Home Analysis LOCALISATION OF BANKING INSTITUTIONS: A case for establishment of community banks’ 25/02/88

LOCALISATION OF BANKING INSTITUTIONS: A case for establishment of community banks’ 25/02/88

by Business News Report

Without wasting words, banking is one of most alluring sectors for present day Nigerian graduates, partly because of te high pecuniary reward which it offers in terms of wages and party because of the status symbols which a job in a bank confers on a management executives, who by virtue of his office acquires the power and authority of a tycoon Рa seller of money, an allocator of the nation’s resources.
To the investors, banking is one of the most rewarding industries in terms of profitability.
Commercial banking as it is known today commenced in Nigeria in 1872 with the establishment of the African Banking Corporation whose main responsibility was the distribution of bank of England‚Äôs ‘s notes for the British treasury.
The First Bank of Nigeria (then the bank for British West Africa) was set up in 1894 This was followed by the Barclays Banks in 1917.

At the stage of Nigeria’s development, these banks were set up to provide banking services for the colonial administration and British commercial interests.
At the stage of Nigeria’s development, these banks were set up to provide banking services for the colonial administration and British commercial interests.
The two banks enjoyed a virtual monopoly in the industry until the National Bank of Nigeria, came into the scene in IV33 as the first indigenous bar¬Ωk which survived Two other indigenous banks – the industrial and commercial bank and the Nigerian Mercantile Bank established prior to the time had collapsed.
Between 1945 arui 1965, indigenous banking development went through a period of turbulence particularly in the late fifties and early sixties with many of them going under either for lack of sufficient capita, lack patronage or bad management, example being the Nigerian farmers and commercial bank and the Merchant Bank Limited.
In 1960 number of surviving banks stood at twelve with a total of 160 branch offices spread over the country. By 1966, the number of banks and their branches rose to 15 and 253 respectively. Of the fifteen banks, six were indigenously owned with their branch offices numbering 82.
Toward the end of 1977 the number of banks rose by four to nineteen with their branches hitting 492 mark.
At the close of the decade (1980), the number of banking institutions had increased to 20 while their branches rose to 682. As at 31st December, 1985, 28 commercial banks, 12 merchant banks, five development banks with a total of 1,407 branches had been established in Nigeria. This gives a total figure of 45 in terms of number of banks.
By last year’s count, the number of banking institutions had increased numerically to 52 with 32 commercial, 15 merchant, and five development banks. In 1987 alone, 12 banks were approved.
This year 1988, already 23 banks have been given the go-ahead to commence operations thus increasing the number of prospective banks in the country in no distant future, to 75. This would mean that 47 commercial banks, 23 merchant banks and five development banks will be operating in the country. They could be more if the 22 pending applications are approved.
The increase in banking institutions is seen by monetary and financial experts as healthy for the Nigerian economy as it is hoped it would bring the much needed competition in the industry which at present is lacking. It can be argued that Nigeria is grossly under banked when compared to other economics.
By 1981, available data showed that Nigeria had one banking office to roughly 102, 000 persons compared to the density of one to 4,000 in Britain, one to 6,000 in U. S. A. and one to 52,000 in India.
As at today, nothing (despite the increase in banking institution) has changed to reverse the trend.
Singapore for instance, a country less than the size of Lagos State has about 121 banks and has thus become the financial centre for the far east.
Given the Nigerian situation, an emerging economy with potentials nobody quarrels with the continued granting of licence to operators of banks.
The question is what role are banks expected to play within the Nigerian economy taking into cognisance the fact that Nigeria is a developing economy? Are banks not expected to play a significant role in this regard? Have the existing banks .met societal expectations?
The issue is that Nigeria’s banking system (ever since) took after the British system of banking that is known world-wide for not playing any development role in rural areas in Britain.
In July 1986, the Federal Government introduced the Structural Adjustment Programme. One .of the key emphasis of SAP is rural development. Here is where banks in the country should in opening up rural Nigeria. Nigerian banks ire noted for””1 their Ltrba’n orientation.
Elsewhere, USA, (apart, India and Indonesia banks are known to play a significant role in rural development.
In the United States for instance, some banks have their territorial jurisdiction limited by their licence. Such banks are obliged to look into the .sub-economy of the states of their charter and try to stimulate the economy therein. These banks certainly are exposed to more risks, but they give a more direct impact on the growth of the sub-economy, help to diver-banking services and thereby expand the banking tradition in the United States’ rural economy.
These local banks in the US, in their search for new ideas, new men, new activity, they provide a type of assistance their metropolitan branch banks cannot. They provide for the United States’ rural economy not only working capital, but venture capital which banks in Nigeria run away from.
The Japanese saw this a long time ago and created specialised institutions away from the standard type of banks. Specialised banks for agriculture, for small-scale industries for co-operatives and so on.
In both the USA, Japan, the opening up if the rural areas owes o much to the local tank located in the state and radiating only rom the state capital ind sometimes located n a particular city ind operating only within that city. Nigerian hanks sit tight n urban areas and fail 😮 assist government n developing rural Nigeria.
A second area in which the present set of banks in Nigeria have failed is in small and medium scale industrial financing.
As at today, none of the major metropolitan commercial .banks is really equipped with the requisite personnel and skills to evaluate the multitude of proposals in ‘ small and medium scale industries hence the non granting of loans to this sector of the economy under the excuse that projects submitted by them are not bankable.
For the development . Banks, the NBCI for instance which was established to take care of small and medium scale industries has now seen itself as in the same business as commercial and merchant banks rather than mostly as a development bank and began, like its fellow banking brethren, to gloat over its profit rate whereas it should count its success by the scale of development it has engendered.
The Federal Savings Bank on its part fought for and got a licence to operate as a commercial bank. The Federal savings Bank due to its unimaginative nature failed to mobilize the over N5 billion outside the banking system which circulates within the rural economy. The bank has failed to explore the existing rotating credit and thrift societies that exist in the Nigerian rural economy as a vehicle for mobilising savings.
The Central Bank’s rural banking programme on its own is a mere extension of the metropolitan banking which has since fallen to realise its seated objectives. Banks operating within the scheme have been directed rather encouraged to establish in rural areas.
These metropolitan banks have been forced to rural areas with metropolitan staff whose attachment and commitment to the development of rural communities leaves much to be desired and whose main thrust is to work their ways back to the metropolis.
A change of gear is required in banking licensing in Nigeria should introduce geographical jurisdiction limitation in bank licences. Operators should be allowed to choose their own areas of operation, but be limited to such area.
Rather than forcing metropolitan banks to establish rural branches, monetary authorities should consider the establishment of rural1 banks in these areas controlled and directed by institutions and persons who can genuinely identify with and are committed to the effective development of these areas. This will be in line with the CBN Board or the banking system observation in 1984 which state “inter alia”
“We are persuaded to this approach by the success achieved in India and Indonesia where such rural and community banks exists side by side the traditional western type banking institutions. We observed that it is these community banks which support agriculture, petty trading vocational and small scale business that industries business activities in those countries.
The authorities will be doing a lot of good to the Nigerian economy if the proposed amendment to the 1969 banking act include localisation of banking, institution and make the necessary provision for the establishment of community banking. Then a new dawn would have been opened in the Nigerian financial system and that of rural development. This will require a lot of political will and gut to carry through as every operator will want to have licence.

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