Government Economic Policies | The Banking Sector
The Nigerian financial system has always been backed up by the government economic policies, it has developed to its present stage by readily responding to the various government economic policies formulated at various times.
Of particular significance in recent times is the Structure Adjustment Programme (SAP), which in its various forms has significantly influenced various indices in the financial system in Nigeria, these influences can be related to the following; examples such as institutional development, interest rate, structure, money market operations and even the activities of non-deposit taking investment houses.
Government economic policies as in the case of Nigeria happens to cover the three aspect of the Structural Adjustment Programme, namely, the foreign exchange market, credit squeeze and interest rate de-regulation are particularly considered here.
The promulgation of the second-tier foreign exchange market (SFEM) Decree in 1986 aimed at finding a realistic exchange value for the hitherto over valued Naira and thus ensuring financial discipline in the system led to the floating of the country’s exchange rate to the US dollar.
The Nigerian financial system found itself saddled with a new and exciting responsibility of allocating foreign exchange to productive users within the economy was new, however, expectations are to be met and there was no going back on the new responsibilities. With their role as authorized dealers in the foreign exchange market, the commercial and merchant banks experienced relative boom in their operations and attracted the attention of all other economic sector in their operations, hence this attraction turned to an unexpected attention of on the economic activities of this particular economic units in the system.
Banks progressively adjusted to the demand of the of the time as Second tier Foreign Exchange Market (SFEM) graduated to foreign exchange market (FEM) within a very short period of time and to the current inter-bank foreign exchange market (IFEM) one basic implication of the foreign exchange market on the banking sector is the increased in speculative activities and the swelling of their gross earnings which to some extent help to boost confidence in the sector.
The Central Bank Of Nigeria monetary policy guidelines which is aimed at checking the rate of expansion of credit with more than N100 million loan portfolio were allowed not more than 8% expansion of outstanding amount, this was a way of controlling the activities of the market, the ramification of SAP became clear given that responsibility. Liquidity was thus strictly reduced and traditionally profitable activity of bank took a downturn.
This credit squeeze progressively sustained by the government via the various Central Bank of Nigeria (CBN) monetary policy guidelines and annual budgets. In particular, the Central Bank of Nigeria (CBN) circular No 23 Amendment No 3 had the use of foreign assets as security for Naira loans out flowed. Banks were equally compared to engage in other riskless activities such as money market operational which is becoming right too before the government comes out with its regulation classifying bankers.
Acceptance and commercial papers as balance sheet items and thus subject to the credit expansion limit, trading flourished in this area. As for the requirements that banks should grant at least 10% of their loans to agriculture and that the productive sectors receives 50% of total credit, the banks had generally complied.
One of the government economic policies that affected the banking sector was the order from the federal ministry of finance to all its parastatals to transfer all their deposits from the commercial and merchant banking sector. This order and compliance definitely worsened the credit creating capacity of the banks and even force many bank to liquidate.
In conclusion one can say that despite these odds, Nigerian banking sector has become more sophisticated with each passing government regulation or economic policy and has emerged stronger and more buoyant one can therefore hope that this growing strength and usefulness would not be jeopardized by any future policy.
Government Economic Policies On Rural Banking Scheme
In appraising this scheme which started in June 1977one need to recount some objectives of the scheme and some of its provision as follows;
- Encouragement of banking habit in rural areas.
- Mobilizing savings in the rural areas for development.
- Transformation of the agro economy of the rural areas through provisions of investment finance.
- Creating employment in the rural areas and thus arresting rural urban migration.
The scheme was no doubt inevitable in that before then most of the bank branches in Nigeria were urban located implying that the rural areas were naturally starved of bank presence. More so available statistics before the commencement of the scheme indicated that the person to bank branch ratio in Nigeria was 1:170,000 a far cry from the 1:600 ratio in the United State of America.
In the 1st phase of 1977 to 1980 200 branches were stated for opening among the 18 various commercial banks as at then given the encouragement concessions granted the banks by the central bank such as monopoly provisions for a rural branch for three years in its area of operation, waived requirement of feasibility report in branch opening among others, and the newness of the scheme a 100% compliance level was attained for the first phase.
The second phase of 1980 to 1985 saw about 260 of 266 branches allocated to 20 banks opened representing about 98% success. The third phase of 1985-1989 witnessed another thing altogether the compliance level was very low in that only 72 out of the 3000 allocated branches to 28 banks were opened for business indicating that the banks in an attempt to close the gap.
Today (in 2002) we now have a new bank viz Nigerian agricultural and rural development bank replacing people’s bank and Nigerian Agricultural corporative Bank (NACB). FEAP Liabilities and assets excluding their staff were equally taken over by new firm (Nigerian Agricultural and Rural Development bank) whereas all the assets and liabilities of the peoples bank and the Nigerian Agricultural corporative Bank (NACB) including their staff were absorbed by the Nigerian agricultural and rural development bank with all the laudable objective as well as aim of continuing from where the people bank stopped.