In a speech in South Africa in 1890, Mahatma Gandhi most interestingly stated as follows: “A customer is the most important visitor on our premises. He is not dependent on us. We are dependent on him. He is not an interruption to our work. He is the purpose of it. He is not an outsider of our business. He is part of it. We are doing him a favor by serving him. He is doing us a favor by giving us the opportunity to do so”. Whenever I interact with Nigerian banks, I always wonder if they have ever heard or read the above counsel form Mahatma Gandhi. I am constantly at a loss and shocked at the way they treat us in most of their services and products. Not only do they treat us with a kind of disdain, they make it look like they are doing us a favor. As Gandhi is from India, a developing economy, it means that customer oriented services and products are possible in a developing economy like Nigeria.
Just from January- March this year 2019, Nigerians have already paid about N15.7 billion as account maintenance charges to our five top banks- Zenith, Access, GTB, First Bank and UBA. While we continue to pay these charges, the key question is, what is account maintenance charge and is it justified? From my many years of experience with the financial sector, account maintenance charge is normally applied when a customer is unable to meet certain agreed terms and conditions of an account such as balance below agreed threshold. It can also apply when there are added benefits to the account such as travel insurance and overdraft facility. As such instances are not the reasons why most Nigeria banks charge account maintenance fees, it means that the huge amounts we pay are unjustified. If this is the case, a further question is why they continue to charge these fees and why the CBN has not deemed it necessary to stop the unwarranted charges. A further question is if the banks can profitably survive without the questionable charges and I think the answer is YES! This is an economy described as the poverty capital of the world with 21 million brethren unemployed and only about 36 million people use the formal banking sector.
In the 2017 CBN Revised Guide to Bank Charges, there are over 100 different incurable bank charges. With charges such as card issuance and maintenance fees, credit and debit alert fees, cheques books and counter cheques, bank transfers, ATM usage, current and savings accounts maintenance, bank drafts and stopped cheques charges, one will begin to wonder if the Nigerian banks are actually interested in real banking or just collection of fees. Are they really financially intermediating or ‘dis-intermediating’ the Nigerian economy? Not only are these charges contributing to financial exclusion, they seem unethical and very exploitative. Some banks even charge BVN enquiry fee and cash transfer form usage charge. A situation where any and every attempt to use the formal banking sector especially by poor Nigerians is met with a fee is not only abnormal but contradicts all our financial inclusion efforts.
Traditionally, banks generate their revenue and profits through the performance of their inherent financial intermediation functions to the economy. Primarily, this is done through the mobilization and transfer of savings and other resources from areas of surplus (depositors) to areas of scarcity (borrowers & investors broadly defined). The revenue or profit of the banks therefore comes from the interest rate spread which is the difference between the deposit interest rate paid to the depositors and the lending interest rate charged the borrowers. Other sources of revenue or profit made by the banks are variations or mutations of this fundamental intermediation function. Economies where banks effectively perform these intermediation functions are characterized by visible and sustainable economic development and particularly the contribution of the banking sector to the economy. Unfortunately, this is not the case in Nigeria even when we have had a formal banking sector for over 122 years.
A better understanding is through a comparison with that of UK where Nigeria adopted and continues to adopt her banking and other economic systems from. In a country of about 200 million, the total number of formal bank account holders in Nigeria is about 36.4million. With a lending interest rate of above 20%, only about 7% of adults and 10% of firms have loans with Nigerian banks even as access to credit remain a major challenge to over 80% of SMEs. With a total domestic credit provided by the Nigerian banks as a percentage of our GDP just at 23.3% in 2018 as compared to South Africa with 180.4%, it is very clear that Nigerian banks are not lending to our private sector. While only about 6.9% of Nigeria firms are using banks to finance investments, only 3.9% of their working capital is provided by the banks.
In the UK with a population of about 66 million people, there are about 150 million bank accounts (savings, deposits and current) and about 95% of adults have at least one bank account. Not only did the financial sector contribute about £119billion to the UK economy, it enhanced tax revenue of UK by about £27.3 billion in 2017. With about 65,379 ATM machines with no withdrawal charge in over 98% of them, the financial sector employs about 1.1million people and generated a trade surplus of about £51billion in 2016. Interestingly, there is no maintenance charge for savings account and most current accounts. The few fee paying current accounts come with added services such as travel insurance, car break-down cover, home emergency and mobile insurance among other services. While the lending interest rate in the UK over these years has been about 0.5%, the average credit provided by the banking sector to the economy as a percentage of the GDP from 2008 to 2012 was about 214.32% and about 168% in 2017. With over 10,500 bank branches, there is no charge for interbank transfers, cheque books, debit Cards etc. Using other measurement variables for banking sector development and contribution to the economy reveal the same wide differences and disappointing performance of Nigeria.
With the increasing technological innovations and disruptions, provision of financial services by fintechs and telcos, and the licensing of new banks by CBN, I think that it is time for our banks to really appreciate and practice Ganhdi’s wise counsel if they are interested in sustainable long term growth.
* Dr. Ngwu is a Senior Lecturer in Strategy, Finance and Risk Management, Lagos Business School and a Member, Expert Network, World Economic Forum.