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Why Nigerian banking halls must reopen immediately 16 Apr 2020

Conflicting and nonsensical directives have led to the virtual shuttering of banking halls across Nigeria, in the wake of the Covid-19 pandemic. Lagos and Ogun States and the Federal Capital Territory (FCT), Abuja are likely to be worst-affected because of the presidential directive on lockdown.

On March 24, Lagos State Governor, Babajide Sanwo-Olu, issued a directive for partial closure of banking activities in the state. He directed the banks to “prioritise” online channels for continued access to banking services by residents of the state. While he said “key staff” of the banks should work from the office, those that are not “essential key staff” are to work from home. For private sector banks that thrive on efficiency, it would be difficult to know who the key and nonessential staff are.

Five days after the gubernatorial directive, President Muhammadu Buhari ordered “the cessation of all movements” in Lagos, Ogun and the FCT. Lagos and the FCT had accounted for over 80 per cent of total confirmed cases of the novel coronavirus infections in Nigeria. Ogun State was included in the lockdown because it is conterminous with Lagos.

The presidential directive granted exemptions to activities in the food, energy, security, ports and road transport industries. But the otherwise blanket order applied to the commercial banks, without exemptions for any commercial banking activity whatsoever.

Following the directive by the President, the Central Bank of Nigeria (CBN) issued a statement that the Bank’s Governor and the Minister of Finance and Economic Planning obtained a presidential approval to permit “critical financial services”, essentially e-banking services, to function. CBN then issued another circular to suspend cheque-clearing activities indefinitely, effective from March 31. The CBN said the suspension was “in furtherance to the Bank’s effort to ensure hitch-free clearing and settlement activities.” In which case, to ensure efficient clearing of cheques, the activities were suspended indefinitely!

Without exception, but to varying degrees, any one of the above directives is tantamount to overdosing on measures for social distancing. The practical implication now is that the banking halls across the country are closed to bank customers, as other state governors have issued directives restricting movement and economic activities.

However, the banks have been loading their ATMs with money and bank customers with ATM cards are making cash withdrawals from the ATMs. Mobile banking, the crown jewel of banking innovations in Africa in general, has also enabled Nigerians to continue to carry out transactions on their mobile phones. Beyond these, banking activities have all but temporarily collapsed in the country.

The directives highlight some deeply ingrained problems with policymaking in Nigeria: lack of attention to details, poor inter-agency coordination and unintended outcomes. For, President Buhari, who is disengaged from the private sector since he was elected for his first term of office in 2015, the commercial banking sector was completely off his radar in his much-awaited national broadcast on March 29.

For sure, what is most certain in the nascent science of the novel coronavirus is that social distancing is essential to containing the disease. At its most effective, social distancing measures, often entailing lockdown of communities, territories and economic activities, are, ordinarily, draconian. In the most advanced countries, coordinating the implementation of social distancing frameworks have been very challenging. And public health is seemingly in conflict with the need to keep the economy open, or reopened after shuttering.

In Nigeria, where there is total dependence on external sources for the science – including medical science – of Covid-19, the authorities have resorted to poorly-considered blanket measures. Total closure of the banking halls is problematic for a number of reasons. It amounts to overestimating the subscription to electronic banking in the country. But many account holders, even in Lagos and Abuja, have no ATM cards or mobile banking subscription. It is also not unusual for holders of multiple bank accounts to not place some of their more important accounts, mostly corporate chequing accounts, on transactional electronic-banking services because of concerns over fraud.

For bank customers whose ATM cards expired during this lockdown, or those whose card issues had remained unresolved before the lockdown, they are effectively cut off from having access to their money. With most bank staff “working from home,” e-banking is now being provided below capacity. With the presidential flip-flop, instead of measures to make electronic banking access more robust during this lockdown, the banks have scaled back on the services.

From a personal experience, many services offered via e-mail banking, including debit instructions and funding dollar cards, have been disrupted. This is especially so for accounts that were not previously issued e-banking (security) tokens, and likely because the electronic infrastructures are strained. Some of the services that are still being offered now take much longer time to complete.

But under no circumstance, even in a lockdown like this, should the banking sector be ignored or trifled with. Its intermediary and agency roles are vitally important for economic production. In 2017, the total assets held by Nigerian deposit money banks as a share of the GDP was 19.25 per cent, according to International Monetary Fund (IMF) data compiled by theglobaleconomy.com. And according to the World Bank, domestic credit provided by Nigerian banking sector as a percentage of GDP was 21.2 per cent in 2018.

The importance of banking and finance becomes is starker when the sector is in a systemic crisis. What was initially a financial crisis in 2008 soon caused the Great Recession. The major central banks have already moved to backstop their financial markets, by providing or pledging unprecedented monetary interventions to ensure the Covid-19 pandemic does not lead to another major financial crisis.

To be clear, Nigeria cannot limit the economic fallout of the Covid-19 pandemic by totally shuttering the banking halls. Such folly would only cause more economic harm. Without reopening the banking halls, the activities granted exemption by the President would be less effective and exposed to security risk related to holding too much cash. Should such businesses be granted exclusive access to the banking halls, it would be unfair to other bank customers.

The questions should now be how do we reopen the banking halls without enabling the virus to spread and how do we do this without elevating physical security risk inside the banks. One measure would be by scheduling visits to the bank. For years now, consular services have been offered in this way in Nigeria, limiting overcrowding at the embassies.

To make the appointment scheduling more equitable, access to the service should not be limited to the websites of the banks. It should also be accessible to all account holders by telephone.

Apart from helping to reopen the banking halls, this approach can provide a clue, if not a model, for reopening the wider economy. This initiative is unlikely to undermine social distancing, either outside the backing halls or inside them. Fewer staff would be needed to attend to the few customers to be pre-admitted at a time. As the science of Covid-19 suggests wearing a face mask in public places can prevent the spread of the infectious disease, both bank staff and visiting customers should be required to wear masks, in addition to observing other protective and hygiene measures.

As countries are planning to reopen their economies, it is clear that blanket, big bang reopening poses a risk of a second-wave of infections. To limit such risk in Nigeria, well-thought-through strategies are needed. Some strategies may be industry-specific.