The banking industry began in Nigeria in the colonial era through the creation of colonial banks which intended to service the requirements of the British colonial government (Murinde & Woldie, 2003, p. 2). Among the first few banks that were established were the African Banking Corporation and the British West Africa which were established in 1892 (2003, p. 2). In the same year, Nigeria’s first bank, the African Banking Corporation, was begun (2003, p. 2).
In 1912, the British colonial officials opened up the West African Currency Board to help finance the export trade of foreign firms in West Africa. This colonial bank was also set to issue a West African currency convertible to British pounds sterling (p. 3). However, the British colonial policies did not allow the local investment of reserves. It also discouraged deposit expansion, precluded discretion for money management, and did not encourage the Nigerians to establish their own, indigenous financial entities (p. 3).
In 1925, the Anglo-Egyptian Bank and the National Bank of South Africa merged and turned into the Barclays Bank in the country (Nwanko, n.d., p. 21). After four years, the first domestic bank in the country was born and this was called the Industrial and Commercial Bank. This bank got liquidated in 1930 and was replaced by Mercantile Bank in 1931.
In 1947, an agricultural bank emerged and it was called the Nigerian Farmers and Commercial Bank (Nwanko, n.d., p. 21). In 1948, the British and French Bank for Commerce and Industry began its banking services in Nigeria. These banks later on reestablished itself as the United Bank for Africa (Nwanko, n.d., p. 21). After one year, the African Continental Bank was established (Nwanko, n.d., p. 21). It became the only “sustainable indigenous bank” after the liquidation of the Industrial and Commercial bank (Nwanko, n.d., p. 21).
There were no banking legislations which existed until 1952, when Nigeria already 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) (Falegan, 1996, p. 5). These banks had a collective total of forty branches (1996, p. 5).
That year, some Nigerian members of the Federal House of Assembly instituted the establishment of a central bank to support their own economic development. While their motion was turned down, the British colonial government assigned a Bank of England officer to evaluate the merit of their clamor (1996, p. 6). This officer advised against a central bank as he was doubtful of a bank’s effectiveness in an undeveloped capital market.
With a 1952 ordinance, the banking industry was set by standards, required reserve funds, and bank examinations (Nwanko, n.d., p. 23). They were also mandated to provide assistance to indigenous banks. After five years, a similar study gave birth to the establishment of a Nigerian Central Bank (Nwanko, n.d., p. 23). It also gave way to the creation of their own Nigerian currency. The banking system in Nigeria was generally managed by their Central Bank. This central financial institution operated on July 1, 1959 (Nwanko, n.d., p. 18). Decades after these formalization and legislation, the growth of demand deposits turned slow as the Nigerians preferred to carry cash; they distrusted checks for debt settlements (Nwanko, n.d., p. 21).
The Nigerian pound was pegged at par with the pound sterling until the British currency’s devaluation in 1967. It was then changed to a decimal currency called the naira (N) in 1973 (Murinde & Woldie, 2003, p. 2). This new currency was equal to two old Nigerian pounds (2003, p. 2). Their smallest unit of new currency was called the kobo, 100 of which equaled 1 naira (2003, p. 2). The naira, which was equivalent to US$1.52 in January 1973 depreciated against the United States dollar in the 1980’s (2003, p. 2). This was despite the floating exchange rate then. In the 1990’s, the average exchange rate was N8.004 = US$1. Depreciation increased after the creation of a second-tier foreign exchange market under World Bank structural adjustment in September, 1986 (2003, p. 3).
The Central Bank of Nigeria was statutorily independent of the federal government until 1968 (2003, p. 3). It underwent a series of autonomy issues but by a1968 military decree, it was given authority over the country’s banking and monetary policy through its Federal Executive Council (2003, p. 4). The role of the Nigerian Central Bank was very similar to those of the other central banks in developed economies of North America and Western Europe. It established the Nigerian currency, controlled and managed the banking system, acted as banker to other Nigerian banks, and carried out the Nigerian government’s economic policy in the monetary sector (2003, p. 4). This policy was highlighted by the management of the bank credit growth, credit distribution by sector, cash reserve requirements for commercial banks, discount rates (or the interest rates which the Central Bank charged to commercial and merchant banks), and the ratio of banks’ long-term assets to deposits (2003, p. 4). Its policies and measures very much impacted credit and monetary expansion, which, in turn, affected total demand and income (2003, p. 4).
During the Nigerian civil war, the government restricted and later suspended repatriation of dividends and profits, decreased foreign travel allowances for Nigerian citizens, regulated the allowances to public offices abroad, required formal permission for all foreign payments, among other policies (Falegan, 1996, p. 25). It also issued new currency notes to replace the circulating money in 1968 (1996, p. 25). While the Central Bank advised against dismantling of import and financial constraints very soon after the war, the oil boom soon permitted Nigeria to relax its restrictions (1996, p. 25).
Other financial institutions included government-owned specialized development banks. Numerous insurance companies, pension funds, and finance and leasing companies were also active in Nigeria. The country also had its own stock exchange (established in Lagos in 1961) and a number of stockbrokerage firms. Nigeria implemented two phases of banking reforms in 2004 and in 2009 with each reform resulting in positive developments for the entire banking system (Murinde & Woldie, 2003, p. 2). In 2010, Central Bank of Nigeria re-modified the current Universal Banking Model and reclassified banking licenses into commercial, merchant, and specialized/development banking licenses (2003, p. 2).
Falegan, S. B, 1996. Restructuring Nigeria’s Financial System for Economic Recovery. Nigeria: Nigerian National Economic Recovery Publications.
Murinde, V. & Woldie, A. (ed), 2003. The Story of Structural Adjustment Programme in Nigeria; From Perspective of the Organised Labour. African Business and Finance Development Policy, Volume 4, No 2., p. 1-5.
Nwankwo, G. O., n.d.. The Structure of the Nigerian Economy and the Nigerian Banking Environment. Nigerian National Economic Recovery, 2nd ed. Chester: Pearson.