Banking On Nigeria?I. INTRODUCTION:

One universally accepted truth of all ages is that in all human endeavours, the only permanent and constant thing is change. This holds true for the Nigerian state and its component sectors. At 48, Nigeria is reputed to have experimented with diverse forms of military dictatorship as well as variants of democracy. Similarly it has tinkered with a legion of economic policies, perhaps as political power chages hands, in its search for the much needed economic growth and development. By no means least of the changes that have taken place in Nigeria in the past 48 years are the transformations in its key sectors, some for good and some for bad. For instance, while the chequrerd developments in the financial services sector, especially the banking sub-sector, has turned out to be good, same cannot be said of the retrogression in the agricultural sector, the manufactruring sector, the energy sector and the transportation sector, amongst others. Whichever way, however, there have been changes and the facts are there for all to see and judge.

As we celebrate another independence anniversay of our nationhood, I like to review developments in the banking sector since independence, pointing out how changes in economic policies have provoked changes in the sector, and how developmnets in the global financial system have stimulated its metamorphosis from a weakling to a sturdy and highly influential sector that have become the pride of the nation.

The write up is structured into six parts. Following`this introduction is the second section that seeks to draw a comparison between the banking sector of 1960 and that of today. In the third section, we focused on the banking sector metamorphosis, bringing out its change drivers. The fourth section discusses the lessons and challenges emanating from the banking sector growth since independence, while the fifth and final section presents a summary of thoughts and concluding remarks.


The Nigerian independence was unfortunately predated by a history of bank failures. Records have it that between 1929 and 1960, not less that 24 indegenous banks went under. This notwithstanding, at independence, Nigeria’s banking sector had such big operators like the British Bank of West Africa (established in 1894), which is today known as First Bank of Nigeria Plc, the Barcklays Bank DCO, now Union Bank of Nigeria Plc and four indegenous banks that survived the bank failures of the 1940s namely Agbonmagbe (now Wema Bank Plc), African Continental Bank and the Bank of the North. It is noteworthy to mention that these four banks were established by the then regional governments to primarily provide banking services for their respective regions. Today’s Wema Bank Plc is the legacy firm of a merger of Wema, National Bank and Lead Bank. Similarly, Bank of the North is now part of the Unity Bank Plc, comprising nine banks, while African Continental Bank (ACB) merged with Citizen Bank, Fountain Trust Bank, Guarding Express Bank, Omega Bank and Transnational Bank Plc to form Spring Bank Plc. Suffice it to say that talks are currently going on to merge Spring Bank Plc with Bank PHB.

Essentially, one striking similarity one could deduce from the state of the banking sector at independence and now is that few banks serve the economy, but unlike then, there are no sectional banks today. All the existing 24 banks have strong national and, in many cases, international spread with diversified structure of ownership and asset base. Again, unlike at independence, today’s banks are far more capitalised than then. While at independence, you could own a banking licence with a minimum capitalisation of just £25,000, today, it is not less than N25 billion, which many of the existing banks have surpassed. What this means in effect is that today, the nation’s banking sector is a repository of banks with adequate capacity to absorb risk, finance long tenor investments and drive the nation’s economic growth and development. It was not so at the begining.


In the last 48 years, a number of factors have evidently coalesced to drive monumental changes in the nation’s banking sector. Some of these factors as well as the changes they have stimulated are discussed in turn as follows:

(i) Robust Regulatory Framework

One of the reasons that were adduced to the mass failure of indegenous banks prior independence was the absence of legislation to regulate the establishment and operation of banks. Then, banking was simply an all–comers affairs. Thus, the British Government came up with the very first banking legislation in Nigeria with the Banking Ordinace of 1952. The ordinance set out to regulate and control the business of banking in Nigeria by imposing conditions for establishment and providing for sound banking practice. The provisions of this ordinance formed the kernel of the Banking Acts of 1958, the establishment of the Central Bank of Nigeria in 1959 and subsequent Banking Acts of 1969, 1991, 1997, 1998, 2002 and 2006. Over the years, developments in the finance industry locally and globally have been factored in to strenghen the sector’s regulatory framework, and this has resulted in stronger corporate governance practices, improved ethics and professionalism and better risks management approaches. Apart from the Central Bank of Nigeria (CBN), other key regulators in the industry are the Nigeria Deposit Insurance Company ( established by NDIC Decree of1988), The Security and Exchange Commission (SEC), which started as a Capital Issues Committee in1962 and became SEC in 1979 and the Nigerian Stock Exchange (1977).

(ii) Some Government Policies and Initiatives

Foremost among the government initiatives that had remarkable impact on the banking sector in the country was the Indegenisation Act, otherwise known as the Nigerian Enterprises Promotion Act, 1977. The primary aim of this Act was to Nigerianise company boards in the country as virtually all major organisations, banks inclusive, were exclusive preserve of expartriates. Thus, with the take off of the policy, more Nigerians ascended to top management positions of banks and exercised control at the board level. This opportunity encouraged private Nigerian enterpreneurs to enter into joint ventures with foreign banks to establish banks in which they held important positions on the board. Banks that emanated through such ventures include Societe Generale Bank Nigeria limited, Nigerian American Merchant Bank and Bank for Credit and Commerce International (later African International Bank Ltd.). Indeed, in 1983, the first wholly indigenous bank privately owned and run by Nigerians was established, namely First City Merchant Bank (known today as First City Monumental Bank Plc, FCMB).

The downside of this indegenisation policy, however, was its unintended consequence of making the Federal Government the largest single shareholder in leading banks. Since individual Nigerians lacked the needed resources to acquire all the 60% shareholding, which the expatriates were forced to give up under the Act, government came in and acquired the shares. Of course, with government’s ownership came the politicisation of appointments of board members and the consequent compromise of integrity and profesionalism in the industry. It is, therefore, not surprising that the Privatisation and Commercialisation component of the Structural Adjustment Programme (introduced by the Privatisation and Commercialisation Decreee 25 of 1988) compelled the government to relinquish its interest in all business enterprises in which it had equity control and promote more private sector participation. In the last two decades, this has meant more private ownership of banking institutions with astounding success stories.

(iii) The Banking Sector Deregulation

Before 1986, no government policy had such a penetrating impact on the nation’s banking sector as DEREGULATION, which was the main thrust of the then Structural Adjustment Programme (SAP). As the arrow-head of the SAP policy, deregulation was aimed at the following:

– reduction of government intervention in economic activities in favour of greater role for the private sector;

– promotion of free market system where market forces are allowed to determine prices, economic trends and exchange rates;

– provision of relevant macroeconomic framework that will attract both foreign and local investor; and

– provision of an economic elixir in place of economic doldrum and depression.

By reason of this policy, some measures that changed the face of banking in Nigeria were put in place. Some of them were the liberalisation of the issuance of licence to new banks, introduction of Bureau–de-change, issuance of capita adequacy and prudential guidelines, increased capitalisation for both merchant and commercial banks etc.

The immediate impact of this on the sector was the unprecedented increase in the number of banks. For instance as at 1986 when the policy took off, there were only 29 commercial banks and 12 merchant banks in the system, by 1994 (less than 10 years later), there were 66 commercial banks (127.6% increase) and 54 merchant banks (350% increase) in the sector. Of course, these was a stiff competition among the banks. For the first time since independence, the banking business became buyer’s market, as the traditional armchair banking was jettisioned and replaced with an aggressive hunt for customers’ deposit. Also there were improved customer services, as banks race to computerise their operations.

Again, as it was before independence when 24 banks were distressed, by 1998 (12 years after the deregulation), not less than 26 banks were liquidated on account of distress, while a few others were recapitalised. The sector survived this shaking and embraced universal banking, which made sole specialisation in investment banking redundant. By 2004 when banking consolidation programme, the biggest of all banking reforms, was introduced, the sector had 89 banks.

(iv) The Banking Consolidation Programme

At its announcement in July 2004, the directive to the banks to increase their minimum capital base from N2billion to N25billion- with a deadline of 31st December 2005 for full compliance- was like a tall order, but now three years after the completion of the first phase of the banking reform, the end has justified the means. For the first time in the history of our independence, not less than 20 of the 24 existing banks rank amongst the top 100 banks in Africa, while 17 have made it to the top 40 and four falls among the top 10 in Africa. In fact, the sector is rated as the fastest growing in Africa. Considering the fact that the sector was characterised by small sized, marginal players prior consolidation, the sector has really metamorphosed for good.


There are a legion of lessons that could be drawn from the changes chronicled in the 48 years of post independence banking sector. Perhaps, the foremost is the fact that large numbers of banks in a system does not necessarily translate to sound banking. As illustrated in the discourse above, each time there is an explosion in the number of banks, it is followed by massive bank distress. This was the case before independence, soon after the bank proliferation that followed bank deregulation and was about happening shortly before the introduction of banking consolidation in 2004. This timely intervention not only saved the sector from another catastrophy, but redefined the entire banking landscape for the better.

Another lesson that is readily visible in the nation’s banking sector experience is that the regulatory framework put in place and the degree of autonomy the constituent institutions enjoy have really been a booster to the relative stability of the industry, in spite of all odds. It is not unlikely that if similar frameworks are replicated for other key sectors of the economy, Nigeria would be out of the woods sooner that we imagine.

By no means the least among the lessons Nigeria could learn from its banking sector is the private sector dominance it has enjoyed in the last two decades. This has been a stimulant, a safety net of some sorts and a challenge to enterpreneurship in the sector. If anything, government should replicate this full sectoral liberalisation in other moribund sectors of the state and truly make them private sector driven so that Nigeria can, at least, cease crawling after 48 years of independence.

By all standard today, the banking sector is the most successful sector in the economy. But it should not rest on its oars. It has to maintain this leadership position by rising up to many obvious challenges, which include the challenge of:

– Meeting and exceeding customer’s expectations to sustain the confidence reposed in them and guarantee their survival;

– Constant investment in information and communication technology to maintain their rising profile at the global level and remain competitive locally;

– Increasing the quality and quantity of skilled manpower in the fast growing knowledge economy;

– Funding big ticket investments in the real sector to grow then nation’s economy, which is still largely underdeveloped;

– Emplacing a fool proof credit management process to avert individual or systematic distress. The current lessons from the United States’ experience is still fresh for all to learn from;

– Stemming the tide of frauds and forgeries, which is growing in sophistication with the adoption of ICT as the main tool of banking operations;

– Continual review of marketing policies and strategies through research;

– Managing diverse risks;

– Growing strong corporate governance in line with local regulations and international best practices; and

– Expanding branch network and subsidiaries within and outside the country.

Undoubtedly, these are some of the formidable challenges present players in the banking sector would have to contend with, going orward. In mitigating some of these challenges, there would be need for more mergers and acquisitions, strategic alliances and, of course, constant networking among the players.


We have, in this paper, carried out a critical review of the changes and transformations that the Nigerian banking sector has undergone in the last 48 years. Against the background of an overview of similarities and differences between the banking sector at independence and now, we examined the various factors that have driven the banking sector metamorphosis. Amongst the major drivers identified and discussed were the robust regulatory framework, some government policies and initiatives such as the Indigensation Act of 1977, Privatisation and Commercialisation Decree of 1988, the Deregulation of the Nigerian Banking Sector in 1986 and the Banking Consolidation of 2004/2005.

We posited that Nigeria has, as at today, a banking sector that has metamorphosed from a weakling to a solid and sound systerm, which has become the pride of the nation, having been rated as the fastest growing in Africa. Having discussed some of the lessons Nigeria (and other sectors) may pick from the banking sector, we highlighted some challenges the sector would have to address in its drive to remain on top. We strongly suggest the sector should still build upon its present achievements through more mergers, strategic alliance and networking.

Olatunbosun Oyintiloye is a Lagos based Financial Analyst.

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