The Impact of Universal Banking in Nigeria Financial System

The Impact of Universal Banking in Nigeria Financial System

The Nigeria financial system like other emerging financial systems  all over the world has been dynamic and still dynamic ready to adopt to the economic trend of the day. This makes it impossible for one to be exhaustive in attempting the treatment of all the component institutions and agencies that up the system at a particular point in time. New ones continuous  emerge almost every day at  the dictate of the economy and the responses of the jarious authorities concerned . (Ugwuanyi, 19997).

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The Nigerian financial system comprises the regulatory supervisory authorities, bank and non – banking financial institutions. The regulatory Central Bank of Nigerian (CBN) at the  apex. The banking institutions. Security and Exchange commission (SEC) for capital Market, National insurance commission, (NICOM) for insurance companies. National Broad for community banks. (CBN) brief 2001) .

Moreover in line with the scope of the research work institutions and activities of CBN, SEX, and NICOM will be undertaken.        


The foundation for the operating environment seen in the nineties was indeed laid by the structural adjustment programme (SAP) of 1986 which had as its arrow head the deregulation of the financial system. This brought about the liberalization of the banking license and the  elimination of other discriminatory practices and functional barriers that inhibited both the free entry into the market or the scope and manner of its operation. It brought about also the privatization of many government owned banks. (CBN) Bullion, 2001)

Arising from this, we  witnessed the rapid expansion both in number and complexity of banking outfits. The staff completion that followed aided by the absence of appropriate human capacity both at board, management, and supervisory levels to guide and control the phenomenon, led to the distress and failure of way banking establishments of course there were the external factors that equally created distortions from the application of inappropriate monetary and fiscal policies (CBN Brief, 2002).

The competition were referred to above also general profound transformation in the industry, such that has never been experienced before or that is yet to  about, and which to a good extent has is  yet to abate, and which to a good extent has been accentuated by global inflows. It must be pointed out however that although the expansion in the number of banks was a serious contributing factor, the situation was actually largely indicated by evaluation of knowledgeable and sophisticated customers whose demand are influence by their exposure to global practices. The position was not equally helped by a situation where the economy has not achieved any growth and the generic nature of services on offer necessitate  the creation of competitive adage through the introduction of various delivery channels and the also of appropriate technology. Amazingly different from the position of the past is  the realization by every one that customer satisfaction should be the centre peace and philosophy of every banks aspiration.

  1. INFORMATION TECHNOLOGY:- The technology innovations being introduced in the industry has entirely changed and transformed the banking landscape and methodology and now constitute a strong marketing tool that assists bank to retain and attract new customers.
  2. BUSINESS FOCUS ORIENTATION :- Although the functional barriers between commercial and merchant banks are being eroded. Many banks have in the last decade taken some positive have actions to define their business focus given the size of the resources, financial and human available to the competitive environment.
  • ORGANIZATIONAL RESTRUCTURING:- Many organization have effected changes to their structures. In order to attain competitive advantage. Fast and efficient customer service at very competitive cost becomes the rational for such reorganization and re –engineering process.
  1. STAFF TRAINING AND MOTIVATION:– Another observation trend in the last decade is the substantial investment by banks in manpower developments and motivation. Matrixes of the world system were introduced by many banks to retain their good staff and to attract others, where internal competence s were lacking in identified niche market.


A lot of changes have pervaded the Nigerian financial environment. This changes has also brought about numerous changes in the operational requirement of institutions concerned and the process of financial intermediation   improved.

1.BANKING INDUSTRY :- As stated earlier, a lot of dangers have provided the Nigeria globalization and internationalization of banking activities. Furthermore, within the last decade (1990’s) significant changes occurred in the area of institutional framework, the deregulation of the  economy since late 1980s led to the influx new banks and other financial institutions. The second changes was in the legal regulatory frame work, new banking laws were made industry banks and other financial institutional Decree No .25 of 1991 as amended which repealed and replaced the banking Act of 1969. Also advancement in computer and information technology that made it possible to computerize the operation of banks has greatly reduced the operating cost of banks, increased the banking services, and quality of services offered to the numerous customers improved. (Anganwa Okoro 2001)

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As a result of the above changes, banks are faced with still completions within themselves and from other non banks financial institutions. Also the landscape of banking has changed from an arm – chair banking of a  seller, market to  a aggressive and ever determined buyers market. (Emekekwue 1999)

Moreover prior to the adoption in principle of the concept of universal banking in the country, the merchant bank operators were complaining stridently that the playing filed was skewed in faour of commercial banks. Not only was commercial banks allowed to participate in what was though the exhaustive preserve of merchant banks such as leasing and related fee based service. The merchant banks also operated cheque accounts with the commercial banks on which they pay commission on turn over (COT). This imbalances resulted a background of rising share- holders’ expectation (CBN Bullion 2001) whist the distinction in role between commercial and merchant bank were statutory maintained ,other significant decisions were taken in a manner that did not respect this differences . For instance, the stipulation of minimum level of capitalization did not take note of the difference between commercial and merchant banks as a uniform level of minimum capitalization was specified, that is one billion for old banks and two billion for new ones.

  • INSURANCE INDUSTRY :- This is yet another strategic and sensitive components of Nigerian financial system. In Nigeria, their industry has also witnessed drastic changes in structures and forms. The insurance companies Act of 1961 which was the First insurance legislation in Nigeria meddled after the British system tends to regulate and control the operation of insurance business in Nigeria. (Ugwuanyi, 1997),

Furthermore, in other to correct the loopholes in the 1961 Act, the 1984 was promulgated which not only strengthened  the country regulation and supervision of the industry, bit were further to preside the way of investing premiums collected.

Moreover, in the with the wave of deregulation and liberalization in Nigerian economy aimed at enhancing competitive advantage Nigerians insurance Decree No 58 of 1991 and in November 1992 the national insurance supervising Board was established under Decree 62 of 1992 which was also replaced in 1997 by the New board called National insurance commission (NAICOIA) and Decree of 1997.

Also, the completion record in this industry has been sustaining unlike what is obtainable in the banking industry. However, the little patronage enjoyed by this industry may come under serve competition from banks in pursuance of the universal banking (CBN Brief 2002)

Again, it is expected that the industry in its determined interest to  regain its position will involve in profitable mergers and acquisition in order to strengthen its operational requirement and relevance to the emerging global economy.

  1. CAPITAL MARKET INDUSTRY :- The Nigeria capital market owes its origin to the establishment of the Lagos stock exchange which later metamorphosed into the Nigerian stock exchange. This gave rise to other parties like stock brokers, registrars, company secreting, issuing house, found mangers and investment advisers, with the security and exchange commission to regulate all these parties and their activities. Times. The Nigeria capital market can be said to be a very young and emerging market (Ndunagu, 1999)

Furthermore, like other sectors in the financial system, the Nigeria capital market has also a lot of changes within the context of globalization, liberalization and deregulation in the world economy, the volume of securities traded has increased, barriers that tends to inhibit efficacy dismantled while there general of the participle standard and also level of information technology.

Also, since banks under universal banking can conveniently undertake capital market functions, with their ultra – modern facilities, the survival of other capital market separators will largely depend on their ability to improve on their services. Finally, it is expected that the entrance of banks into the sector can improve the general awareness, business focus, profitability and relevance of the market to the emerging global practices.


As earlier stated, the Nigeria, financial system being in emerging financial market has been engulfed with a lot of competition among the various participants. Furthermore, what is to day regarded as the universal banking has  been in existence directly or indirectly in the financial sector of the economy. Many financial service providers in the system has been operating quasi universal banking directly or indirectly through subsidiaries. Also in a develop economy, giant corporate organizations has continued to evolve in all sector of business. Corporate growth is achieved either by :-

  1. Internally field growth
  2. Mergers and acquisitions with similar activities
  • Diversification through establishment of subsidiaries.
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In Nigeria, internally field, growth and diversification are the common foods for growth of corporate organization (Alegieuno, 2000). In the financial service industry, Union bank PLC and Nicon Insurance PLC are two excellent exchange of the above discussion. Why both have continue to grow in their core of business of banking and insurance respectively through internal value added ,they have diversified their business through activities and by establishment of new companies in other sectors of business.

THE UNION GROUP IS MADE UP OF THE FOLLOWING : Commercial banking , Union Bank of Nigeria PLC. Merchant Baking, UBN Merchant Bank

Insurance : Union Assurance company

Trusteeship:  Union Trustees

Mortgage: Union Homes savings and loans


Banking :  Assurance  Bank

Trusteeship :  NICON Trustees

Tourism:  NICON Hotels

The above structural arrangement propelled the apex bank to come of with a clear out decision aimed at insuring sound financial system by introducing the concept of universal banking . Furthermore, the performance of any financial system is measured not only by the number and variety of service provided but more importantly by the speed, efficiency and safety by which those service are provided (Orijh, 1998)

Following the CBN approved in the principle of the adoption of universal banking in Nigeria and subsequence  rectification of the report of the committee on the  preparation of the guidelines for same, the governor of Central bank of Nigeria in the exercise of the power conferred on him by the provision of section 61 of banks and other financial institutions Decree (BOFID) 1991 amended has approved the issuance of the uniform licensee for all banks for the implementation of universal banking in Nigeria. To give effect to the adoption of the concept, banking business in Nigeria shall be defined as ‘ the business of receiving deposits on current, savings or other accounts, paying or collecting cheques down or paid in by the customers, provision of finance constancy and advisory services relating to corporate and investment matters making or managing investment on behalf of any person and the provision of insurance making services and capital market business or such other service as the governor of CBN may by gazette designate as banking business (CBN Bullion 2000)


Nigeria financial system can efficiently adopt to changing uses in the global financial market by embracing and implement an acceptable global concept  in financial matters. The recent advancement in information technology have revolutionize the entire practice, concept and processes involved in financial services.

Universal is increasingly becoming an acceptable practice internally due to the brake down of the functional an regulatory barriers separating the difference subsection of the financial service industry in response to the regulation. Liberalization and globalization. Apart from the above, the real situation on ground is that many banks in Nigeria had found various ways of offering wide range of financial services through the use of subsidiaries. Secondly the increasing financial sophistication  and the need of the modern day bank customer would  be better off with a one stop financial centre which is a vote for universal banking could be seen as the logical extenuation of the deregulation and .liberalization process going on in the Nigeria economy. Finally, with liberalization, universal banking should necessarily be adopt because it has become the trend in other part of the world.


        Universal banking which allows banks freedom in  the choice of the scope of their activities have become say  attractive to bank operators. Significant movement towards in several financial centre of the wold by the First half of the 20th century.

Moreover, the differences observed in banking practices are getting burred gradually s a result of globalization propelled by the recent advancement in information technology, and the growing tendency of each economy to embrace successful practices is commendable and highly appreciated in the industry. Also the principle approved of the concept under review and its subsequent adoption will among other benefit reposition Nigeria financial market to changes impose by the emerging global phenomenon.

However, I shall for greater emphasis comparability reveal the model and method of practicing universal banking in other economy in order to explain whether the anticipated model is favour \able to Nigerian environment.

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As stated earlier, under universal banking authority is given to a bank to decide on its own portfolio of business.  Select applicable regulatory framework. The distinction between money, capital market and insurance business is removed. From a border perspective universal banking permits financial and commercial concern can own banks (down stream linkage) or banks own commercial enterprises (Up stream linkage)


        In Germany, banks are allowed to offer all the various types of financial services. These includes traditional banking services such as credit creating deposit taking. Investment services. Securities placement. Encourage and insurance services, real estate development  and other non financial based organization.

  1. UNITED KINGDOM: The model of banking practiced offers a wide range of financial services to corporate and personal customers, commercial and investment banking, securities trading and brokerage business derivation raiding, underwriting, management and insurance.

Another notable features is the absence of regulatory barriers restituting the allowable range  of business thereby not enforcing compartmentalization of  functions aid institutions. This variant is refereed to as the financial conglomerate structure design to secure the full benefit of diversification .  (CBN Bullion 200)


The banking act of 1933 popularly known as glassteagall act made a distinction between commercial and investment banks. This act was repealed in 1999 following the enacting of the Gramm Leach Billy financial modernization act of November 1999 which became effective in March 12th  2000. The act established the financial holding company (FHC) which as the veiled for a standing bank powers, is authorized to engage in insurance, securities brokerage and underwriting, Merchant banking and real estate development activities. (CBN Bullion , 2002)

  1. JAPAN : The beauty and exchange act of 1948 prohibited banks from underwriting securities. It established a strict separation between banking services and securities business. However, the financial banking system reform bill of 1993 allowed commercial bank to undertake securities business through the ownership of subsidiaries. By end of 1994, a;; the major commercial banks in Japan had established subsidiaries dealing in securities. There is also a major approach to banking in Japan known as “Keretsu” where financial institutions and commercial concerns have some unique linkages that may include direct ownership. Such “Keretsu” insttiutions includes mitsubishi, mitsui , sumitom.
  2. SWITZERLAND:- Universal in switiland comprises deposit taking, lending, underwriting, the distribution of new issuer of shares and debt, investment management, fee based advisory services, foreign exchange transactions and derivatives trading related to  rise management such as forward futures, options and soaps.
  3. KOREA:- The banking act dictates the range of services and products to the offered by banks especially in the area of securities and redacted business.. The various sectors in the financial system are under separate jurstitations. Korean example is unique, in that it in that it includes element of universal banking why the regulatory regiment recognize specialized systems.

It should be observed that universal banking seen as a multipurpose banking option have become more popular in recent years due to the advent of trade liberalization and financial deregulation. The call for the adoption of universal banking in Nigeria financial system adoption of universal banking in Nigeria financial system has been made for the reasons that include fostering of completion and ensuring of sound, stable and viable financial system. Also recent trend in global similarities have contributed positively and favourably towards the adoption of the concept under review.

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This article was extracted from a Project Research Work Topic


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