By Chinwendu Obienyi
Nigeria’s banking industry is evolving very fast and new things are emerging every other day.
Today its no longer needful for bank customers to visit a bank branch before opening an account or completing a transaction.
It can now be done from the comfort of one’s home or mobile phone and this is because the Nigerian banking sector has grown from humble beginnings to become one of Africa’s strongest institutions.
After 62 years of independence, the industry can boast of milestone achievements in financial inclusion and payments system as an integral part of electronic banking despite the current dire straits of the Nigerian economy. This is due to the comprehensive reforms of the sector from 2004-2005.
Subsequently, the Central Bank of Nigeria (CBN) was established in 1959. Ever since then, the apex bank has gone through a number of restructuring and Act amendments, to sail the banking sector to its current position.
In 1997, an amendment made the Central Bank of Nigeria directly responsible to the Minister of Finance, with respect to the supervision and control of banks and other financial institutions, while extending the supervisory role of the bank to the same.
Meanwhile, the current legal framework within which the CBN operates, is the CBN Act of 2007, which repealed the CBN Act of 1991 and all its amendments. The Act provides that the CBN shall be a fully autonomous body in the discharge of its functions under the Act, and the banks and other financial institutions Act, with the objective of promoting stability and continuity in economic management.
Too many banks
The industry at the time recorded an increased number of banks opened for business after 1960. Hence, merchant bank branches rose 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.
The main problem was not one of too few Nigerian-owned banks but rather too many. All required operating licenses but the thresholds for acquiring these were generally too low and most banks were under-capitalised.
As in most of Sub-Saharan Africa, Nigerian banks targeted more wealthy customers and large corporate clients rather than mass banking penetration, so they had too few customers to share among them.
There was also too little oversight of bank executives, enabling both low management standards and financial misconduct in some cases. There were various cases of fraud, while lending was often not backed by sufficient collateral.
The big turnaround in banking sector fortunes came when the former CBN Governor, Charles Soludo, raised the paid-up capital of banks to N25 billion and this 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. These amendments and many more, have helped to widen the number of commercial banks in the country, as well as other financial services firms such as Fintechs, Mortgage banks et al.
Firstly, in the wake of the 2008 global financial crash, the Asset Management Corporation of Nigeria (AMCON) was set up to buy the bad debts of commercial banks, using funding from both the CBN and commercial banks to finance its operations.
Secondly, the CBN set up its financial inclusion drive in its bid to capture every Nigerian in the “access to finance net”. Although its target of having at least 95 per cent by 2024 in the financial net has not been met, 64 per cent is surely not a bad result. 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.
It is important to note that the banking system in any given society is the artery, through which the economic lifeblood of the nation runs. However, monetary policies over the years have failed, on the average, to achieve inflation, interest rates and exchange rates targets due 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.
Experts opined that for the banking system to have a desired effect on the economy, the government and regulators have to eke out friendly policies, create an enabling environment, eliminate cost by investing in technology, improve literacy level and develop consumer banking services.
The Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, agrees that the Nigerian banking industry has gone through a huge level of development since its independence and adds that a lot more changes in the banking system will come from the economy.
“Nigerian banks have grown into multinational institutions. We have seen Nigerian banks with subsidiaries in the United Kingdom, U.S, UAE, China and other African countries. Indeed, we have seen the industry grow from a foreign dominated banking system to a locally dominated banking system in 62 years.
Going forward, I think the industry will continue to drive the adoption of technology. The government should drive for more formalization of our economy so that more institutions will have a corporate governance structure that will enable them access credit”, Chukwu said.
He later noted that the regulators need to develop a rapid consumer banking service due to the fact that there are few lending services given the current population size.
“This would be another goldmine for the industry to go further and improve on what we call the Financial System Penetration (FSP) beyond what we have today”, he explained.
Sharing the same sentiment with Chukwu, an economic expert and the Co-Managing Partner, Comercio Partners, Nnamdi Nwizu, said the government has to address the challenges in the power sector while the regulator must invest in technological infrastructures.
“I also think the government can help improve the literacy level because for people to effectively use some of these online things, they require some level of literacy because the higher the literacy level, the easier it is for banks to deploy technology to reduce their cost and make transactions easier”, Nwizu said.
For his part, the Chief Business Officer, Optimus by Afrinvest, Ayodeji Ebo, said, the role of the banking industry in financial intermediation has improved over the years 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 standardised 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.
The future of banking is digitalisation 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”, Ebo said.