Nigerian Financial System

The commercial banking system is the most dominant group in the entire Nigerian financial system; therefore, we must have to start from there and then followed by an overall assessment of all other institutions.

Going by the above assertion, it is evident to say that the banking sector in Nigeria account for a chunk of contribution in terms of salary payment in the Nigerian work force. The banking sector has from time being the  main stay of corporate employment, recording an over a hundred employment annual.

Apart from the employment angle, the banking sector as the main stay for the Nigerian financial system has been doing the work of an intermediary by providing an unseen link between the lender and the borrower. Although, this could be argued as one of the major function of the financial institution like the commercial, what most people do not know is the level of financing that takes place.

In this sense, the banking system absorbs the funds from the public by way of fund mobilization, this fund will not be kept in the bank’s vault, hence it has to be put to use, this is where the borrower comes into the picture. Some of the best loaning principles will be used to select the best candidates for the loan, which will of caused be monitored by the bank.

It is on record that Nigeria had an average reserve requirement of 10% through out 1970 to 1987 periods, although this figure has since changed during the era of merger and acquisition in the banking industry, this was a period where the government strived to consolidate on the bank thereby creating an avenue where a bank will not easily fail and the people as well as the investors will then have trust in the banking system.

Meanwhile, the banking system efficiency can be said to maintain an upward trend since the poor performance experience in 1978 can be observed as the finance constraint to development which became acute in the 1980s.

The banking system has today braced up to the challenge by harnessing the available capital and saving in the system for potential investors. The highest efficiency level of 71.22% was recorded in 1986 when the structural adjustment program (SAP) came into being with it’s deregulation and decontrol implications.

The central bank of Nigeria which is an institution and a part of the Nigerian financial system has in conjunction with the finance reviews and annual reports body released a reports. The report represents total credit granted by commercial bank.   The report also represent currency outside banks, demands, savings and time deposits, domestic deposit with the Central bank of Nigeria less federal, and state government demand deposit at commercial bank.

The Performance Of The General Nigerian Financial System

The Nigerian capital market has consistently recorded changes in it’s performance since inception. The developments in the market have led to the successive changes in the apex institution, the securities and exchange commission, from the capital issues committee of the central bank of Nigeria up to 1973 to the capital issues commission.

In addition, these development have led to rapid growth in the number of issuing houses during the decade due to growing business in the market. In 1979, alone about 32 issues took place with an average of about 3% per month no doubt, these were enhanced by the promulgation of the Nigerian Enterprise promotion Degree 1977 notwithstanding the growth appears to have slowed down since then.

Up to 1988, there have been 98 issues which is valued at N2 billion. In the first quarter of 1989, the total transaction on the Nigerian stock exchange is valued at N90.64 million up from N12.60 million in the corresponding period of 1989 and thus showing a 619.4% increase.

As at May 1989 there were 98 companies quoted on the stock exchange with 5 other companies on the second tier securities market mainly created for small and medium scale companies which may not meet the listing requirement of the Nigerian stock Exchange.

Notwithstanding the above rosy posture, the market is far from realizing it’s full potentials and a number of proposals have been made to increase participation in the market. According to Odife, fiscal incentives as it concerns Nigerian financial system should be granted publicly quoted companies such as that a lower tax rate is applied to their profits as done in Indonesia.

Fide Castro Cuba, Brazil etc so as to encourage more companies. In the securities market growth, the structure and growth of the market is considered by the type of security within the period 1980 – 1982. A look at the growth rate shows that the market has a lot of potentials given the slow growth implied.

However, with the promulgation of privatization and commercialization by the past military regime and still being pursuing by the present administration, at least business in the market is expected to come alive tremendously.

Structure And Growth Of The Securities Market

The securities market is an integral part of the Nigerian financial system, as such we have these finance institutions such as  Nigerian Industrial development bank (NIDB), Nigerian Bank for commerce and industry (NBCI), Nigerian agricultural corporative bank (NACB) and various other state government, investment companies have manifested average performance during the past in the stock market.

In terms of number of registered companies, growth has been recorded from 74 in the year 1970 to 92 in the year 1987 and about 111 in the year 1988. It is on record that by 1987 about 183 insurance brokerage companies and 5 re insurance establishments were in operation. Indeed the industry is the largest in Black African both in terms of numerical strength and capitalization.

Major institutional developments in the industry includes the establishment of the Nigerian deposit insurance corporation and Nigerian agricultural insurance company in the year 1988. According to some industry experts, the industry is said to have a long term premium growth rate of 14% per annum with 1976 based on the Nigerian national population of about 120 million, the market is open as more insurance awareness is created among Nigerian populace.

Money market development in Nigeria have particularly hovered around the usual insurance of various bankers unit fund, eligible development stocks, certificate of deposit and commercial papers. Traditionally, the Central Bank of Nigeria as part of the Nigerian financial system has been the dominant holder of the treasury bill.

However, this trend changed in the second quarter of 1884 when the commercial banks became prominent. This dominance was however short lived with the advent of SAP and the ensuring liquidity problems of 1986, the commercial and merchant bank divested a large proportion their holdings to custom their cash position and thus participate in the foreign exchange market effectively.

Also with the advent of SAP, the use of commercial papers became pronounced and inter-banks borrowings increased. Generally the market provided an avenue for the bank to undertake relatively risk free investments.

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