Zero COT

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Zero Commission on Turnover (COT), according to the Central Bank of Nigeria (CBN), is the removal of commission on all customer-induced debit transactions by Deposit Money Banks (DMBs) in the country. The Zero COT commenced in Nigeria on 1 January 2016. [1] The CBN through the Revised Guide to Bank Charges (RGBC) of 1 April 2013, provides gradual steps towards the application of this policy. The guide stipulated a phase-out plan from =N=3 (2013), to =N=2 (2014),to =N=1 (2015) and =N=0 (2016). Also, the policy permits customers to negotiable COT in each of the relevant year subject to the maximum stated in the plan. [2]

Central Bank of Nigeria Nigerias central bank

The Central Bank of Nigeria (CBN) is the Central bank and apex monetary authority of Nigeria established by the CBN Act of 1958 and commenced operations on July 1, 1959.

Commissions are a form of variable-pay remuneration for services rendered or products sold. Commissions are a common way to motivate and reward salespeople. Commissions can also be designed to encourage specific sales behaviors. For example, commissions may be reduced when granting large discounts. Or commissions may be increased when selling certain products the organization wants to promote. Commissions are usually implemented within the framework on a sales incentive program, which can include one or multiple commission plans.

Bank financial institution

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

Contents

Central bank Nigeria Central bank nigeria.jpg
Central bank Nigeria

Overview

The Guide to Bank Charges was introduced in 2014 to provide a standardize means of bank charges on all products and services between customers and DMBs in the country. The guide was revised on 1 April 2013 in order to accommodate current developments in banking industry. The guide is the compilation of all charges on all services and products rendered by the DMBs and their applications. The policy was established to boost the lost confidence of Nigerian in banking industry. Financial experts believe, the application of the policy will drag more people into financial net. [3] In January 2016, the monetary regulatory body noticed the persistence in charging the banned charges by the DMBs. This was led to the committee in charged of Bank and Currency in the House of Representative (HOR) to demand for immediate refund of all COT charges from 1 January 2016.

The term bank charge covers all charges and fees made by a bank to their customers. In common parlance, the term often relates to charges in respect of personal current accounts or checking account. These charges may take many forms, including:

Implementation

The implementation of Zero COT started in Nigeria on 1 January 2016. This policy was initiated via a circular called RGBC from CBN to all the DMBs in the country on 1 April 2013. The CBN provided a graduating plan which provide for the removal of the COT on all induced debit transactions by the bank to be removed from 2013 thus; =N=3 in 2013 to =N=2 in 2014 and =N=1 in 2015 and zero =N= in 2016. [4] This plan was arranged to provide a soft landing for all the DMBs in order to cushion the effect of one off removal from their Net profit. While the burden suffers by customers by the effect of these charges are removed. The policy had received the backing of many Nigerian financial experts. Mr. Femi Ekundayo, a financial expert and former president of Chartered Institute of Bankers of Nigeria (CIBN) said “The Central Bank of Nigeria (CBN) policy on financial inclusion is to get more people into the financial net”. [5]

Chartered Institute of Bankers of Nigeria

The Chartered Institute of Bankers of Nigeria (CIBN) is the umbrella professional body for bankers in Nigeria. The CIBN was incorporated in 1976 as the Nigerian Institute of Bankers. It was chartered in 1990, and is now covered by the CIBN Act 5 of 2007. The Institute is authorized to control entry into the banking profession, to set standards for bankers and to maintain professional ethics through sanctions of erring members. Corporate members include the Central Bank of Nigeria, the Nigeria Deposit Insurance Corporation and all Deposit Money Banks, Development Banks, Mortgage Banks, Micro Finance Banks and Discount Houses in Nigeria.

House of Representatives and Zero COT

The HOR in Nigeria has decided that all COT charged by all DMBs after the deadline stipulated by the RGBC from all customers in the country must be refunded. The house gave a thirty-day ultimatum for the perfection of this motion. A committee on Bank and Currency was organised by the house to look into the implementation of this policy. According to Edward Gyang Pwajok, a house member representing People Democratic Party (PDP) from Plateau, the zero COT policy intended to be used by CBN to boost the economy is not being implemented by the banks because the CBN has not directed that it be implemented. [6]

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Debits and credits

In double entry bookkeeping, debits and credits are entries made in account ledgers to record changes in value resulting from business transactions. Generally speaking, if cash is spent in a business transaction, the cash account is credited, and conversely, when cash is obtained in a business transaction, it is described as a debit. Debits and Credits can occur in any account. For simplicity it is often best to view Debits as positive numbers and Credits as negative numbers. When all the debits and credits that are transacted in each account are added up the resulting account total could be a net Debit or a net Credit. If the total of the account is in a net Debit position (positive), it is generally classified in the Asset section of the balance sheet, whereas accounts that total to a net Credit (negative) are shown in the liability section of the balance sheet. Accounts that relate to the company's profit are totaled to yield company earnings and are classified in the Equity section of the balance sheet. When recording incoming cash (revenue) a Debit will be made to Cash or equivalent Assets and a Credit will be made on the revenue account in the income statement. If a company has a positive Net Income, the Retained Earnings will receive a Credit when closing out the Income Statement for the year, while a Net Loss will result in a Debit to the Retained Earnings. A net Credit (negative) balance in Retained Earnings in the Equity Section demonstrates that the company has been profitable over time, whereas a Debit (positive) balance in the Equity section, would demonstrate that the company has been unprofitable. In most companies the following accounts end-up in Credit positions: accounts payable, share capital, loans payable; while Debit accounts typically include Equipment, Inventory, Accounts Receivable. Debits must equal Credits (negatives) in each transaction; individual transactions may require multiple debit and credit entries.

A transaction account, also called a checking account, chequing account, current account, demand deposit account, or share draft account at credit unions, is a deposit account held at a bank or other financial institution. It is available to the account owner "on demand" and is available for frequent and immediate access by the account owner or to others as the account owner may direct. Access may be in a variety of ways, such as cash withdrawals, use of debit cards, cheques (checks) and electronic transfer. In economic terms, the funds held in a transaction account are regarded as liquid funds. In accounting terms they are considered as cash.

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ISO 20022 is an ISO standard for electronic data interchange between financial institutions. It describes a metadata repository containing descriptions of messages and business processes, and a maintenance process for the repository content. The standard covers financial information transferred between financial institutions that includes payment transactions, securities trading and settlement information, credit and debit card transactions and other financial information.

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A direct debit or direct withdrawal is a financial transaction in which one person withdraws funds from another person's bank account. Formally, the person who directly draws the funds instructs his or her bank to collect an amount directly from another's bank account designated by the payer and pay those funds into a bank account designated by the payee. Before the payer's banker will allow the transaction to take place, the payer must have advised the bank that he or she has authorized the payee to directly draw the funds. It is also called pre-authorized debit (PAD) or pre-authorized payment (PAP). After the authorities are set up, the direct debit transactions are usually processed electronically.

Overdraft

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

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References

  1. Bukola Idowu. "Zero CoT Begins January 2016 – CBN". Leadership Newspaper. Retrieved 18 January 2016.
  2. CBN. "CIRCULAR TO ALL BANK AND DISCOUNT HOUSES: THE REVISED GUIDE TO BANK CHARGES" (PDF). Retrieved 18 January 2016.
  3. "Zero COT: Expert lauds CBN". Vanguard Newspaper. Retrieved 19 January 2016.
  4. "Zero CoT To Start in January 2016 – CBN". Olajumoke Aruleba in The Naija Verdict. Retrieved 18 January 2016.
  5. Kayode Adelowokan. "Expert lauds CBN on zero COT". Daily Times. Retrieved 18 January 2016.
  6. "Reps Threaten To Sanction CBN, DMBs Over CoT Refund". Naija 247 News. Retrieved 18 January 2016.