Origin of Banking in Nigeria
The origin of modern banking in Nigeria dates back to 1883 when the African banking corporation was established followed in 1884 by the establishment of the British bank of west Africa. Whereas the former collapsed shortly after its establishment, the latter has survived till the present day although its name has changed over the years, first to standard bank west Africa, standard bank of Nigeria and currently, first bank of Nigeria PLC. Other foreign banks established soon thereafter include the precursors of what are now known as union bank of Nigeria PLC. Owing to the fact that these banks were established to protect the interest of their foreign owners their policies were discriminatory against indigenous businessmen who, being denied credit facilities in these banks, were effectively excluded from the mainstream of the economy. The resultant feeling of alienation fueled the nationalist of the nationalist of the wholly indigenous banks in Nigeria. Between 1929 and independence in 1960 no less than 26 such banks were established but sadly only four survive till present day. These are national bank of Nigeria, Wema bank {formerly Agbonmagbe bank}, African continental bank of the north. As a result of the widespread public concern generated by the spate of collapse of indigenous banks, government setup the Paton’s commission to investigate the collapse of one of such banks. Its report laid the foundation for the enactment of the banking ordinance of 1952 which marks the beginning of banking legislation in this country.
The 1952 ordinance introduced for the first time legal requirements as to the establishment and operation of banks. It provided that no company can carry on banking business in Nigeria unless it holds a license for that purpose granted by the financial secretary. with this and other executive powers conferred by the ordinance, the financial secretary emerged as the pioneer supervisory and regulatory authority in this country’s banking industry. However, the feeling of some nationalists was that what was needed to address the problems confronting the industry was a central bank which would play a more wide ranging role in the economy and which would be better placed to take over and exercise the regulatory and supervisory powers then vested in the financial secretary. After several of debate and following the reports of Mr.J.B. Loynes in 1957 the colonial government passed the central bank of Nigeria ordinance 1958, establishing the central bank with the following functions
- Issuance of a legal tender currency in Nigeria
- Maintenance of external reserves so as to safeguard the international value of the currency.
- Promotion of monetary stability and a sound financial system.
- Banker and financial adviser to the federal government and
- Banker to other banks in Nigeria and Abroad.
Central bank of Nigeria
The 1958 central bank of Nigeria ordinance came into force on 1st July 1959 and since then the central bank has through a series of legislation assumed wider powers and increasing prominent loans in the development of Nigeria’s banking industry.
Also in 1958, the banking ordinance of 1952 was repealed and replaced by the banking ordinance of 1958. Under this enactment, the power vested in the financial secretary by the 1952 ordinance were transferred to “the minister in charge of banking”, that is, the federal minister of finance whose function then was to grant a banking license after consultation with the central bank. No company could carry on banking business in Nigeria unless it had a valid license granted under the ordinance but banking licenses granted under the repealed 1952 remained valid as if granted under the 1958 ordinance.
If upon an application for a banking license the minister was of the opinion that it was undesirable in the public interest to grant a license he was obliged to report the circumstances to the governor-general in council who might direct the minister to revoke the bank’s license and order it to wind up its business in Nigeria. The banking ordinance 1958 thus marked the beginning of joint function between the federal ministry of finance and the central bank of Nigeria {CBN} on the other, as regulatory authorities which remained until it was formally brought to an end by legislation in June 1991.by that time, it had become glaring that the involvement of the federal ministry of finance as the apex regulatory institution and an intermediary between the CBN and the federal executive council no longer served any useful purpose since the prevailing circumstances in the banking industry had become very different from those which prevailed in 1958.
During the 1960s decade, the CBN act was amended not less than eight times. The main thrust of the legislation was to strengthen the powers of the CBN while preserving its functions under the 1958 ordinance. By far the most prominent banking legislation of this period was the banking act 1969 which repealed and replaced the banking ordinance of 1958. Like its predecessor, the banking act of 1969 stipulated that no person could transact a banking business in this country unless it was an incorporated company holding a valid banking license granted by the finance minister {s.1}. every application for a license must be in writing and routed through the central bank. By subsequent amendment, it was provided that a license could not be granted unless a company’s objects as set out in the memorandum of association have been submitted through the CBN to the minister for his consideration and the minister has approved accordingly. This paved a way for the government to exercise control over the organizational structure of banks including the spread of ownership and choice of directors and top management, which controls have continued up till today.
Although, the incorporation as a limited liability company was a pre-requisite for the grant of a license It was initially not necessary that the company be incorporated in Nigeria. This changed however, when the companies Act 1968 made it compulsory for foreign companies operating in Nigeria to be incorporated under the Nigerian companies Act. Furthermore, any company wishing to establish business in Nigeria became obligated to be incorporated in Nigeria, thus subjecting them to the provision of Nigeria company law. This requirement continues under the companies and allied matters Act 1990.
Another statute which had profound effect on the banking industry in Nigeria was the Nigerian enterprises promotion Act 1977{NEP Act}. Whereas, the NEP Act 1972 was silent on banks. The 1977 act provided that not less than 60 percent of the equity or proprietary interest of the enterprises comprised in schedule 2 must be owned by Nigerians. Consequently, many of the banks then in operation had to effect a transfer of shares to Nigerians as to comply with the statutory requirement. From the vantage position of majority, ownership started upward mobility of Nigerians into top management positions and directorship in banks as well as other areas of the “commanding heights” of the economy. Having thus gained the opportunity to acquire high managerial experience, Nigerian bankers were encouraged once more to venture into the establishment of wholly indigenous private banks without any fear of calamity which befell their forebearers owing partly to their inexperience. In spite of the opportunities created by the indigenization programme, the growth of the banking industry in Nigeria remained slow as a result of over bureaucratization and the high entry barriers which government policy and the existing bank legislation permitted. Thus, when in the early 1980s banks began to reap huge profits, there was public discontent about the quality of service they rendered while they remained inaccessible to the large number of population. The banking industry like the other sectors of the economy was clearly, therefore, in dire need of modernization and revitalization when the second republic was terminated in 1983.
The myriads of government regulations and controls constituted serious impediments to national development. Innovations and competitiveness in the banking industry were lacking. This was the prevailing situation until July 1986 when government introduced the structural adjustment programme.
Comments are closed.