With effect from January 1 2016, Nigerian banks are expected to charge nothing as Commission on Turnover (CoT) according to the gradual phase out plan of the Central Bank of Nigeria (CBN).
Nigerian Banks, despite the stiff competition in the banking sub sector, have taken to CBN’s lead to put an end to the traditional Charge CoT on customers’ transactions on turnover basis which was usually charged from N5 per every N1,000 transaction made.
The CBN had in April 2013 amended the guidelines on bank charges, introducing the steady phasing out for the count on turnover.
The revised guideline introduced a gradual reduction of CoT from N5 per mile (per N1000) in early 2013 to N3 per mille or N1000, N2 per N1000 in 2014 and is to be N1 per N1000 in 2015 and finally phased out effective January 1, 2016.
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A large number of the banks in Nigeria, especially the new generation banks, had stopped charging CoT, while a few others who had in some cases charged above the stipulated N1 per mille as it was last year, are about to follow suite.
On this regard, analysts explained that the essence of the CoT free accounts will help to mobilize low-cost deposits liability. They explained further that though the income that is supposed to accrue to the banks when they charge CoT is gone, it is believed that it will win customers delight to the bank that offers zero CoT.
Mr. Steve Agbarakwe who is the Group Head of Commercial and Consumer Banking, Broad Bank of Nigeria Limited, had explained that banks forgo the charge on CoT in order to grow their low-cost deposit liability and also have enough income from the float.
‘But the ultimate thing is to make sure that what you earn with the float will be much more when compared with what you loss in offering zero CoT’. He said.
According to him, when a customers opens current account and keep money with the bank, it grows the bank’s low-cost deposit liability and have enough cheap money to lend at a lower interest rate.
“it is a competitive advantage over other banks who are not focusing on low-cost deposit, rather they focus on generating tenored funds”, he said.
More so, the CoT free account will give room for another form of marketing strategy to mobilize deposits with a focus tending towards provision of financial assistance to customers, inculcating savings culture, and also growing deposit liabilities.
On the other hand, analysts opined that this approach will instead of bringing more investors into the country, inject more confusion and discourage investors, given the fact that there is no distinguishing factor among the existing products. But, since almost all the banks are offering that particular feature, the challenge for banks now goes beyond offering zero CoT.
The apex bank had last year, ordered deposit money banks to refund illegal fees charged customers over a period of one year, giving them 30 days to refund the excess charges or face severe penalties. And in compliance to this, banks like the Guardian Express Bank have decided to pay 0.25 per cent CoT per a N1,000 to its customers as a way of making their customers are enjoy commissions on their accounts with the bank.