Nature of Banking Services in Nigeria

NATURE OF BANKING SERVICES IN NIGERIA

It is noteworthy that very few people have given attention to the problem of how to boost the extent of banking services nature.  It is surprising why this aspect of banking has suffered such neglect despite the contributions it could make to the growth of the economy.  The contributions of the few that have tried are not as elaborate as we have it in this work.

One of those that have actually written in this area is Prof. G.O. Nwankwo who attributed the poor performance of our banks to the orthodox system of banking, which Nigeria like many other countries adopted.

In the same root of line, Mr. O. Olashore who was the former director of First Bank of Nigeria Limited attributed the poor services rendered by banks to the in adequate banking facilities.

As a result of the drift from the rural to the urban area, the existing banking facilities in these urban areas have become inadequate in meeting the customers’ demands.  The result is that neither in the rural nor in urban areas is access to banking services using or convenient enough.  Mr. O. Olashore noted a the present long queue and delays in going cheques cleared has significantly discouraged the use of cheques in setting payment which contributes to the congestion in banking halls by customers seeking to draw cash.

In the broad street Journal of December 1983, Mr. O. Olashore said that fraud cases in banks in one of the most contributing factors that disrupts the smooth functioning of banking operations due to the time it takes to defect one, and the effect it has on the strength of the staff.

In lines with some of the views expressed above, Prof. W.O. Uzoaga, opined in his book “Money and banking in Nigeria” that the inordinate length of time taken to compete a single bank transaction in banks (though at the expense of customers’ time) is as a result of the misguided attitude of fraudulent staff and clients that are being put in check due to the various cases of frauds in banks.  He noted also that insufficient number of bank branches lead to congestion in banks and hence poor service.

Dada, who was a member of the accreditation team of department of banking IMT when he was interviewed by me, was the view that the major problems inhibiting the performance of banks are the communication gap in the country, lack of trust between the staff and customers, scarcity of skilled manpower and government regulation and control.

Most of the available literature on this topic are dislocated though they have contributed in one way or the other to the preparation of this work.  Infact, one eminent authority that has helped highlight the causes of the inadequacy of the nature of bank services is Dr. Don N. Ike, Reader in economics, a one time head of department of banking when he said “Banks term sources current accounts, savings etc.  Mainly short term liabilities.  This correspondingly affects the maturity structure of their investments.  Agricultural production involves long-term investments in equipments, properties etc.  The gestation period is high.  Thus without compulsory Central Bank credit guidelines with appropriate sanctions for default the volume and value of commercial bank loans to this sect would be very low”.  This is contained in his “appraisal fund” – Nigerian Journal of Financial Management, June 1990 page 95.

This is precisely why the author has chosen this topic in order to provide a more comprehensive study of the nature of bank services and to unveil some of the revealing factors that militate against the sound and efficient bank services.

There was a view held by S.A. Balogun in one of the weekly paper, which the researcher felt very much challenging.  He said that the principle of “All animals are equal but some are more equal than others” should be applied in the nature of banking services.  He opined that a bank that is able to recognize the individual importance of its customers and allocate proportionate attention to each customer would benefit the more.  As far as the researcher is concerned the bank will definite benefit more but at the expense of the “Small customers” which erodes the principle of equality in the banking industry.  The attendance to customers should be based on first come first serve, irrespective of their cadre.

PROFOT AFTER TAX (N’000) OF SELECTED BANKS

SOURCE:  ANNUAL REPORTS OF VARIOUS COMMERCIAL BANKS

N.A. = (Not Available)

From the above figure, the differences in result (profit) of the selected commercial bank are clear.  This no doubt can be attribute to the varying qualities of services rendered by the banks.

The better the qualities the greater the chances that customers will be drawn to the bank since what they look for is satisfaction.

Finally we know the profit of a bank is a function of the quality nature of its service.

2.1     BANK SERVICES NATURE

To enunciate a number of the requirement if one is to enjoy the title of a banker, is easy but to offer a precise definition will lend itself open to faults.  The business of banking is almost all purpose in that the freedom of banks to engage in almost any business activities of their choice, made it possible for them to embark on the proliferation of their services.

In order to becomes necessary to distinguish between the traditional business(es) of banking functions.  The traditional functions of commercial banks are:

• Taking deposits from customers either on savings or deposit accounts. This is the oldest banking function.  And we have to remember that the Ancient London Gold Smith performed this original basic function when he accepted gold and other valuables for safe custody.  Hence this function makes the banker – customer relationship a debtor creditor relationship.
• Lending money to borrow, competing the commercial bank’s function as an intermediary between lenders and borrowers.
• Providing a money transmission service on commission basis to its customer through the use of branch network to relieve the customer of the problem of having to carry about raw cash and leaving them at the mercy of thieves. Thus facilitating payment and receipt of money for our customers for business transactions.

Besides the above functions some extra banking services have developed in subsequent years they are as follows:

2.1.1  ADMINISTRATION OF ESTATES

We have to begin with this, being the oldest of the extra-banking services though it is and eject of death.

It is very much in keeping with the modern theme of comprehensive financial management it would be inconsistent for the banks to proffer solution to virtually every personal financial problem in the customers life time and then quietly withdraw at the graveside.

It is the duty of the banker to bring to the notice of their ignorant customers what help the bank can be at death.  As executors of the customer’s estate on death the bank can do the following:

(a)     See that the funeral arrangements are dealt with.

(b)     Collect the assets.

(c)      Pay the debts and expenses

(d)     Arrange for the assets to be valued so far as may be necessary either for taxation or distribution purposes.

(e)      Discharge any duties and taxes payable on the data.

(f)      And account for the estate to the beneficiaries entitled.

Trust departments are in the business of asset management.  In the course of their business, they are called upon to deal with almost every kind of asset susceptible to private ownership.  Broadly speaking the business consist of deceased estates, private trusts setup by will or interior settlements, trusteeships for pension fund and charities, debentures trusts, unit trust trusteeships and the management of investment portfolios whether for private clients or institutions.  The mainstream of that business is the administration of estates.

As an advantage the BIR may wave capital transfer tax if a banks is appointed executor.  Again, bank is perpetual whereas individuals may even die before the stator.

With all these benefits one might ask to know why the business of trustees has not prospered beyond the present level.  The reason may be adduced to the following:

• Ignorance on the part of the customers. To many personal customers in particular the trust business is still something outside the activities of banks and thus they do not raise the topic at all.
• Many others regard banker – customer relationship as impersonal and finds it difficult to discuss this problem with their bankers.
• The cost of administration, which is very high poses a major problem as only little or no profit is made. It requires the services of experts to maintain such a specialist department with the small fee charges makes the executor business unpopular among banks.
• Competition from allied fields. Over the years, solicitors in general have been antagonistic to the appointment of banks as executors.  As we have seen, they resisted the entry of the corporation trustee into what they regarded as their own field and this attitude has continued up to present time.
• To many people especially in the developing countries the idea of having to pay or incure further expenses for their estate to be wound up is inconceivable. Hence they are alienated from their banks.
• To take care of these problems we as commercial bankers have to:

1. Educate our customers on the services available.
2. Conduct our customer’s affairs in such personal way that they will see us a personal friend.
3. As to the cost, we have to stick to accepting the business, since it opens avenues of market for other services and may be by the time they realize the need to enlist our services as trustees they will accept to pay for their estate to be wound up.
4. Fourthly a liaison has to be set up to make for more understanding between bankers and their counterparts in the legal field.

2.1.2  TAXATION SERVICES

The taxation service of a bank is some thing more than advisory.  It is a full agency service under which the banks, as agent for a customer, completes the taxation return for the year, computes the tax liability or repayment and settles the position with the inland revenue.

• Income tax subject to statutory allowances payable on all incomes earned/unearned.
• Higher rate income tax which is payable on incomes in excess of #8000 per annum on a graduated scale.
• Investment income surcharge which is payable on unearned income above #1700 per annum.
• Capital gains tax, payable on the disposal of capital assets with some exceptions, where the capital gains exceed $1000 in any one year.
• Capital transfer tax payable subject to certain relief/exceptions on the transfer of assets to another party whether in life of on death

It may sound like the makings of a nice story if I tell fellow bankers that most of our customers are still ignorant of the statutory allowances available to them e.g. Dependent relative, wife, children relief allowed on personal income tax,

As banking is a trade, we owe it as a duty to them to educate them on this issue.

2.1.3  INSURANCE

This is one of the services rendered by banks to their customers.  The Life Assurance field which developed out of the bank’s unit trust business in the form of linked life assurance is our major specialty.  It is the duty of the branch banker to bring to the notice of the ignorant customer the benefits of life policy besides being a form of saving for the future one can also pledge it to obtain loan.

Again, in our capacity as brokers we have to survey the market in relation to the needs of our clients and to offer insurance contract most suitable for the purpose.

2.1.4  FACTORING

This is the management and in some cases the purchase of business debts.  There are three main aspect of the factoring function.

• An administrative service under which the factor manages the trade debts of the client company. The factor will keep the sales ledger, issue the invoice, collect payment when due and generally relieve the client of the administrative burden of the business.
• A method of financing, in that the factor who takes over the clients trade debts will in certain circumstance advance a proportion of their value immediately and the balance on maturity of the debts.

In the light of the above here then lies on opportunity for the banks to cash on.

2.1.5  LEASING AND INDUSTRIAL HIRE PURCHASE

These are ways in which customers can obtain medium or short term finance without having to commit precious assets.  It is the duty of the branch banker to explain to the customer the advantages/disadvantages of each e.g. Hire purchase is a sale to be paid in installments while in lease the asset is not sold instead ownership reverts back to the lesser after some time.

As a banker I would advise my customer to go for lease of a machine rather than Hire Purchase if:

(1)     He has not got enough fund at hand.

(2)     So that he can obtain the tax advantages made possible by tax allowance granted the lesser who can then pass on such advantage by way of lower net cost in rental payment to the lesser.

(3)     Again as there are rapid change in technology which may make the machine go obsolete it does not pay the customer to go for hire purchase (purchase) because with lease the agreement may be to replace the machine enabling the client to guide against obsolete.

(4)     Also lease does not interfere with other possible borrowing because it is an off traditionally the balance sheet items since the asset is not legally the property of the lesser.

(5)     He does not want to make use of the machine permanently.

2.1.6  SHARE REGISTRATION

The banks as registers of companies maintain the register of the company and see to it that the company’s obligations in that respect are carried out. This function includes;

• Maintenance of register of members – shareholders.
• Preparation of share certificates
• Answering to inquiries from shareholders, stock brokers and others relating to the register and other affairs of listed companies.
• Making dividend and interest payment on behalf of the company or authority for the bank acts.
• COMPANY COMMUNICATION: The bank has addressed of shareholders to facilitate dispatch of note about meetings etc to them.
• STATUTORY RETURNS: Annual return of list of members both past and present.

Though, this is not much of profit making activity, it is necessary for the banks to keep it up in that by acting as an intermediary between the companies and diverse shareholder, the bank advertises its name.  It open up business for other services rendered by banks.

2.1.6  BUSINESS ADVISORY FUNCTION

The role of banks in this regard is being increasingly recognized.  With the banks appraising not only the historical balance sheet for gives as before but also cash flows statements, budgets, computation of important ratios like profit to sales, debtor to sales, in order to be able to give competent advice.  The advice to the company may be to:

• Trade up, whereby the bank advances more money to the business to enable it recover from hard time and be able to repay the loan money on time.
• Merge with a competitor who might pose a threat to the very existence of the customers business.
• To change dozy management.
• Diversification into other lines of business provided they are homogenous and compatible with one another.

Finally, I have to say that the role of the adviser is difficult and can be dangerous to valuable relationship.  In some cases the banker shouldn’t get too deeply involved or else, he could burn his fingers and loose his customers.

In the light of the above, one might reflect on whether the business of banking is a trade a profession or an industry.  Hence said Lord Denning – Master of the Rolls in the United Dominions Trust Ltd., Vs Kirkwood “Like many other beings, a banker is easier to recognize than to define”.  Indeed the statutory definitions are those which describe “banker” as any person or corporation carrying on the business of bankers”.

To crown it all the former governor of the bank of England referred to “the arrival of the all – purpose bank in the United Kingdom”.

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