MANAGING CASH IN TRANSIT: CBN'S NEW POLICY DIRECTION
THE Central Bank of Nigeria (CBN), for some time now, has been churning out policies to straighten out the nation's financial landscape. Its latest move in this direction saw the licensing of two firms as cash in transit and currency sorting companies.
As reported by The Guardian recently, five years after mooting the idea, the bank has granted full registration status to two companies as cash-in-transit companies and approval in principle as currency sorting entities.
The approved companies are Integrated Cash Management Systems Limited and Bankers Warehouse Limited.
These companies will take to the dual duties of handling cash movement and currency-sorting operations, which the apex bank currently handles.
The Guardian learnt that this development could pave the way for the entrance of foreign firms with their Nigerian counterparts into the new sub-sector of the financial market, a development some have argued would create more jobs for Nigerians.
It was also learnt that when in full operation, the initiative would make it possible for banks to reduce the volume cash in their vaults at any time, thereby reducing their exposure to such risks as robberies.
According to the letter of approval to one of the two firms, the apex bank stated: 'We are pleased to inform you that the CBN has granted the following for your company: full registration as a cash-in-transit company; approval-in principle as a currency sorting (processing) company for a period of 12 months from the date of this letter to enable your company meet the outstanding registration requirements which are as follows: commencement of currency sorting (processing) operation, and balance of paid-up capital of N2.9 billion.'
The letter, which was signed by Mohammed Nda, director, Currency Operation, CBN, added: 'As soon as you are able to meet the outstanding requirements, you are required to apply for approval for full registration.
'Please note that in line with the policy of the Central Bank of Nigeria on the operation of registered service provider in cash handling industry, you are expected to submit monthly reports to the Director, Currency Operation department, Central Bank of Nigeria not later than 15th day of the following month on your activities, detailing the volume of banknotes evacuated and processed, customer and locational distribution of activities, stock of armoured vehicles and processing equipment and facilities, critical incident such as robbery attacks on bullion vehicles, loss of cash in transit, details of dispute between CIT companies and clients, accidents, pilferages, and other matters.'
Nda explained, 'as part of oversight functions of the CBN, periodic on-site inspection of you facilities, process, structures, agreement with cargo and haulage companies, insurance and adequacy of systems deployed to mitigate risks will be carried by the bank.'
Speaking on the development, a banker, Olujimi Adeoye informed The Guardian that by relinquishing the dual role, the CBN was more professional in its duties.
He pointed out that apart from being a big relief to the CBN, other banks stood to benefit by partnering the licensed firms
Based on that, he revealed that almost all the banks were currently in talks with the new firms with a view to partnering them in this new venture.
Similarly, to drive down cash management cost in Nigerian banks, the Committee of Banks' Head of Operation (CHBOs) are currently working on modalities of shared services platform in the industry.
A shared services platform is a situation where certain activities that involves cash management or any other non-core banking activity are jointly carried out by banks in a single platform.
Presently, all the banks carry out such activities individually, thereby incurring over-bloated overhead costs passed on to the banking public, hence the rise in banks' lending rate.
A CBN source pointed out that, the apex bank had to take the proactive measure of licensing two firms recently, namely; Integrated Cash Management Services Limited and Bankers Warehouse Limited to deal with the cash management challenge.
He revealed that the mandate given to the two firms captures the entire gamut of cash management, which comprises of currency processing, cash-in-transit operations and vault management.
The current practice in the Nigerian banking system is that in terms of currency sorting, this activity is done by the banks and the CBN, while in terms of cash-in transit operations, it is either managed by the banks or outsourced to cash-in-transit companies.
Similarly, in terms of vault management, hitherto, each bank maintains its vault, while any excess cash is lodged at the CBN.
Also, banks' account with the apex bank, are credited only when the currency is processed.
However, he explained that, with the licensing of the two firms, CBN has officially disengaged from those services, and has mandated all the banks in the country to engage the services of any of the two firms or both.
The essence of the initiative, he said, is that with such unnecessary costs taken away from the banks, the gap between the lending rate and deposit rate will automatically reduce.
Corroborating the apex bank's position, the Managing Director and Chief Executive Officer of Integrated Cash Management Services Limited, Stephan Botha in a chat with The Guardian, said that Nigerian banks expenditure on cash management is on the high side, adding that it is one of the main factor that creates a big gap between nation's deposit rate and lending rate.
He explained that because the banks expend so much resources in certain non-core banking activities, they incur bloated overheads which they (banks) in turn pass on to the depositors, hence the high disparity between the two rates.
The solution to the problem, he said, is for Nigerian banks to come under a multi-bank shared services platform, and drop the lone-ranger attitude, so that overall, the cost of banking in the country will drop.
This, he said, will not only enhance the bank's bottom lines but will impact positively on the lending rates and to the benefit of the economy.
He buttressed his point by stating that, the aggregate cost of cash operations for most banks in Nigeria is from 30 percent to 55 percent of total cost of operations.
Botha equally revealed that his firm's (ICMS) research shows that all the big banks in Nigeria can save up to N1.2 billion per annum by just signing onto ICMS model of outsourced shared services for cash operations, noting that the medium sized banks can save up to N 800 million within the same period.
Based on that, he stressed that, cash management is a critical function for banks and requires a high level of logistics, thereby posing unique challenges.
These challenges, he pointed out, in form of adequate currency processing infrastructure requires the CBN and banks to invest heavily in machines and personnel.
Apart from that, he said that banks expend resources to plan and move cash; a non-core banking activity, pointing out that, high value and volume of currency are maintained in vaults with consequent opportunity cost for holding idle cash.
This is because of the need to meet daily demands of depositors and the CBN's inability to accept all lodgements in certain locations, he stated.
Meanwhile, according to Accenture Report for 2010 on Nigeria banks cash management costs, cash management costs are on the increase; and is projected to reach a value of over N2.8 billion in the next four years.
For instance, according to the report, in year 2009, the said cash management cost was N2.3 billion, increased to N2.4 billion in 2010, and is projected to hit N2.87 billion in year 2014.
It would be recalled that in April 2008, the CBN in a draft circulated to banks, for the establishment of the said companies, stipulated that, every cash-in-transit company operating in Nigeria should be duly registered with the CBN and should meet the following requirements:
The company shall be fully registered in Nigeria, and duly registered with the CBN; the paid-up capital shall not be less than N1 billion; promoters shall be institutions and members of the public with proven integrity and experience in financial services (evidence required); all promoters/directors shall present evidence of clearance from the relevant security agencies; evidence of insurance with a reputable company to cover the cash-in-transit and personnel; evidence of transport agreement with cargo airlines for bank note movements for long distances between cities serviced by airports and agreement with haulage companies for currency coins movement by roads; armoured vehicles shall have a six-sided minimum plate standard of not less than B3+ with separate compartments for currency and personnel and fitted with run-flat tyres. All the armoured vehicles shall be fitted with vehicle tracking systems to monitor the location and security of the movement vans; evidence of registration with the appropriate security agency; working agreement with the Nigerian Police to provide security back-up; and companies already operating cash-in-transit businesses in Nigeria shall be required to meet all criteria within 12 months of the release of the guidelines or cease operations.
As regards operational guidelines, the draft stipulated that the operators shall submit the following documents to the CBN before commencing operations and when charges are to be made to the existing operational guidelines:
Operational and procedural manuals, detailing processes from the receipt of orders to execution and full documentation on all transactions (record keeping); functions and responsibilities of the representatives of customers; and tariff for both intra and inter-city cash movements and for air and road movements.
The draft also prescribed that the operators shall submit proposals to mitigate risks arising from the following:
Operational risks that relate to exposure to losses occasioned by diversion of movement to areas not intended, accident, theft, non-compliance with security requirements, attack, inadequate controls, fire, information leakage, collusion, availability of surveillance systems, technical workshop, among others. All service providers should ensure adequate security and insurance of their premises, values and currency movements; reputational risks on how to ensure integrity and build confidence in the correctness of the currency being moved, efficiency of operations, obedience to traffic rules and regulations, respect for other road users and reduction in noise pollution caused by the blaring of sirens, satisfactory references on employees from reputable organisations and individuals, backed by adequate guarantee; and technology risk that concern ensuring the deployment of the appropriate armoured vehicles with the appropriate anti-ballistic properties, reducing the incidence of breakdown during movement operations, ensuring the safety of cash-in-transit after attack, among others.
Also, it states that operators shall submit monthly reports to CBN on their activities, detailing the volume of banknotes evacuated, customers and locational distribution of activities, stock of armoured vehicles, critical incidents such as robbery attacks on bullion vehicles, loss of cash-in-transit, details of dispute between CIT companies and clients, accidents and so on.
The CBN, it also requires, shall carry out periodic on-site inspection of facilities, processes, structures, agreements with cargo and haulage companies, insurance, adequacy of systems deployed to mitigate risks, among others.
In case of currency processing companies, the draft had noted that all companies, including deposit money banks, providing currency sorting services in Nigeria either for themselves or for customers or intending to do so, shall register with the CBN. It is expected that, as part of the development of the sub-sector, the companies will set up their management centres to take advantage of the economies of scale derivable from the collation of both cash-in-transit and currency sorting operations. In addition, the companies shall comply with the following registration, regulatory and supervisory guidelines.
As regard registration requirements, the company shall be incorporated in Nigeria, and duly registered with the CBN and the minimum paid-up capital shall not be less than N3 billion.
Promoters shall be institutions, with a track record in currency sorting and cash-in-transit operations, financial services, currency processing systems manufacture, sales and maintenance, and individuals with proven integrity (evidence required). While all promoters/directors shall present evidence of clearance from the relevant security agencies.