1.1 BACKGROUND OF THE STUDY
The significance of the capital market, especially banks as agents of intermediation cannot be over emphasized. As critical role-players in the economy, they mobilize deposits from surplus units and lend to deficit units. They attract deposits at lower cost and lend at a premium in order to advance their profit motives. In the process, they contribute to the development of the economy as they facilitate the national payment system, advance loans to major economic players who then use the funds for infrastructure development, for job creation and other economic activities that benefit the society at large. As business units, banks are also expected to grow their profits consistently as the investors into these banks look for higher returns on their investments. A number of strategies have been employed all along but of late relationship banking and relationship marketing have become crucial for long term relationships. There has however been growing pressure on bank profitability since the early 1990s as a result of competition and other pressures and while the process of profit maximization has been waned through still and intense competition from the other financial institutions, a complementary avenue was devised – bank charges. Bank charges or the term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal current accounts or cheque account. These charges may take many forms including but not limited to monthly charges for the provision of an account, charges for a specific transaction (other than overdraft limit excesses), interest in respect of overdrafts (whether authorized or unauthorized by the bank) and charges for exceeding authorized overdraft limits, or making payments (or attempting to make payments) where no authorized overdrafts exists. Evidence suggests that the introduction of banks charges has led to banks loosing patronage to and the immergence of non-banking sector financial institutions. This has put pressure on banks to review their bank charges downwards as they are perceived as being steep by a number of constituencies within the South African economy. Growing consumerism, the enactment of new legislation in support of the consumer and intense pressure from other stake holders mean that the issue of bank charges and their impact on relationships and on the role of banks as intermediators can no longer be ignored. This paper investigates the impact of bank charges on the relationship of banks and their clients. Banks are an important component of any economy. According to Mayer et al. (1981) banks “our most important institutions as they create the bulk of our money stock and have such a wide range of activities; they are department stores of financial finance” (Mayer et al., 1981), and therefore play a major role in lives. The behavior of banks is relevant for monetary policy which in turn has an influence on the performance of the economy and an indirect influence on lives. At personal level the public may be affected by the behavior of banks in one way or another as either, borrowers, depositors or consumers of other banking services. In the realm of financial intermediation, Diamond (1984) postulates that banks play a special role of providing liquidity and financing investment projects of borrowers which capital markets would not be able to do efficiently. It is in this respect that banks are therefore regarded as the primary conduit between savers and borrowers for intermediation purposes. According to Gurley and Shaw (1960) and Hester (1969), financial intermediation is a process where financial transactions between borrowers and savers take place through the banking system. Even under conditions where bank charges are high, the banks role as financial intermediaries should still remain efficient in order to enhance well-functioning financial system in the economy. The banking sector system in the South African economy is highly concentrated and sophisticated with the five largest banks; namely Absa, First National Bank, Investec, Nedbank and Standard Bank. In absolute terms, these five banks account for between 70 percent and 90 percent of the market share of the banking industry’s assets (Ojah, 2005). The banking market has four distinct segments, namely the corporate banking segment, the personal banking segment, the asset financing (which encompasses, housing mortgages, vehicle financing and leasing) and the retail banking segment. The sector consists of a high concentration of corporate ownership with most of the large insurance and other non-bank financial institutions (NBFIs) being either controlled by banks or the NBFIs themselves having controlling interest in banks. This reveals both complexity and intensity of competition in the industry, which should therefore enhance efficient financial intermediation. Banks therefore need to be efficiently fully engaged in financial service provision in a manner that embraces customers and at the same time avoiding emergence of disintermediation. This helps to ensure that banks remain serving as channels through which financial system consolidation realizes its full potential in curbing financial instability, and thus increasing the economic welfare of citizens (Ojah, 2005). As part of the key focus area of this study, this study investigates whether bank charges, based on customers’ perceptions, are a key determinant to bank/customer relationship. The rationale behind the study is to examine whether the respective banking industry is losing patronage and experiencing a general trend towards financial disintermediation due to high bank charges as well as increasing options for investing funds in alternative investments in other markets. Additionally, the study extends to examine whether it is substantially realistic that banks seem to be discouraging a savings culture given the prevailing levels of bank charges or transaction fees charged to deposit and withdraw funds over customer accounts and businesses. The fundamental question to be answered is whether bank charges impact negatively on customers and businesses. It is against that background that the study therefore becomes imperative to understand whether bank charges are impacting on customers and Businesses-Business Admin which may in turn affect banks in their role as financial intermediaries.
1.2 Statement of the problem
It is very obvious the way bank customers in Nigeria are switching from one bank to the other seeking for a bank with lower bank charges.
Bank charges by banks in Nigeria have left Nigerians unsatisfied with the services offered.
However, the high level of illiteracy among Nigerians contributes to the bank charges meted on them. In the sense that, Nigerians unknowingly accept to some terms without a clear understanding of its implication. For instance, some bank customers subscribe for some alerts (credit, debit and ATM alerts) without the knowledge that it will be deducted from their accounts.
In addition, customers are not well enlightened about the services of the bank and what follows, and this poses a problem at the end of the day.
Another problem bank charges can have on its customers; is that it can affect the reputation of the bank. Customers will go about complaining to friends and family members about how their bank charges and this will discourage prospective customers, thereby reducing productivity.
In conclusion, the tenet of business which refers to customers as king is being forfeited; as they are left unhappy and discouraged through the products and services of the bank.
1.3 Objectives of the Study
The main objective of this study is to investigate Bank Charges; Implications on Bank Customers and Businesses-Business Admin. However, the specific objectives are:
2. This study investigates whether bank charges, based on customers’ perceptions, are a key determinant to bank/customer relationship.
3. The study will examine whether the respective banking industry is losing patronage and experiencing a general trend towards financial disintermediation due to high bank charges as well as increasing options for investing funds in alternative investments in other markets.
4. The study will also examine whether it is substantially realistic that banks seem to be discouraging a savings culture given the prevailing levels of bank charges or transaction fees charged to deposit and withdraw funds over customer accounts and businesses.
5. The study will find out if high and unnecessary bank charges impact negatively on customers and Businesses-Business Admin.
1.4 Research Questions
The following questions were spelt out to be the research questions for this study:
i) What are the implications of high and unnecessary bank charges on customers and Businesses-Business Admin.
ii) Do bank charges affect bank’s productivity?
iii) Do bank charges have a negative impact on customers and Businesses-Business Admin?
1.5 Research Hypothesis
Ho1: Unnecessary bank charges have a negative impact on customers and Businesses-Business Admin
1.6 Significance of the Study
The result of this study will serve as good base or guide for future reference. This study is meant to educate the general public, the banking sector, customers and the government on bank charges and customer satisfaction in the Nigerian banking sector. It is meant to bring to the knowledge of the banking sector on the need to carry their customers along in other to grant them the needed satisfaction they require. In addition, the study is meant to inform the banking sector, that many charges on their customers can affect their patronage.
However, this study is meant to bring to the knowledge of the government that they can through the CBN help curtail these chargers on customers.
This study will be of immense benefit to other researchers who intend to know more on this topic and can also be used by non-researchers to build more on their work. This study contributes to knowledge and could serve as a guide for other work or study.
1.7 Scope of the Study
This study is on Bank Charges; Implications on Bank Customers and Businesses-Business Admin among 100 customers in the selected banks in Nigeria. Therefore, one hundred respondents shall be selected within the space of three weeks as it is sometime not possible to get the required samples of one hundred within a day or a week.
1.8 Limitations of the Study
The study is restricted to Bank Charges; Implications on Bank Customers and Businesses-Business Admin.
1. Financial constraint- Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
2. Time constraint- The researcher will sim