AN integral part of Africa’s largest economy, banking has contradictory faces in Nigeria. In the pleasant one, the deposit money institutions are laughing all the way to the bank – literally – declaring huge annual profits. In another, their clients are groaning under excessive, arbitrary charges. This is the painful side. The agony of bank customers resonates. In all this, the Central Bank of Nigeria, which is the industry regulator, seems indifferent to the pains of depositors as the banks run riot imposing arbitrary, steep charges. The CBN should stop the impunity.
Ideally, banking is supposed to play a critical role in the economy. As of 2020, total bank assets topped $247.3 billion, offering key services in lending, savings, mortgages and related financial services, says Dublin-based Research and Markets. Combined, financial institutions, including insurance, contributed 3.36 per cent to GDP in 2020, the National Bureau of Statistics said. Just nine of the deposit money banks made N554.23 billion in fees and commissions in 2021. This is 29.4 per cent better than the N428.32 billion for the same period in 2020. That is a decent return.
Regrettably, this has not translated to real benefits for bank customers in Nigeria. Instead, they are loaded with a slew of charges, some repetitive, others arbitrary. Banks hide behind the regulator’s forbearance to deplete customers’ accounts. Charges include monthly account maintenance (current), quarterly account maintenance (savings), card maintenance, transfers fees, stamp duty, SMS alert charges, hardware token fees, ATM withdrawals charges after the third time in a month outside the issuing bank and cheque withdrawal fees. The worst is that all these charges are then aggregated monthly and VAT applied; this is ‘double taxation’!
Consequently, customers are feeling the pinch in their accounts. From account maintenance alone, the banks raked in N88.9 billion between January and September 2021. That is a 41.4 per cent increase over the corresponding period in 2019 at N62.9 billion. These days, the social media is replete with customers calling out their banks for charging them arbitrarily. It is a familiar but unpleasant sight as depositors troop to banking halls daily to lodge complaints on failed transactions, some taking weeks to reverse, in violation of the CBN guidelines requiring instant reversal.
Normally, banking is best when it comes at a reasonable cost. In Nigeria, that is an elusive dream. A tribunal established by the Chartered Institute of Bankers received 2,256 petitions from depositors amounting to N546 billion in 2021. That is too high. Although the CIBN resolved 2,216 cases, victims are traumatised; many others do not get a reprieve. Some customers who needed their money for emergencies were frustrated. Others travel far distances to resolve their complaints. Some other failed transactions are never resolved. This frustrates the banking public, which sees the operators as extortionate.
Not surprisingly, there is a lack of trust between the banking institutions and the public. Rural communities, where technology is often unavailable, have no access to formal banking services. With insecurity high, banks are cutting down on operations in the hinterland, preferring to operate in the relatively more secure urban centres. As such, banking is not expanding as it should, thereby cutting off many people. As of 2020, there were 111.54 million active bank accounts, says the Nigerian Inter-Bank Settlement System. A 14.41 per cent growth over the 2019 figure, it was largely driven by the COVID-19 pandemic lockdown.
Despite this, financial exclusion is still high for the adult population, partly because of the banks’ costly charges and the CBN dropping the ball. A 2020 survey by the Enhancing Financial Innovation & Access said only 45 per cent of adult Nigerians were banked in 2020, up from 40 per cent in 2018. EFInA data shows that only 64 per cent of Nigerian adults were financially included by the end of 2020, meaning that 36 per cent of Nigerian adults remain completely financially excluded.
This misses the National Financial Inclusion Strategy target of 80 per cent. A similar programme in India gained over 500 million accounts in the four years to 2020. Indeed, countries constantly strategise on financial inclusion for their citizens. According to the CIA World Fact Book, with 37.26 million of 430.83 million population excluded, Europe has less than Nigeria’s 38 million financially excluded adults. While financial inclusion is lowest in Romania and Bulgaria at 60.8 and 63.0 per cent respectively, it is as high as 99.3 and 100 per cent in the Netherlands and Finland respectively.
Experts say financial inclusion is a key enabler to reducing poverty and boosting prosperity. The CBN says, “Financial inclusion is a strong lever for bridging income inequality, combating poverty and preserving social harmony.” As such, it (the CBN) has to intervene on bank charges. Under Sanusi Lamido, who preceded Godwin Emefiele, the CBN slashed the rates and annulled some charges altogether. Emefiele, plucked from his perch as CEO of Zenith Bank Plc, reinstated most of these charges as soon as he emerged governor. The CBN should retrace its steps, clamping down on the excesses of the banks. It should use banking to boost the economy, and encourage savings, instead of shutting out more Nigerians.
One way to help energise more competition in the banking sector is through fintech operators. Although this might hurt the traditional banks, internet banking has lower operating costs. This is where the fintech companies become critical. In Japan, the public is migrating to these fintech organisations to escape the higher charges of the big banks. The CBN should promote the fintechs and encourage more start-ups in that community. The competition they provide would boost financial inclusion.
To help the banks in making profits, the CBN should cut interbank – bank-to-bank – transfer rates. In 2021, the authorities in Japan slashed the rate, enabling banks to cut their charges and compete with the fintechs. It is an incentive for customers if banks allow customers to transfer money free for a number of times. The CBN should fine banks heavily for failed transactions and reward affected customers appropriately.
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