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Banking, Finance & Insurance Overview

Reforms have strengthened the financial and insurance sector.
Are they strong enough to take on the global economic challenges that lie ahead?  

Nobody could have expected such outstanding results when the Central Bank of Nigeria (CBN) launched its program to reform the banking sector in 2004. Critics expected a run on the smaller banks, or at the worst, a collapse across the entire sector. Post-reform, the banking sector has changed so profoundly that it is hard to believe that by 2003, the sector was on its knees after decades of stagnation.

Pre-2004: corruption and failure

Before 1948, and the establishment of an inquiry to investigate banking practices in Nigeria, the sector was totally unregulated. Concern over the banks’ behaviour lead to the banking ordinance act of 1952, Nigeria’s first banking law. The act required banks to obtain a licence to prove they had enough liquidity, as well as subjecting them to supervision and examination.

At this time, there were only three foreign banks in the country and two domestic banks, each with 20 branches. A much-needed central bank was established by the CBN Act of 1958, and commenced operations on July 1st, 1959. Its role was to establish the Nigerian currency, control and regulate the banking system, serve as banker to other banks in Nigeria, and carry out governmental monetary policy.

Throughout the 1970s and the early 1980s, the banking sector was subject to increasing nationalisation, ostensibly
for financial protection and reform, but resources were often appropriated by the country’s leaders. By 1986, the banking industry was almost entirely under governmental control, and suffered from corruption, minimal competition and poor capitalization.

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