Banking Fears Heighten As Customers Shun Cash Deposit

As Nigerians recover gradually from the cash crunch after almost three months, there is palpable fear in banks as customers are no longer bringing in cash to banks while banks are giv­ing out cash to customers who throng their branches across the country.

Investigation by Daily Independent revealed that bank customers seem to have lost confidence in the banks due to the hardship they experienced in the last two months where they were not able to access cash from their ac­counts.

The development, according to ex­perts, is called bank run.

A bank run is when a large number of customers of a bank or other finan­cial institutions withdraw their depos­its at the same time over fears about the bank’s solvency. As more people withdraw their funds, the prob­ability of default increases, which, in turn, can cause more people to withdraw their depos­its. In extreme cases, the bank’s reserves may not be sufficient to cover the withdrawals.

According to Investopedia, “Bank runs happen when a large number of people start making withdrawals from a bank because they fear the in­stitution will run out of money. A bank run is typically the re­sult of panic rather than true insolvency. However, a bank run triggered by fear can push a bank into actual insolvency. So what begins as unfounded panic can eventually turn into a default.

“Most institutions have a set limit to how much they can store in their vaults each day. These limits are set based on need and for security reasons. At the same time, banks are required to keep a minimum amount of cash reserves on hand, either in a bank vault or in an account with a central bank, to minimize the risks re­lated to bank runs”.

Daily Independent learnt that bank customers, especial­ly traders and owners of small scale enterprises as well as indi­vidual customers, believe that it is better to keep the money at home and not in the banks to prevent situations where they will not be able to access money in their bank accounts.

Idowu Ademola, a trader, said she prefers to keep her money at home and not in the banks because of her experi­ence in the last two months and also due to the fact that those who supply her goods prefer cash and not bank transfers.

She said, “I sell tomatoes and my customer who supplies me said he prefers cash and that I cannot afford not to pay in cash because no goods will be given to me. We will go back to deposit in the banks when the development improves”.

Johnson Igbede, who sup­plies goods to traders in the markets, said he will continue to shun banks for as long as there are no longer long queues in banks.

Igbede said, “If you look around, you will see that the issue of cash crunch has not really abated. We still have long queues and it means that Nigerians still need cash to run their daily activities”.

In separate chats with two bank managers, it was gath­ered that the development is real and that this is not going to be a good development for banks who expect their cus­tomers to return cash as de­posit.

One of the managers, who prefers anonymity, said, “It is not really desirable if cash is not deposited in the banks, either across the counter or through electronic transfers. It means money supply will be reviewed beyond what is opti­mal and that can affect lending.

“The ability of the commer­cial banks to create money, lend money for production purpos­es, for investment purposes, even for consumption; people borrow money to buy personal goods and services, all that will be affected.”

He attributed the weak de­sire to return cash to banks to the loss of confidence in the system, saying it was “as a re­sult of a decline in confidence in the system, the fear that cash shortage will continue.”

He added: “Those who are not traditional hoarders are also keeping the cash at home, but at some point, when more money is in circulation, nor­malcy will return to the bank­ing system”.

In his response, the other manager said banks will be forced to reduce cash being given to customers to prevent a development where the bulk rooms will be completely empty.

He said, “I am hopeful that the development will improve and people will see the need to deposit their cash in the bank, but if this did not improve, then there is a problem on our hands”.

Stephen Iloba, a Lagos-based financial analyst, said the be­haviour is expected consider­ing the experience of Nigerians in the last two months.

“I am not surprised at all but the danger is that this will be harmful to the economy. If we return to the era of keep­ing cash at home and not in the banks, the recent success recorded by the CBN as regards money outside the banking sec­tor will be reversed and this is not good for the economy.” (Daily Independent)