THE NIGERIAN MORTGAGE BANKING SUB-SECTOR REFORMS: THE EXPECTATIONS

INTRODUCTION

For any developing economy like Nigeria, the need for Mortgage banking cannot be over stated.  Basically housing is a need by ma.  It is next to food on the Maslow hierarchy of needs.  This is the reason why governments around the world, including Nigeria from generation to generation has made housing a cardinal objective in its programmes.  In the past, in Nigeria, housing is a cardinal programme of the ruling National Party of Nigeria between 1979 and 1983.  In January 1992 a government housing policy tagged “Housing for All by the year 2000” was into being to strengthen the Federal Mortgage Bank o Nigeria as embodied in the National Housing Fund Decree of 1992.  This policy appeared in the National Housing Fund Decree of 1992.  This policy appeared not have gilded its desired positive result to date.  The National Housing Policy and Mortgage Institutions decree, No 53 of 1989 introduced to tiers in Mortgage financing.  The first tier has the Federal Mortgage Bank of Nigeria as the licensing and regulatory mortgage institution while the second tier consists of the Primary Mortgage Institution.  There was rapid increase in the number of mortgage institutions in the market but product development has been slow and there had not been positive impact on the masses generally.  This trend led us all in Nigeria, into the new millennium.

There were incidences of failure in the Nigeria mortgage banking and this led the Central Bank of Nigeria to assume the regulatory and Supervisory responsibility of mortgage banking in Nigeria.  As at December 2005, out of the  ninety (90) Primary Mortgage Institutions in operation, only forty three (43) were confirmed to have the current statutory minimum paid-up capital of N100 million and only fifteen (15) of the seventy 70 Primary Mortgage institutions (PMIs) met the prescribed minimum mortgage assets to total asset ratio of 30%.  This revealed the unsatisfactory performances of Mortgage banking subsector in their core mortgage operations.

In December 2006, the Central Bank of Nigeria which is the apex mortgage supervisory authority unveiled a 10 –point mortgage banking sector reform agenda.  The target of this reform agenda is the re-engineering of the services of the Primary Mortgage Institution and reposition it for sustainable economic growth and development this action is one of the many economic reform, programmes in Nigeria.

This paper will look into the activities of the Federal Mortgage Bank of Nigeria and Primary Mortgage Institutions in Nigeria, the National Housing Fund and its purposes, the prospects and expectations of the CBN’s Mortgage reform and offer some recommendations.

General Overview of Mortgage Banking, Housing Finance and Mortgage Finance.

Housing refers to shelter, infrastructural facilities (e.g. water, electricity) and social utilities (schools and hospitals).  Housing is both a process and a product as well as an asset and a service.  Housing finance refers to the activities of both private and public sector in providing financial resources for the purchase, construction, improvement or renovation of a housing unit and the immediate infrastructures.  The purchase and development of land and the provision of rental finance and instruction input are part of what could be regarded as and construction input are part of what could be regarded as housing finance 

Financial institutions are firms that supply financial services to the economic community by filling the diversed need of both ultimate borrowers and ultimate lenders. As intermediaries, financial institutions facilitate the low of funds between both surplus and deficit units.  Financial institutions, depending upon their nature, perform commercial banking, merchant banking, and development banking including mortgage banking.                                                                 

Mortgage banking is the mobilization of financial resources from surplus unit in the economy for financing housing participate in mortgage banking, only mortgage finance intermediaries (mortgage banks or mortgage institutions) specialize in mortgage asset creation.  The provide loans to mortgagers while the mortgagers give mortgages (usually legal mortgages) to the primary mortgage banks.

Historical

Mortgage institutions are bodies/organizations allowed to collect saving and deposits for creating mortgage assets.  By any definition they are banks, Mortgage institutions include savings and loans companies, building societies and others, which specialize in financial intermediation for housing development.

According to Osamwonyi (1993), the act of arranging and packaging mortgages could be regarded as mortgage.  The range of  property used as collateral here goes beyond land.  The loan can be used for anything on earth as opposed to housing finance, which is focused on housing acquisition.  Today, mortgage finance as a major area of banking specialization now refers to arranging and packaging of mortgages collateralised by real estate and the loan employed for real estate acquisition.

Access to Mortgage loans today, worldwide, is essentially through specialised financial intermediaries knows as mortgage institutions.  However, mortgage loans are:

(a)  For long period.  This is due to the life span of the asset and the need to relate payment to the age of borrower;

(b)   Secured by immovable legible assets;

(c)  Require proper and registered title deeds

(d)   Usually – have annuity – type repayment schedule and the loan value, usually, does not cover full price of the asset to be acquired;

(e)   The sum borrowered is large – many times annual income of the mortgager.

Development of Mortgage Banking in Nigeria

Formal mortgage market was introduced in Nigeria with the establishment of the Nigerian Building Society (NBS) in 1956 with a share capital of N2.25 million.  Then, it was a joint venture between the Capital Development Corporation, the Nigerian Government and the former Eastern Region.  Because of the significant contributions of the Nigerian Building Society (NBS) the government was dissatisfied land decided to establish the Federal Mortgage Bank of Nigeria (FMBN) by Decree 7 of 1977 with N20 million initial capitals and N150 million capital by 1980. The FMBN assumed the asses and liabilities of the NBS.

In 1993, the FMBN was reconstituted to give birth to two separate institutions which were: (a) The Federal Mortgage Bank of Nigeria and the Federal Mortgage Finance Limited (FMF Ltd.) The National Housing Policy and Mortgage Institutions Decree No 53 1989 restructured the Nigerian Mortgage market.  This divided the Nigerian mortgage market into two-tiers:  (1) The FMBN as the apex (licensing and supervisory) mortgage bank and (2) Primary Mortgage Institutions (PMIs).  Under the decree, the PMIs are allowed to collect savings, deposits, money market funds, pension funds, insurance funds, capital market funds, and national housing funds.  The number of the PMIs in the Nigeria increased rapidly but the development is slow.  As at December 2005 there were ab out ninety (90) PMIs in operation.

The focus of the first generation of the primary mortgage banking institutions was the traditional products of the FMBN namely popular savings, target savings, term savings and children savings.  The second generation PMIs were influenced by the direction of mainstream banking as well as competition introduced by insurance and treasury tinked products.  The third generation now focuses on the implementation of the securitisation of mortgage, which is the final linkage with the capital market.

The National Housing Fund was established by the National Housing Fund Decree No. 3 of 1992.  The main objective of the fund was to facilitate the mobilization of financial resources from different sources for the provision of houses for Nigerian, (especially low income earners) at affordable costs.  The management of the fund is vested in the FMBN.  The fund sourced its fund from the mainstream banks, insurance companies, Nigerian income earners – (2.5% of basic salaries of N3,000 and above), and budgetary allocation by the Federal Government.  The proceeds of the fund were to be channeled by FMBN to the PMIs to finance individual efforts in house ownership.

As at December 2005 the aggregate shareholders’ fund in the Nigerian Mortgage banking sub-sector stood at N18.1 billion while total deposit liabilities and loans and advances were N47.5 billion and N28.5 billion respectively.  A total of 5,250 mortgage loans were originated through the PMIs and 11,216 housing units were financed through estate developers with a combined disbursement of N13.2 billion or 69% of N19 billion mobilized under the National Housing Fund (NHF).

In spite of the above, it was through various returns filed by the PMIs that the performance of the Nigerian Mortgage banking in their area of core mortgage banking operations.  For instance as at 31^st December 2005 only 15 out of the 70 PMIs met the prescribed minimum mortgage assets to total asset ratio of 30 per cent.  These called for the need to re-engineer the services of the PMIs and reposition the mortgage-banking sector for the sustainable economic growth and development of Nigeria.  According to the Central Bank of Nigeria (CBN) this could be achieved through its 10 – point mortgage reform agenda.

The Mortgage Banking Sector Reform Agenda of the Central Bank of Nigeria (CBN)          

The existence of a wide gap between the current level of performance of the PMIs and the original mandate of the PMIs prompted the CBN’s mortgage reform agenda.  According to Prof. Charles Soludo the Governor of the Central Bank of Nigeria.  The level of capitalisation, scope of operations and volume of core mortgage activities as well as the capacity of the management and staff has remained low.  This and other factors made the central Bank of Nigeria to come up with its 10 – point. 

Mortgage Banking sector reform agenda in December 2005.  Items on the reform agenda include: 

(1)       Phased Recapitalisation of the Primary Mortgage Institutions (PMIs) between January 2007 and December 2010 with emphasis on the actual injection of fresh funds to provide the needed liquidity for the sub-sector.

(2)       The promotion of professionalism in PMI operation – through the institution of professional training and certification process for the executive management tean and loan/mortgage officers.

(3)       The encouragement of merger and acquisition in the sub-sector and the enforcement of good governance in the sub-sector.

(4)       The evolvement of a level-playing field for all operators especially by mobilizing requisite resources suitable for commitment into mortgages such pension fund management.

(5)       The restructuring of Federal Mortgage Bank of Nigeria (FMBN) to improve its credit appraisal and disbursement mechanism and procedures.

(6)       Encouraging adequates capitalized and repositioned FMIs to package their developer – clients for the purpose of accessing the estate development loan of FMBN.

(7)       Drastic overhauling of the administration of the National Housing Fund in the realms of registration, mobilization and disbursement as well as transforming it to a trust.

(8)       To broady define mortgage business to include areas like tourism, hospitality

business, Furnitures and fittings, construction, estate management and development, consumer lending.

(9)       Establishment of Secondary Mortgage Companies (SMG) to promote secondary   mortgage market facilities for residential mortgage loans.

(10)     Promoting of mortgage insurance as public-private partnership ventures as a financial risk coverage/miligation to the owners of mortgage loans.

Strategies for Accomplishing the Mortgage Banking Reform  

The reform in housing finance activities is expected to be midwife, on the following flat Forms in order to achieve the targets and objectives of the reform agenda:

(a)  Enhancement of housing finance process to meet the challenges of funding the housing deficit gap, particular to the low-income group in Nigeria.

(b)  Strategically repositioning and strengthening the PMIs as a vehicle for housing and home ownership delivery in consonance with the dictates of the National Housing Policy and mortgage business.

(c)  Promoting rural housing programme through market support incentives for asset colleterisation through mortgage origination to make finance available for the development of micro, small and medium enterprises.

(d)  Promoting the development of efficient secondary mortgage market by solidifying the capital base of mortgage market by strengthening the capital base of the mortgage originating institution. 

POLICY IMPLICATIONS OF THE MORTGAGE BANKING REFORM AGENDA

Generally, economic reforms are fundamental to the re-establishment of growth and development of the economy. All over the world, economic systems are moving towards the use of markets for resource allocation. Nigeria cannot afford to be an reception in this regard. The Nigerian government is currently embracing the spirit of the economic reforms in setting the economy on the path of growth and development. Financial sector reform is a subset of the financial sector reform. They all aim at the growth and development of the Nigeria economy through consequential increase in the per capital income and the Gross Domestic Product.

Specially, the implementation of the items on the mortgage banking reform agenda has the following implications and expectations.

(1)  The restructuring Recapitalisation of the primary mortgage institutions (PMIs) through increase in the minimum paid-up capital up to the tune of N2 billion or more.

(2)  Stock absorber whenever there is any financial turbulence. The enhanced financial base of the PMIs and the adequate level of the needed liquidity will ensure this.

(3)  Improved and articulate credit management systems in the mortgage banking sub-sector.

(4)  Reflection of professionalism in mortgage banking operations and the management of the sub-sector. 

(5)  Improved mortgage banking techniques in the face of the keen competition in the mortgage banking subsector. This is essential for survival.

(6)  Complete overhaul of the administration of the National Housing Fund.

(7)  Transformation of the National Housing Fund to a trust.

(8)  Evolution of new corporate bodies known as secondary mortgage companies charged with the following responsibilities.

(a)  Purchase of pools of residential mortgage loans from the primary market lending institutions and holding the loans in its portfolio;

(b)  Packaging of the mortgage loans from its portfolio or from originators and structure than into mortgage backed securities for sale to investors in the capital market. 

(6)      Increase in the activities of the Nigeria Capital Market due to he introduction of the secondary mortgage companies that are to sell mortgage back securities to investors.

(7)      A good blend of the National Housing Fund (NHF) with mortgage securitisation.

(8)      An enhance of mortgage insurance with adequate risk coverage to owners of mortgage loans.

(9)      Introduction of the concept of good corporate governance into mortgage banking which states the effective procedures by which mortgage institutions are directed and controlled for good decision making, corporate business, transparency and accountability.

(10)   Greater access to estate development loans of the federal Mortgage Bank of Nigeria.

(11)   An expanded scope of mortgage business/activities to include new areas like tourism, hospitality business estate management and development etc.

(12)   Improvement in the standard of living of Nigeria especially the low-income earners, through the easy ability to own houses.

(13)   An enhanced rural housing programme.

(14)   Reduction of stiff challenges focused by mortgage institutions from commercial banks.

CONCLUSION AND RECOMMENDATIONS

            The target of the Nigerian Mortgage Banking reform which is the re-engineering of the services of the primary mortgage institution and repositioning it for sustainable economic growth and development is greatly achievable if the items on the reform agenda are followed religiously. The intention to recapitalise the primary mortgage institutions (PMIs) and introduce the secondary mortgage companies (SMCs) is laudable and welcome development. The promotion of professionalism and good corporate governance in mortgage banking will raise the capacity of the management and staff operating in the subsector and also bring about good relationship between managers, shareholders and stakeholders of the institutions. Apart from establishing the structure through which the mortgage institutions will set out and achieve their objectives, the mean of controlling and monitoring performances for results will also be determined.

            The Nigeria mortgage banking sector will have it good and will face the challenges of funding the housing gap with the implementation of the mortgage reform agenda. A re-engineered mortgage banking sub-sector will contribute in no small measure to sustainable economic growth and development in Nigeria. The based on the discussions in this paper, the following recommendations are hereby made:

1.            The operators and all stakeholders in the mortgage banking sub-sector should all embrace the mortgage reform agenda of the Central Bank.

2.            The operations of the National Housing fund (NHF) should be reviewed in order to solve its problems and to conform with the dictates of the new National Housing Policy and the mortgage banking reforms.

3.            The Central Bank of Nigeria through the pilot of the reform programme, the CBN’s other financial institution Department (OFID), should brace up in its regulatory and supervisory responsibility towards mortgage banking.

4.            The secondary mortgage companies to be introduced should be well structured toward efficient performances and services.

5.            mortgage bankers should continue, in all ways, to make themselves relevant to economic realities in Nigeria by contributing meaningfully to the rejuvenation of the Nigerian economy.

6.            Mortgage institution covered by the reform programme should endeavour to invest in modern technology for effective and efficient mortgage services.

BIBLIOGRAPHY

Nwankwo, G.O. (1987):      The Nigerian Financial System, London Macmillan Publishers Ltd.

Ekundayo, J.O. (1996):      Practice and the Nigerian Economy: The way forward. The Nigerian Banker (Charter Institute of Bankers of Nigeria) Jan. – June 1996 Page 7-14

Osamwonyi, I.O (1993):     Mortgage Banking. The Challenges. The Nigeria Banker (Chartered Institute of Bankers of Nigeria). Jan. –Mar. 1993, Page. 6-12

Uchendu, O.A. (1996):       An overview of the financial sector. Reform programmes in Nigeria, The Nigerian Banker (chartered institute of Bankers of Nigeria. Jan. – June 1996 Page 15-16

Uwaegbulam, C. (20060: CBN unfolds 10-point mortgage Reform Agenda, The Guardian, Lagos Nigeria 2 December 2006 Page 41-42.

BEING A PAPER PRESENTED AT THE 3^RD NATIONAL CONFERENCE OF THE SCHOOL OF BUSINESS STUDIES THE FEDERAL POLYTECHNIC, ADO-EKITI, HELD BETWEEN 25^TH AND 27^TH SEPTEMBER, 2007.

The Role of Finance in Corporate Strategy

1.1       Introduction:

Corporate strategy is the plan action of an organisation. Such plan of action will lead to the achievement of corporate objectives when implemented. It involves broader issues like the type of business a company should embark upon. We can also describe corporate strategy as a corporate course of action that includes the specification of the resources that are required in achieving the stated corporate objectives. They are the medium to long term plans about how the established corporate objectives are to be achieved. Therefore, corporate strategy cannot be considered before the firm’s goals are clearly established.

Finance (strategic finance) has a crucial role to play in corporate strategy. These roles relate to the financial aspects of such strategic decision making of a firm that bother on the corporate choice of entering or exiting from a market or business. This may be through corporate merger, acquisition, take-over, organic growth, buy-out or divestment.

The basis of corporate finance is the assumption that management objectives is to maximise the market value of the shares of the firm. Finance is therefore involved in the identification of achievable strategies that are capable of maximising the net present value of the firm, allocating scarce capital resources among competing opportunities and implementing/monitoring the financial strategies towards achieving the stated corporate objectives. Some of these objectives which are key to the success of the company are market share, growth, profitability (return on investment), cash flow, added value, quality products etc.

Finance is the lifeblood of any business. It is the duty of finance managers to ensure that finance plays it roles by ensuring that funds are available when required. In achieving the corporate strategy, we require corporate finance for fixed assets, working capital and fluctuating cash requirements (bridging finance).

Corporate finance involves planning, raising and the use of fund in an efficient manner to achieve corporate financial objectives. This involves financing and investment decisions, dealing with the financial markets and forecasting, coordinating and controlling cash flow. The finance function in a corporate organisation is expected to focus its activities on the financial aspects of the management corporate decisions.

2.1       Finance Function within Corporate Strategy

Managers of finance are expected to provide answers two key strategic questions. These are:

      i.        which assets to invest in?

     ii.        how would the assets be financed?

Therefore, in implementing the corporate strategy, the role of finance is to plan, raise and use funds in an efficient manner to achieve the corporate strategy. The criterion of managers of finance in evaluating corporate strategy is the maximisation of the wealth of shareholders and corporate value. In doing these, the finance function in a corporate organisation is expected to play the roles discussed in the following subsections.

2.1.1.  Linking the Company with the Wider Financial Environment

Funds for the company are going to be raised in the financial market as well as the shares of the shares of the company and other financial instruments that are traded in the financial markets.

The finance division of a firm provides the vital link between the firm and financial markets. Corporate finance is therefore is much about “understanding financial markets as well as about good financial management within the firm.

2.1.2.  Making Strategic Investment and Divestment Decisions

Basically, the strategic investment decision is a decision on how to acquire assets. These assets may be real assets or financial assets. Real assets (plants and equipment, land and building, stock etc) are employed within the business to produce goods and services to meet customer demands. Financial assets may be short term securities and deposits.

Investment decision making is the most important role when considering the creation of value for shareholders. In playing this role toward achieving corporate strategy, capital is allocated to investment proposals whose benefits would be derived in the future. Because of the risk involved, it is the function of the finance division within a corporate establishment to evaluate capital investment in relation to the risks involved and expected capital. Paramount in investment decision is the use of acceptance criterion and the appropriate required rate of return for investment projects.

Merger (when two firms joined to form a new one) and acquisition (when one company acquires the controlling interest in another) are strategic investment decisions. The essential role to be played by the finance function of a company is the thorough evaluation of such proposals, using the same criteria as of capital budgeting. 

Another important role played here is the divestment or reallocation of capital when assets no longer economically justify the capital committed to it. This is a major role of finance in corporate strategy.

2.1.3.  Making Financing Decisions

This is about determining the best financing mix or capital structure that will ensure the success of the corporate strategy. Financing decision is a decision that addresses issues pertaining to how much capital should be raised by the company (as equity or debt) to fund the existing and proposed operations of the company and to determine the mix of financing (debt or equity) that is best for the company in achieving the corporate strategy. As the company can hold financial assets, it can equally sell claims on its own real assets by issuing shares, raising loans, undertaking lease obligations.

The significance of this role lies in the fact that a firm can achieve an optimal financing mix/capital structure when its finance division is active in changing its total valuation through variations in its capital structure towards maximising the market price per share.

2.1.4   Making Dividend Policy Decisions

Dividend policy decision making is a critical function of finance. It deals with returning value to the shareholders through dividends while being conscious of the need for profit retention and other external financing available. A capital hungry company faces the choice between retaining earnings (restriction of dividend payout) or paying out high dividends, but ploughing back capital in the form of subsequent right issues. These decisions have merits and demerits and are not without risks as markets and shareholders may react either way. Therefore decisions on dividend are strategic because if such decisions are ill-judged, they could subvert the overall strategic aim of a company.

2.1.5               Managing Risk

There is uncertainty when one is not sure of what will happen in the future. Risk is uncertainty that ‘matters’ because it affects personal and corporate welfare. The role to be played here by a finance unit is to:

·         formulate the benefit-cost trade-offs of risk reduction; and

·         decide on the course of action to take (including the decision not to take action at all).

In managing risk, a finance division is expected to:

      i.        identify risk – by figuring out what risks exposures are for the firm;

     ii.        assess risk – by quantifying the cost associated with the identified risk;

    iii.        selecting risk management techniques – which may be risk avoidance, loss prevention and control, risk retention or risk transfer (through hedging, insuring and diversifying);

   iv.        implement the risk management technique;

    v.        review the risk management technique.

2.1 6.  Managing working capital

Working capital is company’s short term asset and liabilities. The role played by finance in this respect is to ensure that the firm has sufficient resources to implement the corporate strategy, continue operations and avoid costly interruptions. The management of working capital is a day-to-day activity. In the performance of this role, the finance division will answer the following questions:

·         How much cash/inventory should be kept on hand?

·         Should sales be on credit? If so, what are the credit terms? Who should be the creditors?

·         How will short term financing be obtained when needed? Will it be through short term borrowings or credit purchases?

3.1       Conclusion

If finance divisions of corporate organisations carry out these expected strategic finance functions in effective and efficient manner, the strategic aim of the firm would be achieved while shareholders value would be maximised and the corporate value of such firm will increase.

Excellent Customer Service in the Nigerian Banking Subsector Post-consolidation Era

1.1 Background

On 6 July 2004, the Governor of the Central Bank of Nigeria kick-started the consolidation of the Nigerian banking system by revealing an agenda that aimed at reforming the Nigerian banking subsector. Items on the banking subsector reform agenda in was for banks to meet the minimum recapitalisation requirement of ^25 billion and for banks to consolidate through mergers and acquisitions. On 2 January, 2006, the Central Bank of Nigeria came up with the list of 25 deposit money banks that met this recapitalisation requirement all alone or through mergers and acquisitions.

After the momentum gathered by rush for recapitalisation and consolidation in the Nigerian banking system might have died down, Nigerian banks will face enormous and challenges that will make survival increasingly essential. This could be attributed to the foreseen competition among the 25 deposit money bank.  These banks will struggle to make profit and maintain increasing trend is earnings that will make returns on capital employed robust, meet shareholders’ expectations and maximise shareholders’ wealth.

If these banks are to survive and be successful providers of financial services, they should apply practical approach to customer services. The customer should be seen as king whose needs and expectations should form the centre-piece of banks’ activities. The excellent provision of these needs will guarantee customer satisfaction, good business performance and competitive advantage for the bank concerned.

During this post-consolidation era, the sophisticated and discerning bank customer will expect a good blend of the speed and personalised attention which the so-called ‘new generation banks’ are known for one hand, and the security and caution usually associated with the ‘old generation bank’ on the other hand. Excellent customer services in a bank will put in place, machinery that ensure effective, efficient and smooth banking operations while the provision of professional banking advice in investment, cash flow planning and decisions are guaranteed. This will also cause improved internal controls which will extensively reduce bank forgeries and fraud.

This paper examines the meaning of excellent customer services in banks from a practical point of view. It will look at the relevance of Total Quality Management (TQM) in the provision of financial services in addition to those rules and commandments in customer care which are all necessary for Nigerian bank survival after consolidation.

2.1    The Concept of Customer Service

According to the American Bankers Association, customer service reflects the total approach of a staff to a customer. It is regarded as the attitude of professionalism, friendliness and helpfulness that satisfies customers and leads to a repeat business or patronage. In banking, all staff should focus on efficient and effective customer service delivery which results into customer delight. None of the good plans can successful operationally without repeat business from customers.

It therefore goes from the above that for excellent service in a bank, every member of staff should be a marketer, strategic manager and a practitioner of total quality management. Empathy is an essential tool for excellent customer service. This implies that bankers should put themselves in the position of the customer, identifying with their needs and being patient in dealing with them while endeavouring to give error-free services.

3.1    The Concept of Bank Service

Bank services could be conceptualised by visualising it in four levels which will move banking the commodity mind-set to creating unique experiences for the customer at all times. These levels are:

      i.        Core bank Service:- This provides the basic and fundamental benefits which make the service to be of interest;

    ii.        Expected bank Services:- This gives the minimum set of expectation of customer;

   iii.        Augmented bank Services:- This about offering services that are over and above the expectation of the customer; or over what the customer is accustomed to;

   iv.        Potential bank service:- This is about everything which can be done with service that will be of utility to the customer.

The concept of customer service from the perspective of banking services provides a dynamic opportunity toward enhancing customer satisfaction by orchestrating bank services to create endless value for the customer.

4.1    Practical Strategies of Customer Service Delivery

We can group the practical strategies of customer service delivery into two. These are firm-based strategies and individual-based strategies.

4.2              Firm-based Strategies

These are what a bank as a firm, a corporate entity should fashion out in order to provide excellent customer service delivery. This is made up of four strategies pertaining to:

(a)       Cost price of service: The bank can use this to attract customers where the bank management would be required to develop competitive prices that will ensure the good returns on their investment. This is made possible under the current liberalised banking environment.

(b)       Time management of service delivery: Bank customers will always appreciate quick, prompt, efficient and effective service which they will regard as excellent service. In this regard, the bank is required to provide an appropriate environment conducive for service delivery and in which the customer feels wanted. Customers need enhanced time for transacting business with banks. The current practice of extending banking hours is a good           case in point.

(C)       Provision of error-free service: The implication of this is that banks must continually provide equipment that can improve service delivery excellently while training and retraining their staff to improve their capacities of service delivery. The acquisition of modern technologies and up-to-date management techniques are essential in this respect.

(d)       Customer delight: This could caused by total satisfaction of customers arising from excellent customer service. This should be the ultimate aim of bank management in service delivery. Customer delight can be ensured by the involvement of all bank staff in operationalising the marketing concept, total quality management in banking and sound strategic bank management. Bank staff should be motivated to give their best and be continually loyal to the bank’s vision and mission.

4.3              Individual-based strategies

These have something to do with what each bank staff must do in carrying out his/her job. It involves how staff presents themselves, communicate with customers and handle difficult customers. In this regard, bank staff must be conscious of their appearances by ensuring that they are smart, cute and neat. Courteous greetings give lasting impression on customers.

Bankers should be self-confident and be able to see the need to display facts in dealing with customers while showing competence. They should not be necessarily pedantic and overbearing. Practices like frowning while a customer waits, not maintaining eye contact or speaking too low and acting too familiar with a customer should be watched and improved upon. Bankers must learn how to handle the following group of difficult customers:

·         the impatient;

·         the insulting;

·         the angry

·         the complaining;

·         the confused;

·         the frightened;

·         the knowledgeable customers who will always claim his right.

In dealing with all these groups of customers, a golden rule should be applied; and this is that ‘the customer is always right’. In addition to these, empathy from the bankers should be applied.

5.1    Specific Strategies for Customer Care in the Banking Industry

If the concept of customer care is to be elaborated upon, it is necessary to highlight the key concepts relating to:

·         banking process;

·         granting of credit facilities;

·         deposit mobilisation;

·         the environment of banking operation;

·         other bank services.

For each of the above-mentioned strategies, the following steps are vital and important so as to ensure that bankers meet customers’ satisfaction:

·         identifying customers by group, segment and organisation;

·         determining customers’ requirements and expectations;

·         determining how to meet customers’ requirements and expectations;

·         anticipating customers’ needs;

·         gaining customers’ commitment;

·       meeting customers’ needs.

6.1    The Relevance of the Concept of Total Quality Management (TQM) to Customer Service Delivery

Total Quality Management (TQM) is the integration of all functions and processes within an organisation in order to achieve continuous improvement of goods and services; with the primary goal of customer satisfaction. Breaking down the acronyms TQM:

·         Total means every person associated with the bank and every activity.

·         Quality means ‘customer’ who may be internal customer or external customer. It signifies the excellence of products and services to meet customer expectations and requirements. Quality is the conformance to the requirements of the clients and customers now and in the nearest future, at a lower cost.

·         Management means the prevention of faults, errors or mistakes; and direction towards customer satisfaction. It does not include detection and/or correction of errors.

Total Quality Management (TQM) covers the overall aspects of quality service provided to the customer. It seeks to create competitive advantage through the involvement of all internal customers (employees) in the delivery of goods and services to the expectation of all external customers (buyers of the products, goods or services). An underlying principle of TQM is that it is not a programme but a continue process, which is an unending habitual improvement that continuously shifts toward the quality standard dictated by customers. The main objective of TQM is to delight customers by creating an enduring culture of securing superior customer service and an enduring culture for managing change through continuous and rapid improvement in cost, quality services, lead time and flexibility.

If properly implemented, the rewards of TQM are positive, substantial and pervasive. TQM will enhance the morale and sense of belonging of all employees. It will also result into effectiveness in teamwork, communication, productivity, customer relations, profitability and corporate image. The specific competitive benefits of benefits of TQM in terms of market share and customer loyalty are very significant.

A basic assumption and exciting discover in TQM is that the cost of doing business is lower when quality is high. Philip Crosby in his book titled ‘Equity is Free’ said that ‘you can eventually save more money through high quality as you can charge higher price, gain market share while avoiding fixing faults, customer rejection and complaints.

7.1    The Twelve Commandments of Customer Care

According to a Kenyan Professor, Henry M. Bwisa, caring for customer means being:

                      i.        Client friendly – cultivating friendly relations with customers.

                    ii.        Utmost good faith – relating faithfully with the customer.

                   iii.        Secretive – do not divulge customer’s secret.

                   iv.        Tolerant – tolerating all customers.

                    v.        Obligatory – making services to the customer, a duty and not a favour.

                   vi.        Memorable – developing relations that deserve remembrance.

                  vii.        Equity – treating all customers (big or small) equally.

                viii.        Righteous – striving to do what is morally right.

                   ix.        Charming – always wearing a charming face.

                    x.        Adorable – striving to be loveable by the customer.

                   xi.        Rhetorical – using persuasive and impressive language.

               xii.        Empathy – striving to share the customer’s feelings.

8.1    Conclusions

Many pre-consolidation banks in Nigeria were known to have taken the path of high quality and excellent service delivery. The breath-taking advances in electronic banking which is prevalent in industrialised economies are becoming features of many banks in Nigeria in the pre-consolidation era. Excellent customer services in the post consolidation banking scene will boost confidence, which is the major ingredient in banking business. This has an effect of improving the bottom line. Nigerian banks in the current scheme of things will have no choice than to embrace excellent service delivery in its practical sense if they must meet the global challenges and make good returns on the higher level of capital employed.

Published in Ondo State Banker – Journal of the Chartered Institute of Bankers of Nigeria, Akure Branch. Vol 2 No2, January 2006 – ISSN 0794-6171