By Ufuoma Ubiebor
The banking sector in Nigeria has fallen behind its peers and the gap will continue widening if there is no urgent intervention.
A bank is an institution which is structured to operate with human resources, banknotes, data, standards, ethical values, efficiency, compliance, regulation and professionalism at all times. Currently, this is not the case due to poor regulation,
lack of data, and detailed attention given to it over time. The Central Bank which is the apex bank in the country has a huge role to play in the banking sector because its primary purpose is the responsibility of formulation of monetary policy and oversight, regulation of member banks with privileged control over the production and supply of money and credit to banks and the government, which is a general core function of central banks.
However, apart from this core function, Central Banks are created with mandates to operate forth, with key responsibilities within the mandate. Some are created with a single mandate, while others with
dual mandates, and multifaceted mandates. An example is the European Central Bank in Frankfurt, Germany, which is the reserve bank for the Euro Zone, the ECB sets interest rate and manages monetary policy for the region and oversees member banks in the Euro Zone, the ECB has only one mandate which is price stability. Her primary aim is keeping inflation at 2% in the medium term which in economics it is an ideal situation meaning inflation is under control, its primary tool in achieving it is raising and lowering interest rates and working with all sources of realistic data. Whilst the United States Federal Reserve has dual mandate which is to improve employment at a maximum level and keep price stability while moderate long-term interest rate, these mandates by the United States was shaped in the1970s when they were experiencing simultaneous high inflation and unemployment, a condition that was known as stagflation, therefore the federal reserve act of 1977 modified the original act that established the FED in 1913 and clarified the role of the board of governor and the Federal Open Market Committee (FOMC).
The Federal Reserve uses monetary policy tools in achieving this, it influences economic activities by managing interest rates and money supply primarily by adjusting the federal funds rate, also the Federal Open Market Committee, FOMC sets strategy, constantly assessing economic data to balance these often.
The People’s Bank of China also has a dual mandate like the United States, which is maintaining stability of the currency value (price stability) and promoting economic growth.
The Central Bank of Nigeria, CBN has a multifaceted mandate, which part of it is to regulate the banking sector for efficiency, maintain monetary stability in the economy, which is sustained price stability, keeping and promoting a sound financial systems. Currently, this is not fully in place due to a lack of adherence to standards and monitoring attention given to the banks and the economy.
The banking sector has so many inefficiencies that require utmost attention. Firstly, the network issues faced every other day at banking halls, USSD channels, and phone apps as a result of inefficient network service.
Secondly, the issue of money hanging when transfers are made via mobile phones in most cases reversals are not made within 24 hours, and sometimes people do not get their money back. Thirdly, issues of sms alert on real time when transactions are done and also checking of account balance via personal cellphones. Fourthly, the issue of ATMs not loaded consistently, all these anomalies falls back on the customers who keeps their money for safe keeping and expect to get efficient services at all times.
Fifthly, there are issues of hidden charges whereby customers do not get sms alert as to know what the charges is all about. Sixth, interest rate is on double digit, which is not encouraging for a growing economy, especially for new start-ups, MSME’s, and SME’s who are the key drivers of the economy.
In 2024, the Reserve Bank of Australia kept an interest rate at 4.35%, which was a single digit rate and was on hold for seven months. Recently, the Bank of Canada has held her key interest rate steady at 2.25%.
Seventh, the issue of banks giving out POS for other purposes rather than to be used only for purchase payments in retail, wholesale outlets, and offices as it is done in other parts of the world.
Furthermore, monetary stability, which is sustained price stability, the CBN has a huge role to play more in dealing with price stability, which is relatively inflation than people who control the fiscal policy in the economy. In recent times, our inflation figure was said to have come low but still remains on double figures, although I do not believe in the figures because we do not have the data to know the true fgure of inflation in our country.
A few months ago, Thailand kept core inflation figures at 0.9% negative for six straight months, not reaching its set target of 1.0%–3.0%. In February 2025, the ECB had core inflation at 2.5%, which was above her target, but in June, they brought it down to 2%, reaching her set target. Currently, the one naira coin is not in circulation like it used to in the past because it does not have purchasing power due to inflationary pressure.
Eight, there is not enough circulation of the various
denomination of currency in the economy, sometimes people buy things from retail outlets when they pay in cash, sometimes the shop finds it difficult to give change because not all the denomination is with them.
Presently, the banks have deficiency in deposit as a result of availability of POS machines and this is becoming a recurring issue every December, customers no longer go to the banks to make their deposits, instead they sell the cash to POS agents because they believe they would make more money as interest and this is not healthy for a banking system and an economy because when deposits are not made into the banks, it is difficult to have control over the circulation of money in the economy and the banks will also not have enough money to lend to customers that would enable them make profits.
The initiative of POS to be used for withdrawal purposes instead of being used strictly for
payment only at the point of sale is not a global practice. I think an economy that is striving to be a developing economy should always adopt global best practices for sustainability, it is understood that the CBN is trying to get banking to rural communities, which is brilliant, but there are better ways this can be done in achieving same purpose.
Currently, the POS are literally all over the country, and this speaks volumes, it tells us that new jobs are not created on a daily basis in the economy and it also shows our commercial banks do not have the capacity to render services to the entire nation.
What CBN should do, since her aim is to get banking across board, Firstly, it is to reorganize the banking sector and solidify the existing banks, making sure they build up capacity.
Secondly, abolish POS for cash withdrawal and allow it to be used for only points of sales, which is the primary purpose as done in developed economies.
Thirdly, CBN should use the commercial banks and MFB’s to drive the objective reaching the rural communities since they have existing foot prints and standardised operations that can be replicated automatically as this would give room to them in creating more white collar jobs in the economy and encourage more people going to school to build up a career and become professional bankers.
Fourthly, it would also take people off the streets and under the sun as they would be employed as full-time employees, and this would allow them to work and retire after thirty five years of service and get pension and retirement benefits which is the standardised practice globally.
Conclusively, with all the aforementioned, it is obvious the CBN is lacking behind its peers, but with proactive measures put in place like strict adherence of standards, regulation, compliance and professionalism the banking sector would catch up with its peers.
Additionally, on the newly introduced tax, which is fiscal policy, is a good initiative, but it is coming at the wrong time, as previous taxes paid by citizens, not much was done with it, our economy still lacks basic infrastructure. It is quite understood that without taxation, the government cannot get revenue, but the little taxes paid before now were not used judiciously to step the economy up, since our economy still has a faulty foundation due to negligence, it would have been proper if the foundation had been fixed properly before initiating this tax reform. An example, the power issue is still there, bad roads, no railways connecting the six geopolitical zones, lack of central water board system in all the local government areas across the country, fully functional hospitals and health care centres with adequate staffing is not in place, poor housing, amongst others.
In summary, the government would be taxing citizens when they are not enjoying basic infrastructure, again, we do not have the data to operate an efficient tax system. Our country has not gotten to that level yet. It is not standardised yet. There is still a lot of bypass in the economy.
As a country, we need all sources of realistic data in place that would form synchronisation to enable an efficient tax system.
