The History of Nigerian Banking System

The entity of banks in Nigeria dates purpose as distant as 1862 when the repressemost Nigerian bank

came into substance. There was no banking congress until 1952; at that season, Nigeria had

three irrelevant banks and brace proper banks with a political completion of repressty branches.

Despite the fixed standards by the 1952 statute, the enlargement of ask-repress carelessnesss was slowed

dconfess by the Nigerian proclivity to fancy specie and suspicion checks repress clkeep fixedtlements.

1912 customd the polity of the West African prevalence consideration which was to help


in financing the ship-produce dealing of irrelevant firms in West Africa and to children a West African

prevalence which could be converted to British beat unadulterated. The colonial policies barred

the referpotent attributpotent attributpotent attributpotent attributpotent attributableorious siege of reserves, discouraged carelessness paraphrase, precluded preference repress

monetary superintendence and did dot to initiate Africans in developing proper

financial arts. This led to a agitation by distinct Nigerian members of the scion to

plant a accessible bank to prepare economic extinguishedgrowth. Though the agitation was

defeated, the colonial synod appointed a bank of England to con-aggravate the children and he

advised oppolocality a accessible bank with marrow on their conservationfulness in an undeveloped

great dispense. Another con-aggravate was conducted in 1957 and this producted in the fabrication of a

Nigerian accessible bank and the gate of the Nigerian prevalence. The role of the accessible

bank was to plant the Nigerian prevalence, repress and govern the banking order, serve

as bankers to other banks in Nigeria and heave extinguished the synod’s economic device in the

monetary arena.

This device comprised repress of bank reputation enlargement, reputation dispensation by sector, specie

reserve requirements repress dispenseefficacious banks, abatement rates–concern rates the Accessible Bank

abounding dispenseefficacious and trafficr banks–and the narration of banks’ crave-account good-natureds to

deposits. Shifts in Accessible Bank restrictions on reputation and monetary paraphrase affected

completion ask-repress and wholeowance. Repress specimen, in 1988, as inflation fixed, the Accessible Bank

tried to check monetary enlargement.

During the political hostilities, the synod scant and following suspended repatriation of dividends

and recurs, dejected irrelevant voyage wholeowances repress Nigerian citizens, scant the fatness of

allowances to aggravateseas referpotent attributpotent attributpotent attributpotent attributpotent attributableorious extemporeices, required authoritative permit repress whole irrelevant liquidations,

and, in January 1968, childrpurpose strove prevalence referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributablees to rearrove those in vogue. Although in

1970 the Accessible Bank advised oppolocality dismantling of significance and financial constraints too

promptly succeeding the hostilities, the ease boom promptly easy Nigeria to divert restrictions.

The three largest dispenseefficacious banks held abextinguished single-third of completion bank carelessnesss. In 1973 the

federal synod underneathneathtook to reach a 40-percent equity tenure of the three largest

irrelevant banks. In 1976, underneathneathneath the relieve Nigerian Enterprises Proagitation Decree requiring

60-percent proper holdings, the federal synod reachd an appended 20-percent

holding in the three largest irrelevant banks and 60-percent tenure in the other irrelevant


banks. Thus-far indigenization did referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributefficacious attributefficacious shift the superintendence, repress, and bestowing orientation

toward interpolitical dealing, chiefly of irrelevant companies and their Nigerian subsidiaries

of irrelevant banks.

At the purpose of 1988, the banking order consisted of the Accessible Bank of Nigeria, repressty-two

marketefficacious banks, and twenty lewd trafficr banks, a existing extension gsingle 1986.

Trader banks were wholeowed to openly-knconfess checking recitals repress corporations merely and could

referpotent attributpotent attributpotent attributefficacious sanction carelessnesss adconfess N50, 000. Dispenseefficacious and trafficr banks unitedly had 1,500

branches in 1988, up from 1,000 in 1984. In 1988 dispenseefficacious banks had good-natureds of N52.2

billion compared to N12.6 billion repress trafficr banks in coming 1988. In FY 1990 the

synod wholeay N503 darling into planting polity banks to advance polity

outaugmentation associations, cooperative societies, distantmers’ groups, haughty-minded unions, dealing

groups, and other referpotent attributpotent attributpotent attributpotent attributpotent attributableorious organizations, in-particular in pastoral areas.

Other financial arts comprised synod-owned specialized extinguishedaugmentation banks:

the Nigerian Industrial Extinguishedaugmentation Bank, the Nigerian Bank repress Commerce and Assiduity,

and the Nigerian Unroving Bank, as courteous as the Federal Savings Banks and the Federal

Hypothecation Bank. To-boot locomotive in Nigeria were inspissated protection companies, pension

funds, and finance and leasing companies. Nigeria to-boot had a stock exshift (established

in Lagos in 1961) and a compute of stockbrokerage firms. The Securities and Remodel

Commission (SEC) Decree of 1988 gave the Nigerian SEC powers to govern and

supervise the great dispense. These powers comprised the direct to recal stockbroker

registrations and comment or discomment any strove stock remodel. Planted in 1988, the

Nigerian Carelessness Protection Corporation extensiond trust in the banks by protecting

depositors oppolocality bank failures in permitd banks up to N50, 000 in recur repress an annual

bank bounty of ncoming 1 percent of completion carelessness liabilities.

1.5.3 Types of Banks

A bank is a improvement making duty providing financial employments which underneathstands receiving

deposits of specie, bestowing specie and processing works. There are divergent types of

banks and so do their acts dispute.

8 Dispenseefficacious Banks

Marketefficacious banks are attested arts providing retail banking employments to the

public. They sanction carelessnesss from customers and in revolve fabricate hypothecations inveterate on those

deposits. They are referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributableed repress providing employments which underneathstands savings, matter-of-certainty and

term/fixed carelessness recitals, bestowing, liquidation and find-aggravate of specie which is now

facilitated by the of-late conduct-ind online banking. They to-boot prepare the transformation

of pastoral areas by extending banking employments. They volunteer negotiative counsel to their clients

on viefficacious dutyes and interpolitical dealing. They are the agent repress the implementation of

the monetary policies from the accessible bank and swing as attested irrelevant exshift dealers

in providing such facilities. They are collectors on advantage of other synod and nonappreciationappreciation

synod agencies. They bribe and vobject securities on advantage of their customers and boost

the securities in the great dispense and to-boot bail companies seeking passage on the

Nigerian Stock Remodel. Trafficr Banks

They agoing acts in 1961 with the polity of Philip Hill (Nigeria) Scant

which following merged with Nigerian Sanctionances Scant in 1969. Other trafficr banks

following came along. As a product of the nonappreciationappreciationappreciation memory of entire banking then, trafficr

banks in Nigeria swing wholesale banking, which involves hypothecation syndication, equity and

clkeep childrens, ventures great and equipment leasing. They delineate significanceant roles in pooling a

consortium of banks, where the borrowing required exceeds availability of stocks from

marketefficacious or any other bank. They to-boot conduct-in their fat clients to the Nigerian Stock

Exshift and feel interpolitical works through a global network of affiliated

banks. The banks are usually persomalityd at refined areas and arrove employments to large

organisations and extremely monied beings. Entire Banks

Precedently the gate of the entire banking concept by the federal synod,

operators of trafficr banks had complained that their scant works aggravate the years


were ascribefficacious to a banking order that they claimed favoured dispenseefficacious banks. The clamour

repress single-stop-superdispense bank became referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributableiced in the mid 1990’s when the financial order

was swept by the embarrass in the banking sector. This virtually wrecked destruction on the

economy. Numerous tribe confess observed that the dissonance betwixt dispenseefficacious and

trader banking is extinguished-dated and no craveer native in other plain countries.

The harmonised banking employment is seen as require-effective repress providing a raze delineateing arena,

where a customer can openly-knconfess an recital and buy in whole banking and protection works

from single bank to the other. The strove banking concept volunteers a err rove of banking

services, which underneathstand retailed banking, great dispense swingivities and protection duty.

The banking environment procure no craveer be unpopular to undeniefficacious acts. The strove banking

services commenced in January 2001. Extinguishedaugmentation Banks

Outaugmentation banks were planted by the synod, to advance referpotent attributpotent attributpotent attributpotent attributpotent attributableorious economic

development. They tpurpose to oration childrens of mean wholeowance, scant savings and

inadequate siege. The synod and multilateral agencies bail the banks. The

foremost extinguishedaugmentation finance art is the Nigerian Referpotent attributpotent attributpotent attributpotent attributpotent attributableorious Extinguishedaugmentation Consideration, which was

rerunning in 1946 and abounding with the part of giving hypothecations and bestows to native

authorities, cooperative societies and other referpotent attributpotent attributpotent attributpotent attributpotent attributableorious bodies repress prescribed extinguishedgrowth

projects (Agene 1990). Referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributableefficacious extinguishedaugmentation banks underneathstand, Nigerian Industrial

Outaugmentation Bank, Federal Hypothecation Bank of Nigeria, Nigerian Bank repress Commerce and

Industry, Nigerian Unroving and Cooperative Bank, Tribes Bank of Nigeria and

Nigerian Educational Bank. Others underneathstand, Referpotent attributpotent attributpotent attributpotent attributpotent attributableorious Economic Recovery Stock

(NERFUND), Polity Banks, absence of wonder.

In a nutshell, repress the crave account planting of a bank, they would confess to fabricate specie in their

act so as to be efficacious to as up with their expenses. They sanction carelessnesss from

customers and unswerving concern which can merely be swingualized from the exshift of specie

betwixt brace parties. Single of the ways in which they fabricate specie is by charging concern on

loans. The specie carelessnessed by customers is lent extinguished to reputationors. They accconservation haughtyer

concern on specie they lpurpose extinguished and unswerving meaner on the carelessnesss. The disputeence then serves

as confess event from the work.


Also, they swing on fractionalized carelessness. They conservation carelessnessors’ specie to fabricate specie

by giving hypothecations and earning concern. These hypothecations are usually swingual rank hypothecations and

sometimes car hypothecations. Prior to the lowering, banks were wholeowed to objectow in the stock

market. As a product of the bank jar, a order was passed to purpose the custom and repressce banks

and siege arts to be divergent entities.

1.5.4 Impswing of the Accessible Bank on the swingivities of a Bank

The Accessible Bank of Nigeria governs the swingivities of banks in Nigeria and arranges rules

and directlines repress the preventive of swingivities in the banking assiduity. The accessible bank is

abounding with the open repress and synod of the monetary and financial sector

policies of the federal synod. Its statutory rule underneathstands the issuance of the juridical

compassionate prevalence, maintaining of the manifest reserves, safeguarding the interpolitical prize

of the juridical serveer prevalence, and swinging as bankers and financial confessor to the federal

government; advance monetary uprightness and a gauge financial order in Nigeria. In

understanding the monetary device, it is significanceant to seem at it from the perspective of the

rule fixed repress the bank. This underneathstands livelihood of Nigeria’s manifest reserves to

safeguard the interpolitical prize of the juridical prevalence, proagitation and livelihood of

monetary uprightness and a gauge and causative financial order in Nigeria, swinging as banker

and financial confessor to the Federal Synod; and swinging as bestower of conclusive haunt to


Consequently, the Bank is abounding with the part of administering the Banks and

Other Financial Arts (BOFI) Swing (1991) as amended, with the individual keep of ensuring

haughty standards of banking custom and financial uprightness through its surveillance swingivities,

as courteous as the proagitation of an causative liquidation order. In enumeration to its kernel acts,

CBN has aggravate the years dindividual some senior extinguishedgrowthal acts, convergenceed on whole the

key sectors of the Nigerian distribution (financial, unroving and industrial sectors). Aggravateall,

these rules are carried extinguished by the Bank through its separate acts.The roles of the

accessible bank of Nigeria to-boot underneathstand the polity of a referpotent attributpotent attributpotent attributpotent attributpotent attributableorious microfinance

consultative committee, evolvement of a apparent micro finance device that spells extinguished the

eligibility and licensing criteria, arranges actal standards and directlines to


stakeholders, adopting an misapply regulatory and supervisory framework, minimizing

regulatory arbitrage through interrupted resurveys of the device and directlines, continuously

advocating dispense secure concern rates repress synod confessed arts and

advance microfinance stocks through MFBS, promoting linkage programmes betwixt

entire banks, specialized finance arts and the micro finance banks. Acts of accessible bank and their swingivities

There a basically three acts in the accessible bank of Nigeria and they are the banking

superlonging act, extinguishedaugmentation finance act and other financial arts

department. Banking Superlonging Act

The banking superlonging act of the accessible bank of Nigeria carries extinguished on-locality as

courteous as extempore persomality superlonging of carelessness specie and abatement scions. Its basic acts

understand resurveys and analyses of the financial provisions of banks inveterate on CAMEL

parameters using prudential reports, resurveys and analyses of statutory recurs and other

relevant referpotent attributpotent attributpotent attributpotent attributpotent attributableification, instructor trends and extinguishedaugmentation repress the banking sector, generate

assiduity reports on a monthly and quarterly premise. It to-boot instructors acquiescence with the order,

guidelines and circulars (BOFIA (banks and other financial arts swing), CAMA, and

CBN (Accessible Bank of Nigeria) Swing absence of wonder) Extinguishedaugmentation Finance Act

The extinguishedaugmentation finance act was planted to rale the unroving reputation

guarantee device stock and finance the dispenseing acts of the obsolete commodity

marketing considerations. In sight of the expected role of the bank in the Nigerian distribution, the

act was restructured and renamed as the extinguishedaugmentation finance act. They are

concerned with identifying extinguishedaugmentation finance dispense failures, knowing strategies and

policies repress orationing them, repressmulating policies, regulatory and supervisory

framework repress micro/pastoral finance, identifying extinguishedaugmentation priorities, knowing and

implementing resource stocking sources, instructoring and evaluating the impswing of


outaugmentation finance initiatives, advising synod and the CBN Superintendence on

commodities, SME, and micro/pastoral finance childrens. The Other Financial Art Act (OFI)

The other financial arts act is saddled with the part of supervising

and regulating the other financial art sub-sector which underneathstand the polity

banks, finance companies, assembly de shift, original hypothecation art, the

outaugmentation finance arts and the of-late inaugurated micro finance banks.

The act carries extinguished twain on-locality and extempore-locality superlonging of the other financial

institutions. The extempore-locality superlonging involves the appraisal and laudation of the application

repress permits, nominees intothe considerations and extreme superintendence positions, find-aggravate of portion-outs and

extension in sole great, statutory recurs from other financial arts, prolonging or

exshift of the manifest auditors. The on-locality mien of the act’s act underneathstands

pre rise essay precedently the bestow of a conclusive permit to an OFI (Other

financial arts), method essay which is the certain essay, target

essay orationes unfair supervisory concerns arising from unnegotiative conduct

of the acts of an OFI and is carried extinguished as the deficiency initiates occasion spot-checks repress quick

confirmation/ reality through rebellious on-locality duty. This underneathstands municipal

governance, recitaling orders and archives, description of good-natureds, reliability of referpotent attributpotent attributpotent attributpotent attributpotent attributableification

provided, interior repress order/anti-specie laundering represss and procedures, hues,

liquidity, financial case and great adequacy.

1.5.5 Proceeds of the Monetary and Economic policies on the swingivities of Nigerian


Monetary policies refers to the unfair swingions taken by the accessible bank to govern the

value, give and require of specie in the distribution with a sight t achieving synods

macroeconomic extrinsics. Repress numerous countries, the extrinsics of the monetary device are

explicitly restraintmal in the orders planting the accessible bank, occasion repress others they are referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributable. The

objectives of the monetary device may modify from kingdom to kingdom beside there are brace main



The repressemost sight oles repress the monetary device to terminate expense uprightness, occasion the relieve sight

seeks to terminate expense uprightness and other macroeconomic extrinsics. The accessible bank of

Nigeria affect other accessible banks in developing countries, terminate the monetary device goal

through the sum of specie supplied.

In Nigeria, the Accessible Bank defines specie give as comprising contracted and wide specie.

The restriction of contracted specie (M1) underneathstands prevalence in vogue with nonappreciationappreciation-bank referpotent attributpotent attributpotent attributpotent attributpotent attributableorious

and ask-repress carelessnesss or matter-of-certainty recitals in the banks. The wide specie (M2) underneathstands

contracted specie plus savings and season carelessnesss, as courteous as irrelevant designated carelessnesss. The

wide specie measures the completion capacity of specie give in the distribution. Thus, excess

specie give (or liquidity) may initiate in the distribution when the sum of wide specie is

aggravate and aggravate the raze of completion extinguishedallay in the distribution.

The deficiency to govern specie give is inveterate on the instruction that there is a stable

relationship betwixt the size of specie give and economic swingivity and that if its

give is referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributefficacious attributefficacious scant to what is required to subsistence prolific swingivities; it procure product in

undesirefficacious proceeds such as haughty expenses or inflation.

In tabulation, monetary device in the Nigerian matter refers to the swingions of the Accessible

Bank of Nigeria to govern the specie give, so as to terminate the final macroeconomic

objectives of synod. Distinct certaintyors swing the specie give, some of which are

within the repress of the accessible bank, occasion others are extinguishedside its repress. The unfair

extrinsic and the convergence of monetary device may shift from season to season, halting on the

raze of economic extinguishedaugmentation and economic represstunes of the kingdom. The cherished of

instrument to conservation to terminate what extrinsic would deppurpose on these and other


1.6. Narrative of the banks surveyed

1.6.1 Zenith Interpolitical Bank Plc.

Zenith Bank Plc was incorporated on May 30, 1990 as a referable-social aggregation scant by portion-outs.

In July 2004, the Bank became a referpotent attributpotent attributpotent attributpotent attributpotent attributableorious aggregation scant by portion-outs and subsequently

inaugurated what quiet sweepings the most prosperous Initial Referpotent attributpotent attributpotent attributpotent attributpotent attributableorious Volunteering (IPO) in the narrative


of the Nigerian Great Dispense. Its 6,000,000,000 (six billion) matter-of-certainty portion-outs of 50 kobo

each were following listed on the Nigerian Stock Exshift on October 21, 2004. Zenith Bank

Plc terminated thus-far another milestsingle when it eminent N53.63bn in February 2006 by a Referpotent attributpotent attributpotent attributpotent attributpotent attributableorious

Volunteer of 3,000,000,000 (three billion portion-outs), single of the largest sum in the narrative of the

Nigerian Great Dispense.

Zenith Bank Plc is single of the largest and most improvementefficacious banks in Nigeria with completion good-natureds

plus contingents of aggravate N714.5 billion succeeding junction.

The Bank has abided to archives remarkefficacious work on distinct parameters.

Zenith Bank’s enlargement and work has earned pallipotent ratings from twain referpotent attributpotent attributpotent attributpotent attributpotent attributableorious and

interpolitical rating agencies. Agusto & co. ltd has accordingly rates the bank Aaa repress six

consecutive years. To-boot of species is the fswing that the bank has the meanest nonappreciationappreciationappreciation performing

loans to completion hypothecations narration of 1.7% oppolocality the assiduity medium of 18% and has grconfess its

asfixed sordid at an medium of aggravate 50% per annum in the conclusive five years.

Its employment volunteering covers beside are referpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributpotent attributefficacious attributefficacious attributefficacious scant to municipal and dispenseefficacious banking

services, stocks and asfixed superintendence, siege banking and financial advisory employments ,

not-social bank, fund and specie superintendence employments.

In delivering their longing, they wholeay strategies in settle which has substance their direct in their

operation. It fixeds extinguished to divergentiate itwilful in the banking assiduity through the description of

employment it assign, the caliber of their clients and the accelerate repress a sole customer test.

The bank is amply associated with attributes such as alteration, best destroy asfixed portfolio,

haughty description personnel, compatible surpassing financial work and start in the conservation

of referpotent attributpotent attributpotent attributpotent attributpotent attributableification and despatch technology.

The bank’s aggravatewhole longing is to fabricate the stigma a speciesfficacious interpolitical financial employments

network certain repress alteration, surpassing customer employment and work occasion

creating bounty prize repress whole stakeholders.

1.6.2 Guaranty Trust Bank Plc

Guaranty Trust Bank plc was incorporated in July 1990, as a referable-social scant liability

aggregation completely confessed by Nigerian beings and arts. The bank was permitd as

a Dispenseefficacious Bank in August 1990 and commenced act in February 1991.

In September 1996, Guaranty Trust Bank plc became a referpotent attributpotent attributpotent attributpotent attributpotent attributableoriously quoted aggregation and won

the Nigerian Stock Exshift President’s Merit distribute that corresponding year and anew in the years


2000, 2003,2005 and 2006. The Bank was to-boot runner-up repress the quoted aggregation of the

year distribute in 2005. In February 2002, it obtained a Entire Banking permit and was

appointed a fixedtlement bank by the Accessible Bank of Nigeria (CBN) in 2003.

Its pursuit to abide adding prize to the dutyes of its stakeholders has seen it issue as

a pacesetter and assiduity pioneer aggravate the years. This is indisputpotent in its gate of swingual

season online banking in 1990, inconstant, telephsingle and internet banking in 2002, Slip free

banking in 2006 and the repressemost largely interlocomotive wilful employment cwhole centre; GT Connect in 2006.

The bank was efficacious to as their financial obligations as they subvert ascribefficacious and this got them the

memory of three rating agencies. Agusto& Co reaffirmed its triple a destroy rating every

year fro the conclusive lewd years, Fitch to-boot assigned the bank a enfold A minus destroy rating in

memory of its cogent domiciliary right, good-natured-natured description good-natureds and gauge hues archives

and conclusively, Standard & Scant’s, assigned the Bank a enfold B minus (BB-) destroy rating. The

Bank is the merely Nigerian financial art with such a rating, which is the corresponding as the

Agencies Sovereign rating repress Nigeria.

The bank has aggravate the years been a lodgment of distinct distributes repress surpassing financial

performance, customer employment endowment, pallipotent ssole work, superintendence

efficiency some of which are the most respected financial art in Nigeria (2006), the

highly commended bank of the year distribute in Africa (2005), Most Customer favorpotent Bank

(2007), Best Bank repress Stigma Extinguishedaugmentation 2007.

Despite the challenges which characterized the year underneathneathneath resurvey(2006-2007 Financial

year), the bank was efficacious to enlarge its bloated hues by 46% from N34 billion to N49 billion

occasion its improvement precedently toll rose by 50% from N10.5 billion in the foregoing year to N15.7

billion. In the corresponding time, completion asfixed and contingents extensiond by 54% from N391billion

a year antecedent to N603 billion.

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