How Does The Banking System Work In Nigeria

How Does The Banking System Work In Nigeria

Nigerian banks basically make money by lending money at rates higher than the cost to acquire the money that they lend out. More specifically, Nigerian banks collect huge interest on loans and interest payments from the debt securities they own, and pay minimal interest on deposits, CDs, and short-term borrowings.

The depositing customer gains a small amount of money in return (interest on savings), and the lending customer pays a larger amount of money to the bank in return (interest on loans). To make money for itself, the bank keeps the difference which in Nigeria is one of the largest spreads in the world.

Nigerian banks have realized that the bigger they are, the more loans they could make. That’s why there is a strong desire to obtain funds from as many sources as possible. Thus, membership platforms like Nigerian Channel is able to pool funds from its members in the form of loans and then invest/loan it to some Micro finance banks for higher returns. The profit is then shared with its members by repaying their loans to Nigerian Channel in the form of higher interest rates repayments than they can obtain by saving their money directly with the banks.

Thus, a win-win solution for all parties involved.

In addition, Nigerian banks charge all sorts of fees weekly and monthly for you just to have an account with them. Including fees to open a checking account, fees for debit card issuance, fees for literally anything they can get away with. Because these fees seem relatively small customers don’t seem to complain.

However, if you think about it, you will see that it really adds up to several billions of naira when you consider the population size.  For example, let’s say there are 50 million bank accounts been accessed a ₦50 maintenance fee each week, it means that the banks make ₦2.5 billion Naira each week literary out of thing air or ₦10 billion Naira a month equivalent to about $30 million U.S dollars a month in pure profits.

This are some of the reasons why Nigerian Channel loan offerings are very attractive as its members could avoid all such fees and earn a lot more in higher interest rates on the money they provide as loans.

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