Recently, the Union Bank of Nigeria threatened to pull out of Arochukwu and relocate to Ohafia, citing as it were, high operational costs, lack of basic economic infrastructure and shallow customer base to sustain profitable operations as reasons. It was one news that riled the Arochukwu community both at home and in Diaspora. Before then a similar threat had emanated from First Bank of Nigeria based on the same argument but with a reference to insecurity having been attacked by armed robbers that led to the closure of the branch for several months. On the two threats, the Aro elite, led by Nzuko Aro rose to the occasion and used their contacts, supplications and promises of strategic re-engagement to persuade them to stay. However, addressing the issues raised in their arguments are still on- going and this is where this piece intends to weigh-in and make some humble contributions, especially on the vexed issue of business sustainability of the two bank branches in Aro.
There is no gainsaying that Aro community needs these two bank branches for their daily banking needs, especially considering the fact that Aro Micro Finance bank had ceased to function, perhaps due to the same reasons. Given the infrastructural challenges facing Aro community, for the two remaining banks to contemplate a pull out was unimaginable. If that happens, not only that whatever would be left of the Aro economy will go under, but the consequences for hapless aged ones and other classes of dependents that rely on transfers from their relations for survival would be dire.That said, we must be mindful of the fact that banks are not charitable organisations; they are set up as profitable ventures that invest public and private capital with a promise to return profit on them. In business, it is the ability to negotiate relationships that translate into profit that matter. Otherwise, no matter the strength of sentimental and emotional logic on allowing the banks to operate in Aro without offering any concrete profitable opportunities will stand.
The business environment in Aro, to say the least, is tough. Aro is a destination; it is either you are going to Aro or you are coming out from Aro. It does not offer any transit opportunity to other communities and therefore, the opportunities that transit town’s offer for businesses are completely lost. The deplorable condition of its road and power infrastructure remains embarrassing to businesses. For instance, the cost of transporting goods from Aba or Umuahia to Aro is double, if not triple of same distances that have better roads. These costs are transferred to prices of goods and services and thus render them uncompetitive. Indeed, a back of the envelope calculation shows that average inflation rate in Aro is over 150 basis points above the national average. In economic terms, high inflation is regarded as a tax on the poor because not only do they not have steady source of income, but their income growth remains upwardly sticky over time and rising inflation simply eats upwhatever value left with their static and uncertaindisposable income.
Notwithstanding, banking and payment systems all over the world are currently undergoing phenomenal transformation and Nigeria is not left out of this revolution. The emergence of internet, mobile phones and virtual banking services has rendered the issue of profitability modelling based on the growth of bank branches anachronistic. Accounts can be opened anywhere, transferred to any branch and operated from any part of the globe without the bank losing profits that accrue from such transactions. While banks do not stand to lose much in their service charges based on their weak branch operations, there is an emerging inverse relationship between banks technology driven operations and their ability to grant loans to their customers to grow their business especially at their rural branches.
Banks cannot just exist to benefit from capital created from elsewhere; they must be part of growing local businesses through credit creation in their local branches from which customers can grow their profits, increase their deposits, and consequently improve banks earnings from interest earnings and other service charges. Therefore, the sustainability argument for Arochukwu rural bank branches must be approached from both ends of the stick- the bank and the rural customers. Each has a critical role to play to make this symbiotic relationship work.
This brings me to what is currently referred to as the ‘CIVIC CENTRE CHATTER’ on sustainability of banks and the role they are expected to play in the growth of Aro Economy. The interaction which was recently brokered by Nzuko Aro yielded very fruitful results.Specifically, the bank demanded action on increased deposit base, return of government accounts (especially local governments and other institutions) ,improved road and power infrastructure and opening of more business accounts. Nzuko Aro on their part promised to use its good offices to explore the return of public institutions accounts including local government; call on Aros to open accounts with the rural branches or transfer existing accounts to the banks and mount subtle pressure on the political elite to fast-track effort in fixing the rural roads and power infrastructure. Of special note is the effort by Nzuko Aro to appeal to high net worth Aro sons and daughters at home and in Diaspora to deposit huge sums ranging from one million and above in the bank branch to effectively grow its deposit base expeditiously.
While these propositions are in order, what remained sketchily discussed was how Arochukwu rural businesses would benefit from credit that could be created from such huge deposit base. I am aware that credit creation by commercial banks are governed by stringent risk considerations such as poor returns to investment, weak cooperate governance of such businesses and challenging infrastructure and security environment. All these if not well calibrated into risk calculations could lead to loan defaults with huge consequences for the banks and the customers alike. However, it is important to note that business risks are not generic for every community and therefore some idiosyncratic and strategic considerations should be developed by Arochukwu banks to be able to extend loans and recover them without using templates developed for more developed urban communities.
In this regard, I strongly recommend the employment of relationship banking strategy for use in Aro business community by the banks. This approach emphasizes close cooperation between the banks and their customers to monitor their businesses and guide them appropriately to avoid risky ventures that could lead to business failure. Customers that are sincere and keep faith with this approach are rewarded with credits which is now not based on strict risk templates but on the sincerity and faithfulness of the customers to open up to the banks for relationships based on trust.
Indeed, a glimmer of hope could be seen from the growing number of rural businesses springing up in Aro notwithstanding the harsh businesses environment. Worthy of mention is hospitality, bottled water, agri-processing, building construction and a host of others that are undeterred by the challenges of power and road infrastructure and are forging ahead. Such businesses need urgent support from the rural banks given the fact that if business environment improves, it is these initial risk- takers that will be in good stead to benefit from the bank loans having weathered the storm when things were not very much favourable.
The bottom line, though, is that the businesses environment in Aro needs urgent improvement and what it requires are not issues that the community alone can handle. It must involve governments at all levels to be able to provide basic infrastructure that will enable rural businesses to thrive. This is where our political class must take the bull by the horn knowing full well that poverty can be fought not only by giving hand outs to the poor, but providing them with employment opportunities that guarantee steady income. There are very few avenues to ensure that this happens more than enabling businesses to create job opportunities and this can be easily done through building trust and effective business relationships between the banks and Aro business community. Ndewo nu.