Customers’ gain is banks’ loss as CBN suspends deposit fees

Customers are seen breathing a sigh of relief while banks could be in for revenue losses as the Central Bank of Nigeria (CBN), on Monday, suspended with immediate effect the processing fees of two percent and three percent charged on all cash deposits above certain thresholds.

This suspension shall remain in effect until April 30, 2024, the CBN said in a circular signed by Adetona Adedeji, acting director of banking supervision.

On December 20, 2019, the CBN imposed processing charges on cash deposits above N500,000 for individuals and N3,000,000 for corporates as contained in the Guide to Charges by Banks, Other Financial Institutions and Non-Bank Financial Institutions.

“Consequently, all financial institutions regulated by the CBN should accept all cash deposits from the public without any charges going forward,” the circular stated.

Uchenna Uzo, academic director, Africa Retail Academy, said the suspension of cash deposit fees will enable customers to have a larger amount of disposable income available for saving and spending.

“They will have more funds available to be spent on discretionary items which are quite expensive at the moment,” he said, adding that this is a positive outcome of the suspension.

He said in addition to encouraging customers to bring their cash to the banks, “they will also develop more trust to leave their cash in the banking system in line with the cashless policy.”

About retail businesses, Uzo said there will be a greater impact, because the larger the cash deposit, the larger the charge on it. However, this provides a larger share of funds available to retail business owners and allows them to invest more in their retail business.

Read also: CBN suspends processing fees on cash deposits

Although, he expressed his concern about the short term, but said that it provides subtle relief to reduce the cost of production for business owners.

Uzo said that the processing fees have been free money for the banks, noting that the suspension will force them to find strategic ways to generate revenue honourably. He expects banks to reinvent their business models and put the customer first.

Uju Ogubunka, president Banks Customers Association of Nigeria (BCAN) and former registrar of the Chartered Institute of Bankers of Nigeria (CIBN) said this means that customers will no longer pay charges for depositing money in the banks and for the banks, it means a shortfall on their income.

Total fees and commissions received by 11 banks amounted to N614.15 billion in H1 2023 from N491.07 billion in the same period of 2022.

BusinessDay analysis reveals United Bank for Africa recorded the most electronic banking income of N51.08 billion, followed by Access Holdings in second place with a record of N43.95 billion. FBN Holdings recorded N34.01 billion, Zenith Bank recorded N22.27 billion and GTCO recorded N21.22 billion.

Banks earn income through various charges, including cash handling fees. Removing fees on cash deposits will lead to a decrease in their revenue stream.

The CBN directive will lead to increased administrative costs for banks, according to analysts. Processing large cash deposits can be time-consuming and require additional staff and resources.

In terms of compliance costs, banks will need to update their systems and processes to comply with the new policy. The removal of fees may incentivise banks to promote digital transactions to compensate for lost revenue from cash handling fees.

Read also: Banks’ customer deposits rise 24% on naira crunch

Another impact of the suspension of cash deposit fees is that banks may need to raise interest rates to offset the loss of revenue from cash handling fees. This could impact borrowers and savers.

Also, the removal of fees may encourage individuals who are financially excluded to use formal banking channels.

For big retail outlets like Shoprite, which deal in large sums, removing fees is an incentive as this could lead to cost savings.