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Review of CBN’s dormant deposit account management in Nigeria

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central bank of nigeria

For individual accounts that the bank cannot reach the account holder during the three (3) months period, it shall contact the next-of-kin to assist in locating the account holder(s).

CBN Governor, Emefiele

The purpose of this discussion is to review current Central Bank of Nigeria dormant deposit accounts policy and operational guideline to Nigeria banks. In this review we I will attempt to examine possible line of actions that will be taken by a rational economic agent like banks in response to the provisions of the CBN policy on dormant deposit accounts. 

Through this approach it will help us to evaluate the efficacy and effectiveness of the policy and the likelihood of the achievement of the CBN’s policy objectives. Furthermore, we shall attempt to find out how other countries have solved this problem in their financial system; perhaps this may help us to raise a wake-up call to the regulators of the Nigerian Financial system. 

Firstly, for the purpose of this discussion we shall adopt CBN’s definition of dormant account. That is ‘a dormant account shall be a bank account that has no customer or depositor originated transaction within a specified period of six years after the last customer or depositor initiated transaction. However, such an account shall be recognized as inactive after the first 6 months of non-depositor or customer originated transaction in it’. 

The problem now is for most dormant accounts their owners or next-kin never turns up for the fund at least within a reasonable time. Ordinarily depositors are expected to withdraw all their deposit or pass the right to withdraw all the deposit to next of kin or executor of their estate. Unfortunately and notwithstanding this expectation significant percentage of depositors have left their deposits to their banks for longer than could have been necessary. 

Consequently, significant volumes of deposit funds are held by banks indefinitely, without a hope of their owners even coming back for them. This have resulted to perhaps not less than ten (10%) of total deposit held by Nigerian banks being dormant. The total amount of dormant deposit accounts in Nigeria is the in order of hundreds of billions of naira. Please note that this estimate is mine, and in fact most likely to be wrong I must add. 

However, this estimate is based on the fact that, I once visited one of the four(4) biggest Nigerian banks computer department in 2005 and a staff of the bank showed me a part summary schedule of their bank’s dormant accounts which was in excess of =N=11Billion as at then.  Then little did I know I will be confronted with this issue, perhaps it is all posterity and special guidance that I was led like blind man through that fact.

In a situation that one of the four (4) biggest banks had dormant deposits accounts of that order as at then, I may now try to extrapolate as an applied mathematician since dormant accounts are guided information by banks. Considering the volume of dormant deposit accounts and the way they are regulated and managed by the Nigeria banks, it is not surprising that it is now generating public interest and rightful attracting regulators attention. I hope the above will help the reader to understand what are dormant deposit accounts are and the scale of the fund involved. 

Unfortunately, for me at the time of my writing due to distance and restricted access to information it is not possible for me to have access to published dormant deposit account of banks as to be able to make better estimate, but I hope that professional investigative journalists and the regulators will come to my aid soon. 

However, considering the above I guess the readers, Nigerian bankers, the general public and regulators will agree that there is the need for a clear policy on how dormant deposit accounts should be administered by Nigerian banks. I must therefore join other well-meaning Nigerians to congratulate the CBN for their efforts in regulating dormant deposit accounts, and enjoy CBN to have a rethink of their policy.

Secondly, I will use this section to introduce the main thrust of the current CBN’s dormant deposit accounts policy and the intended objectives. However, due to limitation of geography and distance, the main source of my information is the Central Bank of Nigeria regulation of October 7 2015 as contained in this CBN directive FPR/DIR/CIR/GEN/05/013 on standards/guidelines for the operation of dormant accounts in Nigeria some of the provisions are as given below:- 

a) Interest-bearing accounts shall retain their interest earning status during the period of dormancy;

b) Deposit taking financial institutions shall continue to monitor accounts that show tendencies of inactivity and initiate actions for their reactivation or protection from wrong usage. 

c) Once accounts become dormant they shall be reported quarterly to Banking Supervision or Other Financial Institutions Supervision Department of the CBN, as the case may be, along with efforts made by the obligor bank to locate the owners or their personal representatives. 

d) In line with the requirements of the Uniform Account Opening Forms policy, every customer shall provide a next of kin when opening an account. 

e) Three months to dormancy, the bank shall notify the account holder of the status of the account. For individual accounts that the bank cannot reach the account holder during the three (3) months period, it shall contact the next-of-kin to assist in locating the account holder(s). This will be done within one month after the account has been declared dormant. (For corporate accounts the bank shall contact the directors of the entity or seek information from the Corporate Affairs Commission on the Directors) 

f) Dormant account balances shall continue to be reflected in the books of banks as deposit liabilities until they are eventually withdrawn by the account holders or disposed of, on their instructions. 

g) Dormant accounts balances shall be covered by Deposit Insurance Scheme. 

h) Banks that have in the last five (5) years from the date of these Guidelines, appropriated credit balances in dormant accounts to income are to reclassify such accounts to deposits not later than six (6) months from the effective date of the Guidelines. 

i) Notwithstanding the provisions of section (h) above banks shall retain the records of all dormant accounts irrespective of the number of years of dormancy of the accounts, and shall reactivate such accounts upon request by the bona fide account holder or his/her legitimate representatives.

Some of the stated CBN’s policy objectives includes standardize the management of dormant accounts across banks, compliance with international best practice, channel the funds to most productive areas of the economy, eliminate conversion dormant accounts balances to income, effective liquidity management for banks and others.  

Thirdly, we shall now examine the possibility of using the above indicated CBN’s dormant deposit accounts policy to achieve their mention policy objectives. In general for Nigerian banks the positive aspects of the policy includes contacting the account owners/next-of-kin, retention of the accounts on failure of the later withdrawing the funds, accruing interest of the accounts as these will grows their deposit base, and improved liquidity due to the retention. Where the reactivation of the account through customer related transaction is achieved it is welcomed and the account will become active at least in the short run. 

However, our interest, focus and further discussion are on the treatment of those dormant accounts where reactivation could not be achieved because of lack customer initiated transactions, hence the real dormant accounts. Considering, the importance of deposits to banks, the rational bank treasurers and compliance officers will want the retention of the dormant funds with little incentive to do anything that would result in the fund being withdrawn. 

Hence, banks can make weak calls, write ineffective letters or ill-visits to customers in hope of reactivating dormant accounts just in order to fulfill regulatory requirements, but with no real desire for deposit account reactivations.  This CBN policy has made it easier for the banks to achieve this without the risk of breaking any regulatory requirements. Considering that it is a zero sum game between depositors and the banks, this policy serves only the interest of the banks, maintains the current status quo, and have left vast majority of Nigerian depositors worst-off. 

Suppose the CBN had required the banks to transfer all dormant deposit accounts to CBN after this critical six year of dormancy, given that neither the account owners nor next-of-kin reactivated the accounts.  Certainly, a rational bank treasurer would want to retain these dormant deposits, the fear of the deposits living their bank will force them to search vigorously re-market the owners of accounts, particularly the high volume dormant deposits than risk allowing funds leave their banks vaults. 

Furthermore, rational bank treasurers, financial controllers and systems personnel will reclassify dormant deposit on the basis their dormancy age.  Then they can internally and administratively treat those that passed the critical six years as income and still meet regulatory requirements. In general for such real dormant accounts falsely carried in the bank books as paper liabilities since the owners of the funds did not come for the funds, administratively they are pure income of the banks. 

Considering the above issues raised, the main failing of the policy is the provision that the banks will continue to retain the dormant deposit accounts. Certainly when such dormant deposit accounts are held indefinitely in the bank’s books, rational financial controllers may not resist the temptation in using them to write-off their internal inefficiencies and appropriating the balances. 

Therefore dormant deposits accounts are inappropriately held by the banks, miss-priced (free and in fact dashed money) deposit and miss-allocated funds of the economy. It is notably significant to see now how this policy has failed to stop the banks from miss-pricing and miss-allocating deposits, but to carry deposits that lost liability characteristics as income calling for easy but certain appropriation. 

Furthermore, we shall investigate how other regulators have solved the dormant deposit accounts problem for their banking public. Certainly, the need to manage dormant deposits efficiently and to the benefit of society without leaving any one worst off is not peculiar to Nigeria. Theoretically for financial market to be efficient, it must be allocation, informational and operational efficient, and our Nigerian Financial Market is not an exception. And part of the mandate of the CBN is to ensure and maintain this efficiency. Also for Nigerian banks to be efficient customers deposits must be fairly priced and its pricing must be market based, and they must remain liabilities of the banks. 

However, when dormant deposit accounts are too old they lose their liability characteristics and should not be held by banks anymore. And in this sense the dormant deposits that are converted to income by bank are neither fairly priced nor are their allocation market based. Instead it is fraudulent acquisition, purely an unearned income like drug money and causes economic distortion. Interestingly almost in every country unclaimed funds, particularly dormant deposit accounts exist, and revert to the state on the order of their central bank. 

It is therefore most surprising and unimaginable to every observer of Nigerian Financial System why unclaimed aged dormant deposit accounts are still being held by banks indefinitely as either converted income or implicit income, as dormant accounts lose their liability characteristics with age. World over central banks and indeed governments are looking for such idle aged funds to fund essential development and people oriented projects. 

In countries like United States, United Kingdom, South Africa, Ghana, India, Pakistani to mention but a few such dormant deposit accounts are held by the state. For example exception of Pakistani all their central banks have set-up ‘Unclaimed Asset Management’ bank to administer these funds, and allowing the respective owners of the deposit to have back their money on demand from banks. I will now argue that Nigeria has come of age and should pull centrally all unclaimed funds and deposits held in the financial system manage them centrally. 

World over we have fat cats; Lagos Island is no exception and these our local cats are like others, and will always maximise their wealth subject to regulatory constraints. Hence the regulators have the obligation to society to ensure that the regulations are able to induce good behaviour in the current circumstance it is a depositors’ money given away to bank executives and their owners.

OGJ Odumodu

Business Analyst / Optimisation Analyst


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