Banking for money

It all started with which one? I don’t think I remember. But since then it has been one bank after another and then another and so on. With various names and tags, they come promising huge sums in cash reward, expensive household items as gifts, travel/tours etc. save & fly, grand slam, big splash, lion king, you go win promo and so on.

By now you should know what I’m talking about – the many savings promos that banks in Nigeria have now adopted as a strategy for generating deposits some giving away millions of naira for saving just a few thousands of naira. Before I go on I would like to make clear that this piece is a personal analysis of these many promos and the effect they may be having on the banking sector.

Savings accounts, traditionally, are deposits accounts that are used to put money away. The representation of the word save is to keep away. Hence the reason why a savings account earns interest as an incentive to the person who is giving his money to another’s use. This essentially is the purpose of a savings account and the banking system generally, to take money from those who have excess and lend those who are in short of it. The bank or the intermediating institution therefore needs to hold on to the money long enough to ensure its profitable use and the depositor should let go of it for long enough to allow the bank use it effectively.

While this still holds for the banking system, same cannot be said of the savings system with the influx of these promos. Many analysts have always advocated that banks should focus on longer term funds to fund their lending business, hence the need to depend on deposits and not equity funding to carry on their business. Are these promos really serving the purpose the banks hope to achieve with them? I doubt. Why am I taking this stand?

  • Firstly, savings accounts in Nigeria have more or less become withdrawal accounts where depositors deposit today and withdraw tomorrow. With this kind of attitude, depositors move cash at will from promo to promo once the period for maintaining the deposit to qualify for draws lapse.

  • Again the caliber of people (traders, students etc) attracted by these promos, though good for banking, only make the savings system even more prone to depletion because these set of people do not really earn enough to keep in the bank for years so after moving from promo to promo (since they only have to maintain the deposits for one month or two) they finally withdraw their money for personal use.

  • From personal observation, people are only interested in saving as long as the promo lasts. Those who are mostly participants in these promos are opportunists seeking quick gain and do not have any interest in banking their cash. A friend once was lamenting to me how he was regretting investing in stocks and couldn’t get out because his share certificate was not posted yet because he wanted to take part in a savings promo that was promising a trip out of the country.

I think instead of these savings promos banks should start focusing on products that will really generate deposits such as their special savings accounts which do encourage saving more because depositors earn more interest while having to leave a reasonable minimum amount in the account at any given time. This ensures that the banks have money to work with for a longer period.

Banks should also build a reputation for reliability, strength, resilience and quality service rather than try to woo depositors with promos that cannot go on forever. A bank may be able to generate deposits during the period of the promo but it will gradually depreciate as depositor move their money to banks perceived to be more reliable and dependable.

Another reason banks have often given for embarking on such promos is ‘to reward loyal customers’. Well I think those who end up winning are not the real loyal customers. Loyalty is a measure of consistent commitment which can easily be determined by simply finding out customers who have stayed with the bank over a period and rewarding them collectively or by random selection without having to draw up huge budgets for promoting these lotteries called customer reward system.

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