Banking and Finance Overview
Directing liquidity into Nigeria's real economy
After years of under performance, followed by the 2008/9 global financial crisis, in turn followed by the 2009 corruption scandal, Nigeria’s powerful banking sector now seems to be better placed than ever before to help develop the country’s economy. Despite the difficult economic circumstances, the Central Bank of Nigeria’s reform programme, begun in 2004, is still showing results. To see how far the banking sector has come, it would help to see how much has happened in the last 50 years.
Before 2004: Immaturity and Failure
Under British rule, Nigeria effectively had no formal financial controls. The first steps toward creating a developed banking sector came in 1948, with the creation of an inquiry to investigate banking practices. The GD Paton report, which came from the inquiry, made it clear something needed to be done to regulate the banks. As a result, 1952 saw the Banking Ordinance Act, Nigeria’s first banking law. Banks now had to obtain a licence to prove they had enough funds to operate, and were subject to governmental supervision.
The next step forward came with the establishment of a central bank under the 1958 CBN act, which began operating in mid-1959. The CBN would oversee the distribution of Nigeria’s currency, control and regulate the banking sector, such as it was – there were only three foreign banks in the country at the time and two domestic banks, each with 20 branches – lend to these banks and execute government monetary policy decisions.
Nigeria declared independence in 1960. Despite the banking sector’s auspicious start, much of the next 25 years saw huge corruption and stagnation in the sector. It was claimed that nationalisation in the 1970s and early 1980s would help protect and reform Nigeria’s banks, but in fact nationalisation often just made it easier for the country’s leaders to line their pockets. By 1986, a badly capitalised and uncompetitive sector was almost completely state-controlled.