How Nigerian banks make their money

Posted by Felix Okoli on Wednesday June 12, 2013 at 10:30:36:

A lot of people have accounts with Nigerian banks but many people don't really understand how these banks make their money. I mean, the only thing you probably see them doing is offering services like keeping your money, paying you interest, allowing you to withdraw from ATM and making deposits too. But how do they really make their money?

Well, there are over 20 banks in Nigeria and the head bank is called the CBN. There are also some other public institutions like the CBN which monitors banking activities and this includes the NDIC and the govt.

Are bankers actually in a profitable business? Well, yes they are and they make their money by using your money.

How banks make their money
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Nigerian banks make their money off the interest and charges that their clients pay them for their services. They also make money off their investments.

Interest on loan
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Let's assume you deposit N50,000 into your savings bank account, they would probably be paying you 3% per annum to encourage you. However, they stand to make bigger income from it when someone comes to them to borrow money. Nowadays, the interest on getting a loan facility from a Nigerian bank starts at around 20& and so in essence, they stand to make over 15% off the money you are saving with them from their loan facilities which could be short term or long term and this also includes credit cards.

Bank charges
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Apart from the interest they get on the funds they've loaned out even with a collateral, Nigerian banks also earn some good income from bank charges which may include any of the following:

- SMS alerts
- C.O.T.
- Card maintenance fees
- Cheque issuance fees
- Withdrawal charges
+ and other fees

Income from investment
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At times banks also invest in long term assets that would be be profitable to them and in Nigeria, this could be real estate investments. Some banks with huge capital at times invest in buildings or capital projects for resale or lease in order to make profit.