Thursday, August 28, 2008

Banks: Mega Profits, Poor Services

AS several banks release their profits, which have increased dramatically over the previous years, the Central Bank of Nigeria and the Governor in particular should to some extent justifiably feel that the optimism that consolidated banks will generate better results and provide reassurance has been vindicated. Even if the economic performance in other sectors of the economy failed to match the heady performance of the banking sector, the fact remains that the sector has been the major driver of the Nigerian economy in the past two years.

In the period under review, three Nigerian banks have emerged among the top 1000 in the world unlike 2006 when no Nigerian bank was in that category.

However, with the unprecedented growth in earnings, virtually all around, it is too soon to allow complacency to set in. There are warning at home and from abroad that the sector still has a long way to go before confidence can become unshaken.

For instance, Standard & Poor’s Ratings Services in a recent report, classified the Nigerian banking sector as a high risk one in a global context. Among the reasons given for this low assessment of our banks are high operational risks, a weak judiciary, poor corporate governance, internal security problems and infrastructural deficiencies. It also listed low wealth as well as poor development levels as factors militating against Nigeria’s economic growth, which could make the current profit levels unsustainable.

Internally, banks are coming increasingly under suspicion by customers for what a growing number of depositors consider shady deals and illegal charges bordering on outright fraud. Customers are not aware of charges banks make on their accounts for transactions. Banks think it is only big customers they owe explanations in this direction.

Perhaps the most distrusted bank service today in Nigeria is the ATM card, which was designed to reduce over the counter transactions and speed up payments. It has become the most contentious product of banks.

Where disputed withdrawals occur through ATM cards, it is almost impossible for the customer to get redress. The bureaucracy laid before the customer simply tells him to forget the issue. There are frequent complaints in the media of complaints that have remained unattended in more than a year.

Banks have also concentrated their services in the urban centres. Some streets in Lagos have more bank branches than the total number of bank branches in some States. The vastly under-banked rural areas include most of the local government headquarters, which have their monthly allocations from the Federation Account delivered to them through bullion vans.

Nigerian banks are also victims of the poor infrastructure. They provide virtually all their own power, security, and IT connections at costs, which foreigners can only imagine. Thus, the cost of banking business in Nigeria like anything else is higher than in most countries of the world.

Still, banks must strike a balance between huge profits in the short run, which could undermine their ability to sustain the profitability in the long term and improved services, which are necessary for long term growth.

Banks should urgently address improved services and stem flagging consumer confidence in the sector.