Dormant account circular dead on arrival

The Central Bank Of Nigeria, (CBN) in recent years have become an institution that carries out bank regulation outside the demands of international best practices. This is because it has allowed itself to be robbed of its statutory independence by politicians and government in power that has made it a cash cow in the face of dwindling revenue from regular sources.

A case in point is the withdrawn cyber security levy. The withdrawal of the circular was inevitable because the directive came from the presidency which is quite unusual. Under normal conditions, CBN should be operating outside political interference as is the case with Central Banks elsewhere in the world.

The CBN has embarked on yet another misadventure by directing banks on how to deal with dormant account balances which to them are abandoned. It is a misadventure because section. 72(11) of Banks and Other Financial Institutions Act from which CBN is deriving its powers is in contravention of the 1999 constitution and other extant banking laws on banker, customer relationship which is a contract of which the CBN is not a party. Therefore the CBN derives no right or incurs any liability on matters relating to customer’s account in banks.

It is clear that the CBN is a regulator of banks not a regulator of customers accounts in banks. The intrusion has legal implications. Like we said earlier, dormant account is a creation of Nigerian banks due to our fraud prone banking environment. It is not an international banking practice. For instance I opened an account with Nationwide Building Society Brixton London in 1992 when I went on a one month course on Globus Software prior to assuming the position of Chief Inspector at Crystal Bank of Africa.

In 2009, I issued a cheque to my friend traveling to London who needed funds to add to his Basic Travel Allowance. That cheque was paid. If it was it Nigeria it would have been dishonoured for the reason “Account Dormant.”

Dormant accounts are usually identified after checking on operation of all accounts for a period of time. A pointer to dormancy of an account is a constant balance on an account being carried forward for several months or even years. Recommendations will thus be made to the branch manager by the account officer to transfer the account to a suspense account designated “Dormant Account.” This action is taken to forestall unauthorised use of the account.

When the decision to transfer the account to a Dormant Account is made, the customer will be written informing him/,her/ them of the bank’s observation that the account has not been in operation and the bank,’s intention to close the account if not operated for a period of time say one month . If the customer is still interested in operating the account they will respond promptly expressing desire to resume operation on the account otherwise they will ignore the notice.

It remains to be added that there are many reasons why a bank account can become dormant. In an economy that goes into recession from time to time, accounts being dormant on account of lack of economic activities becomes inevitable. Recession forced business entities to trade once in a while and if the economy remains in recession for long, business could cease altogether.

The point being made is that Dormant Account holder is still a customer of the bank . What the CBN has done by issuing that directive amounts to forceful closure of the account by executive fiat which is in breach of extant banking laws on closure of account or termination of banker customer relationship. Any customer whose Dormant Account is dealt with in accordance with the CBN circular has a right to sue the bank for unlawful closure of the account and join the CBN being the regular and initiator of the actions leading to the closure. This is because it could happen that credits are received for the account after closure. The credit may be kept in a separate suspense account.

In view of the foregoing, this writer calls on the CBN to withdraw that circular which is capable of destabilising the banking industry. Indeed it will be in the best interest of the CBN to do so in order to avoid multiple litigation on a circular that violates the constitution and extant banking laws.

Indeed, the time has come for the CBN to be managed as a professional banking institution. The CBN must comply with Nigerian constitution and extant banking laws. The bank must comply with international best practices and not allow it’s operation and policies to be teleguided by politicians and government in power. They should not issue directives that contravene their rule of engagement because such directives or actions could be challenged in a court of law.

We have instances in the past where CBN’ s regulatory action was successfully challenged in the law court. A case in point is the revocation of the operating banking license of Savannah Bank during the regime of President Olusegun Obasanjo.

Savannah Bank was admitted to both the clearing house and foreign exchange bidding session on a certain Friday. Before a bank can participate in both sessions, it must have clean bill of health from the CBN. Then the following Monday morning the CBN revoked the banking license of Savannah Bank for failing CBN liquidity test and other sundry violations of the condition for grant of license.

Dissatisfied, Savannah Bank went to court to seek redress for wrongful and malicious revocation of its banking license and the license was restored. By then the damage has been done and Savannah Bank with restored banking license has been unable to return to the market till date.

The CBN is not infallible. A review of the Dormant Account circular with a view of withdrawing it has become necessary. Going forward, the CBN should think very carefully about policies before issuing directives to banks do as to remain a reputable banking institution not one subject to the beck and call of politicians and government in power.
Enyinnaya, Fellow Chartered Institute of Bankers, wrote from Ikeja Lagos State. He can be reached via:
[email protected]