Banking in Nigeria: Developments and Customers’ Challenges

Modern banking commenced in Nigeria in 1892 with ownership then dominated by foreigners. This contributed significantly to the inability of indigenous Nigerian entrepreneurs to secure bank credits. In a bid to redress this situation and meet the financial requirements of Nigerian businesses, many indigenous entrepreneurs became involved in banking from the late 1920s to the mid 1950s. Some of these early indigenous banks included; African Banking Corporation (1892), Bank of British West Africa (1894), Anglo-African Bank (1899), Colonial Bank (1916), to mention but a few. However, due to problems such as inadequate capital, mismanagement, over-trading, lack of regulation and unfair competition from the foreign-owned banks, 21 out of 24 of the indigenous banks established during that period up to 1954, failed. This was mainly by self-liquidation, a condition that created untold hardship for depositors and a considerable loss of confidence in the ability of Nigerians to manage banking concerns.

The banking system in Nigeria started to stabilize with the regulation of banking, via the Banking Ordinance of 1952, the establishment of the Central Bank in 1959, and the Banking Decree of 1969. The situation was aided by the oil boom which commenced in the early 1970s and brought along with it economic growth thereby making banking a thriving and lucrative business. In this era, there were less than 20 banks with significant ownership and control by government, with highly regulated interest rates.

Ownership and management of banks by both government and the private sector increased in the 1980s.

A major factor that impacted negatively on the banking sector in the mid-1980s was the lack of experience and adequate personnel to cope with the burgeoning industry. With the number of banks increasing to 120, and with the few experienced hands moving to the highest paid jobs, opportunities were created for inexperienced personnel and even misfits to be appointed or promoted into sensitive positions in the banking industry. This led to diminished professionalism, which relegated honesty and integrity to the background, elevating materialism and inordinate ambition.

The situation was not helped by state ownership of many banks. In this scenario, staffing and running of the banks were largely subjected to political considerations. It was therefore, not surprising that most of the seven banks that were insolvent by 1989 were owned by state governments. This proved to be a tip of the iceberg as between 1989 and 1993 the number of distressed banks leapt to 28, a 300 percent increase. By 1995 the number of banks had increased to 60 out of which 31 were confirmed distressed and terminally insolvent with depositors losing billions of naira in the crisis.

Another era was between 1993 and 1998. During this period, the banking sector suffered deep financial distress which necessitated another round of reforms, designed to manage the financial crisis at that time. The third phase began with the advent of civilian democracy in 1999 which saw the return to liberalization of the financial sector, accompanied with the adoption of distress resolution programmes. This era also saw the introduction of universal banking which empowered the banks to operate in all aspects of retail banking and non-bank financial markets. The fourth phase began in 2004 to 2007.

In Nigeria, the reforms in the banking sector was necessary against the backdrop of banking crisis due to highly undercapitalization, deposit taking banks; weakness in the regulatory and supervisory framework; weak management practices; and the tolerance of deficiencies in the corporate governance behaviour of banks; at least so we were told.

The various bank reforms notwithstanding, bank customers still have causes to express dissatisfaction with the banking industry. Although the reform saw to the end of the humiliating services received by bank customers in the 1980s and 1990s, (we all remember the era of tally numbers), other areas that require intervention bother on the CBN’s monetary policies as follow:

With effect from January 1, 2016, we were told that we will no longer be able to draw from our Electronic Purse, popularly known as Automated Teller Machine (ATM) cards, for dollar-denominated transactions when we travel abroad.
This development was not only a violation of the right of bank customers; it was also a major image eroder for Nigeria and Nigerians outside the shore of our country.

Also, considering the timing (December) a festive period, the policy made life difficult for card holders that were cut unawares. Some had to depend on other sources to fund their holidays while others got stranded. Up till this moment, there has not been any justification of this oppressive policy against the banking public.

Coming on the heels of the above, the recent provocative and unjustifiable charges levied on bank customers are to say the least, worrisome; as these are gradually deflating the benefits of the various reforms carried out in the banking sector over the years. For instance, the Federal Government through the CBN, early this year, imposed stamp duty of N50 on bank customers for money received into their accounts. Thus, bank customers will henceforth pay N50 stamp duty for money received into their accounts via electronic transfer, cash or cheques.

These criminal charges imposed on the banking public has obviously started threatening the gains recorded following the various reforms in the banking industry in recent years. Certainly, this will discourage the informal sector from keeping their money with banks .Like someone will say, if I take my money to the banks because of petty thieves, and my bank now introduced sophisticated digital robbery, then, the earlier may be a better choice. With this development, a lot of people may go back to their individual controllable banks under their Pillows, ceilings, bags and even pit holes.

This development, we may not have considered, will lead to insecurity of lives and property, aside further weakening the banking sector. The danger also for the discouraged customers who may have chosen the above is that, the moment criminals observe the new trend, armed robbers will return to many homes; thus endangering the lives of many people.

I could not have put it better than the Guardian of March 3rd, 2016 edition in its Editorial and I quote: “That many banks short-change their customers and illegally profit there from is a renowned shame of Nigeria’s banking sector. The Central Bank of Nigeria (CBN), therefore, told Nigerians what they had always endured when it said the other day that banks imposed excess, illegal and unauthorized charges on their customers. It is, of course, a regime of cheating that must be stopped.

In year 2015 alone, CBN investigated ‘over 6,000 complaints from banks’ customers and compelled banks ‘to refund the sum of over ₦6.2 billion to affected customers’. The apex bank however, failed to state the total amount claimed by customers, whether or not the affected customers were satisfied or not with the amount refunded and whether the culprit banks were sanctioned. Such information would have assisted in appreciating the convergence or divergence of what was claimed and what was refunded; the feelings of the claimant customers about the final outcome of their complaints, and CBN’s ‘resolve’ to continuously enforce the provisions of the Revised Guide to Bank Charges.

Of course, there have been many complaints by customers of banks about unauthorized and illegal charges. Such fleecing of the customers has become the rule rather than the exception. The excesses come under different descriptions such as management fees, processing fees, interest charges, commission on turnover, card maintenance fees, account maintenance fees, deposit, withdrawal and transfer telephone alert fees, and ATM fees. Even the recently introduced stamp duty charge has become another source through which they have commenced overcharging their customers. In one transaction, some banks send more than two text message alerts and charge for each.

The banks, for reasons, such as greed, moral and professional bankruptcy, have often chosen to be the proverbial dogs eating the meat kept in their care. This has of necessity built distrust in the banks or the banking industry. This has had adverse implications for CBN’s programme of financial inclusion as well as the volume of money outside the banking system and effectiveness of monetary policy implementation.”

Since the CBN has failed in its responsibility to protect the banking public and the Consumer Protection Council (CPC), the government agency set up for the protection of consumers seems not to be interested in the plight of the bank customers, should we then call on the EFCC to spare us some time from chasing politicians and help investigate and prosecute officials of banks on this obvious financial infraction or should we go to church like we usually do, to pray to God to save us from the evils of Nigerian banks.

Thank you.

Chief Consultant

TPT International

March 15th, 2016