Reform policies, technology, Nigerian banking sector headline at 62 – The Sun Nigeria

By Chinwendu Obienyi

from Nigeria The banking industry is changing very rapidly and new things are emerging every couple of days.

Today it is no longer necessary for bank customers to visit a bank branch before opening an account or carrying out a transaction.

This can now be done from the comfort of home or mobile phone, and that’s because the Nigerian banking industry has grown from humble beginnings to one of Africa’s strongest institutions.

After 62 years of independence, the industry can boast of significant achievements in financial inclusion and payment system as an integral part of e-banking despite the current difficult state of the Nigerian economy. This is due to the comprehensive sector reforms of 2004-2005.

Subsequently, the Central Bank of Nigeria (CBN) was established in 1959. Since then, the apex bank has undergone a number of restructurings and amendments to the law, to bring the banking sector to its present position.

In 1997, an amendment made the Central Bank of Nigeria directly responsible to the Minister of Finance for the supervision and control of banks and other financial institutions, while extending the bank’s supervisory role to these. .

Meanwhile, the current legal framework under which the CBN operates is the CBN Act 2007, which repealed the CBN Act 1991 and all its amendments. The law provides that the CBN shall be a fully autonomous body in the exercise of its functions under the law and the law on banks and other financial institutions, with the aim of promoting stability and continuity of economic management.

too many banks

The industry at the time saw an increase in the number of banks opened after 1960. Thus, merchant bank branches increased from 26 in 1985 to 144 in 1994, while commercial bank branches increased from 1 297 to 2,541 over the same period, leading to a financial crisis. distress between 1992 and 1994.

The main problem was not too few Nigerian banks, but rather too many. All required operating licenses, but the thresholds for acquiring these were generally too low and most banks were undercapitalised.

As in most countries in sub-Saharan Africa, Nigerian banks were more targeting high net worth customers and large corporations rather than mass banking penetration, so they had too few customers to share among themselves.

There was also too little oversight from bank managers, leading to both poor management standards and financial misconduct in some cases. There were various cases of fraud, while loans were often not backed by sufficient collateral.

Reforms

The big turnaround in the fortunes of the banking sector came when former CBN Governor Charles Soludo raised the paid-up capital of banks to N25 billion, which led to the reduction in the number of banks operating in the country. era at 25 banks against 89.

Since then, a number of initiatives and policies have been introduced by the regulator that have strengthened the sector to contribute to the economic growth of the country. These changes and many more have helped to increase the number of commercial banks in the country, as well as other financial services companies such as Fintechs, Mortgage Banks et al.

First, following the global financial crash of 2008, the Asset Management Corporation of Nigeria (AMCON) was formed to buy up bad debts from commercial banks, using CBN and commercial bank funds to finance its operations.

Second, the CBN has set up its financial inclusion campaign in its attempt to capture every Nigerian in the “access to finance network”. Although its goal of having at least 95% by 2024 in the financial net has not been met, 64% is certainly not a bad result. A number of developments in the banking sector, aided by technology and facilitated by regulatory authority, are worth noting. These include bank branches, online transactions and other improvements to the payment system. All this has helped to improve the rate of financial inclusion in the country.

It is important to note that the banking system in any given society is the artery through which the economic engine of the nation flows. However, monetary policies over the years have failed, on average, to meet inflation, interest rate and exchange rate targets due to factors within the structural bottlenecks of the economy. economy, including the huge infrastructure deficit and the country’s inability to diversify the export base. from crude oil.

Stakeholder perspective

Experts believed that in order for the banking system to have the desired effect on the economy, the government and regulators must develop favorable policies, create an enabling environment, eliminate costs by investing in technology, improve the level of literacy and developing consumer banking services.

CEO of Cowry Asset Management Limited, Johnson Chukwu agrees that the Nigerian banking sector has seen huge development since independence and adds that many more changes in the banking system will come from the economy.

“Nigerian banks have become multinational institutions. We have seen Nigerian banks have branches in the UK, USA, UAE, China and other African countries. Indeed, we have seen the industry go from a foreign-dominated banking system to a locally-dominated banking system in 62 years.

Going forward, I think the industry will continue to drive technology adoption. The government should foster more formalization of our economy so that more institutions have a corporate governance structure that will enable them to access credit,” Chukwu said.

He then noted that regulators need to develop fast banking service for consumers due to the lack of lending services given the current size of the population.

“It would be another gold mine for the industry to go further and improve what we call financial system penetration (FSP) beyond what we have today,” he said. -he explains.

Sharing the same sentiment with Chukwu, an economic expert and co-manager, Comercio Partners, Nnamdi Nwizu, said that the government must address the challenges in the electricity sector while the regulator must invest in technological infrastructure.

“I also think the government can help improve the level of literacy, because for people to effectively use some of these things online, they need a certain level of literacy, because the higher the level of literacy is higher, the easier it is for banks to deploy technology to reduce costs and facilitate transactions,” Nwizu said.

For his part, Commercial Director of Optimus by Afrinvest, Ayodeji Ebo, said the role of the banking sector in financial intermediation has improved over the years and requires more deliberate efforts to support the real sector.

“While being careful not to accumulate non-performing loans, banks can improve the credit scoring system, which should be standardized for personal loans. Customers with higher credit ratings should access loans at a lower rate. As a result, Nigerians will be more deliberate in establishing a healthy credit rating to secure a lower loan rate.

The future of banking is digitalization and the ability of banks to provide their customers with various products that earn more than having funds in savings accounts and current accounts,” Ebo said.

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