Essentially the industry consists are 24 commercial banks, 5 discount houses, 5 development finance institutions, 50 class A bureau de change, 598 bureau de change, 98 Primary Mortgage Institutions, 84 finance companies and 914 Micro-finance institutions.
Before we arrived here however, there is a history which must be preserved for the sake of posterity. That is the cardinal reason for releasing this report - to preserve information. This report can arguably pass for the only remaining public knowledge of the history of banking in Nigeria.
The report traces the history of banking in Nigeria from 1892 to 2010 presenting 118 years of complete banking history. Right from the establishment of the foundation banks in Nigeria, the African Banking Corporation and the Bank of British West Africa to the first attempt at an indigenous bank in Nigeria in 1929 up until the establishment of the Central Bank of Nigeria in 1959. Moving also to the SAP and the liberalization of the financial services sector in 1986 up till the 2005 consolidation and the most recent establishment of the Asset Management Company.
The report is introduced with a 118 year chronology of banking in Nigeria followed by well laid pieces on developments in the industry over the period in review.
A list of all the Governors (past and present), a list of the banks that were liquidated by the NDIC between 1994 and 1998 plus a list of Nigeria’s oldest banks is also contained in this report. Also inside is a list of today’s banks and the mergers that formed them.
Banking Sector Reform in Nigeria
Banking Sector Reform in Nigeria had been introduced in 2004. The
government aimed to establish a reliable and efficient banking sector
so that it could guarantee the safety of the depositors' money.
- In Nigeria, most of the banks had a low capital base, less than 10 million US dollars.
- The
local banks in Nigeria were not very efficient and also their capacity
was low. So, the government had to depend a lot on the foreign banks.
- Nigeria had been suffering from a weak corporate governance and insolvency for a long time. So the government failed to provide a sound banking system.
- Most of the banks in the country depended upon the public sector deposits which was lowering their capital base.
- The public funds had not been distributed equally among all the banks.
Reform Process:
Incentives from the Central Bank of Nigeria: The Central Bank of Nigeria (CBN) provided some incentives for the banks so that they could achieve the minimum capital base within 2005.
These are:
- CBN allowed the banks to deal through foreign exchange.
- The banks were permitted to take deposits from the public sector and the fiscal authorities were made responsible for the collection of revenue from the public sector.
- Some tax incentives were provided for the banks in the area of stamp duty and capital allowance.
- Transaction costs had been minimized.
- The government formed an expert panel to provide technical support to the banks.
The ongoing banking
reforms in Nigeria are an integral part of the country-wide reforms
being undertaken to reposition the Nigerian economy. The reforms aim at
making Nigeria one of the world’s 20 largest economies by the year 2020.
As part of this vision, the banking sector is expected to play its role
in intermediation and be strong enough to be among global players in
the international financial markets.
It is envisaged that the financial system should be robust enough to sustain one of the world’s 20 largest economies. This is captured in the Financial System Strategy 2020 (FSS2020), in which the Central Bank of Nigeria (CBN) brought together stakeholders in the financial system to craft the common vision and road map.
Nigeria was not insulated from the global financial crisis that started in late 2007 due to the sub-prime lending in the United States. Nigeria was badly hit in late 2008, particularly by the second round of the crisis. An investigation into what caused the crisis in the Nigerian banking system in 2008 revealed eight interrelated factors. These factors include the following:
• Macroeconomic instability caused by large and sudden capital outflows
• Failures in corporate governance in banks
• Lack of investor and consumer sophistication
• Inadequate disclosure and transparency about true financial position of several banks
• Critical gaps in the regulatory framework and regulations
• Uneven supervision and enforcement
• Unstructured governance & management processes at the CBN and,
• Weakness in the overall business environment
In the wake of the crisis, many Nigerian banks suffered huge losses due to their exposure to margin trading in the capital market and lending to the downstream oil sector. The Nigerian stock market shrank by about 70 percent in 2009 and there was unprecedented growth in banks’ non-performing loans (NPLs).
Consequently, the CBN carried out a comprehensive audit on the banks. Based on the findings from the audit, it became imperative for measures to be put in place to bring about financial stability, healthy evolution of the financial sector and ensure the banking sector contributes to the development of the real economy. This was necessary to make sure that the growth potential of the Nigerian economy is adequately harnessed.
Thus, the Central Bank of Nigeria crafted a blue print known as the Project Alpha Initiative to reform the Nigerian financial system in general, and the banking sector, in particular. The reforms were aimed at removing the entrenched weaknesses and fragmentation of the financial system, integrating the various ad-hoc and piecemeal reforms, and unleashing the huge potential of the economy. The CBN had to rescue eight banks through the injection of capital and removed the leadership of the erring banks, and prosecution commenced against those that committed infractions. This action was necessitated by the need to rebuild the much-eroded confidence in the banking system.
Thanks to the measures put in place and the far-reaching reforms embarked upon by the regulatory authorities, the Nigerian banking system has evolved.
Critical Element of Banking Reforms in Nigeria
The current reforms, which started in 2004 with the banking consolidation programme, were driven by the need to strengthen the banking sector and make it more relevant in the quest for economic development. From inception, the policy thrust was to grow the banks and position them to play pivotal roles in driving development across all sectors of the economy. The consolidation entailed raising the capital base of banks from N2 billion to a minimum of N25 billion in shareholders’ funds unencumbered by losses. When the exercise was concluded by the end of 2005, it reduced the number of banks from 89 to 25.
Beyond the recapitalisation of banks, the regulatory reforms also focused on:
• Risk- and rule-based regulatory framework;
• Zero tolerance in regulatory framework in data/information rendition/reporting and infractions;
• Strict enforcement of corporate governance principles in banking;
• Expeditious process for rendering of returns by banks and other financial institutions through e-fass, an automated solution installed by the CBN;
• Revision and updating of relevant laws for effective corporate governance and ensuring greater transparency and accountability in the implementation of banking laws and regulations, as well as;
• The introduction of a flexible interest rate-based framework that made the monetary policy rate the operating target. The new framework has enabled the CBN to be proactive in countering inflationary pressures. The corridor regime has helped to check wide fluctuations in the interbank rates and also engendered orderly development of the money market and payment system reforms, among others.
CBN Interventions in the Real Sector of the Economy
In line with its development mandate, the Central Bank of Nigeria has, over the years, identified key priority sectors and developed Special Schemes and Funds for tailored interventions to support and promote growth of the sectors. Some of the key interventions are:
N200 Billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS)
The purpose of the SMECGS is to fasttrack the development of the manufacturing SME sector of the Nigerian economy by providing guarantee for credit from banks to SMEs and manufacturers.
SUMMARY OF ACTIVITIES:
• Two applications for guarantee under the Scheme valued at N200 million were received in February, 2012 and are being processed.
• A total of 18 applications valued at N0.89 billion have so far been guaranteed under the Scheme.
GOING FORWARD
• Need to introduce the Interest Draw Back Programme (IDP) to address the relatively high interest rates charged under SMECGS.
• Continuous sensitization of Deposit Money Banks and SMEs, to improve the patronage of the Scheme
Power and Airline Intervention Fund (PAIF) Initiative
The PAIF was introduced in September, 2010 to provide the leverage that will motivate and stimulate private sector involvement in the power and aviation sectors as well as fast track the development of both sectors of the economy.
CURRENT ACTIVITIES
Table 1. Summary of Amount Released to BOI/ Amount Disbursed by BOI
Amount Released (N) 177,671,446,206.33 as at Feb 20, 2012
Amount Disbursed (N)157,805,746,206.33 as at Feb 20, 2012
Amount not yet
disbursed (N) 19,865,700,000.00 as at Feb 20, 2012
It is envisaged that the financial system should be robust enough to sustain one of the world’s 20 largest economies. This is captured in the Financial System Strategy 2020 (FSS2020), in which the Central Bank of Nigeria (CBN) brought together stakeholders in the financial system to craft the common vision and road map.
Nigeria was not insulated from the global financial crisis that started in late 2007 due to the sub-prime lending in the United States. Nigeria was badly hit in late 2008, particularly by the second round of the crisis. An investigation into what caused the crisis in the Nigerian banking system in 2008 revealed eight interrelated factors. These factors include the following:
• Macroeconomic instability caused by large and sudden capital outflows
• Failures in corporate governance in banks
• Lack of investor and consumer sophistication
• Inadequate disclosure and transparency about true financial position of several banks
• Critical gaps in the regulatory framework and regulations
• Uneven supervision and enforcement
• Unstructured governance & management processes at the CBN and,
• Weakness in the overall business environment
In the wake of the crisis, many Nigerian banks suffered huge losses due to their exposure to margin trading in the capital market and lending to the downstream oil sector. The Nigerian stock market shrank by about 70 percent in 2009 and there was unprecedented growth in banks’ non-performing loans (NPLs).
Consequently, the CBN carried out a comprehensive audit on the banks. Based on the findings from the audit, it became imperative for measures to be put in place to bring about financial stability, healthy evolution of the financial sector and ensure the banking sector contributes to the development of the real economy. This was necessary to make sure that the growth potential of the Nigerian economy is adequately harnessed.
Thus, the Central Bank of Nigeria crafted a blue print known as the Project Alpha Initiative to reform the Nigerian financial system in general, and the banking sector, in particular. The reforms were aimed at removing the entrenched weaknesses and fragmentation of the financial system, integrating the various ad-hoc and piecemeal reforms, and unleashing the huge potential of the economy. The CBN had to rescue eight banks through the injection of capital and removed the leadership of the erring banks, and prosecution commenced against those that committed infractions. This action was necessitated by the need to rebuild the much-eroded confidence in the banking system.
Thanks to the measures put in place and the far-reaching reforms embarked upon by the regulatory authorities, the Nigerian banking system has evolved.
Critical Element of Banking Reforms in Nigeria
The current reforms, which started in 2004 with the banking consolidation programme, were driven by the need to strengthen the banking sector and make it more relevant in the quest for economic development. From inception, the policy thrust was to grow the banks and position them to play pivotal roles in driving development across all sectors of the economy. The consolidation entailed raising the capital base of banks from N2 billion to a minimum of N25 billion in shareholders’ funds unencumbered by losses. When the exercise was concluded by the end of 2005, it reduced the number of banks from 89 to 25.
Beyond the recapitalisation of banks, the regulatory reforms also focused on:
• Risk- and rule-based regulatory framework;
• Zero tolerance in regulatory framework in data/information rendition/reporting and infractions;
• Strict enforcement of corporate governance principles in banking;
• Expeditious process for rendering of returns by banks and other financial institutions through e-fass, an automated solution installed by the CBN;
• Revision and updating of relevant laws for effective corporate governance and ensuring greater transparency and accountability in the implementation of banking laws and regulations, as well as;
• The introduction of a flexible interest rate-based framework that made the monetary policy rate the operating target. The new framework has enabled the CBN to be proactive in countering inflationary pressures. The corridor regime has helped to check wide fluctuations in the interbank rates and also engendered orderly development of the money market and payment system reforms, among others.
CBN Interventions in the Real Sector of the Economy
In line with its development mandate, the Central Bank of Nigeria has, over the years, identified key priority sectors and developed Special Schemes and Funds for tailored interventions to support and promote growth of the sectors. Some of the key interventions are:
N200 Billion Small and Medium Enterprises Credit Guarantee Scheme (SMECGS)
The purpose of the SMECGS is to fasttrack the development of the manufacturing SME sector of the Nigerian economy by providing guarantee for credit from banks to SMEs and manufacturers.
SUMMARY OF ACTIVITIES:
• Two applications for guarantee under the Scheme valued at N200 million were received in February, 2012 and are being processed.
• A total of 18 applications valued at N0.89 billion have so far been guaranteed under the Scheme.
GOING FORWARD
• Need to introduce the Interest Draw Back Programme (IDP) to address the relatively high interest rates charged under SMECGS.
• Continuous sensitization of Deposit Money Banks and SMEs, to improve the patronage of the Scheme
Power and Airline Intervention Fund (PAIF) Initiative
The PAIF was introduced in September, 2010 to provide the leverage that will motivate and stimulate private sector involvement in the power and aviation sectors as well as fast track the development of both sectors of the economy.
CURRENT ACTIVITIES
Table 1. Summary of Amount Released to BOI/ Amount Disbursed by BOI
Amount Released (N) 177,671,446,206.33 as at Feb 20, 2012
Amount Disbursed (N)157,805,746,206.33 as at Feb 20, 2012
Amount not yet
disbursed (N) 19,865,700,000.00 as at Feb 20, 2012
SUMMARY OF CURRENT ACTIVITIES
• The sum of N18.81 billion was released to the Bank of Industry (BOI) in February, 2012 for seven projects
• Cumulative amount released to BOI so far by the CBN is N177.67 billion
• Cumulative amount disbursed by BOI to projects is N157.81 billion
• N86.42 billion disbursed to 13 Airline projects
• N71.39 billion disbursed to 12 Power Projects
• Management approved a consortium of three consulting firms to draft the National Infrastructure Finance Policy (NIFP)
GOING FORWARD
• Getting the Consultants to commence work on the drafting of the National Infrastructure Finance Policy (NIFP)
• Public enlightenment on the PAIF for awareness creation on how to access and utilize available funds
• Ensuring strict compliance with PAIF guidelines
N200 Billion Restructuring and Refinancing Facility (RRF)
The N200 billion Refinancing and Restructuring Facility was introduced to fast track development of the manufacturing sector of the Nigerian economy by improving access to credit by manufacturers as well as output, enhancing the financial position of Deposit Money Banks (DMBs), generating employment, diversifying the revenue base and increasing foreign exchange earnings.
(b) Current position
• N5.0 billion was released under this intervention to BOI for disbursement to a project. This brings the cumulative disbursements made to BOI from inception to N225.64 billion to 487 projects
• Uncommitted and undisbursed funds so far under the RRF stand at N4.36 billion
• Principal repayment records under the SME RRF obtained from the BOI so far stand at N11.24 billion
• Twenty three DMBs and one Development Finance Institution are, so far, participating in the Scheme
(d) Going Forward
• Getting the remaining DMBs to complete the requirements for the total drawdown of the facility approved for Notore Chemical Company Limited
• Ensuring that participating banks create new manufacturing sector assets of an amount equal to 50 percent of the N200 billion during the same period;
• Effectively monitoring of the projects to ensure that the funds are applied to the intended projects and the purpose of the intervention in the sector is realised, and
• Getting the BOI to apply the undisbursed/unutilized funds to other SMEs that meet the requirements
COMMERCIAL AGRICULTURE CREDIT GUARANTEE SCHEME (CACS)
The Commercial Agriculture Credit Scheme (CACS) was established in 2009 to finance large-ticket projects along the agricultural value chain. The Scheme is administered at a single digit rate of nine per cent to beneficiaries. State Governments, including the Federal Capital Territory (FCT), can access a maximum of N1.0 billion each for on-lending to farmers’ cooperatives or other areas of agricultural interventions that suit them.
(a) Current Activities
• During the month (February, 2012) under review, no State Government (Ekiti) accessed the Fund. However, seven Deposit Money Banks (DMBs) accessed the sum of N2.593 billion with respect to eight projects
• This brings the cumulative amount released to 18 DMBs under CACS from inception in 2009 to N164.70 billion with respect to 212 projects made up of 184 private promoters and 28 State Governments, including the FCT
• The balance on CACS fund was N35.296 billion as at end February, 2012.
(C) Way Forward
• Collaborating with the Risk Management Department in line with management directives, to develop operational guidelines and risk management approaches for CBN exposures in respect of all the Development Finance Interventions;
• Increasing public awareness on the Scheme; and
• Monitoring and evaluating the impact of all the CACS-financed projects
Nigerian Incentive–Based Risk Sharing System for Agriculture Lending (NIRSAL)
NIRSAL is an initiative introduced by the CBN in August, 2009 to provide farmers with affordable financial products and reduce the risks of such loans to the benefiting farmers. The apex bank in August 2009 signed an agreement with the Alliance for Green Revolution in Africa (AGRA) to develop the mechanism for unlocking the access of farmers, agro-processors, agribusiness and input suppliers to financing in the agricultural value chain.
It is aimed at de-risking the sector by re-packaging agriculture to become a real business that will guarantee food security, create employment, supply needed raw material to the industrial sector as well as serve as a veritable vehicle for wealth creation.
NIRSAL is expected to break the age-old tradition (small-holding subsistence agriculture production that is not commercially viable) in two ways. This would be done by fixing the agricultural value chains in order for banks to lend to the sector without much apprehension, and encouraging banks to lend to agricultural value chain from their balance sheets and without recourse to government funds, by offering the unprecedented incentives and technical assistance.
This is to be achieved through NIRSAL-five solution components of Risk Sharing Facility (RSF), Insurance Component (IC), Technical Assistance Facility (TAF), Bank Incentive Mechanism (BIM) and Agricultural Bank Rating System (ABRS).
The Risk Sharing Facility (RSF) is designed to support the deployment of different risk-sharing instruments to reduce the risk of lending to agriculture by commercial banks.
The Insurance Component (IC) is intended to identify existing insurable risks, existing solutions for coverage in the development of such solutions and link such products to the loans provided by the banks to beneficiaries.
The Technical Assistance Component is created to support banks that have clearly demonstrated interest and verifiable commitment to enter into agricultural lending, especially small-holder agricultural lending.
Bank Incentive Mechanism (BIM) is designed to ensure that all deposit money banks (DMBs) which show strong commitment to lending to agriculture are further incentivized through the use of low guarantee fees, the RSF and scaling up access to capital for agricultural lending at a lower rate from the CBN.
The Agricultural Bank Rating System (ABRS) is planned by the CBN to stimulate SMEs in the country
The Entrepreneurship Development Centres (EDCs). This programme was established to provide intervention through a package of sub-programmes consisting of training, consulting and financing to assist the active poor in the country. Currently three EDCs are in operation and efforts are on to establish three more centres in the country. As at February 2012, the scheme had created 4,373 jobs, while 802 trainees were able to access N185.40 million as loans from banks and MFBs to start their private businesses.
AMCON: In 2010, the Asset Management Corporation of Nigeria (AMCON) was established following the promulgation of the enabling Act by the National Assembly. It is a special-purpose vehicle aimed at addressing the problem of non-performing loans in the Nigerian banking industry, among others. In line with its mandate, AMCON recently acquired the toxic assets of some banks worth over N1.7 trillion. This move is expected to boost the banks’ liquidity as well as enhance their safety and soundness. With the intervention of AMCON, the banking industry ratio of non-performing loans to total credit has significantly reduced from 34.4 percent in November 2010 to 4.95 percent as at December 2011.
To ensure that AMCON achieves its mandate, the CBN and all deposit money banks have signed an MOU on the financing of the Corporation. The CBN is mandated to contribute an amount and produce financial statement for the immediate preceding financial year. Thus, the cost of the resolution of the banking crisis to the Nigerian tax payer is significantly minimised.
Consumer Protection: To further engender public confidence in the banking system and enhance customer protection, the CBN established the Customer and Financial Protection Department to provide a platform through which consumers can seek redress. In the first month of its operation as a division, it received over 600 consumer complaints, which was a manifestation of the absence of an effective consumer complaints resolution mechanism in the banks. The CBN has also directed money deposit banks to establish Consumer Help Desks at their head offices and branches. More so, the apex bank has commenced the review of the Guide to bank charges to make the charges realistic and consumer-friendly.
Banking System Integration
The CBN has taken steps to integrate the banking system into the global best practice in financial reporting and disclosure through the adoption of the International Financial Reporting Standards (IFRS) in the Nigerian banking sector by end-2010. This is aimed at enhancing market discipline and reduction of uncertainties, which limits the risk of unwarranted contagion.
New Banking Model
The Universal Banking (UB) model adopted in 2001 allowed banks to diversify into non-bank financial businesses. Following the banking consolidation programme, banks became awash with capital which lured operators into equity and venture capital funds to the detriment of core banking practices. To address the observed challenges, the Central Bank reviewed the UB model, directing banks to focus on core banking business only. Under the new model, licensed banks in the country are authorised to undertake the following type of businesses:
• Commercial banking (either regional, national and international authorisation)
• Merchant (investment) banking
• Specialised banking (microfinance, mortgage, non-interest banking (regional and national)
• Development finance institutions
The entry of non-interest banking into the Nigerian financial system is expected to herald a new market and institutional players, thus deepening the nation’s financial markets and furthering the quest for financial inclusion. Indeed, the first fully-licensed non-interest bank in Nigeria (Jaiz Bank Plc) started business on January 6, 2012.
Similarly, the importance of Microfinance in a growing economy like Nigeria’s cannot be overemphasized, given the country’s potential in addressing the challenges of financial exclusion that has shut out a large population from full participation in economic activities. As at December, 2011, there were 24 banks with 5,789 branches and 816 microfinance banks, bringing the total number of branches to 6,605.
The ratio of banks branch to total population is 24,224 persons, indicating a high level of financial exclusion. This is confirmed by the 2010 Enhancing Financial Innovation and Access (EFINA) survey, which showed that 46.3 percent of Nigerians are still financially excluded compared to South Africa (26 percent), Kenya (32.7 percent) and Botswana (33 percent).
Thus in 2012, the CBN will ensure the establishment of the Microfinance Development Fund (MDF) to improve access to affordable and sustainable sources of finance by Microfinance Institutions (MFIs) and Microfinance banks (MFBs), which will have commercial and social components. This will enhance their operations and outreach as well as support the capacity building activities of the MFBs and MFIs.
It is in pursuant of this, the CBN is considering the establishment of a special Fund that will provide credit facilities exclusively to women at a single digit interest rate before the end of the year.
Payment System
The CBN recently introduced the “Cash-less” policy as part of on-going reforms to address the currency management challenges in Nigeria as well as enhance the national payment system. Given that the Nigerian economy is heavily cash-driven, this situation increased the operational costs of the banking sector, which is passed on to the customer in form of higher service charges and high lending rates. These costs are significant due to the high cost incurred in cash management, currency sorting, cash movement and frequent printing of the currency notes.
The direct cost of cash management in the industry is estimated to be N192 billion by 2012. Research has shown that about 90 percent of withdrawals by bank customers are typically below N150,000 whereas only 10 percent who withdraw above N150,000 are responsible for the astronomical rise in the cost of cash management being incurred by the generality of the bank customers. There are also risks inherent in the cash-based economy, namely high incident of robberies, increased corrupt practices, and the public’s propensity to abuse the currency notes.
The CBN in collaboration with the Bankers Committee is working to create an environment where a higher and increasing proportion of transactions are done through cheques and electronic payments in line with global trends. The enforcement of the T+2 cheque clearing cycle is being stepped up and efforts are on-going to reduce the cycle to T+1. Interestingly, payments of up to N10 million can now be made through the clearing system with a cheque.
The CBN recognises the need to balance the objectives of meeting genuine currency transaction demand and combating speculative market behaviour that may undermine economic growth and stabilisation measures. The cash-less policy is expected to ensure that a larger proportion of currency in circulation is captured within the banking system, thereby enhancing the efficacy of monetary policy operations and economic stabilization measures.
However, the policy does not prevent
account holders from withdrawing any amount of money in cash from their
accounts. It simply recognises that banking is a business and as with
any business, there are costs that are sometimes shared between the
business and the customers. The policy stipulates that any cash
withdrawal above N500,000 for individual customers and N3million for
corporate customers attracts a transaction cost from the customers.
Completion of the Recapitalization Exercise
The various measures notwithstanding, there was need for some rescued banks to merge to strengthen their capital base and remain competitive in the market. Accordingly, five Transaction Implementation Agreements (TIAs) were signed among the banks. The CBN issued a letter of no objection to the banks being acquired to proceed with the merger. The signing of the legally binding TIAs for the five banks and the full capitalization of the three new banks by AMCON resolved the issue of the combined negative asset value of the eight banks rescued by the CBN. Accordingly, the recapitalization of all the five rescued banks that signed the TIAs was completed in 2011.
Effects of the Reforms
The current banking reforms have yielded some results, which include:
The reforms have brought about a new mindset to the industry as banks are putting in place best practices in corporate governance and risk management. Transparency and public disclosure of transactions have remarkably improved.
• A number of banks have returned to profit and improved their balance sheets, as the recent results of their financial statements have shown
• Banks are gradually resuming lending to the private sector with additional liquidity of more than N1.7 trillion injected into the banking system through the issuance of AMCON bonds, and significant progress in redirecting credit to the power sector and SMEs at single digit interest rates. These initiatives have saved and helped create thousands of jobs in the economy
• A code of corporate governance has been issued by the CBN. The CEO of banks shall serve a maximum tenure of 10 years. Furthermore, all CEOs who would have served for 10 years by July 31, 2010 ceased to function in that capacity and had handed over to their successors
• Nigerian banks are now key players in the global financial markets with many ranking within the top 20 banks in Africa and among the 1000 banks in the world
• The reforms have culminated in moderating the spread between the lending and deposit rates to 9.7 percent as at end December, 2011, from 12.2 percent in 2010. This has contributed to the existing macroeconomic stability in the economy with inflation moderating to 10.3 percent as at end December, 2011.
• The hitherto volatility in the exchange rate witnessed in the foreign exchange market has been brought under control. The premium is within the international standard of 5.0 percent.
• Thanks to the reforms, there is now greater confidence in the banking system with the exit of distressed banks and adoption of a code of corporate governance
• Increased widespread use of e-payment services among Nigerians
Banking Reforms and the Challenges
The Nigerian banking reforms faced some challenges despite its laudable achievements. First and foremost is the wrong perception of the intent of the reforms. The introduction of the new banking model, especially specialised banking (non-interest banking), is intended to broaden the scope of financial services offered by banks in Nigeria. However, it has been given a religious connotation. The wrong perception and stiff resistance to the policy could potentially deter prospective investors in the banking industry.
More so, the reluctance of Nigerians to
accept positive changes in global dynamics. Evidence shows that the
excessive liquidity in the system measured by broad money (M2), narrow
money (M1) and currency in circulation is partly attributed to the high
cash transactions for economic activities, which has continued to
undermine the efforts to achieve price stability. Yet the cash-less
policy has faced tremendous resistance, despite its prospect for
economic good and development and the global trend in the intensity of
usage of e-payment.Completion of the Recapitalization Exercise
The various measures notwithstanding, there was need for some rescued banks to merge to strengthen their capital base and remain competitive in the market. Accordingly, five Transaction Implementation Agreements (TIAs) were signed among the banks. The CBN issued a letter of no objection to the banks being acquired to proceed with the merger. The signing of the legally binding TIAs for the five banks and the full capitalization of the three new banks by AMCON resolved the issue of the combined negative asset value of the eight banks rescued by the CBN. Accordingly, the recapitalization of all the five rescued banks that signed the TIAs was completed in 2011.
Effects of the Reforms
The current banking reforms have yielded some results, which include:
The reforms have brought about a new mindset to the industry as banks are putting in place best practices in corporate governance and risk management. Transparency and public disclosure of transactions have remarkably improved.
• A number of banks have returned to profit and improved their balance sheets, as the recent results of their financial statements have shown
• Banks are gradually resuming lending to the private sector with additional liquidity of more than N1.7 trillion injected into the banking system through the issuance of AMCON bonds, and significant progress in redirecting credit to the power sector and SMEs at single digit interest rates. These initiatives have saved and helped create thousands of jobs in the economy
• A code of corporate governance has been issued by the CBN. The CEO of banks shall serve a maximum tenure of 10 years. Furthermore, all CEOs who would have served for 10 years by July 31, 2010 ceased to function in that capacity and had handed over to their successors
• Nigerian banks are now key players in the global financial markets with many ranking within the top 20 banks in Africa and among the 1000 banks in the world
• The reforms have culminated in moderating the spread between the lending and deposit rates to 9.7 percent as at end December, 2011, from 12.2 percent in 2010. This has contributed to the existing macroeconomic stability in the economy with inflation moderating to 10.3 percent as at end December, 2011.
• The hitherto volatility in the exchange rate witnessed in the foreign exchange market has been brought under control. The premium is within the international standard of 5.0 percent.
• Thanks to the reforms, there is now greater confidence in the banking system with the exit of distressed banks and adoption of a code of corporate governance
• Increased widespread use of e-payment services among Nigerians
Banking Reforms and the Challenges
The Nigerian banking reforms faced some challenges despite its laudable achievements. First and foremost is the wrong perception of the intent of the reforms. The introduction of the new banking model, especially specialised banking (non-interest banking), is intended to broaden the scope of financial services offered by banks in Nigeria. However, it has been given a religious connotation. The wrong perception and stiff resistance to the policy could potentially deter prospective investors in the banking industry.
The cost of doing business in Nigeria is still high when compared with developed economies or some emerging and developing countries owing to the poor state of infrastructure.
That the high growth rate recorded in the last five years has not been inclusive is another challenge. This implies that the growth has not translated into sustainable development. This is responsible for the high unemployment and poverty levels, which inevitably affect the low banking habit in the country.
Another key challenge is the quality of manpower. Real strategic change can only take place with competent and committed workforce that is constantly exposed to training and development. The competitive financial sector environment requires a highly skilled workforce that can effectively contribute to value creation within financial institutions. Hitherto, employee recruitment was merely to comply with regulatory requirement, while training was viewed as a non-revenue function that was costly and unnecessary.
Conclusion
The Banking sector occupies a vital position in any economy and must be subjected to continuous reforms for it to function efficiently. The modest achievements recorded so far have been largely due to greater collaboration and commitment of purpose among key stakeholders. Thus, the CBN in its efforts to develop a sound and vibrant banking system will continue to strive for the sustenance of reform policy
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