Are Nigerian Banks Defrauding Their Customers?

Before Sanusi Lamido, Governor of the Central Bank of Nigeria, began wielding the big stick on top bank executives, Nigerians had long been suspicious of the banks. Their bogus end of year profit declarations, even when basic economic indices pointed otherwise, gave reasons for serious worry. But then no one could say what was wrong until Sanusi blew the lid last month. Yet Sanusi’s actions are yet to address many concerns of the average depositor, who alleges that in a bid to make abnormal profits, he is being subjected to constant undisclosed and anomalous charges on basic transactions. Joseph Ekeng writes.

The term ‘voodoo banking’ may not be a regular phrase in most other economies of the world but since the banking consolidation era, it has become popular lexis among bank depositors in Nigeria. The consolidation indeed took banking in Nigeria to a new height. Within a space of few years the industry grew out of obscurity to become one of the fastest growing in the world. The then rapid increase in oil price, booming capital market and influx of foreign investments all conspired to ventilate banks’ ambitious growth plan. There was too much money to go round. So, contrary to the expectations of many, the post consolidation banks expanded rapidly, building more state-of-art branches faster than all the pre consolidation banks put together. In the process, they created jobs and employed some of the very best hands in the country, paying them fantastic salaries. Some of the banks combed through top universities in the world for Nigerian-born graduates, luring them with an out-of-Africa welfare packages. In no time, the Nigerian banks became the industry to watch and their CEOs became celebrities of sort, flying around in private jets and driving bullet-proof cars.

There was also a rapid increase in off-shore subsidiaries in countries like the United Kingdom, Ghana, and a host of other African nations. Some of these banks bought over big banks in smaller African countries like they were buying new cars, and rebranded them in their own names, and, in order to sustain their massive image they rushed to foreign advertising agencies for multi-million naira rebranding campaigns, aimed at putting them on the same level with their counterparts in South Africa and Europe. They jostled to sponsor programmes and advertised on CNN and foreign publications, spending additional millions in the process. But indeed, while the rapid transformations were well applauded by Nigerians and the world, the desperation and rivalry amongst the banks became a source of concern. There were worries about its implications both on the local economy and the depositors of the banks. Today, with the benefit of hindsight, it has become apparent that the whole buzz within the banking industry was not without extreme consequences. They became a burden too much for the weak legs of the banks to carry, and, as a result, certain procedures and practices seem to have become a norm for the banks, to the detriment of depositors and shareholders.

Outrageous ATM Charges

One Standard IBTC customer recently came to this realization after he had reasons to make seven ATM transactions in a single day; at the last withdrawal, his arithmetic mind came alive. He had lost N1120 (with N160 deducted for each transaction) of his savings in a single day of transaction to his bank. “If they repeat the process on 1000 customers in a day, it amounts to more than a million on ATM withdrawals alone,” he wonders aloud. Indeed, only N60 of each of the seven transactions accrue to the bank, yet it was still considered too high for a service that should normally come free. This perhaps is part of the motivation for the recent policy that bars customers from the banking hall when the transaction is below N60 000. This is why customers are worried; they complain that the ATM has become part of the rip-off tradition of banks. “They brought the ATMs in to save cost on their salary overhead. So it is an opportunity cost for them. I am not saying they should not deploy ATMs, but if they are going to do it, it should be for free. If it is an inter-bank transaction it is alright to charge,” Oriade Adeyemo, a forensic accountant and Chief Executive Officer of Forensic Consulting says, adding that ATM withdrawals ought to be free because of its efficiency and cost effectiveness to the bank.

Besides, there have also been regular complaints of debit error, when customers get debited for uncompleted ATM transactions. Of course customers understand that machines are inevitably prone to malfunction occasionally. But they are frustrated by the lack of proper channel to recognise and immediately correct the error. “It seems the Nigerian economy is not ripe enough to fully embrace the ATM system. That is why bank customers often get caught in that web. When cash is not even dispensed the machines keep debiting unsuspecting customers, most of whom have lost lots money in this process,” Wilson Arabame, a disgruntled bank customer says. In addition to the withdrawal charges, customers also pay for SMS alerts. One depositor told M2 that she discovered she was charged N200 for SMS alert in her bank statement.

Hidden Charges

Aside the ATM related charges, customers are also deprived of part of their deposits through hidden charges and other deductions intentionally carried out without their knowledge; sometimes the deductions are so minute that it will take a very meticulous customer to discover. The charges are mostly packaged as interests on loan facilities, administrative charges, interests on deposits plus sundry charges that are regularly shaved off from customers’ accounts without disclosure at the end of the day. Most of these charges and deductions come in minute bits and are spread over  months and years thereby making it hard even for the most meticulous depositor to detect any irregularity or what a cashier in one of the banks described as “a minor computer error”

“Gone are the days when customers went to sleep. These days, they worry about their money in the banks because they understand that their funds are not in safe hands,” Jude Akpan, a newspaper contributor says regarding this.

A customer of First Bank of Nigeria recently narrated how GBP35 was slashed from his money each time remittance was made into his account by his relation in the UK. “I have received two tranches of pound sterling from my brother in the UK, and the bank deducted GBP35 on each of the transactions. My brother also paid commission to the remitting bank, and this excludes withdrawal charges, and account handling charges. It was not like this at the beginning of the year,” he states.

The provision of the CBN is that any charge which is outside what is listed in the guide is illegal, unless it is authorized by the customer. The provision also compels the banks to negotiate charges and interest rates with depositors. But since the banks know that most customers don’t scrutinize details of their bank statements, or bother to get a proof of its legitimacy, this provision is taken for granted. M2 gathered that these acts are direct consequences of the pressure on bank managers to deliver curious profits to the head offices at the end of each month. “Well, you may call it hidden charges, concealed charges or what ever … we must meet our set targets, and services rendered to our clients must be paid for, or do you expect us to do it for free? Any customer who finds that he or she has been overcharged or finds that money has been deducted from his account has the responsibility to make complaints and the issue will be resolved,” a staff of one of the banks remarks.

Decimalisation

Professor A Adeyemi of the Faculty of Law, University of Lagos, discovered in one of his study that decimalisation is one of the practices employed by most banks in Nigeria to shave the accounts of depositors. He described this process as very profitable for the banks as the customer would have signed all the necessary documents and the needed approval.

Decimalisation is a process whereby the banks are reluctant to pay you any amount after the decimal point. If for example you want to withdraw N3, 290.39k, the bank will only pay you to the decimal point and the remaining 39k would not be paid. Their reason will always be that they cannot get the denomination to pay you. But at the end of every financial year, these little amounts withheld from the accounts of tens of thousands of customers runs into hundreds of millions of naira. An internal Auditor from one of the top banks confirmed that most banks make huge amounts of money at the end of the financial year from the withholding and deductions of such little amounts from the accounts of customers. He estimated that the banks may have made between N3  N5 billion in the last half decade.

COT Manipulation

Some of the details that are manipulated include Commission on Turnover (COT), which represents the commission on withdrawals. By this the banks manipulate the interest charged the customers. “For example, the customer may agree to 18 per cent interest with the bank, before you know what is happening, due to the pressure on the bank officials, they change it to 45 per cent, knowing fully well that there is no way the customer will know; especially if the customer is doing very well. In fact, there is a common parlance in the banking sector today which goes like ‘Hit the man first. When you hit him, if he complains, you refund’,” Adeyemo states. Certainly, most Nigerians have been hit and they are not aware, especially those who secure bank loans. Most times they observe and grumble that the charges are abnormal but they can’t figure out why.

Hidden Loan Charges

That is why more and more Nigerians are getting wary of bank loans. “My advice to people who are looking for loans is to steer clear of Nigerian banks. They will only end up compounding your woes with hidden charges that will make the real loan look like peanuts,” Ayoade Bolanle, an Ibadan-based customer, remarks. Ayoade advice is very appropriate for customers like James Bewaji, the Chairman of Ephybrand Nigeria Limited, who was once a victim. In July 2004, Bewaji took an overdraft facility of N50 million from Spring Bank. The facility was with a default interest rate of 35 per cent per annum.  But through the distortion of the interest rates and sundry other excess charges by the bank, in five years, his company’s account was shaved to the tune of about N10 million.

Bewaji’s company keeps over 10 different bank accounts in different banks. “We are having problems with almost all of them…. A particular bank was made to return over a million naira to us. There is another one which we have even taken to court because they overcharged our account by about N8 million over a period of three to four years,” Bewaji reveals.

Unfortunately these are all happening at a time when most developed nations are encouraging credits by reducing interest on loan. Some of the developed nations charge less than two per cent interest on loan. Experts blame this for the sloppiness of the real sector. “In every part of the world it is the real sector that leads the economy. It is the real sector that creates the wealth. But which wealth can the real sector create when the banks are not there to back it up,” Adeyemo says.

Even the savings account which is supposed to attract interest is also susceptible to some of these practices because the interest rates are unilaterally decided by banks contrary to the acceptable practise around the world and the CBN guide which gives room for both parties to arrive at an agreed rate.  Some of the banks even go as far as cancelling out the interest on savings once depositors make more than three or four withdrawals in a month, contrary to laid down regulation.

Experts have argued that the apex bank needs to do more to save guardian depositors funds and protect them from some desperate conduct of banks. Apart from cleaning up the inter-bank market and enforcing corporate governance, they argue that banks’ dealings with customers should be made more transparent, by forcing them to comply with CBN monetary policy which says that “statement of account shall be rendered promptly to each current account holder on monthly basis and shall include the commission on turnover, the rate of interest on overdrawn account, the amount and the period.” “When you pick your statement from your bank, it should show the interest rate the bank used in computing the interest charged on your account for that month. It should also show the COT rate applied on that account. Now let’s be sincere with ourselves. How many bank statements have you seen that can say that? And the only reason they are doing this is that they don’t want the customers to know the interest rate charged on their accounts. Is that not fraud,” Adeyemo reiterates. Adeyemo, who has been working to convince lawmakers to make a law that will protect depositors from sharp practices in banking halls, urges customers to be more vigilant. What they need to do is ask questions in writing. “Before you start a relationship with your bank, ask it to list out all the charges they are entitled to and at what point in time. Those charges will be debited to your account and the rate or amount charged will be applied, and if it is tampered with, you can raise an alarm,” he says. However, it is one thing to raise an alarm and it is another to find help. One can only hope that the present reforms will be far-reaching enough.