The Nigerian Banking Environment – Banking in most African countries especially in Nigeria engages in all forms of banking business including saving account, current accounts and domiciliary accounts, foreign exchange transactions, loans and advances, importations and exports finance, as well as agricultural finance.
Merchants’ banks are more specialised than commercial banks in their services which includes projects financing, equipment leasing, corporate banking and advisory services, money market and capital market operations, loan syndication and foreign exchange transactions.
Post independence Nigeria, the Nigerian Banking Environment and industry has grown from strength to strength with 8 banks at independence in the year 1960, it grew to 18 in 1970 including one merchant bank, and then 26 banks in 1980 including 6 merchant banks and 115 banks in 1996 and 1997 comprising 64 commercial banks and 51 merchants banks. The growth in the number of the banks was due to a number of factors including institutional, regulatory, legal, political and macroeconomics.
There is an indication that the trends in the structure banking in Nigeria. The results show that based on the 4 figure firm concentration ratio the banking industry is highly concentrated particularly for commercial banking, the four bank concentration ration had consistently exceeded 50 percent between 1970 and 1991.
The four big commercial banks on which the 4 firms concentration is ratio is estimated are first bank Nigeria (FBN), United Bank for Africa (UBA), Union Bank and International bank for West Africa (IBWA). These are the four dominant in the industry during the period under review.
Nigerian Banking Environment And Its Model
With respect to merchant banking, we find that the dominate banks are NAL merchant bank, Icon merchant bank, International Merchant bank and continental merchant bank (formerly chase merchant bank). Between 1980 and 1985 these four banks contributed more than 60 percent. The 8 bank are first bank, Union bank, National bank of Nigeria, Wema bank, African continental bank, United bank for Africa (UBA), Bank of the north, international bank for Africa.
This is in agreement with the Adewole, Wole (1985), 25 years merchant bank banking in Nigeria. Lagos university press of total deposits in the merchant banking industry. Between 1970 and 1975, the dominant merchant bank in the industry was NAL merchant bank. Between 1975 and 1990 the four banks emerged to take the dominant positions in the merchant banking industry in the country.
The 1990’s have seen adverse development in the merchant banking industry leading to decline in concentration to about 34 percent based on four firm concentration ratio or 45 percent (6 firm) when two additional banks namely first interstate merchant bank and Nigeria merchant bank (NMB) are added.
Note – Concentration ratio refers to the four banks concentration ratio mainly first bank, Union bank United bank for Africa, international bank for West Africa (IBWA). The four banks are usually referred to as the “big four”. With respect to merchant banking, the four firm concentration ration includes NAL, International merchant bank, Icon merchant bank and continental merchant bank, these were the major players in the Nigerian Banking Environment.
Competition And Challenges Between Commercial And Other Financial Institutions
As a financial system is currently growing in all its facets. It is bound to face various challenges that comes with Nigerian Banking Environment. As various government policies like the Debt equity convention scheme privatization and commercialization banks equity participation in enterprise and borrowings by specialized financial institutions are continually implemented, there bound to be an upsurge of activities in the capital market.
With large stock brokerage companies and the growing awareness of investments options by small investors, there may be need increased, institutional development in this era. At present stock brokerage firms and issuing houses formed recently are very conversant with the dealings since the stock exchange.
Another challenge is the capacity of the various institutions to cope with the growth of the entire system, there is therefore need to avoid double counting of the assets of these institution so as not to give a wrong impression of growth in the system. If the various cross investments that abound in the system are not properly accounted for double counting may result.
Challenges includes the capacity of the Central bank Of Nigeria and other regulatory bodies to adequately monitor the Nigerian financial system in the light of inevitable growth, more so, on the part of the institutions, there is the challenge of seeking for new avenues of business as various governments policies surfaces.
Now that time for armchair banking is gone, fierce banking competition is a major challenge, it is now a factor that characterises the Nigerian Banking Environment. With proliferation of institutions in the sector, the focus of many banks would be a resort to corporate planning, research and public relations to stem the tide of the competition some of the various aspect of this planning includes, development of new products and general aggressiveness in operations.
Given the passing out of the hitherto sellers market situation of the sector. Banks are now expected to ensure customers patronage through provision of fast and efficient services that borders on courtesy. Only the bank that can position themselves to adopt the marketing concept in its business operation is expected to survive. The establishment of the Nigerian Deposit insurance corporation is no guarantee for any bank failure and hence it’s establishment does not preclude the collapsing of any incompetent outfit in the coming time, hence the decision to help grow the Nigerian Banking Environment.
In rural communities where Esusu and other financial institutions other than banks are in firm control there is need for banks to compete by creating banking awareness in these rural area letting the rural populace see the merits of savings over Esusu. More so the consequent need to enhance the profitability of rural bank branches will ginger banks to takes over additional financial responsibilities like Christmas savings, Easter Savings and other traditional festival savings to enhance the purchasing power of the rural populace during this time period of time.
Except the existing rural branches are seen to be operating profitably, a general reluctance would continue to exist among banks to extend their services to these deprived areas.