DUTIES AND RIGHTS OF

BANKERS AND CUSTOMERS

By

Adah Yaro, FCIB

 LEARNING OUTCOME

• At end of the presentation, the participants should

be able to know:
• Basic difference in each category of banks;
• Relationship between banks and its customers;
• Duties and rights of both banks and their
customers;
• Circumstances under which their relationship could be
brought to an end.
 OUTLINE

• Introduction
• Who is a bank or banker
• Types of banks
• Who is a customer of a bank
• Banker/customer relationship
• Duties/Rights of banker and customers
• Bankers’ opinion, mandate and termination of the
relationship
• Concluding remarks
 Introduction

• Banking system plays a critical role in the life of any nation.

This was demonstrated recently during CBN currency
redesign policy and the negative impact on the
implementation strategy on the economy. The experience
was an indicator of critical role of banks in the economy.
• To maximise the role, there is need to get the basic
principles right.
• And to get this right, we need to know who is a bank, the
customer, duties and responsibilities of each party in the
business and their relationship.
 Who is a bank or banker?

• It is corporate organization(s) duly licensed by Central Bank of

Nigeria (CBN) to accept deposits on both current and savings
accounts, grant loans and advances and perform other banking
businesses as may be approved by the CBN.
• S. 2(1) Banking and Other Financial Institutions Act (BOFIA),
1991 as amended, requires that no person shall carry out
business of banking in Nigeria except :
• It is company
• Dully incorporated in Nigeria
• It holds a valid banking license issued under the Act by the
Governor of the Central Bank of Nigeria.
 Who is a banker (cont’d)

• Business of banking is defined as “receiving monies,

granting loans, cheques, purchases and sales of securities
and others as may be designated by the Governor of
CBN”.
 Types of banks

1. Deposit Money Banks (DMBs)

These are retail or commercial banks licensed by CBN to
carry out banking business for both retail and corporate
customers in the country. The current capital requirement
is N25bn. Some examples: First Bank of Nigeria, Zenith
Bank plc. Guarantee Trust Bank plc, Access Bank Plc. etc.
 Types of banks (cont’d)

2. Merchant banks/Investment Banks

These are banking institutions licensed by CBN to engage in
wholesale banking, medium and long term financing,
equipment leasing, debt factoring, Investment
Management etc. The current capital requirement is
N15bn. Some examples in Nigeria are FBN Quest Merchant
Bank, Quantum Zenith Capital & Investment Ltd, Rant
Merchant Bank etc.
 Types of banks (cont’d)

3. Micro finance banks

These are banking institutions licensed by Central Bank of
Nigeria to carry out banking businesses especially to
poor and vulnerable groups in the Society, Market
Women, Artisans etc. In Nigeria, Micro Finance Banks are
categorized into Unit, State and National. The capital
requirement: Unit (N200m), State (1bn) & National
(N5bn).The examples are NIRSAL MFB, HASAL MFB,
Microvis MFB, ODU MFB, Peace Microfinance Bank etc.
 Types of banks (cont’d)

4. Non-Interest Banks
• These are banking institutions licensed by Central Bank of
Nigeria to carry out banking business without the
conventional interest charge.
• The banks encourage customer to partner with them in
business and share the risk and profit.
• The capital requirement for Non-Interest Bank within a
region is N5bn while the one with national spread attracts
a capital of N10bn. Some examples are Jaiz Bank, Lotus
Bank etc.
 Types of banks (cont’d)

5. Mortgage banks
These are banking institutions licensed to specialize in the
provision of mortgage facilities to individual and corporate
organizations. The capital requirement is N13bn. The apex
mortgage institution in Nigeria is Federal Mortgage Bank of
Nigeria. Some examples are Abbey Mortgage Bank, Aso
Savings and Loans, Brent Mortgage Bank etc.
 Who is a bank customer?

There is no statutory definition of a bank customer.

• A bank customer is an individual or corporate
organization who maintains an account with the bank
and enjoys other banking services.
• The relationship arises when an individual, society,
firm(s), partnership, or company etc. makes an offer to
become a customer which bank accepts after due
diligence and satisfactory references on the customer(s)
 Who is a customer (cont’d)

• However, not all customers of banks must deposit money

or opens an account before maintaining banking
relationship. For instance, one who deposits valuable like
Jewries, title documents for safe keeping for specified
period may be regarded as customer.
 Banker – customer relationship

a. Debtor-Creditor Relationship:
When a customer deposits money with bank, the bank
becomes the debtor for the money deposited while the
customer becomes the creditors. The bank ensures safety
of the money and returns on demand within banking hour
when required.
However, the position is reversed when loan and advances
are extended to the customers.
Banker-customer relationship (cont’d)

b. Principal– Agent Relationship

By professional nature of banking, bank is positioned to act
on behalf of its customers in certain transactions, e.g.
cheque collection, dividend payment, standing order and
other payment instructions. Banks may also be involved in
buying and selling of shares and other securities on behalf
of customers.
 Banker –Customer relationship
(cont’d)

c. Mortgagor/Mortgagee relationship
This relationship arises when a banker requests a
customer to secure a loan on his/her landed property so
that in case of default, the bank would realize the value of
the security. Under this arrangement, the customer is
mortgagor while the bank is mortgagee.
Banker- customer relationship (cont’d)

d. Advisory Relationship
Bank is a specialized institution that provides expertize
advise to individual(s), corporate organization, and the like
particularly in the areas of loan syndication, project
appraisal and portfolio management.
 Banker – customer relationship

e. Bailor- Bailee Relationship

This relationship exists where bank obtains valuable
(Jewries, title documents etc.) from customer for safe
keeping. It is usually at a fee and the depositor is advised
to take insurance policy on the custody item, though the
bank is expected do its best to protect the property. In
this relationship, the customer is bailor while the bank is
bailee.
 Duties of banker

1.To receive money, cheques and other instruments

for collection and credit the customer’s current or
deposit account.
2. To pay cheque and allow withdrawal when the
account
is properly funded and drawn according to mandate.
3.It is the duty of bank to keep the affairs of customer
secret. However, there are four exceptions to this duty:
 Duties of banker (cont’d)

a. When disclosure is with consent of customer. When a

customer has given a written instruction to bank to disclose
his or her state of affairs in bank, the bank is obliged to do
so.
Another scenario is where it is the custom of the bank to
disclose. An example is response to enquiry on behalf of
customer within banking norm.
 Duties of banker (cont’d)

b. When it is in the interest of the bank

This arises in a situation where bank resorts to litigation to
recover the loan granted to customers. For instance, if
bank sues a customer to recover amount owed, the bank is
at liberty to show evidence of the loan.
 Duties of bank (cont’d)

c. When disclosure is in the interest of the public

This could occur under the following:
i. When the customer is trading with enemy
alien or nation.
ii.When customer is standing a trial for theft,
embezzlement or a company or individual avoiding tax, the
bank is at liberty to disclose the customer state of affair.
iii.Where the disclosure is meant to prevent fraud or crime
or terrorist act.
 Duties of bank (cont’d)

d. When the disclosure is under compulsion of law:

i.Where the Director of Public Prosecution is investigating
offences against customer the bank is oblige to disclose;
ii.Where the inspector of taxes requests for details about a
customer, bank is obliged to disclosed;
iii.Money Laundering Act permits EFCC, NDLEA, ICPC, CBN
etc. to place customer account under surveillance when
necessary and the bank must comply.
 Duties of bank (cont’d)

Other duties of Bank:

• To give reasonable notice before closing customer
account;
• To pay agreed interest on deposit and to ensure the safety
of customer fund;
• To avoid wrongful dishonour of customer’s cheque and
other instruments
• To render statement of account to customer at an interval
or on request.
 Bank’s rights
• To charge commission and interest for services rendered;
• To close the customer account if the conduct is
unsatisfactory;
• To exercise the right of lien; i.e. a right to hold on unto
customer assets until outstanding obligation is discharged to
the bank.
• To exercise the right of set off i.e. right to deduct customer
credit balance from other accounts with the bank
against indebtedness to the bank.
• To demand repayment of loans and advances.
 Duties of customer

• To exercise reasonable care when drawing cheque/other

instruments to prevent forgery and alteration.
• To notify the bank if he or she actually knows of forgeries on
his or her account.
• To seek the banker by giving written instruction to it
whenever he or she wants to withdraw his or her money.
• To pay reasonable commission for services rendered.
• To repay loan or advance granted to him or her.
 Customer’s rights

• Reasonable notice before ceasing to do business with a bank

provided the account is funded.
• The customer is entitled to bank statement at an interval or on
request.
• The customer is entitled to interest on saving, fixed or time
deposit.
• The customer is entitled to withdrawal from his or her
account provided it is funded.
 Banker’s opinion

• A banker’s opinion is reference which a bank provides

about its customer. It is also seen as a response to status
enquiry concerning the affairs of its customer.
• It should be on the basis of facts known to the bank on
the customer.
• Bank should be more careful on such opinion because of
the implication to both customer and recipient.
 Bank mandate

• It is a documented evidence showing how the customer

should operate his or her account.
• It is an instruction by the customer to the bank regarding
the conduct of his or her account.
• It is an authority or instruction to the bank as to how to pay,
who to pay and what amount to pay at a particular point in
time.
• Once an instrument is drawn according to mandate, and
the account is funded, bank must honour it.
 Termination of banker/customer
relationship

Banker/customer relation is determined under any of the

following:
• At the instance of the customer;
• At the instance of the bank;
• Death of the customer;
• When the bank is liquidated
• Mental incapacity of the customer;
• Bankruptcy or insolvency of a either bank or its customer
• Notice of garnishee order.
 Concluding remark(s)

• Bank, as an institution licensed by CBN, in carrying out

banking business, must relate to its customer in a manner to
deepen their relationship.
• The relationship between the 2 parties must be clearly
defined.
• Duties and rights of both parties must be clearly stated
and
honoured.
• The relationship between the parties could be brought to an
end under certain circumstances.
Any Question?
Thank You