A more than cursory investigation of the Nigerian economy reveals diverging fortunes for the finance sector led by banks and real sector led by manufacturing. With decline in manufacturing, now at 9% of GDP from height of 20% in early 1980s, pundits would expect banks fortunes to decline with the belief that the real sector, manufacturing et al, sustains banks at least for developing economies. Such logic has been turned on its head.
In regions of the country while manufacturing has disappeared, bank branches have increased. Meanwhile the Nigerian Central Bank CBN has assumed the role of retail banks by directly funding all types of sectors from farming to power generation and aviation. These banks had ignored government sponsored funds like SMEFUND and AGRICFUND sequestered for intervening in these sectors. These funds had been set aside from profits of banks to encourage them to finance the real sectors. This they refused to do leaving the apex bank to fill the gap, done in an inefficient manner.
Historically banks were not mere payment intermediaries but catalyst of economic development and transformation. Banks evolved by warehousing savings of citizenry and lending to investors thus financing trade and later the industrial revolution. Japanese banks paid the cost of making Japan the 2nd largest world economy this to the detriment of Japanese banks balance sheet. America did not have a central bank for it’s first 140 years yet they transformed through decentralised banking and cross border financing from the old world.
Beginning of banks in Nigeria is attributed to Sir Alfred Jones of Elder Dempster. His company Bank of British West Africa has since morphed into rightly named First Bank Nigeria FBN. No doubt the first hundred years or more of banking in Nigeria was attached to colonial apron strings. Activist Banking in Nigeria beyond changing currency started during the tenure of present governor of Anambra state as CBN governor. Prof Charles Soludo identified a core weakness in Nigerian banking, under capitalisation and he set out to correct it through the banking consolidation policy. While the survivor banks were better capitalised the DNA of Nigerian Banks didn’t change, in reality it got worse because with the easy monies raised from the public they proceeded on self aggrandizement rather than developing the economy.
The local version of the global financial meltdown almost brought down the Nigerian economy as well but a new governor of the CBN Lamido Sanusi stemmed the tide. He had earlier saved First Bank from the jamboree of marginal loans that undercut the new generation banks that arose under Soludos consolidation policy. Those new generation banks helped to pump up the Nigerian Stock Index to unprecedented heights of 60,000 index points.
Before global financial meltdown struck these banks had applied double standards of action on the population. In the drive to achieve consolidation targets and later play the stock market, they highlighted market appreciation of shares as selling point to buyers of bank stocks. On the other hand they discounted the same shares when used to secure loans. At the height of the financial crisis banks stopped accepting bank shares as collateral.
These banks are also reaping from fields they did not cultivate. Their complicity in not providing finance for manufacturing and the real sector had led to exodus of Nigerians abroad, the first wave in the 80s to 90s, and a new wave today, the Andrew and Japa syndromes respectively. Banks reap from these forced emigration through commissions on emigrants remittances and their relationship with Western Union, Moneygram etc.
Finally banks discouraged and killed off most manufacturing with high interest rates padded with other charges. The question is how is it banks flourish while the real economy remains in doldrums? The answer lies in the fact that for long Nigerian banks have not been hooked to the material economy. They have remained in the Nigerian economic space like parasitic leeches on exposed part of an human bod, simply sucking on blood as rent takers. You gather this from their annual reports which revealed over 50 per cent of banks profits is from commission on transactions not from loans to businesses. When you factor in that a large chunk of their non-commission profits is also from financing short term trading including imports of finished items then we recognise how pernicious they are.
In a bid to change the above narrative, the penultimate governor of the CBN Lamido Sanusi introduced some changes. He started a phased withdrawal of commission on turnover COT. He reduced cheque clearing time from five days to three days. With his removal the phased removal of COT was stopped and renamed administrative charges and account maintenance charges. Thus the rent taking by banks has continued.
At the individual customer relationship level these banks behave as though they are masters at the top of the pyramid. Customer service and relationship is appalling. It starts at banks entrances where the guards could be down right uncouth. In the banking hall you can perceive profiling going on when guards approach customers and ask why they are in the banking hall.
There is the wilfulness to harness financial resources not theirs. Entrepreneurs lucky to get loans and have been repaying diligently are suddenly told they still have liabilities. How come simple reconciling of loan accounts end up in courts often? Also banks have stopped sending hard copies of bank statements to customers limiting this information to emails. In addition, issuance and use of cheque books that can inform of account ownership is becoming anachronistic. The import of this is that beneficiaries of a deceased person can be wittingly denied access to their benefactors bank assets as they have no access to parents emails, and no hard copy might be found linking the deceased to his accounts. Bankers know the implications of this, rather than put a stop to it they have surreptitiously anchored it to the system, thus inheriting accounts of deceased peoples.
How about loss of funds in accounts to banks when digitisation was introduced? I have personal experience on this. My brother and my dad’s accounts in Nigerian banks lost due to movement from analogue to digitisation. This is in apposition to my experience of UK banking where after twenty seven year hiatus the account that was opened in analogue year of 1977 was restored without fuss in 2004, a 27year hiatus. This highlights the DNA problem of Nigerian Banks.
The time has come to reshape Nigerian banking and reset it’s DNA’ to achieve national objectives. Eighty five percent of the 500 trillion naira price tag on the Medium Term National Development Plan 2021-2025 is to be financed by Nigerian banks. This remains a tall order if our banks remain the way they are, reinforcing the need to re-engineer their DNA to deliver on national aspirations.
What to do? Break the rent taking culture by removing avenues for commissions on transactions that go through banks. This is a continuation of what Lamido Sanusi started by moving to phase out COT. Make them seek own forex independent of CBN and crude oil receipts. Implementing this will make CBN non-oil export initiative RT 200 achievable. Increasing competition in the finance sector by encouraging entrance of new Investment Banking to energise the sector. The phenomenon of ‘Too big to fail’ should not be allowed at this stage of national development.
Appointing bankers as governors of CBN should be reconsidered. Three of the last four CBN governors have been from banks and this have given missed results. From the docile Chief Joseph Sanusi to ‘bank protector’ Godwin Emefiele under whom the CBN has gained more functions of investment banking thereby introducing more inefficiencies into the system. Having bankers as governors indeed is an unusual practice that has underlying conflict of interest to which a banker governor is exposed. It has contributed to the current situation where we have the tail wagging the dog.
Olugbenga Jaiyesimi email@example.com