Critical Analysis of the Viability of Commercial Bank Activities in Nigerian

CHAPTER ONE

BACK GROUND TO THE STUDY

Bank was first introduced by early goldsmith in the olden days, the goldsmith kept the valuable asset of people. They has fortified places where they kept valuable items received from people. Those who deposited their valuable properties with the goldsmith were made to pay some amount to the goldsmith before they could claim their valuable properties.                                                              

With time the goldsmith discovered that not every body who deposited the property came at the same time to claim them. He discovered that only a few people came at a time to claim their assets. Because of this, he started to lend out to needy people some of the assets kept in his custody. He charged interest on those valuable goods borrowed by people. He started to make a lot of wealth from such deals.

       To attract more people to deposit their precious goods, he started to pay interest to those who deposited their property with them.

       But he charged higher interest on those who came to borrow these goods from him.

       The goldsmith issue paper to those that deposit their property with him. As time went on, that paper issued by the goldsmith to the people, was converted to what we know today as paper money.

       Because the paper issued, was used to settle debts or services rendered, the need for money then over shadowed the barter system – the great wheel of circulation, the instrument of commerce. Note that the establishment of the banking institution in Nigeria was in Lagos in 1892, when the African banking corporation (ABC) opened its first branch in Lagos. Messrs elder dempster and co. a shipping firm based in Liverpool was instrumental in its formation.

       Because of problem encountered by the institution, the bank transferred its interest to elder dempster and co. this led to the formation of a new bank known as the British bank of west Africa(BBWA) In 1893. It was registered in London as a limited liability company in March 1894 and opened its Lagos branch that same year. The second branch was opened in calabar in 1900.

       Seeing the benefits of banking institution in the country, another banked called the Anglo African bank was established in 1899 in Calabar by Royal Niger Company, now (U.B.A) to compete with BBWA.

       The banks later changed its name to bank of Nigeria and establish its branches in Burutu, Lokoja and Jebba. But due to fierce competition and monopoly of importation of silver from the Royal mint, the bank was sold to BBW in 1912.

       This started the era of Commercial Banks in Nigeria by the opening of various Banks in the country. This was a period of free – for all Banking system which culminated in several Banks failure and losses to deposition. Prior to this, the first banking legislation in Nigeria was enacted in 1952.

       Nigeria Banks are operating the branch banking system which a small Banking company can conduct operations of two or more places. Usually, the branches are controlled from their Head office. The branches are controlled from their Head office. The branch office may be located in the same city, state or in another state depending on the banking laws and regulations of the country.

       Nigeria Banks are required to play a crucial or vital role in the mobilization of financial resources for achieving economic development through;

1.    Provision of facilities for collection of savings

2.    Provision of facilities for transfer of fund

3.    Advisory services to business and investors

4.    Providing business status reports and references

5.    Providing facilities for the financing of international trade

       In this a fore mentioned services carried out by the Banks in Nigeria help to bring growth of economic activities in the country, by their creation of money or credit. The mobilizing of savings has enable funds to deficit sectors.

       Commercial Banking institution in Nigeria can be classified into two. They are the purely indigenous Banks owned 100% by Nigeria (Individuals and Governments), and mixed Banks with a majority indigenous shareholder (at least 60%) and minority foreign interest.

1.1  STATEMENT OF PROBLEMS

       The background of the study has been elaborated in figure 1.1 showing the viability of commercial banks activities in Nigeria and its historical background. The role of the bank such commercial banks, central Banks, Macro fiancé Banks, merchant Banks, have brought development to the economic of Nigeria. But they are faced with some problems, which are as follows;

1.    Lack of stable government and enacting of new decree and policy implementation affects the commercial Banks.

2.    Economic sabotages and strikes by labour Union affects the commercial Banks

3.    Poverty and inability on the part of Nigerians to provide adequate collateral security for granting of loans which otherwise could have yielded a lot of profits to these Banks.

4.    Lack of orientation of the rural dwellers to the commercial Banks.

5.    Implementing the government policy on Agriculture and industry by commercial is low.

6.    The inflationary rate of prices of goods and services do not encourage people to patronize the commercial Banks.

7.    Lack of Business firms and industries in the rural areas of the country do not enable the commercial Banks to establish branches in these areas.

1.2  PURPOSE OF THE STUDY

The purpose of this study is to ascertain how critical analysis of the viability of Commercial Bank Activities in Nigeria is, and how they are assisting the government and individual to bring development and economic growth

1.3  RESEARCH QUESTION

1.    Have Commercial Bank contributed to Nigeria’s economic development?

2.    How does central Bank of Nigeria implement their scheme to control the economic activities in terms of monetary policy?

3.    What are the services offered by Commercial Banks in Nigeria which are likely to be greatest use to individual customer?

4.    How far has the authorities succeeded in carrying out specific role for Commercial Banks in Nigeria?

1.4  RESEARCH QUESTION

1.    Have Commercial Bank contributed to Nigeria’s economic development?

2.    How does central Bank of Nigeria implement their scheme to control the economic activities in terms of monetary policy?

3.    What are the services offered by Commercial Banks in Nigeria which are liekey to be greatest use to individual customer?

4.    Hold for has the authorities succeeded in carrying out specific role for Commercial Banks in Nigeria?

1.5  SIGNIFICANCE OF THE STUDY

This study, which tends to know how a critical analysis of the viability of Commercial Banks activities, brings economic development in Nigeria.

Generally, for the people to know the importance of commercial Banks, it will also direct people toward the usefulness of banks in our lives, whether in term of business activities of this research project are so numerous.

The study will be of great assistance to the following:

i.     Traders (Retailers and whole sellers)

ii.    Civil servants

iii.    Foreign international and local Business Organization

iv.    Business men and women

v.    Farmer (Small or large scale) and finally

vi.    Bankers

1.6  LIMITATION OF THE STUDY

       This study is limited due to the following factors:

(a)       Financial constraint

(b)      Time and

(c)       Lack of sufficient Information

A handful of problems were encountered in the process of writing this project. In the first place there were circumstance that disturbed me a bit such as high cost of transportation to places in intended to carryout my research and interviews. And also, the bank I am writing about does not have journals or any publications to take data’s because of the problem facing with CBN.

Therefore due to the factors affecting the research, I am going to make use of the little available materials i.e textbooks, journals and other related materials.       

  1.7              SCOPE OF THE STUDY

The study is limited to the role of Banks but will are going to look at the commercial banks and how they are being moderated by Central Bank to bring Economic Growth in Nigeria with a particular interest on operating activities of (Union Bank Nigeria Plc, Oleh Branch).

1.8  DEFINITION OF TERMS

These are business enterprise that receive monies from outside sources as deposits irrespective of the payment of interest and granting of money (loans) and acceptance of credits or the purchase and sales of securities for account of others or the incurring of the obligation to acquire claims in respect of loans prior to their maturity or the assumption  of guarantees and other warranties for others or the effecting of transfers and clearing.

(a)       BANK: Perry, F. C. and Gilbert G.W. defines a bank as an establishment which deals in money receiving it on deposits and demand, collecting cheques for customers and lending or investing the surplus until it is required. Similarly, section 66 of Banks and other Financial Institutions Act (BOFIA) 2004, describe a bank as a bank licensed under BOFIA which is authorized to carry on banking business.

(b)      COMMERCIAL BANK: Commercial Bank is a profit seeking Institution that accept demand and saving deposits, give loans and acquire other earnings assets. They are institutions, which collect surplus funds from the general public, safeguards them and make them available to the true owner when required.

(c)       MERCHANT BANKS: A Merchant Bank can be defined as a bank which operates on Corporate financial advice on new shares and bonds issues, capital reconstructions, mergers and acquisitions, take deposits and money market operation and foreign exchange dealing, medium term lending and syndication of loans.    

(d)      CENTRAL BANK: This is the apex Bank which controls and regulates the activities of the money market in a country. It is the government representative in the financial system and acts mainly as Banker to the government and banker to other banks in the economy.

(e)       COLLATERAL: Mandel (1980) also pointed out that collateral are general name for stock, mortgages, bonds and certificate showing the ownership of property.

From the diagnosis of the Nigerian Banking System with particular emphasis on Union Bank PLC, some of the securities held by Banks before lending to an individual, corporation or government are those securities secured against plants, equipment and other real estate, the form of securities often demanded by banks for loan and advances in the country have been shown to be quite unsatisfactory.