 Financial sector |
The banking sector reform is one of the key areas of the Government's strategy which aims at restoring foreign investors' confidence into the Nigerian economy.
The Central Bank of Nigeria (CBN) combines its monetary policy functions with supervision of the banking sector. The Central Bank is also concerned with managing demand in the foreign exchange market and is not averse to slight depreciation as a tool for achieving that goal. Governor Chief Sanusi claims that what matters most to the economy is not
The level of exchange rate but rather its relative stability. The Central Bank's monetary policies for the year 2000 aim at fostering price and exchange rate stability while stimulating output and employment growth. Not only will exchange rate stability make planning business strategies possible but it will also bring confidence which has been the guiding principle for the growth of both foreign and domestic investments.
A major concern of the Central Bank is continuing banking sector reform, following the prolonged distress of the mid 90s. The number of banks fell from 115 in 1997 to 89 in 1998. The minimum liquidity ratio for commercial and merchant banks which was raised from 30% to 40% in 1999 remains unchanged. Bankers say this has greatly curtailed their ability to create credits despite perceived excess liquidity in the financial system. Minimum paid-up capital base for new banks raised to N1 billion which is $10 million. The monetary authorities will not require banks to buy treasury bills as condition for foreign exchange purchase.
In addition to prescribed prudential guidelines, participation in the deposit insurance scheme is compulsory for all licensed banks. The Central Bank's liquidity management relies on market-based mechanisms. The primary instrument of policy has been the open market operations supported by reserve requirements and discount window operations.
However, Bankers perceive that the policy regime favours commercial banking and that the market has become too small for the merchant (investment) banks to extend significantly their activities. As a result, a number of merchant banks have converted to commercial banks. Hence the need for diversification in commercial banking: Commercial banks may explore further fee-based activities such as corporate finance and financial advisory services which will also contribute to blurring the demarcation between commercial and merchant banking.
Liberty Bank Plc is a merchant bank converting to a commercial bank to be in a better position to compete. Chief Ode Obla, managing director of Liberty Bank says the quality of Nigerian banking is getting better but that there is some way to go. |
A new convert from merchant banking to commercial banking, Continental Trust Bank Ltd says the retail banking market is very large to the extent that some recent entrants have recorded 100 percent return on investment. The bank now wants to combine corporate banking which has been its forte with the retail end of commercial banking. Mr. Ike Nwabuoku, the CEO of Continental Trust Bank says "Nigeria's Market offers great opportunities for foreign banks". Merchant banking market in Nigeria is not much although the privatization exercise should pump up the level of activity there.
Those conversions to commercial banking, associated with the current economic deregulation and liberalisation brings naturally the financial industry to clamour for universal banking which integrates in one institution retail and investment functions. Though full deregulation of the financial sector is in place, universal banking will require amendment of the banking laws to become operational. In that purpose, CBN set up on mid-February 2000 a Universal Banking Committee to work out operational guidelines for the implementation of the system in 2002. The Governor of Central Bank, Chief Joseph Sanusi, specified that the proposed Universal Banking is clearly distinct from the on-going conversion of some merchant banks to commercial banks which the CBN has already endorsed. Universal Banking must be seen as a way to adapt the Nigerian financial system to the global market.
Since universal banking involves the dismantling of functional barriers in financial services delivery, one contentious issue is that of whether or not banks should be allowed to render insurance services and, if so, what the consequences will be. Chief Oladipo Bailey, the commissioner for insurance, indicates that there is no reason for insurance practitioners to be frightened. For him, banks getting involved with insurance is not a new phenomenon in Nigeria and it is clear that those two industries have distinctive core businesses and therefore naturally fulfill distinct roles in the economy.
At least, the National Insurance Commission (NAICOM) and the Nigerian Insurers' Association (NIA) are still there to keep on looking after Nigerian insurers' interests. NAICOM has laid a strong foundation for the development of the industry and it has forced insurance companies to increase their capital base. However, so far, insurance companies have not been as proactive in the financial sector as banks in terms of investments. But, things are improving in the sense that the capital the insurance companies are creating and accumulating are going into the banking sector, and insurance companies are now beginning to invest into the ownership of banks and other financial outfits. Insurance companies may therefore become in the near future major players in the financial sector since they tend to manage and accumulate more funds than the banks on a long-term basis.
AIICO Insurance Plc which is part of a global group has been in the Nigerian market for more than 35 years and is ranked among the top three. The managing director, Mr. Mark Hansen says "AIICO handles the majority of multinational businesses in the country". He adds "our strategy is to penetrate every conceivable market niche where there is an opportunity to bring insurance to people at a reasonable profit level".
As a conclusion, it is expected that the regulatory bodies and governing authorities, the various financial sector institutions such as CBN, the Securities and Exchange Commission (SEC), NAICOM, CAC and NDIC will be required to co-operate and co-ordinate more in order to effectively correlate activity in the sector. |
