Covid-19: Reviewing the Protocol on Banking, Et Al

I chuckled when I read Olusegun Adeniyi’s short piece last Thursday titled “Banking with Coronavirus”. He was obviously frustrated with his bank, Guaranty Trust Bank (GTBank) Plc, which like all banks in the country had refused to reopen all their branches in Lagos and Abuja after the partial lifting of the lockdown, effectively leading to congestion at the few branches that they had deigned to open and accelerating the spread of Covid-19. I called him after reading the article and started by teasing him, just as I had Dr Reuben Abati during the lockdown a month earlier. “Segs my dearest (we are big on terms of endearments in our work place), don’t tell me that you and Reuben belong to the same league of educated Nigerians that refuse to use digital platforms for their banking transactions just because you are concerned that they will force you to spend more at the click of a button on your phone or computer,” I said.

But jokes aside, I told him that I was just as disappointed with Nigerian banks since the restriction on movement was lifted and the partial reopening of offices was allowed in the last few weeks in Lagos and Ogun States and Abuja. I was of the view that the Central Bank of Nigeria (CBN) and all commercial banks should have revisited the protocol on banking services within days after restrictions were lifted, by reopening all branches. Of course, this should have been complemented with physical distancing measures, provision of hand sanitizers at their entrances, carrying out temperature checks, and regular disinfection of their premises. In my view, it was the least they could do to curtail the spread of Covid-19. Instead, the CBN and banks have doubled down on keeping a limited number of branches open, mindless of the community spread of Covid-19 which every right thinking Nigerian knows has by far exceeded the official number of cases that the Nigeria Centre for Disease Control (NCDC) reports daily.
I must confess that before Segun’s article, I had communicated my concern to corporate affairs officials at GTBank and United Bank for Africa Plc and tried to convince them to plead with their management to reopen all their branches, hoping that this would force other banks to follow suit. But they all rebuffed the notion on the pretext that they needed to protect their staff and branches from getting infected. I found their excuses ridiculously implausible because by exposing bank customers to Covid-19 community spread through their congested banking halls, they were not keeping the larger community safe, including their personnel.

It took me a few days after those phone calls to figure out that the banks were playing games, notwithstanding the health crisis that they were helping to exacerbate. It occurred to me that the banks were using the cover of Covid-19 to cut costs and reduce their losses by keeping commercially unviable branches shut during this period. With this as a strategy, they will be able to increase profitability without a care in the world of the consequence of their irresponsible action. This is unacceptable and should not be sanctioned by the CBN or the Presidential Task Force (PTF) on Covid-19.

First and foremost, no bank in the country is allowed to close down any of its branches without an impact assessment and the approval of the CBN. The central bank should have by now seen the result of the banks’ actions and inactions and met with their CEOs to review the protocol on branch reopening. As Segun pointed out, several countries that implemented lockdown measures due to Covid-19, included banking in the category of essential services that would not be impeded. In more advanced countries, banking drive-in services were available to customers that needed to carry out transactions. In less developed countries, banks continued to provide services as long as they implemented physical distancing for their staff and customers, as well as other measures to keep their premises Covid-free.

If the CBN had already directed the banks not to lay off their personnel as a cost cutting measure during the pandemic, then it might as well permit them to reopen all their branches to the banking public in order to save lives. But in reality, there is a grand deception being played out by banks, with the central bank looking the other way. The reason being, bank personnel (including contract staff) that the CBN had specifically directed should not be sacked, have effectively been furloughed and/or laid off quietly by the banks through the closure of their branches. Although this may not be out in the open, but in a few weeks from now, several workers will wake up to discover that they have been quietly taken off bank payrolls and are without jobs.

To be fair, while I understand the need for banks to adopt cost cutting measures to shore up their dwindling margins resulting from the pandemic, rising non-performing loans led by the oil sector, and a contracting economy, the CBN governor Mr Godwin Emefiele must reconsider his stance on maintaining the cash reserve ratio (CRR) at 27.5 per cent. Last week’s surprise reduction of the monetary policy rate by 100 basis points to 12.5 per cent by the Monetary Policy Committee (MPC) will have little or no impact because of the policy rate’s limited transmission on a broader economy. However, by reducing the CRR and releasing the sterilized funds held by the central bank, Emefiele will provide the banks with liquidity that will help to dampen their cost of operations and at the same time provide them with more cash for onward lending to cash-strapped sectors.

At 27.5 per cent, amounting to approximately N9.3 trillion, the CRR accounts for a third of money supply in circulation. But since the cash is sterilized, it leaves the banks with only 72.5 per cent of their liquidity for lending and running their operations. With less cash to boost revenues and offset high operating costs, I find it difficult to understand how financial system stability can be maintained. Moreover, sterilization as a means of keeping inflation under check and curbing foreign exchange demand has proved to be unsuccessful in the past five years. Rather, concerns over inflationary pressure can be addressed by using FX to manage liquidity, as it is a more potent tool for inflation management.

Surely, Emefiele must know that by selling dollars to bank customers in dire need of FX to import raw materials and plant and machinery, among other goods and services, he can mop up excess naira in circulation and keep a lid on inflation. As it stands, the $3.4 billion rapid financing instrument approved last month by the International Monetary Fund (IMF) to assist Nigeria partially plug its fiscal deficit, has helped to shore up FX reserves but only for a limited period. So the responsibility lies with Emefiele to reposition Nigerian banks to become more responsive to financial intermediation so as to shield the economy from a sharp contraction.

Beyond keeping their brick and mortar branches open, banks should continue to innovate to find ways to serve their customers through digital and mobile money platforms, as this ultimately will play a huge role in reducing cost. A study presented by Enhancing Financial Innovation & Access (EFInA) via Webinar on May 15, showed that financial services in Kenya and South Africa remained resilient during their lockdowns because of the strong digital payment systems in place in both countries. In Nigeria, on the other hand, the country experienced the highest disruption in financial distribution during the lockdown.

In another paper presented by Ashley Immanuel, head of programmes at EFInA, she observed that over the past decade, Nigeria had fallen behind several other African countries in terms of financial inclusion because mobile money had taken off in those markets but remained low in Nigeria (only 3% of Nigerian adults used mobile money in 2018). EFInA’s research, she added, indicated that the newly established category of Payment Service Banks has the potential to drive financial inclusion, including in underserved areas. According to her, “Accelerating the deployment of Payment Service Banks may be one of the most efficient ways to expand financial access following the COVID-19 pandemic and set the ‘digital rails’ that Nigerians can use to access other services that will improve their lives, such as pay-as-you-go solar solutions.”

She cautioned that in the longer-term, Nigeria runs the risk of its citizens becoming financially excluded as a result of this health crisis, at the exact moment when they as individuals and the overall economy would need their participation the most. “Global evidence suggests that access to financial services can help households weather financial shocks and can contribute to economic growth. Yet the EFInA Access to Financial Services in Nigeria Surveys found that financial inclusion dipped following the last recession. Companies that can innovate and extend low-cost, digitally enabled services to the Nigerian mass market will have an enviable customer base when the economy recovers. Building this business case will require support from regulators, including evaluating regulations on fees and pricing to help financial service providers reach low-income customers profitably,” she stated.

In the meantime, as banks and telecommunication firms put on their thinking caps on how to come up with ways to provide services to their customers digitally or through mobile banking and at the same time grow financial inclusion, the PTF on Covid-19 must step in by meeting with the CBN and the banks. The meeting will enable all parties to review the public protocols on movement and opening hours for banks nationwide. In order to decongest bank branches, it will make sense to allow banks to open for longer hours, say from 8am to 4pm. The PTF would also have to advise President Muhammadu Buhari to lift the 8pm to 6am curfew as there is no correlation between the spread of Covid-19 and night movement. What should be of paramount concern is the observance of physical distancing in public transportation and places, personal hygiene, and ensuring people wear masks in public.

By imposing a curfew on a congested city like Lagos, we are more likely to experience non-observance of physical distancing at bus parks and in buses when people are compelled to rush to their homes before 8pm, which may account for the spike in Covid-19 cases in Lagos. However, if people are free to head home at their convenience, they are more likely to observe physical distancing. The same could be said for some states where food markets are only allowed to open for a few days a week and for shorter hours. Limiting the days and times when markets can open equally defeats the purpose of physical distancing, as more people are likely to converge on markets in unmanageable numbers on the few days that they are open.

Essentially, the PTF on Covid-19 led by Mr Boss Mustapha, who doubles as the Secretary to the Government of the Federation (SGF), needs to be proactive about tinkering and reviewing the rules for Nigerians to follow during the pandemic. So far, they appear to be more fixated on procurement and contract awards behind closed doors than devising simple and cheaper strategies that can keep Nigerians safe and healthy.