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BANKING IN NIGERIA Survival of the fittest.

Today, Nigeria's banking industry is constantly referring to restructuring, repositioning, re-engineering, refocusing, downsizing and rightsizing. Nigerian banking seems in constant motion, and as the regulatory authorities churn out seemingly endless new policies, banks have been required to constantly adapt as a strategic imperative.

This is the product of the distress syndrome that brought the banking system to its knees in the 1980 and 1990s. That era is still fresh in the minds of the bankers whose fear of distress is regarded as the beginning of banking wisdom.

Central Bank of Nigeria (CBN) which before the pre-distress era was obliged to salvage and support banks financially and morally has changed its stance to ensuring that only the fit and well managed survive.

Fighting the malaise

The immediate response of the CBN in the post-distress era was to fight the malaise by liquidating five banks between 1994 and 1995, 26 in 1998, and three in 2000. The number of banks peaked at 120 (66 commercial and 34 merchant) in 1993 but fell to 90 in 2000. By 2001 it had grown to 93.

Many individuals and organisations, including CBN lost funds with the failed banks. Banits that survived the distress, like the authorities, learned a lot.

The establishment of the Nigeria Deposit Insurance Corporation (NDIC) in 1989 and the implementation of the Failed Banks (Recovery of Debts) and Financial Malpracrices Decree Number 18 of 1994, marked a total departure from the old ways.

The curious paradox of the unfolding events is that in spire of the worsening health of businesses in other sectors, the profitability of banks has been on the increase. To remain afloat in the breakneck competition that followed the post distress era, banks have had to move faster than the economy.

Shortly after assumption of office in 1999, Chief Joseph Sanusi did nor leave anyone in doubt that he was out to effect major changes in the policies and practices of banking in use country. He announced a novel plan to fund small and medium sized enterprises by requiring banks to set aside 10% of their profit to finance SMEs.

He also introduced changes in the Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for the year 2000. For example, banks are required to calculate interest on savings accounts for their customers at the end of each quarter.

The minimum paid-up capital for new banks was raised to N1bn in January 2000, and N2 billion in 2001 from the N500m fixed in 1997.

A major policy in the new dispensation is the increase in the capital base of Agricultural Credit Guarantee Scheme Fund (ACGSF) from N 100m to Nlbn "to enhance effective management of the expanded scheme."

Similarly, the unsecured loan limit under the scheme was raised from N5,000 to N20,000 and from N100,000 to N500,000 for secured loans to individuals while those for corporate borrowers rose to N5m from N1m. Bank returns to the regulatory and supervisory authorities was reduced from 28days to l5days after the end of each reporting month, as stipulated in the relevant guide-lines.

However, the decision to abolish the weekly Autonomous Foreign Exchange Market (AFEM) and to replace it with the daily Inter Bank Foreign Exchange Market (IFEM) came under heavy criticism.

Under IFEM, oil companies are free to sell their foreign exchange to any bank they choose, instead of only to CBN as was the case in 1999. For import duty procedures, designated banks are required to transfer all customs revenue collected by them to the nearest CBN branch or currency centre on the Monday of the following week.

Exporters and other foreign exchange carriers are to sell their proceeds to banks at agreed rates instead of the former position of selling at autonomous rates.

Arguably, the greatest change was the introduction of universal banking and elimination of barriers separating merchant and commercial banks. (See separate story)

The policy of controlling excess liquidity led the central bank to move the minimum rediscount rate - i.e. the rate at which the CBN lends to banks - three times in less than 40 days in December 2000 and January 2001, from 14% to 14.5% and then to 15.5%.

Listening and learning

Last March the central bank launched CBN certificates, a new instrument for investments of 180day and 36Oday terms, offering 19% and 20% pa yields respectively. Denying the certificates a secondary market value, i.e. the ability to be traded for cash, was a strategy to mop up excess liquidity both within and outside the banking system and still not jeopardise trading of treasury bills. Treasury bills currently offer a 14.5% yield as a weekly instrument for liquidity control.

The beauty of the new dispensation is that the authorities are listening to complaints and criticisms and acting accordingly, leading to improving stability as CBN maintains dialogue with all stakeholders. To this end it has set up a Monetary Policy Advisory Committee comprising bankers, industrialist, academics, businessmen, civil servants and professionals to debate and recommend new policies in the finance industry.
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Article Details
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Author:Thompson, Jato
Publication:African Business
Article Type:Brief Article
Geographic Code:6NIGR
Date:Jun 1, 2001
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Next Article:Age of universal banking.

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