The Bankers Committee, which comprises the Central Bank of Nigeria and Chief Executive Officers of the Money Deposit Banks resolved at the end of their meeting last week, to remove ATM charges, and investigate alleged excessive charges imposed on customers. The Committee also agreed to increase lending, and reduce interest rates to Micro, Small and Medium Scale Enterprises (MSMEs), to enable this sector generate employment, increase productivity and significantly contribute to the growth of the national Gross Domestic Product.
Although the erstwhile horror of unending queues and rowdy scenes in banking halls may have been largely reduced, the current dispensation has evolved its own challenges. For example, the Automatic Teller Machine (ATM) system is fraught with unsavoury challenges ranging from intermittent breaks in connectivity to card seizure by machines and the embarrassment of unexpectedly empty ATMs in times of need. Furthermore, there are constant media reports of the irritating hassles encountered when resolving errors generated by the ATM system in customer accounts.
Other areas of dissatisfaction include covert, arbitrary monthly maintenance fees on ATM cards, after CBN abolished the N100 charge on third-party withdrawals. Some banks allegedly also still charge N500 monthly maintenance fee for current accounts and N5 inter-state commission on every N1000 transaction, while other banks charge as high as N50 on SMS alerts in place of the N4 that GSM networks usually charge for text messages! Governor Lamido Sanusi curiously corroborated these allegations, according to media reports last week, when he confirmed that the apex bank had recovered over N6bn for customers that were ‘cheated’ (sic) by banks since CBN established a Consumer Protection Department a year ago!
In reality, while the issue of ATM and spurious bank charges generally place a higher burden of frustration on salary income earners, the issues of access to credit and interest rates impact more heavily on corporate organizations, particularly the MSMEs, which form the traditional engine of growth in all economies.
Incidentally, the Lagos Chamber of Commerce and Industries (LCCI) also noted at its recent quarterly press conference on the economy that “the credit situation is still a major problem for investors in the economy. As with the previous quarters, lending rate was well above 20 per cent. Many MSMEs still have serious challenge in accessing credit even at this high rate”. Consequently, the LCCI reiterated its call for both fiscal and monetary authorities to work together to ease the credit conditions, while noting that a conducive credit condition would help to stem the gradual crowding out of domestic entrepreneurs by foreign investors. The Lagos Chamber also called on government to give due consideration to economic diversification, so as to protect our economy from the impact of the volatility of crude oil prices.
It is trite to remind ourselves that no country has ever successfully grown and/or diversified its industrial base and gross domestic output with cost of funds at over 20 per cent. Worse still, Micro and Small Enterprises, in spite of relatively more severe deprivations, are institutionally encouraged to patronize micro-finance banks, where they may pay up to six per cent (72 per cent per annum) for funds!
The obvious question that evolves from the above discussion is whether or not the banks can be trusted to work in tandem with the expectation and aspirations of our people and willfully improve the quality of banking services and reduce cost of borrowing to stimulate growth.
The reality, of course, is that banks, like other businesses, are profit oriented and therefore attracted by risk-free prospects that yield bounteous returns; any attempt to reduce interest rates by fiat would lead to distortions that are characteristic of markets where scarcity or centralized price control prevails. Consequently, in successful economies, interest rate levels are not independently determined by fiat, but they are rather induced, by effective monetary policy and strategy by respective Central Banks; in other words, the Central Bank rather than commercial banks must bear the blame for prevailing oppressive lending costs. A payment system, in which CBN unilaterally substitutes hundreds of billions of naira allocations for numerically, relatively much smaller quantum of distributable dollar revenue, will continue to unleash the ever-present burden of excess cash in our system, and consequently predicate high CBN Monetary Policy Control Rates, which ultimately trigger higher cost of funds in the economy!
Paradoxically, the same CBN, which constantly instigates the systemic cash flush, subsequently ‘altruistically’ steps in to stem the threat of inflation, and prevent liberal access to the cash surplus by potential borrowers. To this end, CBN would offer to pay mouth-watering double digit interest rates to borrow back from the banks, part of the huge cash flood it had earlier self-inflicted on the system.
Indeed, it would be commercially inexcusable for any bank CEO to shun CBN’s offer to pay between 10 and 15 per cent to borrow back and then keep idle, money that government, itself, willfully placed as deposits in the bank accounts of MDAs in the first place. In other words, in spite of the usual CBN lamentation of its inability to force down interest rates to industrially friendly levels, the reality is that CBN, with its aggressive, probably reckless competition for loanable funds in the system, is actually the enemy of the real sector and not the banks!
Indeed, CBN had, on behalf of the Bankers Committee, often defended as inevitable, the high cost of funds and the unusually wide divergence between deposit (about five per cent) and lending rates (above 20 per cent), as it claimed that banks incur peculiarly high operational costs, because of the hostile infrastructural environment, which presumably the real sector, including MSMEs are immune to!
Paradoxically, after AMCON’s sinking of over N5000bn of public funds into banks, customers still decry the quality of services, cost of funds remain above 20 per cent, industries remain prostrate, while poverty has deepened nationwide, but the banks are back to winning ways with stupendous profit figures being posted for 2012!
So, in the light of the foregoing, can we really trust the Banking Committee to deliver on their promise to improve banking services and reduce cost of borrowing or is the present resolution of the committee the usual window dressing, akin to the exotic but failed promises of Soludo’s banking consolidation?
With hindsight, unless CBN relinquishes its monopoly of the foreign exchange market, it may be fatal for anyone to hold their breath on the latest promises!
SAVE THE NAIRA, SAVE NIGERIANS!!
By Henry Boyo
