First Bank MD, Bisi Onasanya
Nigerian banks can be said to be doing well at present after the distress episode of the 2009-2011, which followed the Central Bank of Nigeria’s (CBN) intervention. However, as banks and shareholders celebrate the return to profitability and the attendant regime of dividend payment, industry affairs commentators say most of what the banks declare as profits are from excessive charges slammed on unsuspecting customers, reports Festus Akanbi
s the second quarter of the year rolls in, trading in the banking subsector of the economy on the Nigerian Stock Exchange (NSE) has been active with the attendant price appreciation of most of the banking stocks. A stock brother, who spoke with THISDAY last week, said this is a period when discerning investors warehouse banking stocks. “Nobody wants to sell until the 2012 full year and 2013 first quarter results of banks start rolling in”. Besides, he explained, members of the investing public are expecting a harvest of positive performance this year, a development that justified the interest placed on bank stocks in recent times.
Just last week, GTBank Plc, Zenith Bank Plc and Access Bank Plc, three frontrunners in the nation’s banking industry released their 2012 full year reports. In confirmation of bookmakers’ prediction, it was a bumper harvest for the three leading banks just like others. Altholugh GTB posted a profit before tax of N103 billion, N44.3 billion of the amount was generated through fees and commissions as against N43.5 billion recorded in 2011.
It’s peer, Zenith Bank was able to rake in a profit before tax of N102 billion in 2012. However, out of this amount, N50.4 billion came in through fees and commissions as against N42.2 billion realised in 2011.
Still smarting from the merger with Intercontinental Bank Plc in 2011, Access Bank was able to record a significant increase in its profitability, as it posted a profit before tax of N44.8 billion as against N24.107 billion in the preceding year. Revenue accrued to the bank from fees and commissions in 2012 was 89 percent higher than the 2011 figures. The bank, in its 2012 results posted 28.734 billion as commission income an improvement over N22.331billion recorded in 2011.
Burden on Bank Customers
But analysts argued that at the back of the expectation of a bumper harvest from banks is a groundswell of complaints from a section of the banking public, especially depositors and borrowers from banks who have continued to bear the burden of a regime of excessive bank charges. Some of the popular charges in banks include credit related fees, commission on turnover, charges on transaction notifications, remittance fees, letters of credit fees and commissions, guarantee commission, Western Union and Money Gram fees, financial advisory fees and commissions on insurance premium, inter-bank transfers, among others.
Analysts explained that the practice had significantly raised the profit margins of most banks and this can be seen in their financial reports.
According to one company managing director, who spoke under the condition of anonymity, most of the banks rely on income from interest charges on loans and advances as well as fees as commissions to grow their profits. In some cases, some of these banks rake in 75-80 percent of their income from sundry charges.
“When you lay your hands on the financial reports of these banks, look for the aspect that specifies how much was generated from such fees and you will see why banks are now focused on deposit mobilisation. Unfortunately, as banks declared huge profits, it is the depositors and users of their services that pay for it,” the analyst said.
Last year, concerns were raised that money deposit banks across the country had devised means of circumventing the CBN’s regulations by masking their charges. According to reports, some banks don’t even disclose all charges, which recently led to the recovery of about N5billion in reimbursement to aggrieved customers and penalties by the Consumer Protection Department (CPD) of the Central Bank of Nigeria. The CPD was set up by the CBN to resolve bank customers’ dispute arising from excess charges, unauthorized debits, service downtime and other disagreements that often result in conflict between banks and their customers.
CBN Governor Sanusi Lamido Sanusi made the disclosure at a function late last year. He said: “We set up consumer protection in CBN in 2010. In the last one year, we recovered about N6 billion unjustified charges by banks on their customers. And that is a small percentage of excess charges. We are requiring every bank to invest in consumer protection because it is very critical. Until there is consumer protection, there would not be financial inclusion. “
A customer of one of the old generation banks, who declined to be named, said the bank charged excessively on various transactions such as SMS alert, deposits and withdrawals among others. Bank customers also complain of deduction of an unspecified amount of money for deposits and withdrawals on their accounts.
Some analysts believe victims of banks’ manipulation have not been seeking redress because they do not know that Consumer Protection Department exists.
However, the CBN has moved to rein in this practice by issuing a new guideline to banks on excessive charges. Under the rules, banks are to notify customers of various transaction charges before they are implemented. The CBN also warned banks against over-charging their customers, saying they would be compelled to refund excess charges. According to the apex bank, erring commercial banks will be penalised in accordance with the law.
Under the rules, banks are required to apprise customers of charges before they are implemented.
According to the Deputy Director, Financial System Stability, Markus Zacharia, as regulators, the CBN has issued several exposure drafts, among which is the guide on banks charges.
Reviewing Banks’ Mandate
“This is a review of the mandate between the banks and the customers on what charges they are supposed to be charged and when that contract is made, there is the need to be bound by such charges,” he said. Zacharia added that the CBN feels that this new guideline would enable bank customers to know ahead what they are going to be charged to avoid any extra or unnecessary charges that are not in the contract that they entered into with the financial institutions.
Zacharia said the apex bank had set up a Consumer Protection Department so that customers are allowed to lodge complaints, pointing out that the CBN does not treat such complaints lightly. Zacharia said the reports are forwarded to the Bankers Committee’s sub-committee on ethics, where the issues are investigated and erring banks are dealt with.
Zacharia said: “There is a draft being reviewed on bank charges and once this is completed, that will be the standard document for charging customers”. He said banks are expected to make refund to customers anytime there is a proof of crass misconduct on their part, and in extreme cases, they would be penalised in accordance with the law.
Banks have consistently been making refunds to customers over breaches of transactional agreements. The refund covers 3,306 petitions lodged at Consumer and Financial Protection Division of the CBN from March 1, 2010 to March 31, 2012.
Statements of transactions between some customers and their banks have also revealed that most of the banks collect from their clients’ accounts excess charges on COT, loans and facilities, bank drafts, returned cheques, collection and debit correction, among others.
Industry watchers said given the current trend in the banking sector, banks may find it difficult to resist the temptation of boosting their performance with sundry charges, which have been providing cheap income for them. They contended that since the present leadership of the CBN shut the Expanded Discount Window (EDW) and directed that all commercial banks move all contingent liabilities to the books from below the line taking advantage of unsuspecting customers appeared to be the alternative for banks. Because of their recent exposure to the capital market and the downstream oil sector, and prevailing monetary policy rates, which make lending unattractive, banks have continued to beef up deposit mobilisation and intensified loan recovery drive.
Although the Bankers Committee-the forum of bank CEOs and CBN management- unanimously agreed to halt the N100 charge per transaction on inter-bank ATM usage, there are indications that banks have surreptitiously re-introduced the charge.
For instance, First Bank of Nigeria Plc is said to have introduced what it called N100 monthly card maintenance fee. Customers are not mollified by the FBN statement that the N100 levy would cover all cash transactions within the month. Other banks have been charging similar card maintenance fees even when the N100 charge per inter-bank ATM transaction was in place.
As financial inter-mediators, banks traditionally create money by extending credit facilities to investors at an interest rate slightly above the Monetary Policy Rate (MPR). But the ripple effects of the global financial meltdown and the venomous monetary policies of CBN has ignited a response shock in the financial services sub-sector that have put the treasury of most banks under intense pressure to balance their assets and liabilities. So, to meet revenue projections, most customers are now being ripped off as their accounts are debited of sundry nebulous charges and interests that ordinarily mock banking ethics.
Another strategy is to hide from customers the number of times an account holder will withdraw from his/her account and the interest to your savings account would be lost within the month. That is if an account holder withdraws cash from his account beyond certain number of times (above limit) in a month, the interest accruals would either be halved or lost completely to the bank for that month.
Analysts say high transaction costs and opaque billings need to be addressed to encourage savings and deposits in an economy widely acknowledged to be grossly under-banked. According to them, the CBN should have the capacity and the will to enforce its rules, especially on transaction charges, and to punish those who circumvent them.
Account Holders Have A Say
However, industry analysts say account holders too have a role to play. They should always ask for their transaction statements at regular intervals and seek clarifications on everything they don’t understand; use the websites and help lines/enquiries desk of banks to find out about all charges and fees before undertaking any transaction or opening an account.