CBN: Using unconventional tariffs to prosper banks?

For all we know, the Central Bank of Nigeria (CBN) was established as regulator of banks not an institution to engage in advocacy for banks. However, in what looks like advocacy for banks, the CBN recently made an upward review of charges applicable to cash transactions through Automatic Teller Machine (ATM).

For off-site (locations outside the banking environment), N100 charge plus surcharge not more than N500 for N20,000 withdrawal. For onsite, N100 per N20,000 withdrawal from March 1, 2025. 

This is not the first time the CBN is raising tariff to enable banks to recover rising operation costs. The reason for the upward review of charges cannot deceive anyone who wants to believe that the CBN is complicit in the game of ripping off bank customers. This is because it is not the function of the CBN to help banks recover operating costs. But why only banks? Every business entity is facing rising cost of operations at this time. 

In the case of banks, they report outrageous profit year in year out thus supporting the argument that they recover all operating costs, fixed cost, variable cost and marginal cost of operations. Indeed banking is one of the most profitable businesses in Nigeria of today with the highest return on capital employed vis a vis other industries. It is on record that in the past ten years, most of the banks have been reporting rising profit. What then is the business of the regulator in helping them to recover operating costs by raising tariff? 

In accounting terms, the expenses in maintenance of ATM is a revenue expenditure, costs you invite to drive your business. Such expenses are recoverable from the tax authorities as allowable expense by charging it to profit in the profit and loss account before arriving at profit before tax. So raising tariff to enable banks recover costs is a subsidy on banking business in an era government is removing subsidy on petrol, power, agricultural value chain etc. 

An examination of Guide to Bank Charges 2017 is necessary at this stage of our discussion to sustain our argument that the CBN is using unconventional tariffs to prosper banks. Under section 1.1 relating to current account credit balance, the document did not state a specific interest to be paid by banks. What is stated is that it is “negotiable”. What is the basis of negotiation? 

Section 2.1 deals with interest rate on local currency loans. It states that the rate payable is “negotiable” (the rate should anchor on MPR reflecting the risk based pricing model). What the CBN had done is to price deposits at simple interest and loans and other credit products at compound interest. In other words, if I have say N10m deposit in a bank, they pay me interest at simple interest (slower rate ) but if I borrow same N10m, the bank charges me compound interest (faster rate). 

The above pricing model is in gross violation of established banking principles in assets and liabilities management. The principle states that you price assets and liabilities in the same investment portfolio on the same basis? So why is the CBN pricing assets (loans) and liabilities (deposits) on different basis? This mis-match in pricing is responsible for the massive default by loan beneficiaries which is bad for the economy. The country cannot record growth when Small and Medium Enterprises cannot borrow at affordable rate. 

Another section of the bank tariff which favours banks is section 2.1.9 dealing with Penalty Rate. This is penalty rate for late repayment of loan instalment. Under this section, Naira loans and advances beneficiaries pay maximum one per cent flat rate (12 per cent per annum) on unpaid amount in addition to charging current rate of interest on outstanding debit (without prejudice to the provisions of Prudential Guidelines on limitation of accruals). This section should be scrapped because business has gestation period to mature and yield profit but banks do not seem to grant a period of interest payment only, (moratorium) to loan customers. During this time, payment of principal is suspended.

Another charge that should be scrapped is Current Account Maintenance Fee (CAMF). This fee is applicable to current accounts in respect of customer induced debit transactions to third parties and debit/ lodgement to the customer’s account in another bank. This charge was called Commission On Turnover (COT) The rate payable is negotiable subject to maximum N1 per mille, N1 per N1000 debit or 0.001 per N1000.

What is the rationale for this charge when no interest is paid on current account credit balance? That is why this writer is of the view that the CBN is complicit in the rip off of bank customers. 

The proposed raise in ATM charges is ridiculous. Why charge customers when ATM is self service transaction? If the customer walks into the banking hall to withdraw money, a bank teller or cashier paid by the bank will render the service free of charge across the counter of the bank. ATM is a mechanised cash service point. Banks should make the cost of maintenance of these machines as a normal business expense. 

The time has come for the CBN to concentrate on their function as a regulator not as an Advocacy group for banks. It is not the function of Central Bank anywhere in the banking world to fix charges for services like ATM usage which by the way is an option. One can still collect cash from the bank without ATM. Therefore, the directive should be withdrawn because it cannot be justified. 
Enyinnaya, Author and Fellow Chartered Institute of Bankers.