. To analyze the trend of the alternative source of revenue and the profit of banks in Nigeria II. To determine the impact of alternative source of revenue on profitability of banks in Nigeria within a given period III. To analyze the relationship between the various revenue sources and bank profitability of banks in Nigeria 1.4 Research Questions The study seeks answer to the following questions: 1. What is the trend of alternative source of revenue and profitability in Nigeria banking industry? 2. Does alternative source of revenue have impact on the profitability among Nigeria banks? 3. What relationship do various revenue sources have with Nigeria banks profitability? 1.5 Research Hypotheses The study was guided by the following two directional hypotheses: Hypothesis One H0: Nigeria banks do not have positive trend of alternative source of revenue and profit H1: Nigeria banks have positive trend of alternative source of revenue and profit 5 Hypothesis Two H0: Alternative source of revenue does not improve profitability of banks in Nigeria H1: Alternative source of revenue improves profitability of banks in Nigeria Hypothesis Three H0: There is no significant difference in the contribution of alternative sources of revenue to Nigeria banks profitability H1: There is significant difference in the contribution of alternative sources of revenue to Nigeria banks profitability 1.6 Significance of the Study The research analyzes the impact of alternative source of revenue on the profitability of the Nigerian banking industry; a case study of some selected banks. This study has important implications for both financial theory and practice. From academic point of view, this study will present additional evidence concerning the search for performance drivers of financial institutions (Mukhongo, Maokomba, & Musiega, 2014). In practice, it will help to document the profitability of banks that diversify their source of revenue and equally adopt alternative source as compared to those that are weary of the volatility that could be associated with the diversification and adoption of alternative source (Nisar, Peng, Wang, & Ashraf, 2018). What is more, future researchers interested in revenue source diversification and banks profitability could use this work as a springboard for their studies. Moreover, the study will not only inform banks’ decisions in order to remain competitive but also that of regulators on the appropriate level of revenue source diversification that banks are to maintain. 6 1.7 Scope of the Study The study centres on alternative source of revenue and the impact it has on profitability of selected banks in Nigerian bank industry, which include: Guaranty Trust Bank (GTB) Plc.; Zenith Bank Plc.; United Bank for Africa (UBA) Plc.; and Fidelity Bank Plc. Thus, the revenue source that this study is concerns with are those that are not fund based or unrelated to interest on deposit and loan. The study is restricted to non-Fund/interest based revenue which is the revenue earned by providing a variety of services, such as trading of securities, assisting companies to issue new equity financing, securities commissions and wealth management, remittance business revenue, sale of land, building, profit and loss on revaluation of assets etc. The validity of the research would not be affected. The case study nature of the research can limit its generalization ability. However, the findings can be generalized to only the studied banks. Generally, only current references will be used unless the work was considered a relevant “classic” in its area. In an attempt to overcome some literature constraints, the internet and risk management journals would be used as research sources. The limitations would however, not influence the validity of the study, nor would it negatively impact on the practical applications suggested in the study. 1.8 Structure of the Study The study is organized in five chapters as follows. Chapter one provides general background to the study. It also provides the statement of the problem in terms of research hypotheses. Again, it sets out the objectives of the study and provides the justification of the study. Chapter two reviews pertinent literature on the study from both theoretical and empirical issues reviewed in the literature and then attempt to link it to the current study. Chapter three discusses the methodological issues of the study, while chapter four discusses the analysis of the empirical 7 Exchange (NSE). Following the merger, UBA subsequently went ahead to acquire Continental Trust Bank in the same year, further expanding the UBA brand and also acquired Trade Bank in 2006 which was under liquidation by the Central Bank of Nigeria (CBN)( United Bank for Africa, 2019). 1.9.3 Guaranty Trust Bank (GTB) Plc Guaranty Trust Bank Plc (GTBank) is a foremost Nigeria’s financial institution incorporated as a limited liability company licensed to provide commercial and other banking services to the Nigerian public in September 1990. The bank commenced operations in February 1991, and became a publicly quoted company in 1996 (GTB, 2013). The bank won the Nigerian Stock Exchange President's Merit award that same year and subsequently in the years 2000, 2003, 2005, 2006, 2007, 2008 and 2009. Presently, the bank has over 2 trillion Naira asset base, with shareholders funds of over 200 billion Naira and employs over 5,000 people in Nigeria, Cote d'Ivoire, Gambia, Ghana, Liberia, Sierra Leone and the United Kingdom (GTB, 2013). In 2007, the bank became the first Nigerian financial Institution to undertake a US$350 million regulation S Eurobond issue and a US$750 million Global Depositary Receipts (GDR) Offer. The listing of the GDRs on the London Stock Exchange in July 2007 made the bank the first Nigerian Company and African bank to be listed on the main market of the London Stock Exchange. In December 2009, the bank also successfully completed the first tranche of its $200 million corporate bond targeted at increasing the depth of its operations in West Africa and Europe. Similarly, GTBank launched a US$500 million bond, the first non-sovereign benchmark bond offering from sub-Saharan Africa (outside South Africa), to the international community in May 2011 (Guaranty Trust Bank (GTB), 2019). 10 1.9.4 Fidelity Bank Plc Fidelity Bank, with its head office at Fidelity House, 1 Fidelity Bank Close, Off Kofo Abayomi Street, Victoria Island, Lagos, Nigeria was incorporated on 19 November 1987 with a banking license obtained 31 December 1987 and began banking operations on 3 June 1988 as an investment (merchant) bank. It converted to a commercial bank on 16 July 1999 and registered as a public limited company on 10 August 1999. The bank obtained its universal banking licence on 6 February 2001. The shares were quoted on the Nigerian Stock Exchange on 17 May 2005. The merger with the former FSB International Bank Plc and Manny Bank Plc (under the Fidelity brand name) produced the enlarged Fidelity Bank Plc (Fidelity Bank, 2019). Fidelity bank is owned by Nigerian citizens and corporations with more than 150,000 shareholders holding 13,227,807,421 of the bank's shares at 31 June 2007.The bank, in September 2007 offered a combined offer for subscription and rights issue of 5,501,100,421 and 498,899,579 ordinary shares of 50 kobo each respectively, valued at N50 billion to enable it expand retail infrastructure, branch network, expand product distribution capabilities in the electronic banking space and deepen participation in power, oil and gas, real estate, and telecommunication sectors. This offer was highly over-subscribed at the end of the exercise. As more branches are about to be opened across the country, the bank as at June 2007 had 93 branches, absorbing 1,421 staff who are well technologically driven young Nigerians. The bank was among the 15 qualified banks with shareholders' fund above $1 billion that was appointed by the CBN to manage its excess foreign reserve (Fidelity Bank, 2019). For the financial year ended 30 June 2007 the bank made a gross earnings of N240 billion while profit after tax was N4.2 billion, customers' deposits grew to N177 billion while total 11 assets and contingents stood at N275 billion The shareholders got N2.6 billion in way of dividend i.e. 16 kobo per share – an indication of good performance management by the bank management team (Fidelity Bank, 2019). 1.10 Definition of Terms Alternative Source of Revenue: refers to non-tradition revenue bank earned by providing a variety of services, such as trading of securities, assisting companies to issue new equity financing, securities commissions and wealth management, sale of land, building, profit and loss on revaluation of assets etc. Profitability: Profitability is the disparity between expenses and revenue over a period of time, normally one year. It variable is represented by two alternative measures: the ratio of profits to assets, i.e., the return on assets (ROA) and the returns to equity ratio (ROE). 12 2.2.1.1 Components of Alternative Sourced Revenue 2.2.1.1.1Income on Remittance of Business Apart from accepting deposits and lending money, Banks also carry out, on behalf of their customers the act of transfer of money - both domestic and foreign. - from one place to another (Rahim & Alam, 2015). This activity is known as "remittance business”. Banks issue Demand Drafts, Banker's Cheques, and Money Orders etc, for transferring the money. Banks also have the facility of quick transfer of money also know as Telegraphic Transfer. For example, in Remittance business, Bank 'A' at a place 'a' accepts money from customer 'C' and makes arrangement for payment of the same amount of money to either the customer 'C' or his "order" i.e. a person or entity, designated by 'C' as the recipient, through either a Branch of Bank 'A' or any other entity at place 'B'. In return for having rendered this service, the banks charge a pre- decided sum known as exchange or commission or service charge. This sum can differ from bank to bank. This also differs depending upon the mode of transfer and the time available for affecting the transfer of money; the faster the mode of transfer, the higher the charges (World Bank, 2012). 2.2.1.1.2 Income from Third Party Product Commission or income earned on selling other companies' products (or third party distribution business) is emerging as a new revenue source for many banks (Rahim & Alam, 2015). Although the fee amounts are still small, they are a valuable contribution to diversifying revenue streams, increasing the mix of non-interest income and also improve profits (Mukhongo, Maokomba, & Musiega, 2014). 15 2.2.1.1.2.1 Mutual Funds In simple word Mutual Fund means an investment company that pools the money of a large group of investors and purchases a variety of securities to achieve a specific investment objective (Sankaran, 2008). In other word Mutual Fund means a diversified portfolio of securities invested on behalf of a group of investors and professionally managed. Individual investors own a percentage of the value of the fund represented by the number of units they purchased and thus share in any gains or losses of the fund (Das & Shil, 2011). 2.2.1.1.2.2 Life Insurance Products Here bank earned revenue through the selling of life insurance product on behalf of insurance company (Gordon & Natarajan, 2009). The participation by the bank's customers shall be purely on a voluntary basis. The contract of insurance is between the insurer and the insured and not between the bank and the insured. 2.2.1.1.2.3 Non-Life Insurance Products Non-life insurance means general insurance. General insurance or non-life insurance policies, including automobile and homeowners policies, provide payments depending on the loss from a particular financial event (KPMG, 2018). General insurance typically comprises any insurance that is not determined to be life insurance it is called property and casualty insurance. The contract of insurance is between the insurer and the insured and not between the bank and the insured (KPMG, 2018). 2.2.1.1.2.4 Issuance of Credit Card to Customer A credit card is part of a system of payments named after the small plastic card issued to users of the system (Ferrao & Ansari, 2007). It is a card entitling its holder to buy goods and services 16 based on the holder's promise to pay for these goods and services. Credit cards are issued after an account has been approved by the credit provider, after which cardholders can use it to make purchases at merchants accepting that card (Zywicki, 1999). 2.2.1.1.3 Income on Contingent Liability A contingent liability is a liability which may or may not arise in the future depending on the happening or non-happening of an event (Cenar, 2011). A contingent liability is a potential liability…it depends on a future event occurring or not occurring. For example, if a parent guarantees a daughter’s first car loan, the parent has a contingent liability. If the daughter makes her car payments and pays off the loan, the parent will have no liability. If the daughter fails to make the payments, the parent will have a liability. 2.2.1.1.3.1 Letter of Credit A Letter of credit means a document issued by a bank that guarantees the payment of a customer's draft; substitutes the bank's credit for the customer's credit A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount (Biswas, 2011). In the event that the buyer is unable to make payment on the purchase, the bank will be required to cover the full or remaining amount of the purchase. A standard, commercial letter of credit (LC) is a document issued mostly by a financial institution, used primarily in trade finance, which usually provides an irrevocable payment undertaking (Biswas, 2011). 2.2.1.1.3.2 Bank Guarantee A bank guarantee from a lending institution is an instrument that ensures the liabilities of a debtor will be met. In other words, if the debtor fails to settle a debt, the bank will cover it. A 17 2.2.1.1.5 Income on Wealth Management Wealth management is an investment advisory discipline that incorporates financial planning, investment portfolio management and a number of aggregated financial services (Masset, Gilles, & de Westgaver, 2008). High net worth individuals, small business owners and families who desire the assistance of a credentialed financial advisory specialist call upon wealth managers to coordinate retail banking, estate planning, legal resources, tax professionals and investment management. Wealth management can be provided by large corporate entities, independent financial advisers or multi-licensed portfolio managers whose services are designed to focus on high-net worth customers (Geiger & Hürzeler, 2003). Large banks and large brokerage houses create segmentation marketing-strategies to sell both proprietary and nonproprietary products and services to investors designated as potential high net-worth customers. Independent wealth managers use their experience in estate planning, risk management, and their affiliations with tax and legal specialists, to manage the diverse holdings of high net worth clients. Banks and brokerage firms use advisory talent pools to aggregate these same services (Burgstaller & Cocca, 2010). 2.2.1.1.5.1 Income from Third Party Product Commission or income earned on selling other companies' products (or third party distribution business) is emerging as a new revenue source for many banks. Although the fee amounts are still small, they are a valuable contribution to diversifying revenue streams, increasing the mix of non-interest income and also improve profits. Third party products like... 1. Mutual Funds 2. Life Insurance Products 3. Non-Life Insurance Products 20 2.2.1.1.5.2 Stocks & Stocks Trading Income from stocks and stocks trading are the component of wealth management. Now-a-days banks are offering Stock broker & commodity brokers engaged in offering, share broking services, commodity trading services, online commodity trading services, e-commodity trading services and share trading services (Beccalli, Casu, & Girardone, 2006). 2.2.1.1.5.3 Equity Linked Investment Equity linked products are structured investment tools which enable the generation of yields through investing in stock options (González, 2004). Therefore, the return is based on the performance of a single stock, or in some case, a basket of stocks, or a stock index. Since the products are closely related to the performance of listed stocks, the risks involved resemble investment in the underlying stocks (González, 2004).. By investing in an equity linked product, investor agrees to purchase or sell listed stocks at a future date for an agreed price. The number of shares or the financial gain and loss customers will receive at maturity depends on the price performance of the stocks selected (Demirgüc-Kunt & Huizinga, 2001). 2.2.1.1.5.4 Structured Saving Products Structured products are synthetic investment instruments specially created to meet specific needs that cannot be met from the standardized financial instruments available in the markets (Blundell-Wignall, 2007). Structured products can be used: as an alternative to a direct investment; as part of the asset allocation process to reduce risk exposure of a portfolio; or to utilize the current market trend (Blundell-Wignall, 2007). Interest in these investments has been growing in recent years and high net worth investors now use structured products as way of portfolio diversification (Ofir & Wiener, 2009). Structured 21 products are also available at the mass retail level - particularly in Europe, where national post offices, and even supermarkets, sell investments on these to their customers. 1. Flow through share limited partnership 2. Funds of income Trusts 3. Funds of Hedge Funds 4. Highly yield bond portfolios 5. Covered call writing 6. Split share corporations 2.2.1.1.5.5 Structured Investment Products & Derivatives A structured investment product combines two products into one, offering return potential on one or both of the products involved (Célérier & Vallée, 2015). One product is generally a money market account that pays a fixed rate periodically and the other is put into an option that offers a variable rate of return. This allows the structured investment product to produce a return even when the markets fall (Célérier & Vallée, 2015). Uncertain economic times, a structured investment product protects capital investment and provides investors with earning opportunity (Arnold, Schuette, & Wagner, 2014). In fact, structured investment products are fixed-term investments, meaning investor get to decide the minimum and maximum earning potential of the product investor choose. In some cases, the rate is linked to an underlying benchmark, such as interest rates, commodities or foreign exchange markets (Arnold, Schuette, & Wagner, 2014). 22 important that a bank earns profit for its long term survival and growth. It is also stated that it is necessary that enough profit must be earned to maintain the activities of the business to be able to obtain funds for expansion and growth of the bank. This is the reason why every bank wants to be profitable at all times. Agbada and Osuji (2013) argued that corporate profit planning remains one of the most difficult and time consuming aspects of bank management because of the many variables involved in the decision, which are outside the control of the bank. It is even more difficult if the bank is operating in a highly competitive economic environment, such as that of Nigeria. Based on the literature, profitability in the banking sector is important at the micro and macro levels of the economy regarding sustainable banking, increased dividend payout and macroeconomic stability (Adedeji & Adedeji, 2018). Profit is viewed as the essential prerequisite of a competitive banking institution and the cheapest sources of funds. However, the source of income that enables profitability has mainly been interest income (Osuagwu, 2014). Economic recession, intense competition among banks and the high level of non-performing loans tend to make asset creation less attractive (Adedeji & Adedeji, 2018). This study defined profitability as the positive left over when cost is deducted from income and with focus on the non-interest component of banks' revenue. Profitability can be measured as return on investment (ROI), return on equity (ROE), return on assets (ROA), or profit before tax (PBT). According to Tabari, Ahmadi and Emami (2013) the profitability variable is represented by two alternative measures: the ratio of profits to assets, i.e., the return on assets (ROA) and the returns to equity ratio (ROE). In principle, return on assets ROA reflects the ability of a bank’s asset to generate profit, although it may be biased due to off-balance-sheet activities. ROE indicates the 25 returns to shareholders on their equity and equals ROA times the total assets-to-equity ratio. The study adopts profit before tax as a measure of banks’ profitability (Amakiri, 2016). 2.3 Theoretical Framework This study is anchored on two major theories in management: Portfolio Theory and Diffusion of Innovation Theory. 2.3.1 Portfolio Theory Portfolio theory, pioneered by Harry Markowitz in his 1952 paper "Portfolio Selection", in its concerns for risk and return argues that diversified portfolio is less volatile thereby return a better performance than the total sum of its individual parts. While each asset itself might be quite volatile, the volatility of the entire portfolio can actually be quite low. According to portfolio theory, diversified banks benefit from economies of scope which improve performance and reduce risk (Elsas, Hackethal, &Holzhäuser, 2010). Incomes from different sources which are uncorrelated or imperfectly correlated with each other result in steady and stable streams of overall bank profits (Chiorazzo, Milani, &Salvini, 2008). On the other hand, if the diversified activity is inherently riskier than the traditional banking business, the costs of diversification may outweigh the benefits, and banks may become riskier and their overall performance may deteriorate. This effect would further amplify if incomes from different activities are highly correlated (Nisar, Peng, Wang, et al., 2018). 2.3.2 Diffusion of Innovation Theory Roger (1995) defined diffusion as the process by which an innovation is communicated through certain channels over time among the members of a social system. The author opined that an innovation is an idea, practice, or object perceived as new by an individual or another unit of 26 adoption. Similarly, Richard, Florence, and Zénon (2015) explained that diffusion of innovations s a theory that seeks to explain how, why, and at what rate new ideas and technology spread through cultures. It analyses how the social members adopt the new innovative ideas and how they made the decision towards it. Both mass media and the interpersonal communication channel are involved in the diffusion process. The theory heavily relies on human capital and that innovations should be widely adopted to attain development and sustainability. In real life situations, the adaptability of the culture played a very relevant role where ever the theory was applied especially in the banking system where new services are creatively introduced to satisfy customer needs. Such innovations become attractive to the consumers who will be willing to pay the price whereby the organisation makes its profit while ensuring customer satisfaction. The theory of diffusion of innovation is applicable to this study because most non-interest earnings or alternative sourced revenue come from innovative products and services especially with the application of technology in banking. Banks makes fund transfer for their customers and others with a fee as charges. Not only that, they also sells products for third parties such as insurance and telecommunication voice and data credit and pocket commissions and sell bond on behalves of the central government; all these serves as alternative channels through which banks make revenue. 2.4 Empirical Framework Consistent with the above arguments, existing empirical studies report mixed evidence on the impact of alternative sources of revenue on bank profitability and stability. For example, studies such as Berger et al. (2010), and Maudos (2017) report a negative impact of having a diverse revenue sources on bank profitability. On the other hand, authors such as Elsas et al. (2010) and Sanya and Wolfe (2011) find a positive association between non-interest income and 27 largely unaffected by economic and financial market cycles while it is usually not controlled by law or regulation in Kenya. Similarly, Brunnermeier et al. (2014) found that noninterest income is good for the banking sector. Non-interest income is among the significant factors influencing bank profitability. Oniang’o (2015) showed that increased default rates make it imperative for banks to source for non-interest income to show-up profitability. Saunders, Schmid, & Walter (2014) studied with a larger sample of US banks found non-interest income to be associated with higher profitability across all banks groups. Perhaps the negative influence of non-interest income on bank performance may be explained by managerial diseconomies where transaction costs outweigh the benefit. 2.5 Hypotheses Formulation The study was guided by the following two directional hypotheses: Hypothesis One H0: Nigeria banks do not have positive trend of alternative source of revenue and profit H1: Nigeria banks have positive trend of alternative source of revenue and profit Hypothesis Two H0: Alternative source of revenue does not improve profitability of banks in Nigeria H1: Alternative source of revenue improves profitability of banks in Nigeria Hypothesis Three H0: There is no significant difference in the contribution of alternative sources of revenue to Nigeria banks profitability H1: There is significant difference in the contribution of alternative sources of revenue to Nigeria banks profitability. 30 2.6 Summary of the Chapter In summary, the chapter conceptualized alternative source of revenue as a fee based/non-interest income that is a result of income diversification from traditional loan/interest based bank revenue model. The theories though not wholly in alignment as to the impact of the diversification of banks sources of income on exposure to risk, they however agreed that and alternative sources of revenue have the tendency of improving performance. The review also revealed that studies conducted in other countries other than the US, such as; Vietnam (Nguyen, Vo, & Nguyen, 2015), Turkey (Karakaya&Er, 2013), cross-country study (Sanya& Wolfe, 2011), and Italian banks study (Chiorazzo, Milani, &Salvini, 2008), found that non-interest income positively affects bank performance. The review identified one study for German banks by Halden, Porath and Westernhagen (2007) which was contradictory to many in the region arguing diversification to be associated with a reduction in bank return. Therefore, there is no consensus on the effect of alternative source of revenue on bank profitability, thus creating a gap to be filled through research. 31 CHAPTER THREE RESEARCH METHODOLOGY 3.1 Research design The design appropriate for this study is Ex-Post Facto research design. It is Ex-Post Facto design because it is a social research that is not possible or acceptable to manipulate the variable being measured. So is a substitute for true experimental research and is used to test hypotheses about correlational relationships, but it is not practical or ethical to apply a true experimental design. Ex-Post Facto is therefore applicable because the study attempt to: explain a consequence of bank profitability based on antecedents on alternative source of revenue; determine the impact of these ASR on profitability by testing the claims using statistical hypotheses testing technique. 3.2 Population This study population is defined to include all the Nigerian banks. The study makes use of banks that operate in the Nigeria banking sector, and has operation in all states of the federation. The banks represent both old and new generation banks with experience of different business culture and model under their belt. The population of this study is those banks that have their shares being publicly traded on the floor of the Nigerian Stock Exchange, so their books are easily assessable to the general public. 3.3 Sample and sampling technique The selected banks that represent the sample of this study include: Guaranty Trust Bank (GTB) Plc.; Zenith Bank Plc.; United Bank for Africa (UBA) Plc. The banks were purposively selected because they represent publicly quoted in Nigeria which make access to their annual financial 32 CHAPTER FOUR DATA PRESENTATION AND ANALYSIS OF RESULTS 4.1 Introduction In this chapter, the trend of variables and the regression analysis have been presented to meet the objectives of the research. 4.2 Trend Analysis of Variables Figure 1: Column Chat of Fees and Commissions 2011 2012 2013 2014 2015 2016 2017 2018 0 10000000 20000000 30000000 40000000 50000000 60000000 70000000 80000000 Zenith Bank GTBank UBA Figure 1 shows the trend of movement of non-interest income of the studied banks. The Figure depicts that there have been upward and downward movement in the share of fee & commission income of the various banks. In 2012 Zenith Bank recorded 20.82% YoY increase in fee & commission income against 2011 revenue. The bank in 2013 also recorded 6.57% increase in its fee & commission income against 2012 revenue. In 2014, Zenith Bank was also consistent in its growth of alternative source revenue as it recorded 29.09% upsurge in fee & commission. 35 However, the share of fee & commission income for Zenith Bank fell with -17.28% in 2015. Figure 1 shows that Zenith Bank bounced back to as it recorded fee & commission growth of 10.54% in 2016. Likewise, the record shows growth in fee & commission in 2017 as the Zenith bank recorded 30.97% increase. The bank however reported another decline in fee & commission with -48.50% reductions in the revenue. In addition, Figure 1 shows that GTB recorded growth of 1.15% YoY in fee & commission in 2012 against the 2011 revenue. In 2013, the trend of growth was equally recorded, as the bank reported 2.48% growth in fee & commission. In 2014, GTB recorded 1.87 growths in fee & commission revenue. 2015 witnessed the second highest growth record of fee & commission revenue made by GTB as the bank recorded 7.54% growth. However, the bank witnessed -8.25% decline in fee & commission in 2016, and the trend continue in 2017 with another negative growth of -25.61%. The bank however returned to positive growth of its fee based income as it recorded 20.17% increase in the fee & commission revenue made in the year. Lastly, Figure 1 shows that United Bank for Africa (UBA) recorded growth of 20.65% YoY of the fee & commission in 2012. In 2013, the bank recorded 1.71% growth in fee & commission generated. However, in 2014, UBA experienced a decline in fee & commission generated as it witnessed -0.275 YoY decline in the fee based revenue. The bank returned to growth path in 2015 with 14.93% increase in fee & commission generated. The trend continues in 2016, 2017, and 2018 with 18.37%, 3.39%, and 3.79% growth respectively. 36 Figure 2: Column Chat of Trading Income 2011 2012 2013 2014 2015 2016 2017 2018 -20000000 0 20000000 40000000 60000000 80000000 100000000 120000000 140000000 160000000 Zenith Bank GTBank UBA Figure 2 shows the trend of movement of non-interest (Trading) income of the studied banks. The Figure revealed growth and decline in the share of trading income of the various banks within the given year. In 2012 Zenith Bank recorded 3.09% YoY increase in trading income. The bank in 2013 also recorded 20.85% increase in its trading income. In 2014 however, Zenith Bank recorded a decline of -18.97% in trading income. The bank return to positive growth in 2015 with 12.72% increase YoY in its trading income. Figure 2 shows that Zenith Bank maintains the positive growth as it recorded trading income growth of 58.78% in 2016. Likewise, the record shows a huge growth in 2017 as the Zenith bank recorded a whopping 456.28% YoY increase. The bank however reported another decline in trading income with -76.70% reductions in the revenue. In addition, Figure 2 shows that GTB recorded a negative growth of -52.04% YoY in trading income in 2012 revenue. In 2013 however, the bank recorded a positive growth of 238.71% in trading income. In 2014, GTB recorded another huge positive growth of 204.20% in trading 37 fee-based income with -10.88% YoY decline. The bank returned to growth path in 2016 with 49.35% increase in other fee-based income generated. Other fee-based income of UBA declined again in 2017 with -38.53%. The bank however returned to positive growth in 2018 as it reported increase of 53.52% YoY in other fee-based income. Figure 4: Line Chat of Profit After Tax 2011 2012 2013 2014 2015 2016 2017 2018 -50000000 0 50000000 100000000 150000000 200000000 Zenith Bank GTB UBA Figure 4 shows the trend of Profit After Tax (PAT) of the banks. In 2012 Zenith Bank recorded growth in PAT with 116.80% YoY. The bank in 2013 reported decline in profit with -12.93% in PAT. The bank however returned to profit in 2014 with 10.86% YoY increase in PAT. The bank continues the positive growth in profit in 2015 with 6.81% increase YoY in PAT. Figure 4 shows that Zenith Bank maintains the positive growth as it recorded PAT growth of 20.75% YoY in 2016. The trend of positive growth in 2017 and 2018 as the Zenith bank recorded 28.26% and 8.15% YoY respectively. In addition, Figure 4 shows that GTB recorded positive growth of 73.76% YoY in 2012 revenue. In 2013 the bank equally recorded a positive growth 3.84% in PAT. GTB also recorded positive 40 growth of 9.63% in PAT in 2014. 2015 witnessed another positive growth in PAT by GTB as the bank recorded 0.71%. The trend of positive growth of PAT continued in 2016 as the bank reported 33.07% growth. GTB in 2017 and 2018 recorded a positive growth of 26.92% and 9.97% YoY in PAT respectively. Lastly, Figure 4 shows that United Bank for Africa (UBA) recorded negative growth of - 1456.13% and -8.46% YoY of PAT in 2012 and 2013 respectively. UBA however reported positive growth of 2.80% YoY in 2014. The trend of positive growth of PAT continues in 2015 with 24.52%, and 21.13% in 2016. In 2017, UBA continued the trend of positive growth in PAT with 7.31% YoY. The bank also reported positive growth in 2018 as it reported increase of 1.36% YoY in PAT. 4.3. Correlation Analysis Among the Variables Table 1: Correlation matrix of variables in Zenith Bank 1 2 3 4 1. Zenith Fee & Commission 1 2. Zenith Trading Income .702 1 3. Zenith Other Fee-Based Income .653 .543 1 4. Zenith Profit After Tax .363 .594 .470 1 Table 1 above shows the correlation between alternative source of revenue and profitability in Zenith bank. The result shows that Fee & Commission have positive correlation with Trading Income (.702) which means that Fee & Commission increase as Trading Income increases. Fee & Commission also positively correlate with Other Fee-Based Income (.653). Also, Fee & Commission positively correlate with Profit After Tax in Zenith Bank (.363). The result also shows that Trading Income is positively correlate with Other Fee-Based Income (.543), and also 41 with Profit After Tax (.594). Lastly, the table shows that Other Fee-Based Income have positive correlation with Profit After Tax (.470). Table 2: Correlation matrix of variables in GTBank 1 2 3 4 1. GTB Fee & Commission 1 2. GTB Trading Income .089 1 3. GTB Other Fee-Based Income -.243 -.253 1 4. GTB Profit After Tax -.602 .220 .597 1 Table 2 above shows the correlation between alternative source of revenue and profitability in GTB. The result shows that Fee & Commission have positive correlation with Trading Income (.089) which means that Fee & Commission increase as Trading Income increases. Fee & Commission negatively correlate with Other Fee-Based Income (-.243). Also, Fee & Commission negatively correlate with Profit After Tax in GTBank (-.602). The result also shows that Trading Income is negatively correlate with Other Fee-Based Income (-.253), but positively correlate with Profit After Tax (.220). Lastly, the table shows that Other Fee-Based Income have positive correlation with Profit After Tax (.597) in GTB. Table 3: Correlation matrix of variables in UBA 1 2 3 4 1. UBA Fee & Commission 1 2. UBA Trading Income .660 1 3. UBA Other Fee-Based Income .529 .511 1 4. UBA Profit After Tax .894** .735* .670 1 Table 3 above shows the correlation between alternative source of revenue and profitability in UBA. The result shows that Fee & Commission have positive correlation with Trading Income (.660) which means that Fee & Commission increase as Trading Income increases. Fee & Commission also positively correlate with Other Fee-Based Income (.529). Also, Fee & 42 of trading income did not contribute significantly to Profit After Tax of Zenith bank. Lastly, the result revealed that other fee-based income had positive but insignificant contribution to the profit of Zenith Bank. The estimated co-efficient of other fee-based income produced estimate of .316 indicating that an increase in the share of other fee-based income did not contribute significantly to Profit After Tax of Zenith bank Table 6: Model Summary of GTB Model R R Square Adjusted R Square Fcal 1 .858a .737 .539 3.731 a. Predictors: (Constant), GTB Other Fee-Based Income, GTB Fee & Commission, GTB Trading Income Table 6 presents the explanatory power of the estimated model. As seen in the table, the independent variables are able to explain variations in the dependent variable up to 73.7% as indicated by the R-square. This means that there are other independent variables that may determine variations in the dependent variable. The adjusted R-square is produced as .539. The implication of the low explanatory power is that the independent variables put together are not able to influence the behavior of the dependent variable PAT to a significant extent. The extent of explanation that the individual variables can give about the profitability of the bank is significant as by the ANOVA (Fcal). Thus all the independent variables put together are not significantly able to explain changes in the behaviour of the PAT at 1% significant level. Comparing the regression sum of squares and the residual sum of squares, it can be inferred that the model does not significantly explains variations in the explanatory variable PAT. In terms of goodness of fit, the F-statistic of about 3.73 indicates that the data fitness of the model is not strong. In other word, the high F-statistic produced means that the data to a weak extent fits the 45 model that has been estimated. From the ANOVA table, it is clear that the predictor variables do not significantly explain changes in the Profit After Tax at 1% level of significant. Table 7: Coefficients of GTB Model Unstandardized Coefficients Standardized Coefficients T Sig. B Std. Error Beta 1 (Constant) 279160789.171 114748429.75 2 2.433 .072 GTB Fee & Commission -5.384 2.864 -.497 -1.880 .133 GTB Trading Income 2.442 1.575 .411 1.551 .196 GTB Other Fee-Based Income .783 .367 .581 2.131 .100 a. Dependent Variable: GTB Profit After Tax Turning the focus of the study on the influence that the individual independent variables have on the profitability of the banks, the analysis begins with the share of fee and commission and its influence on the profitability of GTBank. It must be recollected that fee and commission represents the share of non-interest income from services rendered by the bank. The result reveals that fee and commission does not significantly impacts the profit of the GTBanks. The estimated co-efficient of fee and commission produced a negative estimate of -.497 indicating that an increase in the share of fee and commission did not result in an increase of 49.7% in the Profit After Tax of GT bank. Thus an increase in the fee and commission does not result in an increase in the profit of GTBank. The result reveals that trading income has positive but insignificant impact on profit of the GTB. The estimated co-efficient of trading income produced estimate of .411 indicating that an increase in the share of trading income did not contribute significantly to Profit After Tax of GTB. Lastly, the result revealed that other fee-based income had positive but insignificant contribution to the profit of GTBank. The estimated co-efficient of 46 other fee-based income produced estimate of .581 indicating that an increase in the share of other fee-based income did not contribute significantly to Profit After Tax of GTBank. Table 8: Model Summary of UBA Model R R Square Adjusted R Square Fcal 1 .934a .873 .777 9.150 a. Predictors: (Constant), UBA Other Fee-Based Income, UBA Trading Income, UBA Fee & Commission Table 8 presents the explanatory power of the estimated model. As seen in the table, the independent variables are able to explain variations in the dependent variable up to 87.3% as indicated by the R-square. This means that there are other independent variables that may determine variations in the dependent variable. The adjusted R-square is produced as .777. The implication of the low explanatory power is that the independent variables put together are not able to influence the behavior of the dependent variable PAT to a significant extent. The extent of explanation that the individual variables can give about the profitability of the bank is significant as by the ANOVA (Fcal). Thus all the independent variables put together are not significantly able to explain changes in the behaviour of the PAT at 1% significant level. Comparing the regression sum of squares and the residual sum of squares, it can be inferred that the model does not significantly explains variations in the explanatory variable PAT. In terms of goodness of fit, the F-statistic of about 9.15 indicates that the data fitness of the model is not strong. In other word, the high F-statistic produced means that the data to a weak extent fits the model that has been estimated. From the ANOVA table, it is clear that the predictor variables do not significantly explain changes in the Profit After Tax at 1% level of significant. Table 9: Coefficients of UBA 47 income from fee based activities and as such diversification should stabilize operating income and give rise to a more stable stream of profits (Uzhegova, 2010). The result of this study however contradicts the opposite argument to income activity diversification from traditional banking activities which argues that income diversification leads to increased agency costs, increased organizational complexity and the potential for riskier behavior by bank managers. One of such opposing arguments by Kotrozo and Choi (2006) mentioned that ASR and other diversifications results in more complex organizations which “makes it more difficult for top management to monitor the behavior of the other divisions/branches. They further argued that the benefits of economies of scale/scope exist only to a point stating that the costs associated with a firm’s increased complexity may overshadow the benefits of diversification. A further support to income diversification cited from Sufian and Chong (2008) who by using annual bank level data of all Philippines commercial banks found a positive relationship between total non-interest income divided by total assets, a proxy for income diversification and bank profitability. Uzhegova (2010) using a HH index of interest income, commissions, fee income, trading income, non-interest income and other operating income found empirical support of the idea that banks involved in diversification activities expect some benefits. While Kotrozo and Choi 2006, using a similar index found that activity diversification tends to reduce performance compared to banks more focused in their activities. The finding is in line with the findings of Stirroh (2006) that noninterest income has become more correlated with net interest income. This means that an increase in non-interest income may also lead to an increase in profit before tax of DMBs in Nigeria. This is in agreement with the findings of Sheng and Wang (2008) that increased non-interest income proportion in total bank 50 income can efficiently improve the performance of commercial banks. It also supports the findings of Sanya and Wolfe (2011) that studied 226 listed banks in emergent economies from 2000 to 2007 and reported that diversification decreases insolvency risks and enhances profitability. It is in consonance with the findings of Feldman and Schmidt (1999) that the profit of the bank depends mostly on noninterest income but not interest income as people generally expect. Similarly, Rogers and Sinkey (1999) showed that collectively, banks with high levels of non-traditional activities tend to be safer, indicating some amount of market discipline. In contrast with the findings of this study, Sun et al. (2017) found that there are a non-linear relationship and a general negative correlation between non-interest income ratio and performance of banks in China. Furthermore, Gamra and Plihon (2011) show that long time focusing on non-interest income generates volatility of bank earnings, increased operating risk and requirement of higher management ability. In disagreement with the findings of this study, Stiroh and Rumble (2006) show that noninterest income unfavourably affects bank performance by either reducing return or increasing income volatility and there is no significant correlation between the noninterest income and the average rate of return. Smith, Staikouras, and Wood (2016) showed that the increase of noninterest income cannot totally cover the income reduction, meaning that non-interest income cannot offset income reduction. Furthermore, in disagreement to the findings of this study, Gamra and Plihon (2011) found that diversification gains are more than offset by the cost of exposure to the noninterest income due to income volatility and that diversification performance's effect is found to be no linear with risk, and significantly not uniform among banks. 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Retrieved from https://www.law.gmu.edu/assets/files/publications/working_papers/00-22.pdf APPENDIX GTBANK FINANCIAL STATEMENT (FEE & COMMISSION, TRADING INCOME, & OTHER FEE BASED INCOME BTW 2011-2018) 62 13 Fee and commission expense In thousands of Nigerian Naira Group Group Parent Parent Dec-2016 Dec-2015 Dec-2016 Dec-2015, Bank charges 2,191,731 1,650,294 1,387,916 1,556,281 Loan recovery and brokerage expenses 1,264,526 1,425,145 399,798 1,133,470 3,456,257 3,079,439 2,947,714 (2,689,751 14 Net gains/(losses) on struments classified as held for trading In thousands of Nigerian Naira Group Group Parent Parent Dec-2016 Dec-2015 Dec-2016 Dec-2015 Bonds tra 43,114 (317,356) 43,114 (317,356) ‘Treasury bills trading 1,320,515 1,064, 702 826,090 869,989 Foreign exchange 3,848,822 11,490,048, 1,373,037 8,637,053 Net trading income 5,218,451 12,237,394 2,248,241 9,189,686 15 Other income In thousands of Nigerian Naira Group Group Parent Parent | Dec-2016 Dec-2015 Dec-2016 Dec-2015 | Mark to market gainsi{loss) on trading investments (7,754) 2,854,509 (7,754) 2,854,509 | Foreign exchange revaluation gain 87,289,532 5,195,652 86,358,293 4,632,908 | Gain on disposal of fined assets 74,948 87,966 36,265 71,708 | Net portfolio floss¥qain on SMEEIS and long term investments 600,755 272,527 180,001 a) Dividends income 93,237 99,740 2,546,148 1,614,082 Wikiaiaon bicoeoy = Nepeeeesed Collate 3,922,090 5 3,922,090 g \Waluation income - Others 3,656,317 E 3,656,317 -| 95,629,125 8,510,394 96,691,361 9,173,208 65 12. Fee and commission income Group Group Parent Parent In thousands af Migerian Naica Dec-2018 Dec-2017 Dec-2018 ‘Dec-2017 Credit related fees and commissions 7,081,877 415 4,103,787 5,161,610 Account Maintenance Charges 10,582,781 9,413,200 9,153,965 8,146,989 Corporate finance fees 4,992,395 3,755,735 4,992,374 3,755,735 E-business Income 9,587,204 7,476,160 8,019,564 6,302,245 Commission on foreign exchange deals 5,024,135 2,767,592 5,024,135 2,767,592 Commission on Touch Points 1,166,603 781,112 1,166,603 781,112 Income from financial guarantee contracts issued 2,893,929 3,400,290 2,066,531 1,958,114 Account services, maintenance and anciliary banking charges 7,499,162 5,410,210 1,583,591 1,174,750 Transfers related charges 3,539,519 2,037,043 5 : : 52,367,605 42,921,857 36,110,550 30,048,147 13. Fee and commission expense Group Group Parent Parent ln thousands af Nigerian Naira Dec-2018 Dec-2017 Dec-2018 Dec-2017 Bank charges 1,272,384 1,056,008 840,364 772,045 Loan recovery expenses 625,148 1,123,653 117,344 799,721 1,897,532 2,189,661 957,708 1,561,766 66 UBA FINANCIAL STATEMENT (FEE & COMMISSION, TRADING INCOME, & OTHER FEE BASED INCOME BTW 2011-2018) 67 11. Fees and commission expense Drs 2015 E-Banking expense 8316 6861 6,510 5928 Funds transfer 2a 17 230 ng 8,557 7008 6,740 6,047 12. Net trading and foreign exchange income Fixed income securities 9 EI 9 36 Foreign exchange Ging aneamS 16,962 24526 9,242 16,398 Fareign currency revaluation gain 364 5459 3,133 5459 Fair value (loss)/gain on derivatives (see note 30(c)) (4,109) 2357 (4,109) 2387 16,026. 3241 8,275 324,250 13. Other operating income Dividend income 2,404 1,289 6,274 S967 Rental income 384 460 384 435 Gain on disposal of securities - 154 - 134 (Loss}/gain on dispasal of property and equipment 4) 204 (a) 4 ‘Others 169 4a a3 az 2,943 2550 6,727 781 Included in dividend income for the Bank is.a sum of N39 billion (2014:N4 6 billion) being dividend received from some subsidiaries. This amount has been eliminated in the Group results. 70 ZENITH BANK FINANCIAL STATEMENT (FEE & COMMISSION, TRADING INCOME, & OTHER FEE BASED INCOME BTW 2011-2018) 71 Net fees and commission income Group Bank December = December December 9 December Jn millions of Nigerian Naira (2012 2011 2012 2011 Net fee and commission income 45,108 38,660 34,212 28,726 Fees and commsion income comprise: ‘Credit-related fees and commissions 9,515 8199 6,045 7,000 ‘Commission on turnover 15,631 12,148 15,062 11,576 ‘Other fees and charges 22,489 19518 15,005 14,355 Total fee and commission income (47,635 39,865 36,112 29,931 Fees and commission expense comprise: Card services (2,088) (941) (1,889) (e41) ‘Other expenses (439) (264) a) (264) Total fee and commission expense (2,527) (1,205) (1,900) (1,205) Credit-related fees and commissions exclude any other fees used in calculating the effective interest rate on the financial instruments. 10. Net fading ineame/ (loss) Group Bank December December December = December in millions of Nigerian Naira 2012 2011 2012 2011 Fixed income securities 715 461 618 317 Foreign exchange gain 8227 11,549 7,943 5,584 Loss on treasury trading (note (ii) 693 (8,464) 693 (8,464) 9,695 3,546 9,254 (2,563) (Net trading income includes the gains and losses arising from the purchase and sale of wading instruments. (i___Loss on teasury trading represents exceptional lasses arising from the close out of trading pasitions in prior year. 12. Other operating income Group Bank December December December = December In millions of Nigerian Naira 2012 2011 2012 2011 Dividend income 2,887 407 4772 407 Rental income 490 add 448 440 Others (3,296 7725 ‘825 1916 6,673 8596 6,045 2,763 Included in dividend income is a sum of N1.58 billion (201 1: Nil) being dividend received fram some African subsidiaries. 72 Gross earnings Interest and similar income Interest and similar expense Net interest income Impairment charge for financial assets Net interest income after impairment charge for financial assets Fee and commission income Other income Share of profit of associates Depreciation of property and equipment Amortisation of intangible assets Personnel expenses Operating expenses Profit before income tax Income tax expense Profit after tax a 10 i 23 26 27 37 12 13 75 432,535 348,179 (123,597) 224,582 (15,673) 208,909 60,904 18,150 5,302 228 (9.188) (1,239) (67,522) (89,928) 125,616 (19,953) 105,663 403,343 313,422 (106,919) 206,503 (13,064) 193,439 70,512 15,877 3,532 138 (8.087) (728) (72,320) (81,567) 119,796 (20,341) 99,455 396,653 317,419 (114,936) 202,483 (11,091) 191,392 $0,313 17,884 11,037 (8.472) (1,128) (62,428) (83,377) 115,220 (16.436) 98,784 372,015 285,171 (99,438) 185,732 (12,392) 173,340 60,825 15,865 10,154 (8.417) (704) (67,848) (75,366) 107,849 (15,370) 92,479 Gross earnings Interest and similar income: Interest and similar expense Net interest income Impairment loss on financial assets Net interest income after impairment loss on financial assets Trading gains Other operating income Depreciation of property and equipment Amortisation of intangible assets Personnel expenses Operating expenses Profit before tax Minienum tax Income tax expense Profit for the year after tax Other comprehensive income: " 10 25 26 36 12 13a 13a 76 745,189 507,997 474,628 384,557 (216,637) (144,378) 257,991 240,179 (98,227) (32,350) 159,764 207,829 90,143 68,444 157,974 28,398 22,444 26,598 (12,428) (9,679) (1,631) (1,435) (64,459) (69,326) (148,346) (104,081) 203,461 186,748 (4,350) - (21,178) @ 477,933 129,652 673,636 454,808 420,210 343,558 (200,672) (131,910) 219,538 211,646 (95.244) (26,298) 124,294 186,351 72,846 55,619 157,974 28,398 22,606 27,235 (11,059) (8,664) (1,431) (1,375) (55.672) (62,519) (135,995) (94,118) 173,563 139,927 (4,350) - (12,068) (20,642) 487,145 119,285 millions of Nai ee 31-Dec-18 31-Dex 9. Net income on Feeiand commis: Credit related fees Commission on turnover ‘Account maintenance fee Income from financial quarantee contracts issued Fees on electronic products Foreign currency transaction fees and commission ‘Asset based management fees ‘Auction fees income Corporate finance fees Foreign withdrawal charges Commissions on agency and collection services Total fee and Commission income Feesand.commasion expense (ee note 44) 2,160. 1,740 8058 4gi7 7,596 4275 3232 2708 1161 1a 3.239 1834 1.894 ASB 3509 451 3,500 92,143 90,143 72507 72,846 (10329) (7.595) (8.383) (7,285) ar 814 82,548 64,124 65,561 The fees and commission income reported above excludes amount included in determining effective interest rates on financial assets that are not carried at fair value through profit or loss. 77