BEHIND THE FIGURES BY IJEOMA NWOGWUGWU
In 2004, the National Electric Power Authority (now Power Holding Company of Nigeria) lost over N400 million to a first generation bank in the form of excess charges and interest penalties. A year earlier, the Lagos State Government was reported to have suffered a similar fate when a bank short paid it to the tune of N380 million on pay-as-you-earn proceeds from NITEL. In the same year, about N200 million was allegedly lost by the same state government due to short payments on withholding tax proceeds from the Nigerian National Petroleum Corporation.
A couple (names withheld), with two children in universities in the United Kingdom, also believe they are being fleeced by their bank. Each child is sent a monthly allowance to cater to their living expenses. Conservatively, the monthly allowances remitted to their children costs the couple some £17,000 annually, which roughly translates to N4.4 million. On the remittances, the couple incurs bank charges in excess of 5 per cent alone. This precludes the charges applied on their children’s school fees, accommodation and miscellaneous expenses that have to be met for the duration of their degree programmes.
The examples above are typical of the charges incurred by institutional – government and corporate – and retail customers in the course of doing business with Nigerian banks. Broadly speaking, banks make their money (or gross earnings) from interest charges, that is, interest charged on loans and advances to bank customers; interbank placements; income from advances on finance leases; fees and commissions; investment in treasury bills and other securities; foreign exchange transactions; and dividends from other investments.
A review of the 2011 annual reports of the top ten banks in Nigeria showed that interest charged on loans and advances as well as fees and commissions accounted for 75-80 per cent of their earnings last year. But whilst the high interest rate regime in the banking system can be blamed on the Central Bank of Nigeria’s tight monetary policy stance that has kept its benchmark interest rate at 12 per cent for months, and as a function of risk, it is difficult to justify the billions banks make from fees and commissions charged customers day in, day out.
A breakdown of the fees and commissions charged by banks shows that these comprise credit related fees, commissions on turnover, fees on transaction notifications, remittance fees, letters of credits fees and commissions, financial advisory fees, commissions on insurance premium, commissions on Western Union and Money Gram transfers, and other fees and commissions. They appear to be endless and have caused bank customers sleepless nights over how much of their money they lose to their banks for services rendered.
Let me be clear, banks have a right to charge fees and commissions on customer transactions. Banks the world over, incur costs in the course of doing business and are not expected to render their services for free. The harsh operating environment in Nigeria where bank branches are also expected to provide their own electricity, water and security does not help matters either.
Yet, the general consensus is that over the years, local banks have taken advantage of the lax regulation on the application of sundry charges by fleecing customers for the minutest of transactions. Indeed, not only are some of the charges arbitrary, they are punitive and exorbitant. Little wonder that a few discerning customers are beginning to demand value for the money they are forced to part with to the banks. Most, however, especially the retail customers are left to grumble and suffer in silence.
Fortunately, the central bank is finally waking up to its responsibility to ensure that customers are not unduly cheated by the banks. Last week, it announced that banks that have been found to have over-charged their customers will be compelled to refund the excess charges. In addition, banks deemed to have over-charged customers, will in extreme cases, be penalised in accordance with the law.
According to CBN, it intends to reinforce the ideals of consumer protection and has issued several exposure drafts including a guide on banks’ charges. Going forward, the CBN added, banks are advised to be transparent on the charges they impose and must be bound by the contracts entered into with customers on transactions, in order to eliminate arbitrary charges.
Beyond the central bank’s directive, if it must shield customers from needless charges, the CBN should also publish the Bankers’ Guide, which serves as a prescriptive guide on the fees and commissions banks can charge and the obligation of the banks to their customers. The Bankers’ Guide, from what I have gathered, is agreed and approved by the Bankers’ Committee and must be reviewed periodically in line with prevailing economic realities.
If the guide is made readily available to the banking public, banks will be less likely to stray from what has been agreed at the Bankers’ Committee, it will give customers an inkling of what to expect, could engender competition among banks, and ultimately lead to a reduction in charges. According to Mr. Tunde Lemo, CBN’s deputy governor in charge of Operations, the Bankers’ Guide is currently under review and when completed, will require banks to inform customers on all the covert and overt charges imposed on their products. This, he said, will be applicable to even the opening of current and savings accounts by customers, so they can elect whether to maintain accounts with a particular bank or not.
Added to the efforts by the central bank to stem the imposition of arbitrary charges, the Nigerian Consumer Protective Council is by law required to protect the interest of all consumers in all areas of products and services by providing speedy redress to consumer complaints. However, that has been sorely missing, enabling banks to have a field day on customers’ deposits.
Ultimately, however, the onus lies with bank customers to enforce their rights and challenge questionable charges. More often than not, the few customers that do so, sometimes at the court, are those who have taken loans and overdrafts from banks and are compelled to pay for spurious penalties that might not have been included in the contract when the loans were advanced. All customers, nonetheless, have a right to demand for their bank statements, should scrutinise them more closely and raise a red flag when they come across abnormal charges.
If telecommunication subscribers could form a strong advocacy group that has kept network operators on their toes, the same needs to be replicated in the financial system. The thing that should always be uppermost is that the deposits banks so willfully toy around with belong to the customers, not the banks. Without deposits, the banks will not be in business. So it is high time all customers, no matter how small, start to recognise that they deal with banks from a position of strength and must therefore assert themselves.