OVER two months after licensing two firms as cash-in-transit and currency-sorting companies, the Central Bank of Nigeria (CBN) is yet to issue instructions to banks to comply with the new development.
Investigations by The Guardian at the weekend show that most of the banks are yet to cede the management of the cash-in-transit and currency sorting operations.
This development is worrying the licensed firms and banks as the banks' overhead cost in the area of cash management is now in the region of billions of naira, thereby reducing their bottom lines.
According to a top executive in one of the banks, "the banks are presently handicapped due to lack of a clear directive to the banks to patronise the two licensed operators."
He pointed out that the usual thing for the apex bank after the licensing of the firms is to direct the banks on what step to follow, noting that when the apex bank licensed the credit bureaus, it followed it up with a clear directive, mandating the banks within a time frame to comply.
Another banker disclosed that almost all the banks were carrying out their cash-in-transit operations and currency sorting in-house, a development, which negates the spirit of the CBN policy.
However, an insider in the apex bank revealed that the management of the apex bank would soon issue a statement to the banks on the matter. He pointed out that the CBN management was passionate about redirecting the overhead cost of banks, adding that the licensing of the two firms was one way this feat could be achieved.
This stand tallies with the assertion of Integrated Cash Management Services limited (ICMS), one of the CBN licensed firms, which explained that Nigeria was one of the largest cash-based economies in the world and in Africa.
It had pointed out that five billion notes were in circulation in Nigeria in 2010, with 800 armoured trucks supporting notes in circulation compared to 2,500 trucks supporting 900 million notes in South Africa.
According to the CBN, in March 2008, an estimated N1 trillion was reported as cash in circulation outside the banking system while vault cash within the banking system accounted for N5.4 trillion, with the bulk of the cash, about 87 per cent, in key commercial centres of Lagos, Port Harcourt, Kano, Onitsha, and Abuja.
Based on this, ICMS noted that, cash payments were expected to remain the most favoured mode of payment within the Nigerian economy despite improvements in cheque clearing, electronic cards and Internet banking, stressing that it was expected that 90 to 95 per cent of transactions would be settled by cash in the foreseeable future.
Also, research findings by Tower Group, a United States-based company, indicated that a large bank could save up to $12.5million yearly in improving its Internet cash management processes.
This is supported by an article in FSI Magazine of March 5, 2009, where it was stated that banks clearly underestimate the potential savings, high net present value and very short payback period of most cost of cash optimisation projects.
According to an Accenture report for last year, total cash management costs are projected to rise from N2 billion in 2007 to N2.8 billion in 2014.
Speaking to The Guardian recently, the ICMS boss, Stephan Botha, revealed that the best approach for Nigerian banks was the shared services option.
According to him, "if a bank moves from a purely dedicated service to a shared service, that bank can in the next three months save up to 23 per cent of its cash in transit cost."
If more banks are similarly involved, he said, they could save more than 46 per cent of their cash in transit cost, revealing that one of the largest banks in Nigeria spends up to between N1 billion to N2 billion yearly as cash in transit cost.
Alluding to this state of affairs in the Nigerian banking system, world finance experts said that no bank or institution in Nigeria could afford to spend large investments in the market place to achieve international levels of cash management systems; hence the need for shared services by a world class service provider.
The CBN source had earlier told The Guardian that it was mainly the need to reduce the cost of banking in Nigeria through ceding non-core banking services to experts that informed the licensing of the two firms by the CBN.
He pointed out that the apex bank expected the two firms to achieve this through the introduction of shared services platform as opposed to the current trend where all the banks bear the cost of cash management individually.
The licensed firms are Integrated Cash Management Services Limited, and Bankers Warehouse Limited.
Source: Banks await CBN's directives on currency sorting firms (http://www.ngrguardiannews.com/index.php?option=com_content&view=article&id=37944:banks-await-cbns-directives-on-currency-sorting-firms&catid=1:national&Itemid=559)