As the cashless policy of the Central Bank of Nigeria takes off today in Lagos under the pilot phase of the programme, the CBN has given the nod to money deposit banks to invest in duly licensed cash management companies that will take over the management of cash for banks nationwide.
The decision, which was said to have been taken at the Bankers’ Committee retreat held in Calabar, Cross River State three weeks ago, was arrived at by the CBN and the banks as part of the cost cutting measures on cash management under the cashless policy.
The endorsement by the CBN, which is expected to be backed by a circular from the regulator, is a departure from previous directives that bar banks from investing in non-bank institutions.
However, the conditions spelt out by the Central Bank for the waiver include limiting banks’ investments in the cash management companies, also known as Cash-in-Transit (CIT) operators, to 10 percent in the companies. The banks are also barred from getting involved in the management of the CIT companies.
Nigeria is one of the largest cash economies in the world. This places a lot of pressure on banks in terms of cash management and raises the cost of their operations which is inevitably transferred to bank customers.
The new regime which is starting this month has therefore taken the responsibility of cash management away from the banks and has been outsourced to CITs. Other support services to be provided by the CITs are expected to start in June.
Presently, two CITs have been licensed by the CBN to handle cash on behalf of banks in the country. These include Integrated Cash Management Services Limited (ICMS), a joint venture between XL Cash Management Services Limited – a Nigerian company run by a former bank executive, Mr. Charles Nwodo – and SBV Services (Pty) Limited, owned by the four largest banks in South Africa, namely, FirstRand, the Absa Group, Standard Bank and Nedbank.
The other CIT operator licensed by the CBN is Bankers Warehouse Limited, which is owned by notable Nigerian industrialists including Felix Ohiwerei, Victor Hammond, Christopher Kolade, Ola Vincent and Prof Joe Irukwu, among others.
THISDAY further learnt that part of the outcome of the Bankers’ Committee meeting was the resolution that these two companies will not be able to provide the logistics to service all the banks in the system. It was therefore agreed that two more companies will be licensed by the CBN, bringing the total number of authorised CITs to four.
As part of the support services the companies will provide the banks, the CITs will be expected to pick up cash on behalf of some of their customers who deal with large volumes of cash on a daily basis. These include supermarket chains, airlines, fast food joints and big traders in markets like the Alaba International Market, Lagos.
In the past, banks were said to have offered this service to such customers for free. But the CBN has directed that CITs take over the pick-up service while banks should charge customers accordingly.
Banks are also being encouraged to consolidate the movement of cash through shared services. This means that bank branches within a particular vicinity will be encouraged to come together to use the services of CITs to move cash between branches as a cost cutting measure.
A CBN official, who threw more light on the arrangement, explained that with CITs taking over the movement of cash between customers and banks and among bank branches, most banks could therefore end up with idle assets in the form of bullion vans and pick trucks that they would hardly utilise.
In this regard, one of CITs, he disclosed, had sent a proposal to some of the banks recommending that these assets be hived off and transferred to an incorporated company in which the CITs can invest as co-owners of the assets.
According to the official, the operator, in its value proposition, advised banks to form a company where their bullion vans will be managed and be effectively deployed. What this mean is that both banks and the CIT companies will hold stakes in the new company.
It was also gathered that another service to be offered by the CITs is the Cash Held to Order facility which will enable banks to transfer their cash on a daily basis to the CBN in an orderly fashion.
According to the CBN official, banks currently move all their cash to CBN branches as early as 4 am every morning in order to derive value, but more often than not, the Central Bank’s vaults are unable to absorb all the cash.
This compels banks to take back currency notes, including mutilated ones which should have been destroyed by the CBN, to their own vaults and inevitably these get back into circulation.
But the CBN official explained that with the introduction of the Cash Held to Order facility that will be provided by the CITs, the cash management companies will be given authorisation to hold the cash on behalf of the CBN for a predetermined period, until the apex bank is ready to absorb the cash.
This way, he added, ÃƒÂ¢Ã¢â€šÂ¬Ã…â€œbanks can derive immediate value instead of being turned back with their cash on a daily basis.ÃƒÂ¢Ã¢â€šÂ¬Ã‚Â
In order to provide this service, the CITs are expected to invest in CBN-sanctioned vaults nationwide in which the cash can be stored and processed on behalf of the regulator.
A source at ICMS, who confirmed this development, said the company was already in the process of establishing its own vaults.
In addition to cash management services, the CBN official said CIT firms will also be required to provide back-end services for the smart ATMs that will be deployed by banks.
This will entail the CITs maintaining the smart ATMs, using the same float for refilling them, and ensuring the currency notes in the ATMs meet the required standard.
Source: ThisDay/Festus Akanbi