According to a report by the Financial Institution Training Centre (FITC), fraudulent loans with a value of N5.46 billion accounted for 94.35% of total losses associated with fraudulent activities recorded by commercial banks in the second quarter (Q2) of 2023.
Per the FITC Fraud and Forgeries report, 24 commercial banks in Nigeria lost a total of N5.79 billion to fraud activities representing a 1,125.03% increase in losses compared with the N472 million lost in Q1 2023.
The total figure – N5.79 billion, showed a significant increase in the total amount involved in fraud cases during Q2 2023 compared to Q1. The sum increased from N2.58 billion to N9.75 billion, representing a 276.98% increase.
After fraudulent loans, mobile fraud came next resulting in 3.39% of the total loss amounting to N196 million. Computer/ Web fraud was minimal for the period under review as it amounted to only 1% of the total losses in Q2. N59.5 million was lost through the web in the 3 months.
The data for the first quarter of 2023 indicates that mobile fraud, computer/web fraud, and POS-related fraud were the three most prevalent types, continuing the trend observed in the first quarter 0f 2023,” FITC stated in the report.
However, although there was an increase in the value of fraud recorded in the second quarter, there was a decline in the number of cases recorded compared with Q1. The figure showed that “For the second quarter of 2023, a total of 11,679 cases were reported and when compared to the 12,553 cases recorded in the Q1, a 6.96% decrease is noted. “
Rising fraud cases crippling commercial banks
The digital revolution in banking has resulted in an equivalent revolution in e-banking fraud. Price Waterhouse Coopers (PwC), in a report on Payments in Emerging Markets, notes that to meet the need for financial inclusion, there has been a rapid expansion of new technologies and innovations, which are helping to make it more economically viable for banks to reach the ‘unbanked’ or ‘underbanked’ populations.
Coupled with a youthful population, increasing smartphone penetration, and a focused regulatory drive to increase financial inclusion and cashless payments, these have combined perfectly to help the financial sector thrive.
However, these variables have not just been drivers of financial inclusion alone. The Nigeria Inter-Bank Settlement System (NIBBS) warned that “the increase in transaction processing, speed and available channels comes with an unavoidable side effect – more vectors for fraudulent activities.”
Although the FITC data captured both electronics and non-electronics frauds in the banks for Q2 2023 alone, the NIBSS had recently disclosed that banks had as of August 2023 lost N9.5 billion to e-frauds alone. Adding the non-electronic figure to this would mean that over N10 billion have been lost by the banks so far this year.
According to the NIBSS, fraud-related transactions reportedly cost Nigerian banks on average N14 billion in losses annually. These figures, many within the banking sector, believe are understated.
What commercial banks must do
The FITC has advised Nigerian banks to strengthen their security protocols and systems to prevent unauthorized access to customer accounts and sensitive information considering the rising fraud cases.
According to the organization, this may involve incorporating measures such as multi-factor authentication, implementing strong encryption techniques, and ensuring regular security updates are in place.
“Banks should also utilize advanced fraud detection systems and technologies that can analyze patterns, identify anomalies, and detect suspicious activities in real time. These systems which employ Artificial intelligence (AI) and Machine Learning (ML) can help identify potential fraud incidents and trigger alerts for further investigation.
“It is also important to perform regular audits of internal systems, processes, and controls to identify any vulnerabilities or weaknesses that could be exploited by fraudsters and bank staff,” FITC advised.
