The Central Bank of Nigeria (CBN) has announced the extension of the suspension of cash deposit processing fees until March 31, 2025.
Initially, the suspension was set to end on September 30, 2024, but the CBN extended the deadline to provide further relief to depositors and ease financial transactions in the country. This move impacts cash deposits exceeding ₦500,000 for individual accounts and ₦3,000,000 for corporate accounts, which were initially subject to fees of 2% and 3% respectively.
This extension comes as a welcome relief to many, especially considering the challenges posed by the economic climate and cash scarcity issues that have affected financial transactions in Nigeria. By lifting these fees, the CBN aims to promote financial inclusion, encourage the use of banking channels, and reduce the amount of cash in circulation.
Why Was the Suspension Introduced?
The Central Bank of Nigeria initially introduced the cash deposit processing fees in 2019 as part of its efforts to control the amount of cash in circulation and promote the adoption of digital banking solutions.
The policy was designed to discourage individuals and businesses from holding large amounts of cash, which poses a risk for money laundering and other illegal activities.
However, the CBN has had to review and adjust its policy several times since its introduction, with the most recent suspension starting in December 2023.
This suspension was aimed at easing the burden on depositors and making it more attractive for people to keep their money in banks rather than outside the banking system.
With the extension to March 31, 2025, it is clear that the CBN wants to continue to provide relief to depositors handling large sums and to sustain the current momentum of cashless transactions.
Breakdown of the Suspension’s Impact
- For Individuals:
Individuals making deposits exceeding ₦500,000 will not be subject to the 2% processing fee during the suspension period. This means if you deposit ₦1,000,000, you save ₦10,000 in fees that would have otherwise been charged. - For Corporate Entities:
Corporates making deposits above ₦3,000,000 are also exempted from the 3% processing fee. For a deposit of ₦10,000,000, for instance, this translates to a savings of ₦300,000 in fees.
How the Policy Affects the Economy
The suspension is expected to have several effects on the economy:
- Increased Use of Banking Channels: By removing the fees associated with large deposits, more individuals and businesses are likely to use banking channels, thus reducing the amount of cash circulating outside the banking system.
- Support for Financial Inclusion: This move supports the CBN’s broader goal of increasing financial inclusion by making banking services more attractive.
- Possible Revenue Impact on Banks: While the suspension is beneficial for depositors, it could impact the revenue of banks, as they may lose a significant source of income from processing fees. This might lead to banks exploring alternative revenue sources or promoting digital banking options more aggressively.
Key Details and Timeline of the Suspension
Initial Introduction of Fees in 2019:
The CBN began imposing the processing fees on deposits and withdrawals exceeding certain thresholds in September 2019, starting with Lagos, Ogun, Kano, Abia, Anambra, Rivers, and the Federal Capital Territory (FCT).
The goal was to reduce the volume of cash in circulation and promote a cashless economy.
First Suspension in December 2023:
The suspension of these fees was first introduced in December 2023 in response to concerns raised by businesses and individuals about the challenges of operating in a cash-constrained environment.
This suspension was initially set to expire on September 30, 2024.
Recent Extension to March 31, 2025:
The CBN announced the extension in a letter dated May 6, 2024, signed by Adetona Adedeji, Acting Director of Banking Supervision. The extension ensures that all regulated financial institutions continue to accept cash deposits from the public without any charges during the specified period.
Benefits of the Suspension to the Public
- Reduced Transaction Costs: Without the processing fees, individuals and businesses save money, making large deposits more cost-effective.
- Increased Liquidity in Banks: As more people are encouraged to deposit money in banks, liquidity within the banking system improves, which is crucial for economic stability.
- Improved Transparency and Financial Monitoring: With more funds flowing through formal banking channels, it becomes easier for regulatory authorities to monitor financial transactions, thereby reducing the risk of money laundering and other illicit activities.
Possible Challenges
- Revenue Loss for Banks: With the processing fees removed, banks may experience a decline in revenue. This might lead them to increase other fees or charges to offset the loss.
- Potential for Abuse: The suspension of fees could lead to an increase in cash deposits that may not necessarily reflect legitimate business transactions, posing a challenge for financial monitoring.
Future Prospects and What to Expect
The current suspension till March 31, 2025, signals the CBN’s flexibility in adapting its policies to suit prevailing economic conditions. If the suspension proves beneficial, there could be discussions about either extending it further or introducing a revised fee structure that balances the interests of both the depositors and the banks.
The CBN may also take this period to review the overall impact of the suspension on financial inclusion, digital banking adoption, and economic stability before making any further policy changes.
Conclusion
The extension of the suspension of cash deposit processing fees by the Central Bank of Nigeria until March 31, 2025, is a significant move aimed at providing relief to individuals and businesses dealing with large cash deposits.
This policy will likely encourage more people to use banking channels, reduce the cost of large deposits, and support the CBN’s broader financial inclusion goals.
While the suspension is beneficial for depositors, it presents challenges for banks that may need to look for alternative ways to maintain revenue. It will be interesting to see how this policy plays out over the next year and what changes, if any, the CBN might introduce in the future.