Banking in Nigeria began in the colonial era. This was with colonial banks which were established with the primary objective of meeting the commercial and financial needs of the colonial masters.
The origin of the Nigerian banking system began in 1892, with the establishment of the African Banking Corporation and British West Africa (now the First Bank of Nigeria). Then later in 1925, Barclays Bank in Nigeria was birthed through the Anglo-Egyptian Bank and National Bank of South Africa.
Also in 1948, the British and French Bank for Commerce and Industry began operations in Nigeria, this changed into the popular United Bank for Africa.
History of Banking in Nigeria
However, the first indigenous bank In Nigeria was established in 1929 and was called Industrial and Commercial Bank. This bank liquidated (that is, it was sold in payment of debts) in 1930 and was replaced by Mercantile Bank in 1931. The African Continental Bank was then founded in 1949 as the only domestic bank that could be sustained after the liquidation of the Industrial and Commercial Bank. The African Continental bank went on to become one of the big three native banks in Nigeria during the 1950s to early 1980s.
Even though the bank survived the banking crisis of the 1950s, the bank fell into debts in 1991 and in 1944, the Central bank of Nigeria took over its operations with the aim of restructuring are reselling.
In 2000, an agreement was reached amongst Diamond bank, Hallmark Bank and Citizens Bank. These banks formed a consortium and revived the African Continental bank.
The new bank once again began operations in 2002. In 2005, it merged with other banks to become Spring Bank.
In 1947, an agricultural bank, known as the Nigerian Farmers and Commercial Bank was established.
Modification of the Universal Banking Model
The CBN (Central Bank of Nigeria) is the apex regulatory authority of the financial system in Nigeria. It was established by the Central Bank of Nigeria Act of 1958 and began operations on 1st July 1959.
In 2010, the Central Bank of Nigeria made changes to the then existing banking model. Thereby permitting the holder of a commercial banking license to function in other non-core banking sectors, either directly or indirectly through stipulated subsidiaries.
The introduction of this scheme classified banking licenses into commercial, Merchant and Specialised/Development Banking Licenses.
Commercial banks are banks that offer services to the general public and to companies, while Merchant banks are banks who deal with commercial loans and investments. In modern times, it is referred to as investments banks. These were the first modern banks which began in the medieval times through merchants who traded in commodities and clothing merchandise.
Development banks are predominantly engaged in consumer banking, treasury and markets, asset management, securities brokerage, equity and debt fund-raising. They are established by the government of countries to support start-ups, businesses and other industries that are significant to the sustainable growth of the country
For example, the Development Bank of Nigeria is to bridge the gap between the Bank of Industry (BOI) and other commercial banks that could not meet the needs of the Micro, Small & Medium Enterprises in Nigeria via business funding.
History of Reformation in Nigeria Banking Sector
The reformations that have taken place in Nigeria’s banking sector can be divided into two main periods. These reforms and their effects on the Nigerian economy will be discussed in this article:
Banking Reform of 2004 and its Effect(s)
This reform of 2004 was focused on bank consolidation, which is uniting two or more corporations by the dissolution of existing ones and the creation of a single new corporation. This was achieved through the mechanism of merger and acquisition.
This resulted in the rebasing of commercial banks and a raise from ₦2 billion to ₦25 billion was obtained. Rebasing has to do with up-to-date financial data in sources of revenue which resulted in an increase that can be attributed to new sectors that were realized.
Another effect of the rebasing was that the 89 existing commercial banks in the country became 25.
Apart from capitalization, the Central Bank of Nigeria also invested in banking automation with the aim of improving banking returns. Banking automation is the system of operating the banking process by highly automatic or mechanized means so that human engagement is reduced to the barest minimum.
The reform established a reporting portal for bank customers for the purpose of better means of information sharing.
Under this reform, deposits from public sectors and government-owned agencies can be collected by the commercial banks so as to increase their level of liquidity. Liquidity has to do with the conversion of liabilities into assets.
Banking Reform of 2009 and its Effect(s)
In 2009, the second phase of Nigerian banking reforms began.
In 2009, the Asset Management Corporation of Nigeria AMCON was established by the National Assembly of Nigeria.
This institution was founded with the mission of acquiring non-performing loans that belong to commercial banks. A non-performing loan (NPL) is a loan that is in default, that is payments of interest and principal are past due by 90 days or more. It could also mean when 90 days of interest payments have been capitalized, refinanced or delayed by contract between the two parties. AMCON was to address the issues of recapitalisation and management of the acquired assets.
The financing of AMCON was to be done by the Central Bank of Nigeria ₦50 billion funds and by 0.3% of total assets of involved commercial banks
The Asset Management Corporation of Nigeria also re-enacted the implementation of International Financial Reporting Standards (IFRS) for compliance with global reporting standards.
This reform was also to evaluate the universal banking model by limiting commercial banks to banking activities only. The reform also addressed extreme banking interest rates by creating non-interest banks.
The board announced its approval of the purchase of all the margin loans in the banking sector and all the non-performing loans of the rescued banks, which it totalled in an excess of N2.2trillion.
The Deputy Governor of the Central Bank of Nigeria, Sarah Alade also announced that five Nigerian bank CEOs were to be removed from their positions in August 2009.
It was announced that The Union Bank of Nigeria was to be headed by Funke Osibodu while Fin Bank was to be led by Suzanne Iroche.
Basically, banking reforms are made to achieve the goals of high economic growth, balance and stability. Banking reforms continue to be made in response to global financial crisis and mismanagements of Nigerian banks to boost confidence in the Nigerian banking system.