HISTORY OF BANKING IN NIGERIA

It all began in 1892 with the opening of a branch of the African Banking Corporation (ABC) in Lagos.

At that time, the bank was incorporated in Britain. The main aim of the African Banking corporation is to serve the British trading interests in Nigeria, such as the royal Niger company.

However, due to initial difficulties, the bank would up its activities and sold its branch in Lagos to the newly created Bank of British West Africa (BBWA), established by A.L. Jones and Elder Dempster In 1893.

In 1894, ABC officially transferred the branches in Lagos to the Bank of British West Africa (BBWA)

The BBWA change its name to Standard Bank of Nigeria, opened its first Lagos branch in the same year, and later spread to parts of Nigeria. BBWA is presently called the First Bank of Nigeria limited.

In 1917, Barclays Banks DCO (Dominion, colonial, and overseas) opened a new branch in Nigeria, thus, becoming the second bank to be created in Nigeria.

Barclays Banks DCO later metamorphoses into what is now called today the Union Bank of Nigeria.

In 1949, another foreign bank, the British and French bank limited was established in Nigeria. This bank is the precursor of the United Bank for Africa (UBA) limited.

One common feature of these three aforementioned banks is that they were created primarily to serve the British interest and colonial administration in Nigeria. In fact, when the West African Currency Board was established in 1912, the then Bank of British West Africa became the agent of the Currency Board.

However, following discrimination suffered by Nigerians in the hands of these foreign banks, some patriotic Nigerians created what was then known as the Industrial and commercial bank in 1929.

This bank was, however, short-lived as it went into liquidation in 1930. Consequently, the Nigeria mercantile bank, established in 1931, replaced the industrial and commercial banks. 

Due to bad management and inadequate funding, the Nigeria mercantile bank also liquidated like its predecessor.

Following the liquidation of the first two domestic banks, the National bank of Nigeria was established in 1933 as the first indigenous bank that was to survive.

The National Bank of Nigeria had an authorized paid-up capital of ₦500, 000, of which the only ₦l,152 was paid up initially.

With the end of the second world war, there was a surge in economic activity, with no fewer than four indigenous banks opening between 1945 and 1947.

Only two of these banks- the African Continental Bank, established in 1947, and the Agbonmagbe bank (now Wema Bank) established in 1945 - managed to survive this period. 

Because no laws or guidelines were limiting the activity of banks during the period 1892 to 1951, it was known as the age of free banking or laissez-faire banking. Several indigenous banks grew up during this time, although many of them failed due to the reasons stated above.

In fact, About eighteen banks were hurriedly founded in the years 1950-51, which is frequently referred to as the "banking boom" in Nigeria. By the end of 1954, they had all either gone out of business or been shut down by the police. The only survivor was the Merchant Bank, which finally collapsed in the early part of 1960.

The government realizing this frequent bank failure decided to set up a commission of inquiry to investigate the activities of banks and make recommendations on the type of government control that was required.

The Commission (Paton, 1948) that was set up in September 1948 reported in October of the same year. 

Following the commission report, the first banking legislation of Nigeria, the banking ordinance of 1952 was enacted. This regulation limited the business of banking to only institutions validly licensed to engage in it.

The 1952 banking ordinance stipulated the provisions for licensing of banks. A valid banking license was required before starting a banking business. 

The 1952 Banking Ordinance defined banking business as "the business of receiving from the public on current account money which is to be repayable on demand by cheque and on making advances to customers" (Paton, 1948).

While the Banking Ordinance of 1952 was hailed as a significant step forward in the development of a strong financial organization, it was not without flaws.

First and foremost, there was no framework for aiding banks in distress.

Secondly, many banks kept cash idle to maintain the required level of liquidity. This was indeed an economic waste because there was no avenue for banks to invest these funds. 

The expatriate banks were, however, in an advantageous position. They had access to the money and capital markets in London, as well as finances from their overseas headquarters in times of necessity.

Furthermore, because of the dubious window-dressing techniques used by banks to deceive bank examiners, the use of bank examiners was not as successful as was first envisaged

Finally, Even though the regulations were effective in limiting the establishment of undercapitalized banks, they were ineffective in preventing banking malpractices and abuses

As a result of these loopholes in the banking ordinance, the CBN Act was enacted in 1958. This CBN act resulted in the creation of the Central Bank of Nigeria as the Apex bank of Nigeria.

The banking ordinance of 1952 was overturned by a government decree in 1969. This Banking decree made provisions for monetary and financial system regulations and control. The decree also providing for the granting of licenses to banks while also imposing restrictions on the activity of licensed banks.

The regulation also allows the CBN to exercise its power in ensuring the economy's monetary and financial stability, establish liquidity and capital adequacy standards, and prohibit banks from engaging in certain types of investments. 

However, following the adoption of a Structural Adjustment Programme (SAP) in 1986, a wide range of economic liberalization and deregulation policies led to the emergence of more banks and other financial intermediaries. 

The major economic liberalization and deregulation policies are the relaxations of the conditions for the licensing of banks and the deregulation of the interest rate.

With the emergence of more banks, there was widespread concern that another bank failure may occur. The Nigeria Deposit Insurance Corporation (NDIC) was created in 1988 to instill better confidence in the banking system.

The NDIC is charged with the responsibility of insuring bank deposits against Bank failures. It is also responsible for ensuring safe and sound banking practices through effective monitoring and supervision of banks. This is done with the collaboration of the Central bank of Nigeria.

The CBN Act of 1958 (as amended) and the Banking Decree 1969 were repealed by the CBN Decree No 24 of 1991 and the Banks and Other Financial Institutions Decree (BOFID) No 25 of 1991 (as amended).

The CBN Act greatly increased the CBN's powers in respect to maintaining a stable monetary and financial system.  The Decree also had provisions for the use of market-based instruments of monetary control.

On the other hand, the Banks and Other Financial Institutions Decree (BOFID) offered regulatory measures that can help the banking sector grow in a deregulated economy. The decree specified that the CBN will be in charge of bank licensing, regulation, and supervision as well as non-banking financial institutions

The decrees also enumerated penalties for activities of banks directors and officers that are deemed obstructive to the bank's efficient operation while also prohibiting banks from engaging in certain operations unless they first acquire prior authorization from the central bank.

As a direct consequence of the promulgation of the CBN Act and BOFIA in 1991, The CBN created the "Other Financial Institutions Department (OFID)".  This department is in charge of overseeing other financial institutions.

Community banks, primary mortgage institutions, finance firms, bureaux de change, and development finance institutions are all supervised by the department both off-site and on-site.

The supervisory role of the department was assumed in April 2001. The vision of the department is not only to be proactive but efficient in the regulation and supervision of the specialized banks and other financial institutions by "ensuring a sound, safe, effective and efficient other finance institutions sub-sector in Nigeria. 

The mission of the department is to develop an appropriate regulatory/supervisory framework and strategy that would guarantee the desired growth and efficient performance of the other financial institutions sub-sector, through adequate and effective surveillance and monitoring".

It is pertinent to mention the BOFI (Amendment) Decree No. 38 of 1998, which gave the Central Bank of Nigeria some operational autonomy in carrying out its conventional functions while also increasing its versatility,

Through this amendment, the CBN can license new banks without recourse to either the President of the Ministry of Finance. 

The CBN can also change or cancel any condition that a license was granted under or impose new or additional conditions on the granting of a license to transact banking business in the country.

It is also pertinent to mention the BOFI (Amendment) Decree No. 40 of 1999, which expanded the scope of the regulations relating to failing banks to include other financial institutions. 

In addition to that, It also empowers the Governor of the Central Bank of Nigeria to remove any manager or officer of a failing bank or other financial institution.  

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There you have it. But before you go, here are ten major things you should remember about the history of banking In Nigeria.

1. Banking began in Nigeria in the year 1892.

2. Barclays bank is the second bank to be established in Nigeria and in established in 1917.

3. United Bank of Africa (UBA) was formerly called the British and French banks.

4. The industrial and commercial bank, created in 1929, lasted for just one year

5. The 1952 Banking Ordinance defined banking business as "the business of receiving from the public on current account money which is to be repayable on demand by cheque and on making advances to customers''

6.  The first banking regulation in Nigeria is the Banking ordinance act of 1952

7. The CBN act was enacted in 1958.

8. Nigeria Deposit Insurance Corporation (NDIC) was established in 1989

9  The Bank and other financial institution Decree (BOFID) was promulgated in 1991

10. What is now known as Wema Bank started in 1945.

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