• Friday, July 19, 2024
businessday logo

BusinessDay

Excessive bank charges and financial exclusion

It is a common saying that where there is no rule, abuse is inevitable. This is presently the case in the Nigerian banking sector as a growing number of bank customers have expressed reservations over what they called excessive charges on transactions, which are already threatening the country’s financial inclusion initiative. Even a customer complained of deductions dating back to 2018.

In December 2019, the Central Bank of Nigeria (CBN) reviewed downwards most charges and fees for banking services in its updated Guide to Charges by Banks, Other Financial, and Non-bank Financial Institutions, which took effect from January 1, 2020.

Some of the approved bank charges: Electronic Funds Transfer, before the review, the rate for e-transfers’ was N50 flat fee. But now, it is N50 for transactions done above N50,000, N25 for N5,000 – N50,000 and N10 charge for below N5,000. The charge on ATM withdrawals from other banks’ ATMs was reduced to N35 from N65 for the third withdrawal within the same month. Today, banks charge at every withdrawal.

It is worth noting that the excessive charges will slow down the rate of financial inclusion as customers will avoid operating a bank account. It has been established by several surveys that customers are very sensitive to charges

Naira debit or credit cards linked to savings accounts attract a maximum of N50 quarterly maintenance fee while foreign currency denominated debit/credit cards attract $10 from $20. The charge for hardware token is subject to cost recovery subject to a maximum charge of N2,500. It was reduced from N3,500. For Naira Debit /Card Charges, the issuance fee for these cards are N1,000 (one-off charge) irrespective of the card type either regular or premium card. The same charge applies for a replacement or renewal.

On Intra-Scheme Money Transfer, sending to an account holder attracts a minimum of N50 subject to 1 percent of transaction value or N300, whichever is lower. While for a non-account holder, it attracts a minimum of N50 subject to 1.5 percent of transaction value or N500, whichever is lower.

For individual cash deposits, the rate is 2 percent for transactions above N500,000 while cash withdrawal is 3 percent for transactions above N500,000. The rate for corporate cash deposit is 3 percent for transactions above N3 million while withdrawal is 5 percent for transactions N3 million. Others are Status Enquiry at the Request of Customer (e.g. Confirmation Letter, Embassy Letter, Reference Letter, Letter of Indebtedness/Non Indebtedness etc.) attracts a rate of N500 per request.

Fee for Short Message Service (SMS) mandatory alert is based on cost recovery from previous maximum charge of N4 – today, some banks can send four SMSs for a transaction as low as N1,200. Bill payment via e-channels will attract a maximum charge of N500 from 0.75 percent of the transaction value subject to a maximum of N1,200. Special Request for Statement of a Bill of account is N200.

The CBN warned then that any Financial Institution that breaches any of the provisions as contained in the guideline will pay a penalty of N2 million per infraction or as may be determined by the CBN from time to time.

In a joint statement issued on March 16, 2021, by the CBN and the Nigerian Communications Commission, financial service providers were directed to charge N6.98 per transaction for USSD services – today, they deduct that and add VAT. Meanwhile, the CBN has not come out to review these charges for 2022, and as such the banks capitalising on the lapses to charge arbitrarily.

However, analysis of top Nigerian banks shows they recorded huge increases in fees and commission incomes in 2021 financial statements – from other people’s money.

The financial results for the year ended December 31, 2021, of some of the banks, especially the systemic important banks, showed an increase in their non-interest income.

Non-interest income is the revenue or income that banks and financial institutions earn from non-core activities that play a significant role in their overall profitability. It includes loan processing fee, late payment fees, credit card charges, service charges, and penalties, among others.

GTHolding Company saw its non-interest income, comprising fees and commission income, net trading gains, and other income, rise by 17.1 percent to N180.9 billion in 2021 compared with 2020, according to its annual report.

The bank said the non-interest income growth resulted largely from 39.4 percent growth in fees and commission income, 9.9 percent increase in other income, which was partly offset by 8.6 percent decrease in net trading gains.

Access Bank recorded a net fee and commission income of N118.59 billion in 2021, rising by 26.73 from N93.57 billion in 2020. Zenith Bank’s non-interest income increased by 23 percent from N251.7 billion in 2020 to N309 billion in 2021.

FBN Holdings, the holding company for First Bank of Nigeria, saw its fees and commission income increase by 18.47 percent to N103.77 billion in nine months of 2021 from N87.59 billion in the same period of 2020. The net fees and commission income of UBA rose to N158.64 billion in 2021 from N126.94 billion in 2020, according to its annual report.

These trillions of naira were made without the banks doing true banking and the regulators turning a blind eye.

Recently, some customers reached out to their banks on Twitter to complain of the outrageous charges deducted from their various accounts.

“I will liken the various deductions in every transaction done with our banks as multiple tragedies on Nigerians trying to survive this ugly economic situation,” a bank customer fumed.

While sharing his experience, he describes two of the tier 1 banks as the most unfriendly to customers, saying, “Late February, I had to close my current account due to the unnecessary deductions even the bank’s staff could not explain.

“I discovered that after a transaction, I was charged ‘transfer commission’ of N20.00+VAT; I was also charged telco+VAT N7.5 and USSD telco session charge+VAT, all in one transaction,” another customer says.

Read also: Explainer: Here are bank charges approved by CBN

It is worth noting that the excessive charges will slow down the rate of financial inclusion as customers will avoid operating a bank account. It has been established by several surveys that customers are very sensitive to charges, Ayodeji Ebo, an investment professional, notes.

Low transaction charges would be a major selling point for banks in the short to medium term as customers would migrate to banks with the least charges.

When a customer transfers below N5,000, a bank is expected to charge N10; N5,001 – N50,000 attract a charge of N25, and above N50,000 attracts N50 as electronic fund transfer charge, according to the CBN.

But some banks are charging higher than what is stipulated by the CBN. One of the tier two banks charges N26.88 for fund transfers of between N10,000 and N50,000, and N53.75 for transfers above N50,000. To worsen the situation, these deductions are taken from both the sender and receiver. The CBN should also tell Nigerians who is supposed to pay the charge of any transfer – is it the sender or receiver? But our banks and telcos are currently taking it from both sides, a customer points out.

The problem here is that the regulators may not be aware of these deductions, as some bankers claim. Also, the government programme on financial inclusion is being gradually suffocated by these multiple deductions, especially now that the banks have no interest to add to any savings. And the issue of mobile banking is also being seriously threatened.

The CBN should come in at this time to curb these deductions in order to bring sanity to our banking sector, and most seriously, tell the banks to make a refund of all charges wrongly deducted from customers.

We wish to warn here that if the current trend of excessive bank charges is allowed to continue the Nigerian banking sector is at risk of the much-dreaded scourge of financial exclusion – a phenomenon that can only spell more doom for an ailing economy like ours. This is why we urge the CBN to rise to the occasion by containing this scourge, which has the capacity to do more damage to the country’s economy.