BusinessDay
NigeriaDecides2023

Banking sector pulls weight on financial inclusion, payments system at 60 years

At 60 years of independence, Nigerian banking sector can boast of milestone achievement in financial inclusion and payments system as an integral part of the electronic banking.

Banking industry today, had its origin as far back as 1883 when the African banking corporation was established. The bank could not survive but later metamorphose to British Bank of West Africa, rebranded first to standard bank west Africa, standard bank of Nigeria and currently, what is known today as First Bank of Nigeria.

This was followed by the establishment of Barclays Bank, now Union Bank, which was formed by Anglo-Egyptian Bank and National Bank of South Africa in 1925, and British and French Bank for Commerce and Industry (United Bank for Africa) in 1949.

One striking challenge seen during the era was that Nigerian businesses were excluded from financial services as the colonial banks were established to serve the financial needs of the colonial government.

Following the gap created by the colonial banks, which denied access to credit facilities for indigenous businesses, Nigerians sought for ways to address the challenge, thus the establishment of Nigerian Farmers and Commercial Bank in 1947 and the Nnamdi Azikwe-owned African Continental Bank.

With the establishment of the indigenous banks, the need for regulation became sine-quo-none, leading to the creation of the G.D. Paton commission to research on the banking business in Nigeria and the enactment of the Banking Ordinance Act in 1952 which required that all prospective lenders must obtain licenses before establishment.

Subsequently, the Central Bank of Nigeria (CBN) was established in 1959. “Over the past 60 years, the monetary authorities, represented by the CBN, could be said to have fared relatively well in ensuring the stability of the financial system in Nigeria,” Uche Uwaleke, Professor of capital market, Nasarawa State University Keffi, said.

“For instance, we have witnessed a raft of banking sector reforms which saw the end of the era of State owned banks that were inefficiently managed as well as the era of fragmented banking institutions following the banking consolidation exercise, he said.

The industry at the time recorded increased number of banks opened for business after the independence. Hence, merchant bank branches to 144 in 1994 from 26 in 1985, while commercial bank branches increased from 1,297 to 2,541 during the same period and this led to financial distress between 1992 and 1994.

There was banking sector reform under the leadership of Charles Soludo, former governor of the CBN, who raised the paid-up capital of Banks to N25 billion and that led to the trimming down of the number of banks operating at the time to 25 banks from 89.

Since then a number of initiatives and policies have been introduced by the regulator that have strengthened the sector to contribute to the economic growth of the country.

Sharing his thoughts on the sector’s achievements, challenges and expectations, Ayodeji Ebo, investment professional based in Lagos, said, one significant achievement the banking sector has implemented is the introduction of Internet banking, which has expanded into robust E-payment channels. This initiative has facilitated business transactions in Nigeria.

However, he said their role in financial intermediation has improved in the last year and requires more deliberate efforts to support the real sector. While being mindful of not accumulating non-performing loans, the banks can improve on the credit scoring system, which should be standardized for personal loans. Customers with higher credit scores should access loans at a lower rate. As a result, Nigerians will be more deliberate towards building a healthy credit score to achieve a lower rate of borrowing.

Ebo said the future of banking is digitalization and the ability of the banks to provide various products to their customers that return more value than having funds in savings and current accounts.

Today, 60 years after independence, Uwaleke said the banking sector is stronger. Prudential guidelines are in place while the CBN Act and the BOFIA Act have gone through a number of amendments aimed at strengthening the financial sector.

A number of developments in the banking sector, helped by technology and facilitated by the regulatory authority, are worthy of note.

These include agency banking, on-line transactions and other improvements in the payment system.
All these have helped to improve the rate of financial Inclusion in the country, he said.

Having said that, it is important to point out that monetary policies over the years have failed, on the average, to achieve inflation, interest rates and Exchange rates targets due in part to factors located in the structural bottlenecks in the economy including the huge infrastructure deficit and the country’s inability to diversify the export base away from crude oil.

Uwaleke said the way forward is for the government to clear these bottlenecks in order to reduce high operating costs for banks and enable effective transmission of monetary policy

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