|
Getting your Trinity Audio player ready...
|
Reprieve may have come the way of the retail and fast moving consumer goods (FMCG) sub-sectors following the Central Bank of Nigeria’s (CBN) suspension of payment of charges on excess deposits under the cashless policy.
This is as the retail business community says the suspension will encourage large deposits and create a window for sourcing funds for expansion purposes.
Asiwaju Onafowakan, a member of the Retail Council of Nigeria (RCN) and chairman, Artee Industries Limited, owners of Park ‘N’ Shop, said at a time access to funds was difficult for many business operators, especially the SME sector, the policy would put more money at the disposal of business people.
“The policy is something we have been fighting for in the last two years from the retail business group because of its benefits to business organisations. We told the CBN that since access to finance was difficult for poor people and small scale managers, the policy was making things difficult for them,” Onafowakan said.
The initial policy of 2 and 3 percent charges, respectively, on excess deposits of N500,000 for individual and N3 million for corporates had put a lot of pressure on businesses, particularly the retail and FMCG sub-sectors, with the attendant loss of billions of naira as a result of the deluge of payments into their accounts for goods sold on daily basis. The cash nature of their businesses means that customers daily credit their accounts for goods purchased, thus exposing them to the negative side of the policy.
“At 2 percent, the charges on deposits run into several billions of naira annually. The money that retail was losing on charges on deposits was just enormous and it was passed on to the consumer. But what some retail business people did was to create relationship with banks to get it at lower rates, or create multiple accounts. The charge encouraged informal banking and it is not good enough for the economy,” Onafowakan said.
Chris Udeji, managing director, Addiba, an online marketing firm, said the withdrawal of charges on deposit would eliminate the practice of opening multiple accounts by customers to accommodate cash lodgments. It would also enhance the release of cash kept outside the banking system because of fear, he said.
A manager at a multinational electronic company, who prefers anonymity, said the policy “has a short term gain for the economy but on the long term, it may not have much impact because of the transition to cashless era”.
Lincoln Mali, regional head, Western Region PBB Africa, Standard Bank Angola, DRC, Ghana, Namibia and Nigeria, said in an e-mail response that a more important consequence of the removal of the excess deposit charge was that we could expect to see increased cash deposits into the banking system, especially by businesses that hitherto might have withheld their cash to avoid the cost of handling and moving cash.
“Overall, we believe that removal of the deposit charge will not negatively impact on the growth of electronic payment solutions, as businesses will still be concerned with issues of security of their proceeds; costs in the form of pilferage and cash evacuation, as well as settlement time, which are mitigated by alternative means of payments,” Mali said.
According to him, the first quantitative effect of the removal of the cash deposit charge was the loss of the 3 percent charge income, adding, “However, we do not expect that this constitutes a material part of any bank’s revenue, since firstly, it is an excess over limit charge, and secondly, banks, working together with their customers, had deployed an array of solutions to minimise the impact on their customers’ businesses.”
Chukwuka Monye, managing partner, Ciuci Consulting, said although the removal of charges on deposits might narrow revenue streams and increase operational costs (relating to handling/processing cash) and consequently reducing profitability levels of banks, it would also increase deposits from customers such as retail businesses with high cash turnover.
Furthermore, it would increase competition amongst banks as they compete for deposits because customers would no longer be compelled to operate multiple accounts just to avoid charges, he said, adding that to sustain competitive advantage, banks would need to establish stronger customer loyalty by increasing their level of customer intelligence and developing more efficient operational processes.
Godwin Emefiele, CBN governor, had earlier said the new policy was informed by complaints by customers, particularly regarding the charges being imposed for cash deposits.
“This has resulted in customers devising various means to avoid the charges, through opening of multiplicity of accounts and other disingenuous behaviour, all aimed at undermining the objective of this policy,” Emefiele said while unveiling his strategy for the banking sector.
According to him, charges on withdrawals, in view of their eventual elimination, “remain sustained at the current 3 percent for individual transactions exceeding N500,000 and 5 percent for individual transactions exceeding N3 million”.
Daniel Obi & Hope Moses-Ashike
