Lamido Sanusi’s unfinished business
Our CBN cut MPR from 8% to 6% in July 2009, yet there has been no reduction in banks lending rates which still hover above 22%. And we are interested in sustainable economic development? Development indeed!! Until CBN reverts to its Circulars Nos BSD/06/2002 and BSD/2/2004, 10,000 banking reforms may not achieve the best results […]
Our CBN cut MPR from 8% to 6% in July 2009, yet there has been no reduction in banks lending rates which still hover above 22%. And we are interested in sustainable economic development? Development indeed!! Until CBN reverts to its Circulars Nos BSD/06/2002 and BSD/2/2004, 10,000 banking reforms may not achieve the best results intended” By 15th April, 2010, the Monetary Policy Committee (MPC) of the CBN met and decided that going forward lending rates by banks would be linked to MPR. Never mind that CBN blew a big grammar in explaining this important reform by stating that the banks are to forward to CBN their risk-based Interest Rate Pricing Model, whatever that means.
Hear what the CBN circular No BSD/DIR/GEN/CIR/04/015 dated 30th April, 2010 in respect thereof says: “Deposit Money Banks (DMBs) are required to develop all inclusive risk-based interest rate pricing models and forward same to the CBN. DMBs are expected to quote lending rates as fixed spread over the Monetary Policy Rate (MPR) or any reference rate as may be determined by the CBN. They are required to render monthly returns on, and regularly publish (on a website, newspapers, and other periodic reports), a statement showing the relationship between the MPR and their prime and maximum lending rates”.
“The articulation of the pricing model in this mode and its disclosure to the general public is intended to serve two purposes: First, by providing visibility on relative efficiency of financial institutions, banks will be encouraged to seek profitability by driving down costs and charging competitive rates rather than charging excessive rates of interest. Second, by explicitly stating prime and maximum lending rates as a fixed spread over MPR, the policy rate becomes an effective tool for driving lending rates up or down as policy stance dictates. Banks are advised to be guided by the following parameters, in addition to the risk premium, in determining their prime lending rates. Each of the cost element or component as described below should be separately computed and disclosed as part of the information to be made public: (1) direct cost of fund, (2) indirect cost/overhead, (3) statutory cost which includes (a) NDIC Premium and (b) Cash Reserve Requirement (CRR), (4) opportunity cost of holding liquid assets in excess of the minimum requirement, (5) cost of holding non-earning assets, and (6) target return on equity”
However our banks still apply exorbitant and ridiculous charges to the accounts of their customers. I mean the borrowing customers. Incomes to the banks are costs to the bank customers. Whenever banks declare huge earnings, bank customers have equally suffered huge heat.
Recently it was reported in the papers that Cadbury posted a N1.2 Billion loss due to financing costs on un-serviced bank debts. A once prosperous company made desolate by plethora of bank charges, you would say. Another report had it that Cadbury laid off 500 staff due to inability to meet increasing cost of doing business as a result of bank charges. One can therefore imagine a lot of companies that have kissed flourishing businesses goodbye because of bank debts occasioned by ridiculous and excessive bank charges.
It is beyond dispute that there is a ‘Guide to Bank Charges’ christened “Bankers Tariff” which CBN handed over to the banks for the purpose of ensuring religious adherence thereto, but which our banks obey more in the breach, and to which the CBN seemingly turns a blind eye. Because this Guide is given to the banks and not their customers, most bank customers are not aware of the maximum charges to be borne on their banking transactions, nor their rights in respect thereof. So the rip off game continues. Even where cases of excess charges are eventually discovered by customers, and pointed out to the banks for necessary corrections and reversals, the banks instead treat affected customers with total disregard. The banks continue to ginger their swagger, and do sometimes swagger their ginger, like young Nigerian musicians like to say.
My dear Governor would recall that you had to personally assure the Edo State Governor that three unnamed banks would be made to refund N4.0 billion to the State Government which represented, according to Daily Trust of 30th July, 2010, illegal deductions on state accounts bordering on excess charges. Salt is further added to this injury when the inflated balances resulting from these excess charges are again presented as figures to be recovered by recovery agents appointed by the banks, EFCC etc. Monetary Policy Guidelines require banks to indicate debit interest rates charged on customers account balances on accounts statements but banks ignore this.
Then there is the seeming inadequacy of the Sub-committee on Ethics and Professionalism set up by Bankers Committee to resolve such dispute as this between the banks and their customers. It is contrary to logic that a sub-committee with limited members would be expected to dispose of cases between the banks and their customers in a timely fashion, given the large number of customers often involved. The effect is that cases are left for more than one year before being disposed of by the sub-committee, thus defeating the whole objective for which the sub committee was set up, and to the tremendous advantage of the banks, who are also the employers of the sub-committee members.
More often, interest rates on facilities already accepted by customers and still running but not yet expired are increased at will by the banks, due to “money market realities”. One wonders what defines the realities of money market if not the movements in CBN Monetary Policy Rates (MPR) that are expected to signal the interest rate directions in the economy. What money market realities would justify an astronomical increase in customers borrowing rates when in actuality the CBN reduces its MPR? The hard reality, however, is that the un-deleterious effect will equally rebound against the banks when the chips are down and the customers cannot redeem their due obligations. Earned incomes will then be forced to be reversed from the income lines of the banks, while provisioning on non-performing loans, bank losses, need for banks bail out, AMCON intervention, Federal Government intervention, hard chase of bank debtors begins.
Banking, as a profession, is “intricately intricate”. It has its guiding rules and practices. So, my dear Governor, while you are driving those bank debtors to pay what they owe the banks, I wish to enjoin you to equally drive the banks to do the needful in ensuring that the customers balances show, what accountants call, a true and fair view. It is only then that you would be seen to be fair to all, and not giving the impression that you are just the protector of the banks to the detriment of the customers. What is sauce for the goose should be sauce for the gander.
Wole Awogbade, Lagos Nigeria.