The Managing Director/CEO of Taurus Capital & Advisory Limited, a Pan African Investment Banking Firm, Dr Nnaemeka Onyeka Obiaraeri, has claimed that 99 percent of Nigerians have less than N500,000 in savings anywhere in the world.
This is coming on the heels of growing fears of dying savings culture as inflation gradually erodes the value of the local currency.
Finance experts define savings as the amount of money remaining after an individual’s consumption expenditure is subtracted from their personal disposable income over a given period. Simply put, savings is the portion of personal disposable income not spent.
Obiaraeri, via his X handle (@emekabk21), challenged anyone in doubt to conduct a study to confirm this claim.
He cited the Nigeria Deposit Insurance Corporation (NDIC), which previously stated that 99.4 percent of the 138 million Nigerians with bank accounts in deposit money banks have less than N500,000 deposited in their accounts.
Obiaraeri lamented that “the one percent elitist bandits and their cronies” make up the remaining part, indicating that “the Gini index in Nigeria is the widest in the world.”
The Gini index measures income or consumption distribution inequality within an economy, where zero represents perfect equality and 100 implies perfect inequality.
However, despite six Nigerian banks boasting substantial customer deposits exceeding N72.3 trillion by the first quarter of 2024, stakeholders believe that the current savings environment might affect banks’ customer deposits in the second half of the year.
The banks analysed include Access Bank, Fidelity Bank, Guaranty Trust Holding Company Plc (GTCO Plc), Wema Bank, Zenith Bank, United Bank for Africa (UBA) and First City Monument Bank (FCMB).
UBA is one of the largest banks in Nigeria, with a customer deposit of N18.3 trillion as of the end of March 2024. Access Bank’s services have encouraged customers to deposit over N18 trillion by March 2024, an improvement from N15.322 trillion in March 2023.
Also, thanks to its quality service and innovative products, Zenith Bank attracted N16.78 trillion in customer deposits as of March 2024. Other banks’ deposits as of March 2024 include GTCO: N9.20 trillion, Fidelity Bank: N4.71 trillion, FCMB: N3.27 trillion and Wema: N1.88 trillion.
Analysis of the investment banker’s assertions indicates that deposits below N500,000 constitute the bulk of these customer deposits in the vaults of the above lenders. Following the Central Bank of Nigeria (CBN) raising the benchmark interest rate, banks repriced their assets, resulting in higher borrowing costs for customers.
Consequently, the cost of loans, mortgages and other credit products has increased, thereby constraining the flow of money.
The CBN raised the monetary policy rate (MPR) on February 27, 2024, from 18.75 percent in July 2023 to 22.75 percent, a 400 basis point rise.
Furthermore, to encourage savings, 18 Nigerian banks now offer customers at least a 7.88 percent interest rate on savings account deposits as of June 28, 2024.
However, experts warn that when inflation outpaces the growth of savings, the real value of money decreases, potentially jeopardiing financial stability and plans.
For instance, if the annual inflation rate is 33.69 percent (as it is today) and a savings account offers a 7.88 percent interest rate, one loses 25.81 percent of their money’s purchasing power each year. This underscores the importance of adopting measures to combat the erosive effects of inflation on savings.
Mr Johnson Chukwu, Managing Director of Cowry Assets Management Limited, while analysing the second quarter outlook for the Nigerian economy, lamented the weak purchasing power in Nigeria.
He noted that gas prices worsened energy costs at a time when consumer spending is weak. “Because purchasing power is weak, disposable income is weak and demand has collapsed. Manufacturers are also dealing with higher interest rates as banks are not lending to the sector.
“The reality is that the Nigerian economy is no longer the biggest in Africa by any standard. It is not about the population size; it is about GDP growth and how many people have been lifted out of poverty.”
But, Obiaraeri’s submission might be corroborated by a similar statement from the Minister of Housing and Urban Development, Ahmed Dangiwa.
In his keynote address at the maiden Kaduna International Housing Exhibition, the minister lamented that 80 percent of Nigerians cannot afford housing due to financial constraints.
He said, “Of the 43 million households, over 85 percent have less than N1.1 million purchasing power. Of this, 40 percent (about 17.2 million households) fall into the poverty income group and 47 percent (about 20.2 million) fall into the low-income group.”
He added that almost half of Nigeria’s population of over 200 million are poor and have weak purchasing power.
Savings are essential for individual financial well-being and national economic recovery. Low savings can lead to a decline in an individual’s ability to meet emergency fund requirements, posing hardships during economic recessions and making it difficult to repay credit and afford basic necessities.
Moreover, low savings mean banks have fewer deposits to lend, hindering companies from borrowing money for expansion and leading to a decline in production and employment levels in the economy.