THE BANKING INDUSTRY IN THE LAST FIFTY YEARS

BY KABIR RIDWAN, ABUJA

The evolution of banking in Nigeria pre-dates the nation’s independence. It began with the activities of Elder Dempester and Company Limited of Liverpool, United Kingdom in 1892. Other notable organizations in the early times include the Nigerian Mercantile Bank Limited, Nigerian Farmers and Commercial Bank Limited, British and French Bank (which transformed to UBA) to the era of the Agbonmagbe Bank in 1945 which later transformed to WEMA Bank and African Continental Bank. However, most of the banks which had operated in Nigeria prior to independence were plagued by the challenges of poor capital base, INCOMPETENT management, stiff competition from foreign competitors and the recession of the 1930s. One important FACTOR which led to such massive bank failures was absence of regulatory framework, thus BETWEEN 1929 – 1952 HAS BEEN DESCRIBED as the era of “free” banking. HOWEVER, THE PERIOD FROM 1952 TO 1959 WAS THAT of legislation and regulation with the enactment of the Banking Ordinance of 1952 and the establishment of THE central bank in Nigeria. The 1958 Central Bank of Nigeria Act charged the Bank with responsibilities which include the issuance legal tender currency, the Maintenance of Nigeria’s external reserves to safeguard the external value of the domestic currency, the Promotion of monetary stability and a sound financial system as well as Acting as a banker and financial adviser to the Federal Government This laid the platform for the coordination and regulation of banking activities. More so, the prevailing situations at various points in time have necessitated the amendments to this Act. For instance, the 1969 Banking Act was enacted to correct the perceived weaknesses in the banking system and restore public confidence. The Nigerian Deposit Insurance Corporation was also established in 1988 to complement the CBN’s role in the financial system. In 1991, the Banking and Other Financial institutions Act was proclaimed to replace both the Central Bank of Nigeria Act of 1958 and Banking Act of 1969 in order to strengthen the powers of the CBN. This was also followed by a recent amendment in 2007, which placed “monetary and price stability on the front burner of the nation’s economic landscape. The banking industry segment of the Nigerian financial system which include the licenced Deposit Money Banks, Discount Houses, Finance Companies, Bureaux De Change, Primary Mortgage Institutions and Microfinance Banks have transformed over the years to assume the level of sophistication comparable to other emerging economies. Such areas of sophistication include new business models in terms of expansion and competition, product development, technology leverage, regulation and supervision. Be that as it may, the primary role of any banking system is financial intermediation; whereby financial resources are pooled from areas of surplus and channeled to areas of needs with a view to ensuring steady and balanced economic growth.
However, in the case of Nigeria in the past 50 years, it is quite debatable if this significant role has discharged by the banks. To the average man on the street, banks were wont to declare huge profits on annual basis at the expense of the larger economy. There have been complaints of dearth of credits facilities in the system. Banks are being dubbed as parasites and risk averse by leveraging on thriving businesses or sectors only instead of assisting to nurture viable business ideas and enterprise to fruition. It is on record that citizens have at various times lost their live savings to bank failures. The issue of incessant bank failures, largely due to poor corporate governance, insider abuses, and ripping of customers has characterized the industry in past decades. The art, confidence and trust which are the hallmark of banking business have grossly eroded until recently when the management of the apex Bank has assured on the safety of deposits in the Nigerian banks. Without holding brief for the banks, it is pertinent to point out that those funds were being kept in trust for the depositors and there is the need to be cautious in managing such funds in the name of granting credit. The cheering news about the banking industry is that it has contributed immensely and even matched the fast pace of the nation’s development. And more than ever before, the regulatory authorities in recognition of the fact that genuine growth in the financial system is tied to the development of the real sector is taking the lead in ensuring that financial system contributes to the improvement of the real sector. It is heartwarming that efforts are been intensified to ‘unlock’ the credit market for the real sector. In determining the way forward for the financial system, the onus is therefore, on the CBN and all other stake holders to evolve a safe and sound banking industry as it is too critical for the development of Nigeria’s economy. The journey to a prosperous financial system has just begun.

Source: recorded live from FRCN daily commentary