The Monetary Policy Committee of the Central Bank of Nigeria (CBN) on Friday gave reasons why it approved the new bank charges on bank withdrawals and deposits by individual and corporate customers announced on Tuesday.
Also, the committee gave justification for its endorsement of the recent proposal by the Federal Government to raise the value-added tax (VAT) rate from 5 to 7.5 per cent.
The CBN governor, Godwin Emefiele, said at the end of the MPC meeting in Abuja that there was nothing new in the bank charges announced on Tuesday.
He said the charge on excess cash deposit above an established threshold has already been in place since July 2012, but was merely suspended in 2014 to allow the full implementation of the cashless policy in the country.
On Tuesday, the CBN, in a circular to all deposit money bank (DMBs) signed by the Director, Payments System Management Department, Sam Okojere, announced the approval of additional charges on cash deposits by customers in Lagos, Ogun, Kano, Abia, Anambra, Rivers states and the Federal Capital Territory.
The circular said the CBN approved 3 per cent to be charged as processing fees on all withdrawals and 2 per cent for cash lodgments in individual accounts in excess of N500,000.
Also, the circular said withdrawals in excess of N3 million from corporate accounts would henceforth attract 5 per cent charge as processing fees and 3 per cent on lodgments in excess of N3 million.
The apex ban said the charges were part of its cashless policy introduced in July 2012 to discourage cash transactions and promote the use of electronic payment platforms.
“The charges under the cashless policy in Nigeria is not new. Before it was first launched in 2012, several engagements were held with multiple stakeholders. At inception, charges have always been on deposits and withdrawals.
“It was only suspended in 2014, because we (CBN) felt it was too early to begin to charge those who wanted to deposit money in the banks.
“We agreed that there were lots of cash outside the banking industry, and that there was no need to penalise people who wanted to bring money into the banking industry,” Mr Emefiele said.
After over five years since the charge was suspended (2014-2019), the CBN governor said that was why the apex bank considered “it was time to return all the cash that were kept in peoples’ houses to the banking industry”.
“The policy is not designed to de-enfranchise hardworking Nigerians and businesses of their hard-earned money, but to encourage people to patronize online payment platforms,” he said.
Highlighting the benefits of the cashless policy, Mr Emefiele said small and medium enterprise (SMEs) have embraced the various options and channels available to them for collecting legitimate payment for goods and services.
He said the cashless policy is in the public interest to promote an efficient payment system which helps to reduce the punitive cost of cash processing often passed on to bank customers by Deposit Money Banks.
“Cashless policy improves transparency in financial dealings and reduction in crimes, such as advanced fee fraud, graft ransom payments and extortion. That’s why we think Nigerians should proceed in the direction of cashless economy,” Mr Emefiele said.
On the proposal to increase VAT, the CBN governor said the MPC gave its support because it was the best option in the face of the challenge before the government on how to raise funds to meet its responsibilities and obligations to the people.
“The government has a responsibility to fend for the people, by spending money to provide infrastructure – roads, airports, railways and different things that will improve the lives of its people,” he said.
He identified two ways through which the government can fund these expenditures, namely either by raising revenue, or by going for debt through borrowing.
Considering that government has been criticised that its debt stock/service ratios was too high, which means the government’s interest rate was too high relative to its revenue, Mr Emefiele said government has to find an alternative to fund its business.
“What that means is that the government’s revenue is small. If the government’s revenue is large, then its debt service ratios should be lower. Government will not have any option.
“If we (Nigerians) say the government should not borrow, then the government must be allowed to raise revenue.
“If the government must raise revenue to meet its obligation, it calls for a rationale that what we (MPC) are saying is that it is the right decision that the government has taken to increase VAT from 5 to 7.5 per cent,” the CBN governor said.
Although he acknowledged that the decision was painful, he said Nigerians must understand that government also has an obligation it must meet.
“I will just have to appeal to Nigerians to please try to show understanding. It may seem painful. But if we look at the positive implications on the government’s revenue, debt service ratio is lower, government can meet its obligation to improve roads or provide money for electricity, it will also have a positive implication on the GDP and average growth of the country,” he said.
MPC retains policy rates
At the end of the meeting, Mr Emefiele said the committee resolved to leave all monetary parameters unchanged.
The MPC voted to retain the monetary policy rate (MPR) at 13.5 per cent; the asymmetric corridor of +200/-500 basis points around the MPR; the cash reserve ratio (CRR) at 22.5 per cent, and the Liquidity Ratio at 30 per cent.