Origin of Nigeria Banking System

Origin of Nigeria Banking System 

          Orjakor (1999, 132 –135) holds that the organ of the Nigerian Banking system dates back to the colonial period. The activities of the extra territorial merchants in the former West African colonies and the establishment of settle territorial government created need. For locally based financial institutions in 1894, the banks for British West African was established in Lagos mainly to facilitates commerce between Nigerians and their British counterparts in business. 

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The Barclays banks followed by 117 and in 1933 the national bank of Nigeria Ltd. The first indigenous banking institution that survived the followed in 1948 is the African Continental bank. These indigenous bank were left to operte in periphery of banking business even the state governments owned banks that were established within the last ten years, were anxious to stay in the big cities where they could generate profitable business quickly, rather than see themselves as vehicle for rapid transformation an development of the rural sectors of the estates that owned them.

In the anxiety to survive, the indigenous banks have host sight of the objectives of their founders in the direction of serving the needs of the rural population and instead focused their strategy on the big cities like the foreign banks who have always been out to promote the interest of the metropolitan headquarters, while some of the estate banks were pressured politically to extend their operations to some semi urban area.

Most of the rural areas in the state or origin did not receive the slightest consideration of banking service that was the background of the state of affairs, in which by April 1978 after over three quarters of century of banking (1883 – 1977) there existed only 470 banks branches to serve a vast population.


          Many authors had defined banks in their own perspective. But I defined banks as a place where money and other valuable are kept for safe until when they are needed.

Mgbodille (2001: 1) hold that basically a bank has a two field functions to receive deposits and to make loans. Incidental to or in connection with receiving deposit and loans, there are many services that banks render which are fundamental importance to the normal functioning to our complex economic system. For example, banks provide a safe place for the deposit of funds, which temporarily are not needed by their owner.

Through the banks services in changing money, individuals may obtain currency or coin, in the dominations desired. Also through cheques, depositors can pay their bills, reducing carrying of money from place to place, thereby minimizing risks.

The banks also assist in the bookkeeping operations of his depositors record of both cash and creditor founds received and disbursed and equally rendering receipts in the form of cancelled cheques for bills discharged.

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Before we leave this section, let us briefly look at the definition of a bank as presented by Lord- Charley,

Charley (1974:1) explained that “a person who carries on the business of banking is called a banker and his business premises his bank. With the advent of the limited liability company, however, the term “bank” has come to be used to describe a company which carries, on a banking business” and the terms bankers and bank have become in practice interchangeable and it would perhaps be regarded as pedantic to insist on keeping the separate meanings.

 TYPES OF BANKS            

          All the banks operating in a country make up what is known as the banking system of that country. The types of operation of this banks vary from country to country. Generally they include the following:


          A central bank is the apex bank in each country. It is usually a government own bank established to take care of two major groups – the government and the banks. To the government it serves as a banker and financial advertise. That is, the government keeps money with the central bank and also borrows from the bank when the need arises. But more importantly, the Central bank also serves as a financial adviser to the government. It is also advices the government on monetary policy and on other economic policy matters.

To other banks (commercial, merchant bank and others) the central bank acts as a banker and lender of last resort, it keeps money for other banks just like these other banks keep for individuals and business firms. Furthermore, the central bank controls the activities of the other banks and supervisor them to ensue that they comply with sound banking practices.


          The banks and other financial instrument decree of 19991 defined a commercial bank as any bank in whose business includes the acceptance of deposits withdrawable by cheques. Commercial banks are meant to be profit oriented and they render resale banking services.       

Commercial banks are able to provide current bank clearing house. They can clear cheques through the clearing system. For this reason, commercial banks are called clearing banks in Britain.


          A merchant bank is a bank established to provide medium and large scale (wholesale) and specialized banking services at a profit. It should be noted that commercial banks also do most of things listed above as business of merchant banks.

In Britain, their merchant bank are either called issuing houses or acceptance house. While issuing houses deals in the issuing of newshares for companies, accepting house accept bills on behalf of their clients or add their own acceptance to bills already accepted by their client as a means of providing finance to them.


          Development banks are non-profit oriented bank set up by the government with the aim to enhance one or more of economic development,

Development banks normally source their funds from the government, central bank, and international development banks. They lend out the funds so generate to individuals and firms for investment into development oriented projects.

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          These are special types of unit banks established to provide non-sophisticated banking services to a given geographical area.

Community banks are owned and managed by a community, a group of communities, a group of individuals or associations from the community where they are located. They operate like commercial bank. However are quite different from commercial banks in the following respects:

  1. Their operations and restricted to a given geographical area, while commercial bank in Nigeria are licensed to operate in any part of the country.          
  2. Community banks are not members of the central bank, clearing house, but commercial banks are members.
  3. Community banks are not allowed to engaged in sophisticated banking services like export financing and foreign transactions, while commercial banks do etc.


          This bank was introduced in Nigeria in 19888 to serve as a non – conventional bank that provides retail banking services and grant credit to the poor masses who cannot satisfy stringent conditionality normally required by conventional banks for opening account and granting credit facilities. Peoples bank is therefore a single bank with small branches spread all over the country.

In the year 2000, the federal government of Nigeria transferred the peoples bank in Nigeria operations to the Nigerian Agricultural and Co-operative bank. The peoples bank of Nigeria has therefore, ceased to exist as a corporate body.


          A saving bank offers saving facilities to a very small account saver. Infact, when they existed, even school children could open an account with 10 kobo. The amount was later raised to one naira.     

In 1990, the federal savings bank of Nigeria was restructured and converted into a commercial bank now known as (FSB) international bank Plc. Therefore, savings bank no longer exist in Nigeria.


          Co-operative banks are banks established by members of a co-operative society. Such banks collect deposits and other banking service to the society but gives special preference to the members of the co-operative society that established them. It operates more or less like a co-operative shop.

Profit made by the bank are shared among members of the co-operative society at the end of the year according to their agreed profit and loss sharing ratio. In the real sense of the world, there are no real co-operative banks in Nigeria.

However, such banks still exist in India and Germany.


          A consortium bank is a bank formed by other banks that wish to pool their resources together to be able to provide large loans to customers who have large scale financial requirements.

Such banks attend to the financial needs of multinationals who borrow money in such a larger sun that individual bank will consider too large to carry alone since no bank will like to carry all it’s eggs in one basket, a bank that has a large loan request can invite other banks to partake is the loan.

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Such a large loan granted through the coming together of a syndicate of the banks is known as syndicated loans while the act of coming together to lend is known as loan syndication. Under such arrangement, the bank that invited other bank is called the lead bank.


          They are banks that maintain an interdependent relationship between themselves by which each of them serves as a representative or agent of the other is rendering banking services to their various customers.

Correspondent banking is more common in international banking. For instance, National Westminster bank, a bank in London, can establish a correspondent relationship with another bank in Nigeria, say Union bank of Nigeria. if Westminster bank for correspondent banks re those banks that bank with Central bank through another bank. For example community banks which its statutory reserve is N250,000 banks through the commercial bank of Nigeria, this means that commercial banks are bankers to community banks.

For instance sending bills for collection in Nigeria or letters of credit for confirmation in Nigeria.

She can send them through Union bank of Nigeria. In that same way National Westminster bank will serve as a representative of Union bank of Nigeria at London.

It is normal for each of the correspondent banks to open an account with the other bank correspondent banking is also popular is United States of America where banks that are not members of the federal reserve system establish correspondent relationship with those that are members of the reserve system for purpose of clearing their cheques.


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  1. Sabbath Usen-obong J says:

    Nice work, I learnt something new from it that was of great help.

  2. Felix Purity says:

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  3. Abayol peter says:


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  5. Michael says:

    Thanks for the article, so helpful.

  6. Ebule Perikaa Collins Jorh says:

    Is good and educative it has a pattern which facitate easy learning and understanding .also what I think should be done is keeping people updated with recent development in the banking sectors as well as the financial institutions.

  7. I need more details of Banking sectors in Nigeria because am an undergraduate in these field.

  8. Onyinyechi blessing says:

    Thank you very much I have learned many things in this article I still need to no more about banking system because am undergraduate that’s my field. God bless you Sir /ma

  9. Thanks for the information, i really appreciate.

  10. Thank you so much very helpful article

  11. Thanks for the information and you did a greate job, is well understood able and clear understanding manner ways, am still undergraduate student and I need more about banking sectors like indigenous sectors and sequence

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