Any productive outfit unquestionably has its basic raw materials; the source of which it must not allow to suffer any disruption. Simply put, it must ensure that the supply is guaranteed at all times for it to function seamlessly.
For any banking institution, its basic raw material is money (read cash) and its source is largely its depositors, hence the name deposit money bank. However, the situation bedevilling an average Nigerian depositor today seems to question the strategic place of this source to the Nigerian banking institution. To refresh, banks have variants of sources, namely those maintaining current, savings and fixed deposit accounts. Of the three, banks rely mostly on the last two mainly because of their somewhat long tenors as opposed to the first which can conveniently pass as “daily” account. The two, especially the last one aid banks in their planning activities and may in fact pass as the “authentic” source of the banks’ raw materials.
Of late, the Nigerian banking institution has been inundated with a plethora of policies by the main regulatory authority – the Central Bank of Nigeria (CBN) – which on the surface seem antithetical to the banks’ abilities to continue sourcing deposits, especially those of the long tenor hue. Today, deposit money banks are required to maintain Loan to deposit ratio of 65 percent (with heavy penalties on defaulters), amongst other ratios. Some analysts have pointed to this as the main de-motivating factor for the banks sourcing for deposits, especially those of long tenors.
A cursory check, for example, on banks’ fixed deposit rates today reveal that on the average, the highest rate for 365 day tenor is no more than 2 percent. For a 90 day or 180 day tenor, the average is about 1 percent and 1.5 percent respectively, depending on the amount involved. For savings account, the average is about 2 percent per annum if the customer does not make a withdrawal more than twice in a month; otherwise the interest accrual for that month is lost. Meanwhile, the inflation rate as recently released by the National Bureau of Statistics (NBS) for the month of July 2020 is 12.82 percent, monetary policy rate 12.5 percent and the asymmetric corridor still remains ± 2 percent and 5 percent!
Is it not a paradox that at a point the CBN has fixed liquidity and cash reserve ratios at 30 percent and 27.5 percent respectively, some Nigerian banks are rejecting deposits? With the almighty loan to deposit ratio (LDR) at 65 percent, one would have thought that the banks would be falling over each other to attract more deposits in order to lend and maintain balance. The alibi of some banks is that there are no bankable projects out there to lend to.
What was at play at the initial stage when the CBN came with the deliberate policy of LDR at 60 percent and later 65 percent was that many banks started wooing their customers with text and email messages to “come and borrow.” Not few were aghast at that none creative way when many Micro Small and Medium Enterprises (MSMEs) were and are still in dire need of finance but banks were suffocating with stashed cash in their vaults waiting for evacuation.
Being at their wits end, these banks thought of the easy way out. Bang! Halt acceptance of deposits while “we figure out what to do with the cash in the vaults”. That of course has not stopped the CBN from exerting the necessary penalties by debiting their accounts with humongous amounts for non-compliance.
How long some of these banks will hold out in their disenchantment with deposits, especially those that have rejected deposits outright remains to be seen. At a time there are efforts at promoting financial inclusion, these banks’ attitude smacks of dysfunctionality. Can Nigerian depositors afford to accept negative interest rates as a last resort? Even those in advanced economies where the concept of negative rates originated are yet to embrace that. If in doubt, ask the European Union (AU) depositors! Certainly we can’t go back to the era of stuffing money in mattresses and pillow cases at home.
Dr. Okolo is a chartered stockbroker and management consultant based in Lagos.
Start earning cryptocurrency/gram today with no investment by taking rolls, watching videos, referring, signing smart contract etc. Earn 500 grams($1000) like i do with no investment. Click here to joinPls SUBSCRIBE below to our Youtube channel and mailing list to get fresh updates on money making and inspiring videos and articles.