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Lapses in guide to bank charges

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A PoS terminal and mobile phone

Apparently in response to my earlier widely publicized write-up, When a regulator aids and abets illegalities, the spokesman of Central Bank of Nigeria (CBN) and his colleague, the Director of Banking Supervision were on Channels Television programme “Sunrise” the other day, in what turned out to be defending the indefensible.

What the CBN big wigs did was to try to justify bank charges as codified in the “Guidelines to Bank Charges” which they have previously approved.

For those of us who are students of logic, it is a well known fact that if the basis of an argument is wrong, the whole submission based on that basis is also wrong. We shall return to this much later.

Banking has been changing at an exponential rate in recent years due to technology and changing economic/operational environment particularly high inflation, and high interest rates.

In all these, the regulatory response demanded by these changes and the international character of banking especially the tendency for domestic banking to be aligned with developments in international banking environment combine to bring challenges to regulators.

In a way, banking is like soldiering: soldier come, soldier go but the barracks remain. Yes there is change in technology.

Yes there is change in banking products and services as some bank products and services have become outdated. But Banking laws like Bills of exchange act etc, banking principles, including the principle of levying bank charges remain.

After listening to the two gentlemen representing CBN on Channels Television on the issue of bank charges, I came to the conclusion that my position that CBN is a regulatory institution with the mindset of an operator has been vindicated at the end of the day.

Why on earth should CBN officials insist that nothing is free and as such banks must levy charges in order to recover their cost without looking at the matter holistically? They failed, it seems, to understand that banking being a highly leveraged business are enjoying operational subsidy by the banking public which needs to be reciprocated with lower bank charges and even waiving charges on some products and services as was done in the past.

Needless to say that grant of banking license to applicants is a privilege not a right under the law and such license can be revoked if abused.

For instance, the credit balance on my current account is free of charge to the bank to do business, but the bank charges me commission on turnover (COT) at N5 per every N1000 debit to my account. If nothing is free, why are banks not paying me interest on the credit balance standing on my current account?

The CBN spokesman was also talking about cost of funds to the banks which should be recovered.

In that connection the formula approved by the CBN in determination of what constitutes cost of funds to banks has always been a contentious issue because some elements put in the formula have nothing to do with direct cost of deposits.

As a bank Treasurer in various banks for eight years during the course of my banking career, we on the approval of the CBN were factoring in cost of computer maintenance in the cost of funds equation.

How wrong are we because that’s not the norm in the banking world. Have you bothered to ask yourself how banks in Europe and America that also survive on depositors´ funds and also deploy computers in their operations are charging as low as 2% on loans whereas ours is on the 20% band? You will blame it on inflation as if other countries don’t experience inflation.

Where the CBN officials goofed most is their insistence that banks must charge for services rendered at the request of bank customers.

The truth of the matter is that banks fail to render services which they are by law bound to render and when customers request for such services they levy charges.

For instance by law banks ought to render account of money customers place at their care on regular basis as agreed ,maybe weekly, monthly or quarterly.

When a customer approaches a bank and demands for statement of account which the bank has not rendered for say one year or two years for those applying for visa, the bank charges them by as high as 50 kobo per page. But failure to render regular account statement is a breach of the banker-customer relationship. How about that? Who pays for the breach?

The question is: what constitutes correct bank services for which charges apply? For the avoidance of doubt, the basic generic services rendered by banks are: to receive money or agree to receive money, to pay money or agree to pay money, to lend money or agree to lend money.

Banks can also lend their name, not money, as in Bankers Acceptances transaction as long as the instrument are not discounted but it becomes lending when the instrument is discounted in the money market.

All other banking services are derived from the services listed above. There are other activities like investment advice, safe keeping of valuables and so on.

Banks traditionally earn money by rendering the above generic services but the advent of computer and electronic banking including ATMs, POS, have introduced an element of machine related services which strictly speaking do not qualify as banking services but banks in Nigeria treat them as banking services and levy charges while CBN does nothing to stop them.

Indeed such services have effectively been outsourced for free to bank customers that queue to serve themselves. Each time I go to ATM point to withdraw money, it is akin to visiting a self service shop for withdrawal of money.

Like all self service shops bank customers should not be expected to pay when they serve themselves but we pay in banking business.

The point must be made that the CBN is backing recovery of costs like printing cheque books and savings account booklets, sms alerts, and even cost of printing bank statements as if they are in order.

For goodness sake, why do Accountants have revenue expenditure in their lexicon? Banks must spend money to earn money.

If banks do not spend money to print cheque books and issue same to me for use, how will I withdraw money from my account for them to charge me COT? It is payment of my cheque that constitutes bank service not issuing cheque book for my use.

The cost of issuing cheques for customer use by banks is a normal business expense.

The time has come for the CBN to comprehensively review elements of the Guidelines on Bank Charges and expunge those charges that strictly speaking do not qualify as bank services.

In particular all those machine related services without input by bank officials like sms charges, transfers from my phone, card maintenance fee etc.

Let me observe that banks are looking in the wrong direction to recover cost by pouncing on their customers.

Banks should review the high cost of technology in their operations if they must prune down operational costs, Banks shot themselves on the leg by acquiring expensive sophisticated banking software to drive their business.

Banking business does not have complex processes that require sophisticated computer softwares to drive their operations.

The most complex calculation in banking is ratio analysis for lending purposes. Simple interest calculation is not a complicated arithmetic. I am talking from experience.

Before I assumed position as Chief Inspector of Crystal bank. (which became Standard Trust Bank and now legacy group of United Bank of Africa Plc) I was sent on two month’s course in London to study Globus software.

Given the level of our development and banking practice, the bank did not need up to 75 % of the application packages so why pay such an amount on applications you do not need. ? For instance, what is a bank doing with an application that enables you to do forward value and back value of transactions? Unless a bank wants to engage in financial engineering and I don’t think any bank will, such applications are in no wise needed.

What is a bank doing with an application that calculates present values for loans when you pay interest on savings accounts using simple interest? Are we saying that the course of banking is enhanced by this package when assets and liabilities should be priced on the same basis in the same portfolio? If manufacturing outfits in Breweries, cement, rubber tyre, car assembly plants are installing sophisticated software one can understand because they have complex processes to contend with.

The CBN should audit the softwares installed by banks with a view to approving only those ones that meet, not exceed the level of banking operations in the country in order to cut costs and bring sanity to banking business especially the loan market.

Enyinnaya, fellow Chartered Institute of Bankers, wrote from Ikeja, Lagos State.


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