By Manyok Ader Manyok
The biggest treasure of a bank is customer trust, it is central to the success of a bank. It can derive engagement, increase loyalty, and have a direct impact on a bank’s bottom-line performance.
Trust can be defined as “a remarkably efficient lubricant to economics exchange that reduces complex realities far more quickly and economically than a prediction, authority, or bargaining”. The role of trust in the economy has been stressed by pointing out that “Virtually every commercial transaction has within itself an element of trust, certainly any transaction conducted over a period of time.”
It can be plausibly argued that much of the economic backwardness in the country can be explained by the lack of mutual confidence. The research supports this view by claiming that “The inability of societies to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World.”
The focus is on trust in banks which is hard to explicitly define since individuals can have various issues in mind when asked about their level of confidence in financial institutions. Therefore, trust in banks combines the confidence of individuals in the stability of financial institutions (includes e.g. confidence in the deposit insurance scheme and in the supervisory authorities) and also their confidence in the honesty of bankers, as well as individuals’ perceptions of the role of banks in the economy formed by individuals’ political and/or religious values.
Naturally, trust in banks might be related to trust in money. Money is a social construction that favours transactions and which is based on trust as stressed by “the effectiveness of money as a store of value, in which to an important degree, on a commitment to a course of action that is based on trust that others will continue to accept our money. That is why clients would prefer to keep their savings in a stable currency (USD) than the local currency.
In a broader perspective on trust in money, “trust in the stability of the relations of representativeness and convertibility between the assets that perform the functions of money is therefore conventionally shared among those who decide to establish monetary contracts”.
These concepts of stability and convertibility make trust in money susceptible to inflation by eroding the value of money and trust in authorities from the perspective of their efforts to preserve the value of money. Trust in money therefore shares similarities with trust in banks because trust in banks is also influenced by convertibility (of bank deposits) and by stability (to preserve in a broader sense the assets and liabilities of bank clients).
Trust in money nonetheless differs from trust in banks because inflation does not exert the same impact on the latter since banks can propose interest rates indexed on inflation.
Therefore, since the devaluation of the local currency in 2015 by the government of South Sudan, the Central Bank decided to cap a fixed amount to be withdrawn per day as a means of controlling panic from the commercial banks.
This particular strategy resulted in a mistrust between the clients and banks as one couldn’t get the amount, he/she wanted to withdraw due to restrictions from the regulator. The primary objective of the bank is to facilitate the transaction among its clients and be in a position to pay the account holder on demand, this particular promise was never realized. Hence majority opted for home savings instead of banks therefore creating a shortfall in monetary supply which prompted the central bank to print more money in order to meet the market demands. This noble strategy didn’t meet the expected objective but instead corroded the relationship between banks and clients.
In a nutshell, to improve a bank-customer relationship, the Central Bank should establish a deposit protection fund that provides deposit insurance to customers of deposit-taking institutions licensed by the Bank of South Sudan. Secondly, massive public relations campaigns should be encouraged in order to communicate the purpose and benefits of saving in the banks as compared to home saving and the risks associated with it. Thirdly, implement robust security measures to protect both the bank and the client’s assets, this includes utilizing encryption technologies, multi-factor authentication, and maintaining a secure IT infrastructure to prevent unauthorized access.
Generally, it is important to note that the specifics of creating a trust deposit can vary depending on the jurisdiction and the particular banking institution.
Consulting legal experts such as banking attorneys or regulatory consultants, can help guide in the process of ensuring regulatory compliance and optimal client satisfaction by instituting know-your-client (KYC) requirements.
The author is a Financial Market Analyst and can be reached via email: manyokader21@gmail.com