Nigeria BANKING, FINANCE, AND OTHER SERVICES
In 1892 Nigeria's first bank, the African Banking
Corporation, was established. No banking legislation
existed
until 1952, at which point Nigeria had three foreign banks
(the
Bank of British West Africa, Barclays Bank, and the
British and
French Bank) and two indigenous banks (the National Bank
of
Nigeria and the African Continental Bank) with a
collective total
of forty branches. A 1952 ordinance set standards,
required
reserve funds, established bank examinations, and provided
for
assistance to indigenous banks. Yet for decades after
1952, the
growth of demand deposits was slowed by the Nigerian
propensity
to prefer cash and to distrust checks for debt
settlements.
British colonial officials established the West African
Currency Board in 1912 to help finance the export trade of
foreign firms in West Africa and to issue a West African
currency
convertible to British pounds sterling. But colonial
policies
barred local investment of reserves, discouraged deposit
expansion, precluded discretion for monetary management,
and did
nothing to train Africans in developing indigenous
financial
institutions. In 1952 several Nigerian members of the
federal
House of Assembly called for the establishment of a
central bank
to facilitate economic development. Although the motion
was
defeated, the colonial administration appointed a Bank of
England
official to study the issue. He advised against a central
bank,
questioning such a bank's effectiveness in an undeveloped
capital
market. In 1957 the Colonial Office sponsored another
study that
resulted in the establishment of a Nigerian central bank
and the
introduction of a Nigerian currency. The
Nigerian pound (see Glossary),
on a par with the pound sterling until the
British
currency's devaluation in 1967, was converted in 1973 to a
decimal currency, the naira (N), equivalent to two old
Nigerian
pounds. The smallest unit of the new currency was the
kobo, 100
of which equaled 1 naira. The naira, which exchanged for
US$1.52
in January 1973 and again in March 1982 (or N0.67 = US$1),
despite the floating exchange rate, depreciated relative
to the
United States dollar in the 1980s. The average exchange
rate in
1990 was N8.004 = US$1. Depreciation accelerated after the
creation of a second-tier foreign exchange market under
World
Bank structural adjustment in September 1986.
The Central Bank of Nigeria, which was statutorily
independent of the federal government until 1968, began
operations on July 1, 1959. Following a decade of struggle
over
the relationship between the government and the Central
Bank, a
1968 military decree granted authority over banking and
monetary
policy to the Federal Executive Council. The role of the
Central
Bank, similar to that of central banks in North America
and
Western Europe, was to establish the Nigerian currency,
control
and regulate the banking system, serve as banker to other
banks
in Nigeria, and carry out the government's economic policy
in the
monetary field. This policy included control of bank
credit
growth, credit distribution by sector, cash reserve
requirements
for commercial banks, discount rates--interest rates the
Central
Bank charged commercial and merchant banks--and the ratio
of
banks' long-term assets to deposits. Changes in Central
Bank
restrictions on credit and monetary expansion affected
total
demand and income. For example, in 1988, as inflation
accelerated, the Central Bank tried to restrain monetary
growth.
During the civil war, the government limited and later
suspended repatriation of dividends and profits, reduced
foreign
travel allowances for Nigerian citizens, limited the size
of
allowances to overseas public offices, required official
permission for all foreign payments, and, in January 1968,
issued
new currency notes to replace those in circulation.
Although in
1970 the Central Bank advised against dismantling of
import and
financial constraints too soon after the war, the oil boom
soon
permitted Nigeria to relax restrictions.
The three largest commercial banks held about one-third
of
total bank deposits. In 1973 the federal government
undertook to
acquire a 40-percent equity ownership of the three largest
foreign banks. In 1976, under the second Nigerian
Enterprises
Promotion Decree requiring 60-percent indigenous holdings,
the
federal government acquired an additional 20-percent
holding in
the three largest foreign banks and 60-percent ownership
in the
other foreign banks. Yet indigenization did not change the
management, control, and lending orientation toward
international
trade, particularly of foreign companies and their
Nigerian
subsidiaries of foreign banks.
At the end of 1988, the banking system consisted of the
Central Bank of Nigeria, forty-two commercial banks, and
twentyfour merchant banks, a substantial increase since 1986.
Merchant
banks were allowed to open checking accounts for
corporations
only and could not accept deposits below N50,000.
Commercial and
merchant banks together had 1,500 branches in 1988, up
from 1,000
in 1984. In 1988 commercial banks had assets of N52.2
billion
compared to N12.6 billion for merchant banks in early
1988. In FY
1990 the government put N503 million into establishing
community
banks to encourage community development associations,
cooperative societies, farmers' groups, patriotic unions,
trade
groups, and other local organizations, especially in rural
areas.
Other financial institutions included government-owned
specialized development banks: the Nigerian Industrial
Development Bank, the Nigerian Bank for Commerce and
Industry,
and the Nigerian Agricultural Bank, as well as the Federal
Savings Banks and the Federal Mortgage Bank. Also active
in
Nigeria were numerous insurance companies, pension funds,
and
finance and leasing companies. Nigeria also had a stock
exchange
(established in Lagos in 1961) and a number of
stockbrokerage
firms. The Securities and Exchange Commission (SEC) Decree
of
1988 gave the Nigerian SEC powers to regulate and
supervise the
capital market. These powers included the right to revoke
stockbroker registrations and approve or disapprove any
new stock
exchange. Established in 1988, the Nigerian Deposit
Insurance
Corporation increased confidence in the banks by
protecting
depositors against bank failures in licensed banks up to
N50,000
in return for an annual bank premium of nearly 1 percent
of total
deposit liabilities.
Finance and insurance services represented more than 3
percent of Nigeria's GDP in 1988. Economists agree that
services,
consisting disproportionately of nonessential items, tend
to
expand as a share of national income as a national economy
grows.
However, Nigeria, lacked comparable statistics over an
extended
period, preventing generalizations about the service
sector.
Statistics indicate, nevertheless, that services went from
28.9
percent of GDP in 1981 to 31.1 percent in 1988, a period
of no
economic growth. In 1988 services comprised the following
percentages of GDP: wholesale and retail trade, 17.1
percent;
hotels and restaurants, less than 1 percent; housing, 2.0
percent; government services, 6. percent; real estate and
business services, less than 1 percent; and other
services, less
than 1 percent.
Outdoor market along the railroad line near Lagos
Courtesy Orlando E. Pacheco
Shopkeeper's stall in Jos, capital of Plateau State
Courtesy Orlando E. Pacheco
Data as of June 1991
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