For old ages it has been hard to happen an acceptable definition of a bank. Several efforts have been made to offer a comprehensive and acceptable definition. Get downing from J.W. Gilbart, who defined Bankss as intermediate parties between borrower and loaner ( Iganiga, 1998 ) . This is so because the Bankss borrow from one party and lend to the other. Though this definition emphasized the two traditional maps of a bank which are mobilisation of depositions and granting of loans and progresss.
However, Bankss of today have expanded well by embarking into different maps thereby invalidating the fullness of Gilbart ‘s definition. In 1969, the Banking Act of England defined Banking by the undermentioned activities:
1. The concern of having money from outside beginnings as sedimentation irrespective of the payment of involvement.
2. The granting of loan, credence of recognition or the purchase of measures, check and gross revenues of securities.
3. The purchase and gross revenues of securities on behalf of clients.
The above definition fits better into the modern twenty-four hours function of Bankss in the economic system because it goes beyond the aggregation of depositor ‘s fund. The major end of the bank is to lend significantly to accomplish the declared macroeconomic aim of economic transmutation.
ROLES OF A BANK
Banks offers assorted functions runing from the followers:
Payment services: A bank is obliged to pay back to the client any sum as specified by the client harmonizing to the value of the history held ( Freixas & A ; Rochet, 2008 ) . A bank client may besides desire his check cashed up to a declared sum and within a specified period, at another subdivision of the bank or another bank.
Lending map: The sedimentations in the Bankss need non be left idle as non all sedimentations are requested for by depositors at a clip. It is hence prudent for the banker to impart such money to investors at a higher rate which brings some gross to them. They achieve this through overdraft, loans, measures discounting or through direct investing ( Idahosa, 2000 ) .
International trade services: Banks help supply the nexus through which payments for goods and services bought or sold by importers and exporters can be settled. In add-on, they provide warrant to exporters who need such warrant before they can let go of their goods ( Isedu, 2001 ) .
Currency dealing: Banks trade on foreign currencies particularly US Dollars and Pound sterling. They engage competitively in foreign currency dealing as it provides them a important beginning of gross.
Performance bond services: A public presentation bond is issued on behalf of clients in the existent sector of the economic system where they are required to provide the bond before they can tender for contract. The bonds guarantee that the company has equal fiscal resources to put to death the contract successfully.
Liquid: Liquid in banking refers to assets that can easy be converted into hard currency. Money in the signifier of hard currency is regarded as most liquid plus in the banking industry ( Freixas & A ; Rochet, 2008 ) . In order to execute this function, Bankss offer salvaging, sedimentation and current installations to the populace. Banks besides help in maintaining other exchangeable equities like certification of tenancy, portion certification, workss of conveyance etc.
THE NIGERIAN Banking Industry
The Nigerian banking industry which is regulated by the Central Bank of Nigeria, is made up of sedimentation money Bankss referred to as commercial Bankss, development finance establishments and other fiscal establishments which include ; micro-finance Bankss, finance companies, agency de alterations, price reduction houses and primary mortgage establishments.
There is no uncertainty that the banking sector plays a important function in the Nigerian economic system. Banks facilitate economic growing in a assortment of ways. In the first case, they act as fiscal mediators between the excess bring forthing units and the shortage disbursement 1s. In kernel they tend to travel resources from the former to the latter thereby bring forthing the needed productive economic activity. Banks besides play a polar function in an economic system by supplying a mechanism for producers/buyers and consumers/sellers to settle minutess between themselves. They do this non merely within a state but besides across national boundaries through extremely efficient and technologically enabled payments systems. In the procedure, Bankss encourage specialisation and division of labour, a major advantage of which is the enhanced production and economic growing of the state. Nigerian banking industry has been driven and influenced by a figure of factors these are: the extended subdivision web of the old coevals Bankss every bit good as the client confidence/loyalty built over the old ages. The investing of these Bankss besides includes a considerable proportion of public sector financess being deposited.
History of Nigerian Banking Industry
The Nigerian Government has experienced series of ‘buyouts ‘ and ‘takeovers ‘ since 1892 and harmonizing to Rasheed Olajide Alao ( European Journal of Social Sciences – Volume 15, Number 4 ) can be phased into three ( 3 ) viz. the embryologic stage, the enlargement stage and the consolidation/reform stage.
The embryologic stage: In 1892 the Nigerian banking system was pioneered by The African Banking Corporation whose headquarter is in South Africa subsequently followed in 1894 by the British Bank for West Africa ( known today as First Bank of Nigeria Plc ) while Barclays Bank D.C.O. ( now Union Bank of Nigeria Plc ) and the British and Gallic Bank ( now United Bank for Africa Plc ) were established in 1925 and 1949 severally. Autochthonal banking in Nigeria began February 1933 by the constitution of the National Bank of Nigeria Limited, Agbonmagbe Bank Limited ( now Wema Bank ) followed suit in 1945 and African Development Bank Limited ( known today as African Continental Bank Plc ) was founded in 1948. The inflow of autochthonal Bankss brings about fight in the banking industry as against the early monopoly enjoyed by the foreign owned Bankss.
The enlargement stage: The 2nd stage fundamentally was the enlargement of the Nigerian banking sector to the Rural Banking Scheme in 1977, so People ‘s Bank in 1989 and Community Banks ( known today as Microfinance Banks ) in 1990 all these were to promote community development associations, concerted societies, husbandmans ‘ groups, loyal brotherhoods, trade brotherhoods and other local organisations particularly in rural countries.
The consolidation/reform phase: This stage was staged on January 1, 2006 when the Nigerian 80 nine ( 89 ) Bankss shrunk to twenty five ( 25 ) . The consolidation exercising so required Bankss to raise their minimal capital base from N2billion to N25 billion, with December 31, 2005 as deadline. The chief ground was to bring forth a mega-banks from the so bing 89 Bankss as most of them were periphery participants and financially unsound ( Soludo, 2008 ) . Other fiscal establishments included government-owned specialized development Bankss: the Nigerian Industrial Development Bank, the Nigerian Bank for Commerce and Industry, and the Nigerian Agricultural Bank, every bit good as the Federal Savings Banks and the Federal Mortgage Bank. Besides active in Nigeria were legion insurance companies, pension financess, and finance and renting companies.
STRUCTURE, LEGAL AND REGULATORY FRAMEWORK
Structure: Regulative Governments
The Nigerian fiscal system comprises bank and non-bank fiscal establishments which are regulated by the Federal Ministry of Finance ( FMF ) , Central Bank of Nigeria ( CBN ) , Nigeria Deposit Insurance Corporation ( NDIC ) , Securities and Exchange Commission ( SEC ) , National Insurance Commission ( NIC ) , Federal Mortgage Bank of Nigeria ( FMBN ) , Financial Services Coordinating Committee ( FSCC ) and the National Board for Community Banks ( NBCB ) .
The Federal Ministry of Finance ( FMF )
The Federal Ministry of Finance advises the Federal Government on its financial operation and co-operates with CBN in pecuniary affair. Recent amendment to the Torahs of the Central Bank of Nigeria compels it to describe through the Federal Ministry of Finance to the Presidency.
Functions of the Ministry
The followers are the maps of the Federal Ministry of Finance:
1. Fixing one-year estimations of gross and outgo for the Federal Government:
2. Explicating policies on financial and pecuniary affairs ;
3. Mobilizing domestic and external fiscal resources through both internal and external fiscal establishments, for development intents.
4. Keeping equal foreign exchange militias aimed at guaranting a healthy balance of payment place ;
5. Keeping the internal and external value and stableness of the Nigerian currency ; supervising authorities gross from oil and non-oil resources ;
6. Oversing the insurance industry ;
7. Pull offing gross allotment affairs ;
The Central Bank of Nigeria ( CBN )
The CBN is the apex regulative authorization of the fiscal system. It was established by the Central Bank of Nigeria Act of 1958 and commenced operations on 1st July 1959. Among its primary maps, the Bank promotes pecuniary stableness and a sound fiscal system, and acts banker and fiscal adviser to the Federal Government, every bit good as banker of last resort to the Bankss. The Bank besides encourages the growing and development of fiscal establishments. Enabling Torahs made in 1991, gave the Bank more flexibleness in regulation and supervising the banking sector and licencing finance companies which hitherto operated outside any regulative model.
The Nigerian Deposit Insurance Corporation ( NDIC )
The NDIC compliments the regulative and supervisory function of the CBN. It is nevertheless independent of the CBN and studies to Federal Ministry of Finance. The NDIC efficaciously took off in 1989 and was set up to supply sedimentation insurance and related services for Bankss in order to advance assurance in the banking industry. The NDIC is empowered to analyze the books and personal businesss of insured Bankss and other deposit-taking fiscal establishments. Licensed Bankss are mandated to pay 15/16 of 1 % of their entire sedimentation liabilities as insurance premium to the NDIC. A depositor ‘s claim is limited to maximum of N50000.00 in the event of a bank failure.
Securities and Exchange Commission ( SEC )
This organic structure was established in 1979. The Apex regulative organ of the capital market. Major aim is the publicity of an orderly and active capital market. In modulating the market, the Commission undertakes the undermentioned activities meant to protect investors, market operators and besides ensures that market unity is maintained:
A. Registration of securities and market mediators to guarantee that merely fit and proper persons/institutions are allowed to run in the market.
B. Surveillance over the exchanges and trading systems in order to prevent breaches of market regulations every bit good as to discourage and observe unjust uses and trading patterns to forestall market break.
C. Investigation of alleged breaches of the Torahs and ordinances regulating the capital market and enforcement of countenances where appropriate.
National Insurance Commission ( NIC )
The National Insurance Commission was established in 1997 by NAICOM Act No. 1 of 1997 with the chief aim of heightening the effectual disposal, supervising, ordinance and control of insurance concern in Nigeria. Its mission is to advance subject and criterions that stimulate long-run viability of Nigeria ‘s Insurance Industry, positioning it for planetary competition.
The Federal Mortgage Bank of Nigeria ( FMBN )
The FMBN took over the assets and liabilities of the Nigerian Building Society. The FMBN provides banking and advisory services, and undertakes research activities refering to lodging. Following the acceptance of the National Housing Policy in 1990, The FMBN is empowered to license and modulate primary mortgage establishments in Nigeria and act as the apex regulative organic structure for the mortgage finance industry. The funding map of the Federal Mortgage Bank of Nigeria was carved out and transferred to the Federal Mortgage Finance, while the FMBN retains its regulative function. The FMBN is under the control of the Central Bank.
Financial Services Coordinating Committee ( FSCC )
This is a commission established to organize the activities of all regulative establishments in the fiscal system. The Committee is chaired by the Federal Minister of Finance. The CBN in April 1994 undertook to ease a formal model for the co-ordination of regulative and supervisory activities in the Nigerian fiscal sector by set uping the Financial Services Coordinating Committee ( FSCC ) to turn to more efficaciously, through audiences and regular inter-agency meetings, issues of common concern to regulative and supervisory organic structures. The name of the Committee was later changed to Financial Services Regulation Coordinating Committee ( FSRCC ) .
The aims of the reconstituted Committee were to:
Organize the supervising of fiscal establishments ; Cause the decrease of arbitrage chances normally created by differing regulative and supervisory criterions among supervisory governments in the state ;
Deliberate on jobs experienced by any member in its relationship with any fiscal establishment ;
Eliminate any information spread encountered by any regulative bureau in its relationship with any group of fiscal establishments ;
Articulate the schemes for the publicity of safe, sound and efficient patterns by fiscal mediators
Deliberate on such other issues as may be specified from clip to clip.
THE CENTRAL BANK OF NIGERIA
Cardinal Banks all the universe over merely refers to a cardinal authorization or an apex fiscal establishment within the full fiscal construction which is poised with the undertaking of advancing pecuniary stableness and a sound fiscal system. Cardinal Bankss carry out assorted maps and differ in footings of constructions and powers compared to Deposit Money Banks. Before the constitution of Central Bank of Nigeria by the CBN Act of 1958, there has been in being a organic structure known as the West African Currency Board ( WACB ) . The organic structure was established by the so British Colonial Government, which was to function as a Central Bank for the Anglophone West African states. Therefore, the board was charged with the primary duty of publishing the West African Pound, which served as the legal stamp currency in Ghana, Nigeria, Sierra-Leone and Gambia. Furthermore, the organic structure was charged with the direction of the militias held in trust for these settlements. Such militias were invested by the board on behalf of the West African states as instruments in the London Money Market. The failing of the board for which it was criticized is as follows:
It carried on commercial banking activities alongside other commercial Bankss ;
The board lacked the basic setup to command the supply of money ;
A§ The board got involved in physical distribution of currency from one point to another ;
Its activities were considered discriminatory against autochthonal West African industrialist ;
It was non on the development of the settlements and most of its activities were based on commercialism and trade.
These factors led to the widespread agitation for autochthonal Cardinal Banks in the country. Not long subsequently, the Central Bank of Nigeria was established.
Central Bank Act, 1958.
The Central Bank of Nigeria ( CBN ) is the apex regulative authorization of the fiscal system in the state. It was established by the CBN Act of 1958 and commenced operations on July 1st, 1959. The announcement of the CBN edict 24 and Banks and other fiscal establishments ( BOFI ) Decree 25, both in 1991 gave the bank more flexibleness in ordinance and supervising of the banking sector and licencing finance companies which hitherto operated outside any regulative frame work. The Central Bank Act, 1958 and the Banking Decree of 1969 constituted the legal model within which the CBN operates and regulates Bankss. The broad scope of economic release and deregulating steps following the acceptance in 1986 of a Structural Adjustment Programme ( SAP ) which resulted in the outgrowth of more Bankss and other fiscal mediators.
The Banks and Other Financial Institutions ( BOFI ) Decrees 24 & A ; 25 of 1991, which repealed the banking Decree, 1969 and all its amendments were hence enacted to beef up and widen the powers of CBN to cover the new establishments in order to heighten the effectivity of pecuniary policy, regulative and supervising of Bankss every bit good as non- banking fiscal establishments.
Unfortunately, in 1997 the Federal Government Of Nigeria enacted the CBN ( amendment Decree No 3 and BOFI ) Decree No 4 in 1997 to take wholly the limited liberty enjoyed by the bank since 1991. The 1997 amendment brought the CBN bank under the supervising of the Ministry of Finance. The Decree made CBN straight responsible to the Minister of Finance with regard to the supervising and control of bank and other fiscal establishments, while widening the supervisory function of the bank to other specialised Bankss and fiscal establishments. The amendment placed tremendous powers on the Ministry of Finance while go forthing the CBN with a subjugated function in the monitoring of the fiscal establishments with small room for the Bank to exert discretional powers.
The CBN Act, 2007 which is the current legal model within which the Bank operates. It repealed the CBN Act of 1991 and all its amendments. The current Act provides that the CBN shall be a to the full independent organic structure in the discharge of its maps under the Act and the Banks and Other fiscal Institutions Act with the aim of advancing stableness and continuity in economic direction. In line with this, the Act widened the objects of the CBN to include guaranting pecuniary and monetary value stableness every bit good as rendering economic advice to the Federal Government.
Aims of Central Bank of Nigeria:
To advance pecuniary stableness and a sound fiscal system.
To function as banker to other Bankss within Nigeria and abroad.
To function as the banker and fiscal advisor to the Federal Government.
The issue of legal stamp currency in Nigeria.
To keep the external modesty and value of the legal stamp in order to safeguard the international value of the currency.
Functions of Central Bank of Nigeria:
To accomplish the above aims, CBN undertakes the undermentioned maps as stated in the Act. The basic maps performed by CBN can be loosely categorized into three viz. traditional maps, regulative maps and developmental maps.
1. It issues the legal stamp ( currencies ) – Naira and Kobo.
2. It acts as the Banker and fiscal advisor to the federal authorities.
3. CBN act as the banker to other Bankss and finance establishment.
4. It manages the histories and debt of the state.
5. CBN act in banking supervising and scrutiny.
The regulative maps of the CBN are chiefly directed at the aim of advancing and keeping the pecuniary and monetary value stableness in the economic system. To execute this regulative map CBN formulates policies to command the sum of money in circulation, control other Bankss and major participants in the fiscal market, control rates of Bankss credits and therefore the supply of money in the economic system. The instruments used by CBN to accomplish these maps are ; Open Market Operation ( O.M.O ) , Bank Rate, Rediscount Rate, Direct Control of Banks ‘ Liquidity, Direct Control of Bank Credit, Special Deposits, Moral Persuasion, Minimum Cash Ratio.
The constitution of CBN in 1959 was premised on the demand to advance and speed up the much needed economic growing and development in Nigeria, which would constantly advance the growing of the fiscal market. This fiscal market comprises the Money and Capital market, aid to development Bankss and establishments and the preparation and executing of authorities economic policies. The CBN besides helps to advance and help the development Bankss and establishments. These include the Nigerian Industrial Development Bank ( NIDB ) , the Nigerian Banks for Commerce and Industry ( NBCI ) , the Nigerian Agricultural Insurance Company ( ( NAIC ) , the Federal Mortgage Bank of Nigeria ( FMBN ) , the Nigerian Deposit Insurance Corporation ( NDIC ) , the Nigerian Export-Import Bank ( NEXIM ) and the Securities and Exchange Commission ( SEC ) .
The CBN is involved in the preparation and executing of feasible economic policies and steps for the authorities. Besides since 1970, the bank has been instrumental in the publicity of entirely owned Nigerian endeavors. Therefore, the recent directive to Bankss to put aside 10 % of their net incomes before revenue enhancement to finance Small and Medium Scale Enterprises.
The CBN is faced with a figure of jobs in the Nigerian fiscal sector, among these jobs are as follows:
1. One of the weaknesss of the CBN is their inability to steer against unethical actions of Commercial Bankss in the countries of money laundering, interbank forex exchange, fraud etc ;
2. The CBN ‘s inability to control the current lifting inflationary rate in the state ;
3. Its deficiency of effectual regulative steps has led to high loaning rates imposed by commercial Bankss on their clients ;
4. It besides lacks the capacity to efficaciously put to death Government economic policies.
5. The organic structure has been unable to advance the needful redemptive civilization among Nigerians which could hold helped the state ‘s capital base.
The Central Bank of Nigeria in its command to control Bankss unethical actions have sporadically increased their capital base and have instituted the Inter-bank foreign exchange market to look into capital flight and to modulate foreign exchange rates.
CBN has besides achieved a degree of liberty since the coming of the democratic dispensation in Nigeria, this is reflected in her aggressive executing of Government economic policies in the countries of orientating the Nigerian public to encompass the nest eggs civilization, the encouragement of foreign investors by making an enabling environment/policies for investing and above all the facilitation of good behavior of pecuniary and financial policies for guaranting macroeconomic stableness and stable administration.
Recent moves by the Central bank to tap into the illimitable chance derivable in the Information Technology universe are besides portion of its accomplishments. This is reflected in the monolithic publicity of Universal Banking in the state. The CBN took the bull by the horn by first get downing a restructuring and reengineering undertaking which is perceived to undertake the concern processes in its structural and institutional lacks to heighten its effectivity, efficiency and productiveness.