The Trouble With Nigerian Banks

By Casmir Igbokwe

Aspego is a Lagos-based businessman. In October 2016, he entered into a transaction with a leading commercial bank in Nigeria. The bank (name withheld) agreed to sell $324,560 to him at the rate of N290.5 per dollar through what it calls “Over the Counter Foreign Exchange Futures.” Under the agreement, the bank is entitled to a commission of N2.50/$1.00.

Eventually, the business did not pull through, as the Central Bank of Nigeria (CBN) said there was no dollar. The bank returned N9,428,468 representing 10 per cent of the principal sum it bid from the CBN. But it did not return another N811,400, which it also debited Aspego as commission.

The young man cried foul. He paid several visits to the manager of the branch where the account was domiciled and to the head office to demand a return of his money. All these were to no avail. His lawyers also wrote, threatening court action. But the bank refused to budge. When I got wind of the issue late last year, I called one of the senior managers of the bank to intimate him of the problem. Apparently, fearing bad publicity, the bank quickly refunded Aspego’s money.

This is part of what a lot of people suffer in the hands of Nigerian banks today. It is such that even institutions are not spared. Recently, one Ohha Microfinance Bank Limited alleged that a money deposit bank, otherwise called commercial bank, defrauded it to the tune of N219 million. Solicitors to the microfinance bank, Keyamo Chambers, claimed their client had deposited this amount in its two fixed deposit accounts with the said commercial bank, but it unlawfully converted the money. Keyamo has threatened legal action, if the culprit failed to make a refund within specified days.

Little wonder, the Nigeria Deposit Insurance Corporation (NDIC) said the other day that the number of fraud cases attributed to internal abuse by staff of banks increased from 231 in 2016 to 320 in 2017. Head, communications and public affairs of NDIC, Mohammed Ibrahim, said 286 responses received from 26 banks in 2017 cited 26,182 cases of fraud and forgeries, which is 56.30 per cent higher compared to 16,751 cases reported in 2016. He added that the amount involved in the fraudulent activities documented increased by N3.33 billion from the N8.68 billion reported in 2016 to N12.01 billion in 2017, or 38 per cent.

The problem, however, is not peculiar to Nigeria. The other day, Indian authorities seized a solar power plant and some 134 acres of land belonging to billionaire jeweller, Nirav Modi, in connection with the country’s biggest-ever bank fraud of 1.8 billion U.S. dollars.

Indian investigators have also arrested nearly 20 people. These include some senior executives of companies owned by Modi and his uncle and business partner, Mehul Choksi, as well as high-ranking officials of state-owned Punjab National Bank. Modi and Choksi are currently at large.

Beyond fraud, many people have other sad tales to tell about their experiences with Nigerian banks. If it is not one illegal deduction or the other, it will be excess charges for some transactions. They give low interest on deposits but charge high interest rates on loans. If you are a genuine businessman, relying on Nigerian banks could be suicidal. They would put you in debt that you might never recover from.

At a recent public presentation of Dr. Bode Ayorinde’s book, Banking Reforms In Nigeria: The Law, the Prospects and the Challenges, in Abuja, Vice President, Prof. Yemi Osinbajo, put the issue into better perspective.

Osinbajo said, “Nigerians look around and are puzzled by a scenario in which, to cite one example, they give their hard-earned funds to banks at single digit interest rates but cannot get anything less than double digits when they seek loans for their businesses or mortgages for their homes, all of these occurring against a backdrop of what seems to be regular declarations of hefty profits by banks.

“I think it was Mark Twain who said that a banker is the man who gives you an umbrella when the sun is shining and snatches it away from you when it starts to rain. I should add that he snatches it with interest.”

In the same token, the Speaker of the House of Representatives, Yakubu Dogara, called for action concerning prevalent banking practices, which have adverse effects on business growth and entrepreneurship in Nigeria.

According to Dogara, the challenge is that banking creates buoyancy and development in other jurisdictions but not in Nigeria. He explained that, without assets or equipment, accessing loans to do business from Nigerian banks would be near impossible. And if you are not careful in taking such loans, you would just end up in the poverty club.

To be fair to the banks, some government policies have a direct impact on their activities. For instance, the Federal Government introduced the treasury single account to consolidate all inflows from all agencies of government into a single account at the Central Bank of Nigeria. This has forced the banks to devise other methods of breaking even, as they no longer have access to cheap money from government. Naturally, this has affected their services one way or the other.

Moreover, some dubious people make it impossible for the banks to be liberal in dispensing loans. They collect some of these facilities but fail to pay back. Many of these banks have a lot of non-performing loans hanging around their necks.

This does not in any way justify the spike in fraud cases by bank staff in recent times. The problem may have a direct relationship with the corrupt tendencies in the society. Recently, Transparency International, in its latest annual Corruption Perception Index, reported that corruption in Nigeria worsened between 2016 and 2017. The banks are part of the society. So, they flow with the crowd.

Besides, it is possible that some of these banks do not do thorough background checks on their prospective workers. What they might be after is to bring in people who would be able to meet their target of securing millions in deposits by fair or foul means.

Consequently, the image of the country is at stake. Foreign investors are watching and may not want to invest in an economy devoid of transparency.

Also, banks are losing some of their customers. In a mail to an online news publication, NewsProbe, a Lagos resident, Ms Nanma Labar, said she had since stopped depositing in the bank. She added, “I bought myself a savings box, which I use to save my money. I know many other people who do same. These banks want to entice you with interest on savings, but we’ve come to realise that the charges for services (rendered and not rendered) are like double or triple the amount they give as interest.”

Statistics from the Nigeria Inter-Bank Settlement System indicated that the number of active bank accounts reduced by 1.5 million, dropping from 65 million to 63.5 million between 2016 and 2017. Also, Nigerian banks have lost over two million of their customers within the period.  That is, from 61 million in 2016, bank customers dropped to 59 million in 2017. This was despite different financial inclusion strategies aimed at bringing more people into the formal banking system.

Some media reports, however, linked this reduction in bank customers to the fight against corruption by the Federal Government. The introduction of bank verification number (BVN), some bankers reportedly said, forced some people who used different names to open accounts to either regularize their names or close their accounts.

Whatever the case might be, it is heartening that the NDIC has indicated its readiness to ensure that banks comply with Sections 35 and 36 of the NDIC Act No. 16 of 2006 (as amended). This Act makes it compulsory for banks to submit monthly reports on fraud and forgery to the corporation.

There is a need to firm up other monitoring mechanisms and existing legal penalties for bank fraud. Recently, a former managing director of Mainstreet Bank Registrars Limited, Mr. Chester Ukandu, and a director of the company, Mr. Achi George, were remanded in custody for alleged forging of Corporate Affairs Commission documents.

The Economic and Financial Crimes Commission had brought a three-count charge of conspiracy and forgery against the two ex-officials before Justice O.A. Williams of the Special Offences Court, Ikeja. Though they pleaded not guilty, they will remain in Ikoyi Prisons until April 10 when the judge would entertain their bail applications.

Also, Justice S.S. Ogunsanya of the Lagos High Court recently sentenced one Paul Onwughalu, a former head of operations, Union Bank Plc, head office, Marina, Lagos, to three years imprisonment for N450 million fraud.

That is the way to go. The CBN and other authorities should ensure regular forensic scrutiny of banks and greater enforcement of rules and regulations. There should be adequate sanctions for any infringement of the rules. Perhaps, this will restore the confidence of people like Aspego and Nanma in Nigeria’s banking system.

• First published in The Sun of March 26, 2018