Nigerian banks are facing a severe shortage of cash as the festive season approaches, due to a combination of insider abuse and hoarding by customers. This has led to long queues at ATMs, reduced withdrawal limits, and increased charges for cash transactions.
Insider abuse erodes bank liquidity
According to a report by BusinessDay, some bank staff have been involved in fraudulent activities that have drained the liquidity of their institutions. These include:
- Diverting customers’ deposits to personal accounts or third parties
- Issuing fake receipts or confirmation messages to customers who make cash deposits
- Manipulating the bank’s system to inflate the cash balance or understate the cash outflow
- Colluding with cash-in-transit companies to short-change the bank or divert cash to other destinations
These practices have resulted in huge losses for the banks and reduced their ability to meet the cash demands of their customers. Some banks have reported cases of staff absconding with millions of naira or being arrested by the authorities for their involvement in such scams.
Hoarding worsens cash scarcity
Another factor that has contributed to the cash crunch is the hoarding of cash by customers who fear that the banks may collapse or impose restrictions on their accounts. This is partly due to the economic hardship and uncertainty caused by the COVID-19 pandemic, inflation, and devaluation of the naira.
Some customers have also resorted to hoarding cash as a hedge against the rising cost of living and the scarcity of foreign exchange. Others have withdrawn cash to engage in informal or illegal activities that require cash payments, such as gambling, smuggling, or bribery.
The hoarding of cash has reduced the circulation of money in the economy and increased the demand for cash withdrawals from the banks. This has put pressure on the bank’s cash reserves and forced them to ration cash or impose charges on cash transactions.
Implications for the economy and the public
The cash shortage in the banks has negative implications for the economy and the public, especially as the festive season draws near. Some of these implications are:
- Reduced economic activity and growth, as cash is a major medium of exchange in Nigeria
- Increased hardship and frustration for the public, who have to endure long queues, low withdrawal limits, and high charges to access cash
- Increased risk of robbery and theft, as people carry large amounts of cash or store them in unsafe places
- Increased corruption and crime, as cash transactions are harder to trace and regulate
- Reduced confidence and trust in the banking system, as customers lose faith in the safety and reliability of their deposits
Possible solutions and recommendations
To address the cash shortage in the banks, some possible solutions and recommendations are:
- Strengthening the regulatory and supervisory framework for the banks, to ensure compliance with the cash reserve requirements and prevent insider abuse
- Enhancing the security and efficiency of the cash-in-transit services, to ensure timely and accurate delivery of cash to the banks
- Encouraging the adoption and use of digital and non-cash payment platforms, such as mobile money, cards, and online banking, to reduce the dependence on cash
- Educating and sensitizing the public on the benefits and risks of cash and non-cash transactions, to discourage hoarding and promote financial inclusion
- Providing incentives and support for the informal and rural sectors, to enable them to access and use formal financial services and products
By implementing these solutions and recommendations, the banks can overcome the cash shortage and restore their liquidity and stability. This will also improve the economic and social well-being of the public and the country at large.
