The Central Bank of Nigeria (CBN) has set the noose round the necks of banks operating in the economy, many bankers, speaking under their breath, have widely whispered to business a.m. in the past two weeks.
They say monetary policy regime which, in the current dispensation, has sterilised N3 trillion in addition to N6 trillion that was previously sterilized, making a total of at least N9 trillion sitting with the apex bank, has made operations unbearable as the money taken from them under the cash reserve policy does not earn them anything but deplete their loanable funds .
Speaking under their breath would seem typical of the Nigerian environment, where regulators hold sway, ready to pour fire and brimstone on any operator who complains openly about policies they consider inhibiting their businesses. It’s the dread of being made a scapegoat that keeps operators quiet in the face of regulatory assaults.
business a.m. began the investigation following a widely circulated social media communication by a Nigerian doctor who, upon relocating to the United Kingdom, discovered that his UK banks did not as much as throw a litany of charges at him the way Nigerian banks did to him and are still doing to millions of Nigerians operating a bank account in the Nigeria.
Indeed, a litany of charges and fees thrown at bank customers in the last few years have become of major concern and a major subject of discussion across various social media platforms in the country. Bank customers have had to complain openly and bitterly about charges and fees, some of which include ATM card maintenance charge, account maintenance fee, Short Message Service (SMS) charge, fund transfer charge, cheque book charge and statement of account charge, among others, that are thrown at them indiscriminately.
But many bankers who spoke to business a.m. say Nigerian banks are left by a hostile regulatory and economic environment to resort to different means of making income to keep head above waters. They argue that the cost environment under which they do business makes it difficult not to look for ways to cover these costs.
One senior male banker, responding to the accusation of indiscriminate charges by banks said of the comparison with the UK, that while he was not justifying the charges, the cost to serve clients in Nigeria is high.
“What is the cost of providing such service in Nigeria compared with UK? The cost of providing banking service is quite high in Nigeria and this is why some of these charges happen. It’s like cost of data from telcos in Nigeria compared with other advanced economies or like costs international oil companies (IOCs) recoup from joint ventures (JVs) or the government in the oil and gas space, or like cost of providing the right kind of medical services to Nigerians or cost of vehicles/running expenses of such cars in Nigeria compared with other climes,” he said.
But it would appear that it is a monetary policy pursuit couched in the politically correct language of fighting inflation that seems to irk many of the bankers who volunteered information.
“The situation is tough. Banks are really not finding it easy. The environment is tight and regulators are not helping matters as they seem determined more than ever to be politically correct with their policies than to face market realities,” a junior female banker with responsibility for generating deposits and creating risk assets for her bank said.
The view of a politically correct regulatory environment is one shared by many bankers who spoke under condition of anonymity, either because they weren’t authorised to speak by their institutions or they were avoiding regulator’s backlash.
The CBN is being called out for its obsession with inflation control to please political actors while ignoring other indicators that highlights a banking industry in agony over mounting costs.
One banker spoke of a “regulator that is possibly conflicted and responds to pressure,” adding, “I am not certain it’s about inflation control. It’s them trying to control flow of capital, foreign exchange, and inflation. They are playing around with what is termed the impossible trinity and at the same time trying to be politically correct by pleasing politicians … personal opinion,” he said, highlighting bankers’ fear of the regulator and the lack of freedom to express themselves on burning issues affecting their operations.
With over N9 trillion sterilized in the cash reserve ratio (CRR) policy at the apex bank, earning banks zero income, economic analysts say it is understandable why bankers are unhappy, but they are then drawn to the position of the apex bank about fighting inflation.
“CRR has always been a tool to control creation of money. The higher it is the lower money can be created and the lower money supply thereby managing inflation. Banks tell CBN but they don’t give a damn,” an old generation banker said.
When some bankers were told that the general understanding was that the high CRR and the sterilisation was meant to keep the industry safe and for risk control, they generally retorted that it may possibly be the case, but noted that banks were under heavy cost burden.
“If a bank collects a deposit, e.g. N100 from anyone, 22.5 percent or N22.50k sits with CBN at 0 percent interest. If the same client adds N100, another 22.5 percent is sterilised. If he withdraws the first N100, CBN holds on to that amount in CRR. If he brings back the N100, another 22.5 percent will be deducted again, all sterilised, not earning anything. Then 30 percent needs to sit in liquid assets that earn sub-optimally. All these cost money,” said one of the bankers.
Another very senior banker asked: “Safety for whom?” Adding, “You stifle banks from giving credit then you accuse them of not lending to real sector, then you accuse them of lending at high rate.”
Bankers generally feel hard done by especially with the new CBN policy that is asking banks to come to access what is effectively their own fund, sterilised by the CBN, so that they can then lend at single digit to agriculture and manufacturing.
“The whole thing is such a mess. Banks are struggling to cope with using 47.5 percent of the deposits they generate, as 52.5 is kept in CRR and in liquid assets, to achieve returns on 100 percent of the original money, and so you can see why there are charges everywhere,” an analysts said.
Bankers say notwithstanding the CRR and liquid asset policy, banks have to pay NDIC premium on the full deposit, and pay AMCON charges, among other costs.