The Types And Functions Of Banks In Nigeria: A Review

Let me open this discussion by first saying that I will be very brief and straight to the point, but without losing sight of what we are here for. Our concern today is banks in Nigeria and their functions. Firstly, in Nigeria, we have commercial banks, merchant banks, specialized banks, development banks and the central bank; which is a regulator of all banks in Nigeria.

With this understanding, therefore, what are the impact or effects of the banking industry on Nigeria’s economy?

What Are Banks? What Do They Do?

Banks are members of the capital market and are financial houses or institutions which accept deposits and dispense cash. They can also provide loans and other forms of securities and provide quality financial services, social exchange, retirements retributions and mortgages. They also aid in wealth management, financial management and alternative forms of investments.

Regulation Of Banks By Government

In a bid to generate more revenue and instil sanctity in their operations, the government regulates the banking sector in Nigeria. We have seen that the banking sector is prone to liquidity problems and loss of public confidence. That is why checks and balances have been put in place by the government to provide a certain level of security without completely restricting or limiting the banking sector in its entirety in the country

The Central bank Of Nigeria, CBN

The central bank of Nigeria is this is the mother of all banks in Nigeria and all the licences for other banks to operate in Nigeria. Nigeria has three classes of banks. We have the commercial banks, the merchant banks and the specialized and development banks which comprise of the microfinance banks, the mortgage banks and the non-interest banks respectively.

Commercial Banks In Nigeria

Some of the commercial banks in Nigeria includes guaranty trust bank, access bank, unity bank etc. These banks are mostly owned and/or run by groups of individuals and are statutorily responsible for accepting and dispensing of funds, provision of short, long and medium-term loans to businesses, individuals and corporate organizations. They also aid international banking, the collection of documentary and assist in trade financing.

Merchant Banks In Nigeria

Merchant banks in Nigeria include FBN merchant bankers limited, Stanbic merchant bank Nigeria limited. It is the responsibility of this banks or merchant banks to provide statutory financial advice and services towards the management of securities. Most times they deal in stockbroking and are mainly involved in the provision of capital for businesses as shares rather than as loans.

Specialized Banks In Nigeria

We also have specialized banks in Nigeria and some of those banks include the microfinance banks, non-interest banks and the mortgage banks.

Microfinance Banks

These banks are examples of financial institutions which grants or provide credit facilities in the form of micro-loans to individuals, small-scale businesses and organizations. An example of microfinance bank in Nigeria includes FBN microfinance bank, which is a subsidiary of the First Bank of Nigeria.

Mortgage Banks

Mortgage banks, on the other hand, are those financial institutions which set out to meet the housing needs of Nigerians. They help Nigerians and the government in the regulation of housing or national housing funds, following the provisions of the national housing fund act. An example of a mortgage bank in Nigeria is the federal mortgage bank of Nigeria.

Non-interest Banks

Non-interest banks as compared to conventional banks in Nigeria provide alternative forms of banking. it is operated on the fundamental Islamic principles which prohibit interest on loans. Non-interest banks in Nigeria do not attach interest to their loans or grants and examples of some of the banks which run these services include STANBIC IBTC and JAIZ bank.

The Contributions of The Development Banks to Nigeria’s Economy

Let us now look at the development bank in Nigeria and what they do. Development banks in Nigeria assistant in the provision of short and medium-term loans to investors, individuals and groups. Where the commercial and merchant banks are unable to do so, the development banks are poised to assist in boosting the national economy and work in different economic sections and situations.

Additionally, Nigerian development banks help in funding critical and crucial sectors of the economy and helped in the regulation of the private sector. Examples of development banks in Nigeria include the Nigerian bank for commerce and industry, Nigerian agricultural and cooperative bank, Rural Development Bank Federal Mortgage Bank Of Nigeria etc.

The Statutory Role Of The CBN In Nigeria’s Economy

As earlier mentioned, the Central Bank of Nigeria (CBN) is the mother of all banks in Nigeria. It is charged with the responsibility of regulating and enforcing strict compliance with international banking best practices amongst banks in Nigeria.

The CBN maintains the price and monetary value of the Nigerian currency, maintains and manages Nigeria’s foreign reserves and protects the naira from value. It helps in managing Nigeria’s economy in the international market and provides useful advises and supervision services to other banks, while regulating the entire financial structure of the country to maintain efficiency and security.

This discussion has been on banks in Nigeria and their functions in the nation’s economy. in Nigeria we have commercial banks, the merchant banks, the specialized banks, development banks and the central bank – which regulates all other banks in the country.

With this understanding, therefore, you should be able to not only understand what the Nigerian banking terrain is all about but also know how to fit in and maximize your potentials in the sector.

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