Controversy Trails CBN Dormant Account Policy In Banking Sector

NewsOnline reports that Nigerian Banks and their customers have raised concerns over the Central Bank of Nigeria’s proposed plan to mop up funds from dormant accounts. While the proposal is not new, stakeholders argue that it could potentially have unintended consequences on the banking sector.

The bank account of a deceased man, Oluwanisola Yekini, has been dormant since he died in 2020. The quarrels among his polygamous family have prevented them from concluding the process that would give them access to the money in the account. They fight over who should get the money.

While Yekini’s eldest son feels that the funds in the account should automatically belong to him and has held onto his father’s death certificate (one of the required documents to access the account), his step-siblings know the account number and were seeking an equal share of the funds. Neither of the parties knew who their late father’s next of kin is or the amount of money in the said bank account, as he died intestate, which means Yekini had no will before the died.

Informed about the proposal of the Central Bank of Nigeria for money in funds in dormant accounts, Taiwo Yekini, one of the sons of the deceased, felt that it was not a bad idea if their father’s money ends up with the government.

“I don’t mind if the CBN takes over the funds but who knows we may have resolved our problems before then,” he said.

The CBN had released an exposure draft guideline proposing that banks and other financial institutions should transfer funds in accounts that have been dormant for up to 10 years into a trust fund account.

A circular, signed by the Director of the Financial Policy and Regulation Department of the apex bank, Chibuzor Efobi, which accompanied the exposure draft, stated that the proposed guidelines were in response to requests from banks and other stakeholders for the CBN to clarify the procedures for the management of dormant and inactive accounts by banks in the country. The circular, which was dated April 6, 2023, also called for inputs, which should be sent within three weeks.

The draft states that banks and other financial institutions are expected to transfer all unclaimed funds into an Unclaimed Balances Trust Fund pool account, which will be domiciled at the CBN.

The apex bank said the balances would be invested in government securities like Treasury Bills and would be returned to the beneficiaries not later than ten days of notice.

The draft guidelines said, “The Central Bank of Nigeria shall open and maintain an account earmarked for the purpose of warehousing unclaimed balances in eligible accounts. The account shall be called the ‘Unclaimed Balances Trust Fund Pool Account.”

The eligible accounts and financial assets are current, savings and term deposits in local currency; domiciliary accounts; deposits towards the purchase of shares and mutual investments; prepaid card accounts and wallets; proceeds of uncleared and unpresented financial instruments belonging to customers or non-customers of FIs; unclaimed salaries and wages, commissions, and bonuses.

Others include proceeds of stale local and/or foreign currency drafts not presented for payment by beneficiaries; funds received from a correspondent bank without sufficient details as to the rightful beneficiary and/or a recall of funds made to the remitting bank to which the Nigerian bank’s account has not been debited and a judgment debt for which the judgment creditor has not claimed the amount of judgment award.

However, exempted from the proposed unclaimed fund trust fund are government-owned accounts; accounts that are subject to litigation; accounts under investigation by a regulatory authority or law enforcement agency; and encumbered accounts including, but not limited to collaterals and liens.

This is not the first time that the state is attempting to take over unclaimed funds. In the signed Finance Act 2020, the Federal Government revealed plans to borrow unclaimed dividends and funds in dormant account balances banks. This was disclosed under Part XII of the Companies and Allied Matters Act in the Finance Act. This led to an outcry against the move.

A non-governmental organisation, Socio-Economic Rights and Accountability Project filed a lawsuit against the Federal Government in this regard.

The Finance Act of 2020, which also set up the Unclaimed Dividends Trust Fund, got reactions from capital market stakeholders, who felt that the government was aiming to reap where it had not sown and insisted that unclaimed dividends should be returned to the companies that generated the dividends in the first place.

Reacting to the development in 2020, the Independent Shareholders Association of Nigeria, in a statement said, “It is nothing short of expropriation, which the constitution forbids. Dividends, including unclaimed dividends, are funds generated by private companies and made available to its shareholders in line with the provisions of Companies and Allied Matters Act Companies and Allied Matters Act.”

The shareholders argued that it was overreaching and unacceptable for the government to seek to expropriate the unclaimed dividends under the subterfuge of any revenue.

They noted that companies and individuals had a right to private property and assets; which unclaimed dividends funds fell into.

Reacting to the latest move by the CBN, the Chairman of the Bank Customers Association of Nigeria, Dr Uju Ogubunka, said that it was not okay for the central banker to take over individual funds under any guise.

He said, “CBN cannot appropriate people’s money just like that. I don’t think it is the right thing to do. Maybe, what is right is for CBN to seek individual approval from those people that have those accounts.

“Some of these accounts that you may regard as dormant are not necessarily dormant. They may be just accounts opened for the education of a growing child. Someone deposits money into an account and leaves it there until the child gets to a certain age, where there is a need to use that money. That doesn’t make the account dormant. It is an account set aside for a purpose.”

Ogubunka also expressed concern about the effect of pulling out the funds in dormant accounts from the deposit portfolio of banks and other financial institutions, arguing that some banks may become distressed if the move is approved.

“I can bet that in some banks, with this kind of definition of a dormant account, (there may be) huge amounts involved. If you take such amounts out of a bank, that bank may likely go distressed because you are going to create holes in the deposit portfolio of the bank and this bank has given credits that people have not yet paid back,” he noted.

Ogubunka’s stance was corroborated by a banker, who spoke anonymously with The PUNCH.

He also slammed the CBN for creating unnecessary panic in the banking system, which had not yet recovered from the naira redesign crisis.

He claimed had created anxiety in banks, making them deal with fears of their customers’ funds in dormant accounts being taken over by the regulator.

The banker said, “A lot of monies that are in those old banks; the owners are late. You know those days when marriages are concerned, people don’t disclose what they have in banks to their spouses, not like now. A lot of those old banks are strong today because of the money of those dead people. We have the issue of dividends from the stock market too.

“At my bank yesterday (Tuesday), I know the billions of naira they told us are in dormant accounts. It will cause a lot of trouble if you pull out such funds. It will cause a lot of trouble, and distress in the banks.”

Bashing the CBN, the banker said the regulator was dabbling into customer relations and by extension, the business of the customers instead of coming up with policies that will be of benefit to Nigerians.

“I have been in this banking sector for 22 years and I see that CBN as our regulator has tried to get involved in the business of customer relations. I have my money in the bank. I can decide not to come to the bank for one year. There are a lot of people who do that. You know, if you don’t come to the bank for one year, the account goes dormant. Some people in the villages just decide to keep their monies in the bank, some people are abroad.

“They are just creating unnecessary panic in the system. Some people intentionally kept their accounts dormant in Nigeria. There are a lot of policies that the CBN needs to do for the benefit of Nigerians. It is not this kind of policy, where the CBN wants to poke its nose into what the banks are doing, and what the customers are doing,” he averred.

The banker also blamed the demand for Bank Verification Numbers as one of the reasons for the increase in dormant accounts as well as family disputes following the death of a relative.

He explained, “What led to the high number of dormant accounts recently is the issue of Bank Verification Numbers. A lot of Nigerians abroad, don’t have means of doing BVN. Even the few centres aboard, for you to go and do BVN there, you have to spend a lot of money. So, a lot of them over there have refused to do BVN. They are sending money home and their accounts are dormant and they are okay with it. They know that anytime they come home, they will do BVN and start running the account.

“This is a policy that is counterproductive. I don’t see it working.”