Desirability Of Securities For Loan In Nigerian Commercial Bank

DESIRABILITY OF SECURITIES FOR LOAN IN NIGERIAN COMMERCIAL BANK (A CASE STUDY OF AFRIBANK PLC)

Banking in Nigeria started in 1892 then the first commercial was known as the African Banking Corporation was established in Lagos. Then the bank was responsible for the distribution of British currency for colony. In 1894, the British Bank of West Africa (BBWA) was established in Lagos and took over the African Banking Corporation established earlier. The bank was given the name bank of West Africa (BWA) in 1957, standard bank of Nigeria (SBN) in June, in 1969 and the First Bank of Nigeria in 1979 which is the oldest deposit bank in West Africa.

The bank of British West Africa remained dominant in the field until 1961 when the colonial bank, which was aggressive in banking business, was set up. Due to its high efficiency in service the bank opened fifteen branches within four years of its establishment in West Africa.

In 1925, the assets and liabilities of the bank were taken over by a consortium of  banks which comprises of Barclays Bank, Anglo-Egyptian Bank and the International Bank of South Africa to form a new bank named Barclays Bank Dominion, colonial and overseas (DCO). This bank changed her name to Barclays of Nigeria limited and later union Bank of Nigeria.

After world war II, the British and French Bank was established, it is now called the united Bank for Africa [UBA] . The International Bank for West Africa [IBWA] is another note worthy bank of foreign origin. It wan renamed Africbank. It was originally a London based off shoot of the French Banque National pourla commerce et   I’industrie [BNCI]. Some other banks of foreign origin were later introduced in Nigeria.

These banks were foreign banks set up by colonial government and business and as such were mainly catering for the interest of expatriates. The indigenous customer and enter prices were discriminated against. As a result, the Nigerian nationalists were strongly motivated into establishing indigenous banks to break the monopoly of foreign banks and the discriminatory lending practices of these banks saddled against them.

Patriotic Nigerians decided to pool resources to establish banks to provide funds to Nigerian business at a family reasonable cost of indigenous enter prices. The first indigenous bank in Nigeria was the industrial and commercial Bank established in 1924, though it was liquidated in 1930 because of poor management and risky lending operation. However, there was the urge by the nationalists to establish indigenous banks following the discriminating attitude of the expatriate banks against Nigerian entrepreneurs and business. Added to these were the needs to diffuse the monopoly of the financial system by the foreign banks and also promote national development through liberalization of credit facilities to Nigerian entrepreneurs. The attempts actually materialized into visible banks but they were soon sent out of business by forced competition from the expatriate bank that had the

Advantage of early start, enormous asset and colonial government patronage. Above all the indigenous banks were undercapitalized and sealed with poor financial management by non – banking experts.

Another indigenous bank, the national merchantile Bank founded in 1931 collapsed after few years. In 1933, the Agbon-magbe Bank [now Wema Bank] founded in 1945 and the African continental Bank [ACB] founded 1947 were the only indigenous banks, which survived the bank crashes of 1930’s and 1950’s.

However, the National Bank of Nigeria NB Was established.  Many banks came up and died soon after. This period could be termed a period of bank crashes or failures and as a result the colonial authorities set up a commission of bank inquiry to investigate the banking booms and crashes G.D. paton, an official of the Bank of England, headed it .

The Paton report recommended a banking ordinance to regulate banking business in Nigeria. The ordinance came into force in 1952 and made possession of a banking license mandatory before any could be established among other provisions like banking supervision and form of statistical restores. The main objective of this ordinance was to protect the banks’ depositors and restore public confidence in the banks by setting out guidelines on such matters as liquidity and reserves. During the fifteen month period between 1951 and may 1952 when the ordinance came into effect, 18 indigenous bank were registered of all these, only three banks survived while the rest went into liquidations resulting in loss of funds by depositors and crisis of confidence in the banks. The aggressive competition, marketing strategy and strong background of these foreign banks and other problems as earlier highlighted were responsible for these crashes.

Later came the watershed in the annuals of Nigeria banking in 1959. the establishment the central bank of Nigeria (CBN) by the 1958 banking ordinance marked a turning  point in government efforts to monitor the activities of the banks for national development. Thus there are control of credit and foreign exchange and the supervision of the financial system. The establishment of the CBN led to the emergency of Newbreed banks. The companies Decree 1968 was the first legislation that started the process of domestication of banking services in Nigeria. It strengthened government control over the activities of banks and made it obligatory for all companies operating in Nigeria to register as Nigerian companies under Nigeria Law.

As a consequence of the legislation, the main banks became Nigeria at least on paper. With the introduction of the banking  decree of 1969 (now Act 1969) and subsequent amendments, governments lightened further its control of the banks as the Act required them to render certain periodic reports to CBN.

However, this change apparently did not move the behaviour and activities of the banks in the socially derived direction direct government intervention in banking  activities were further experienced in 1970’s when the Federal Government decided to Nigerians the banking  system and the manufacturing industry. The Nigeria Enterprises promotion decree of 1972, which has undergone several amendments since, was conceived with the purpose of transferring the Nigerian economy to bring about indigenous ownership. After a careful study of the methods and experiences of other countries, which had nationalized industries, Nigeria opted for a gradualist approach, which would allow foreigners to share business with Nigerians.

In 1973, the Federal Government acquired 40% of the equity of each of the biggest expatriate banks in the country by ensuring more involvement in the policy making process of these banks and also in spreading of banks, credit for the benefit of the National economy.

In 1976, the government went further to increase the Nigerian participation by acquiring 60% equity shares in all foreign banks. However, with the on going privatization programme government has decided to divert in these banks to encourage the private sector and ensure efficiency and adequate competition among these banks.

Today almost every state government in the country has established a bank or is in the process of establishing one because of its economic importance.

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