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CBN can reduce charges even further

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The reduction in bank charges by the Central Bank of Nigeria (CBN) is commendable. It is commendable in the sense that for once, the CBN came down from its ivory tower as an all powerful bank regulator and bowed to the yearnings and complaints of bank customers. However, the problem of high charges was created by the CBN. Electronic banking is a fall out of information technology era which by the present level of infrastructure in Nigeria, especially, erratic power supply, one can say that Nigeria is not ripe for electronic banking. Yet, Nigerian banking system must key into the world order, otherwise, Nigerian banks will be left behind if we fail to do so. Unlike charges in traditional bank product delivery, in which banks are by global practice, entitled to levy charges on services rendered, the CBN found it very difficult to properly classify services in electronic transactions that really qualify as bank service in generic terms of which banks are entitled.

Apart from that, since the deregulation of banking in August 1986, the CBN has closed its eyes while banks, so to speak levy ridiculous charges on services which in strict banking terms cannot be classified as bank services. Let me explain. Banks send SMS alert to customers and charge N4 per SMS. By Nigerian banking law and even CBN Guide to bank charges, banks are supposed to send bank statements, (summary of debit and credit transactions) to their customers periodically free of charge. But Nigerian banks have devised a creative way of rendering this free service but end up charging N4 per SMS for informing a customer that a debit or credit transaction has occurred on their account.

You will be surprised t to know that banks are making billions of Naira in profit by just sending SMS alert to customers through this charge that is patently illegal. I am on Airtel network. Normal charge for one SMS is N4 if I buy a bundle of 20, I am debited N50, that is, The charge is reduced to N2.50 per SMS. But banks charge N4 per SMS for sending bulk SMS to customers so they make N1.50 profit per SMS via a transaction that should be free. This is one area the CBN can do better by directing banks to stop charging N4 per SMS alert charges on customers. If banks want to add value to the service delivered to customers, that is welcome, but Chartered Accountants will agree that this is a revenue expenditure . That is an expenditure banks make to attract more business or retain customer loyalty and in that wise drive more business. Since 2012, the CBN embarked on what it called cashless banking project.

The project is aimed at making business persons and other bank customers to transact business with bank instruments like cheques, electronic transfers, point of sales platform etc rather than with bank notes or currency notes and coins which we call cash. The CBN embarked on the project because the cost of dealing with notes and coins was prohibitive because of high cost of printing, transportation costs and storage. The project is also in line with global trend in currency management. Rather than bear 100% the cost of the cashless banking project, the CBN transferred the cost to banks who in turn transferred it to customers in a bid to recover costs. This is the root cause of the problem of high electronic banking charges. In my previous write up in the Guardian titled WHEN A REGULATOR AIDS AND ABETS ILLEGALITIES, The point was made that CBN management has the mind set of an operator in the banking industry not a regulator. It is only an operator that is thinking about cutting costs and making profit.

Being a company limited by guarantee with sovereign powers to create money, the CBN ought not to worry about costs of cashless banking project especially as it is declaring operating surplus in billions of Naira year in year out even though it is not-for-profit organization. If indeed CBN is empowered by statute to maintain a stable financial system, then it should not act in ways that destabilize the banking system like placing cashless banking costs on the banks it regulates. Seven odd years down the line, the CBN should take stock and ask itself , why is cashless banking not being embraced by the banking public? The answer is very simple. : it is cheaper do business with cash than to do business through electronic banking channels. That is why the more the CBN tries to promote the culture of cashless banking, the more the growth in cash based transactions. The only solution to the problem is for the CBN to go back to the drawing board. When everything fails or policy is not working you go back to basics.And the basic thing to do is to take a critical look at Guide to Bank Charges and further reduce or even expunge those charges that do not qualify as bank services. Before the deregulation of banking in 1986, banks were issuing cheque books free of charge to current account customers including counter cheques. Same with savings account deposit and withdrawal booklets. Now banks by the order of CBN in Guide to Bank Charges are to issue cheque books and recover cost of printing from customers as well as charge for counter cheque. Why did the CBN change the rules in the middle of the game?

Like I said earlier, issuing of bank cheques to customers is not banking service. For the avoidance of doubt banking business is to pay money or agree to pay money, receive money or agree to receive money, promise to pay money lend money or promise to lend money or lend their name to enhance the credit standing of a customer. Other bank services that are derivatives of all the above constitute banking service. We can see that issuing checkbook to a customer is not banking service. Without cheque book, I cannot operate my current account so banks issue checkbook to me so I can write cheques and operate my current account. It is when I issue a cheque and bank pays cash across the counter as a paying bank or through clearing as a paying or collecting bank that they render banking service and are entitled to charge. Please I do not want tos be misunderstood. The cheque I use is not free, stamp duty is paid on the cheque which the bank collects and pays over to Stamp Duties Office which used to be under the Federal Ministry of Finance.

The CBN can do better by expunging recovering cost of cheque book from Guide to Bank Charges. Over the years, the CBN has been collaborating with banks to tackle the incidence of rising bad debts profile in the banking system which led to insolvency and failure of banks in the past . The Asset Management Company of Nigeria ( AMCON) became a child of necessity to take over the non- performing loans of banks and in that wise free toxic assets from the balance sheet of banks so they could resume lending activities. It is worthy of note that rising bad debts in the banking system causes distortion in the financial intermediation value chain. In particular money supply and the availability of new credits to keep the Nigerian economy moving is adversely affected. Again CBN ought to have gone back to basics when the issue of bad debts get consistently unresolved to find out the proximate cause of the crises in order to get at the root of the problem and resolve it once and for all.

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In other words, the CBN ought to have put on its thinking cap but not just assuming that bank customers are able topay but unwilling to pay which was why it directed banks to publish names of cronic bad debtors in newspapers to name and shame them so they can pay.. The CBN is furthertaking a simple approach by reducing bank charges instead of interrogating the integrity of Guides to bank Charges vis a vis the earlier Banker’s tariff. Yes, interrogating present legislation against the background of earlier legislation that ensured banking system stability was what Mallam Sanusi Lamido Sanusi did in 2010 when it was obvious that Universal Banking has failed in Nigeria like it did sometime ago in Germany. He saw the mistakes in the Universal Banking Guidelines and indeed banking law as contained in Banks and Other Financial Institutions Act 1991 as amended and its father, the Companies and Allied Matters Act 1990 as amended as well as Banking Act 1969. While Universal banking allowed banks to own subsidiaries that did not engage in banking business, the 1969 Banking Act prohibited it and allowed licensed commercial, banks to own only subsidiaries that also do banking business,albeit on a wholesale basis. That was why Universal banking was abolished and the provisions of the 1969 Banking Act recognized wholesale or Merchant banks restored. That action brought sanity to the banking system when banks divested from all companies that was not doing banking business and concentrating on doing banking business in line with their operating license.

The CBN under Mr. Godwin Emefiele should adopt the method used by Mallam Snusi Lamido Sanusi in resolving the loan crises. They should get the old Banker’s Tariff and compare the basis of pricing savings and loans with the basis of pricing savings and loans in Guide To Bank Charges. They will discover that while the Banker’s Tariff Banker’s Tariff priced savings and loans on the same basis at simple interest per annum, Emefiele’s Guide to Bank Charges prices savings and loans on different basis why? While interest on savings is based on minimum of 30% of MPR per annum, local currency loans are priced at negotiable( the rate should anchor MPR reflecting the risk-based policy model) which in simple terms is compound interest. That guideline is the reason why loan interest is very high in Nigeria, indeed highest in the world and we want industries and other small and medium enterprises to grow. It will never happen as long as CBN retains this policy. The CBN can do better by pricing savings and loans on the same basis as was the case in Banker’s Tariff.

There are other adjustments to be made. Under the old Banker’s Tariff, Credit Reference Report was free, why did CBN recommend cost recovery? What cost are banks even recovering when credit report is based on the record of dealings with third parties as reflected in the bank statement which the bank already have? Is it not ridiculous? The only conclusion I can draw is that CBN has allowed itself to base directives on bank charges on common sense of cost recovery on basis of services rendered in course of operation rather than on basis of bank services in generic sense which banks are legally entitled to. There is still room for improvement.
CHRIS ENYINNAYA ( AUTHOUR OF BANKING BOOKS & FELLOW CHARTERED INSTIYUTE OF BANKERS)

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