THE EVOLUTION OF NIGERIAN BANKING

SYSTEM, SUPERVISION AND CURRENT

CHALLENGES

By

Toluwani Alexander Ajayi LLB (Hons), LL.M

Margaret Sosan (LL.M)

1
 1. Introduction

The nature of any nation’s financial regulations and supervision of its

banking system to a large extent determines the scope and extent of its economic

challenges1 .It is very important to recognise the fact that a nation’s financial system

continually play important roles in the effort to achieve socio- economic

development2. It is believed that, that financial sector could be a catalyst of economic

growth if it is adequately supervised, controlled and monitored. Theoretical economic

and legal analysis offers a useful normative standard for appraising, analysing and

evaluating finance houses and banks in our contemporary times. Although economic

theories provide the foundation for financial deregulation3 yet, the law provides the

backbone through which these processes are carried out. Thus, legal and economic

scholars make robust contribution to understanding of the interconnection between the

legal and economic systems. Therefore, activities of financial regulations, or bank and

banking supervision serve as an equilibrium position where law and economics meet,

in other to embrace a more pragmatic approach, especially regarding to Banking

supervision in Nigeria; we have to go a little bit further, not limiting ourselves to strict

law. The issue under discourse bothers majorly on Nigerian banking system,

supervision and its challenges. Given the current global financial crisis and its effects

on all other sectors, this essay provides useful insight into the current state of the

Nigerian banks and their corporate governance. It is an obvious point of fact that in

financial system, corporate governance is an important factor. It determines the level

1
See Rahul Prabhakar “Globalized Finance and National Regulation: The Influence of Internationalization on
Supervisory Consolidation” University of Oxford, 2010 at page 20.
2
Ibid
3
See R. Cooter et al. “Law and Economics”, Addison-Wesley reading, 2nd edition.1997, at Pages 2-5.

2
 of a nation’s financial comprehensiveness and development by regulating the nation’s

market mechanisms4.

However, good corporate governance in this context obliges banks to operate in

a way that is customer-friendly (protecting the interest of the depositors), safe and

sound. It requires banks to comply with applicable laws, rules and regulations as

provided for by the over-all supervisory body in place. Thus, the importance of

corporate governance of the financial institutions such as banks remains ever crucial.

4
See Jean Jacques du Plessis et al “Principle of Contemporary Corporate Governance”, Cambridge University
Press, 2nd Edition, 2004 at page 8.

3
 2. . Banking and Financial Supervision in Nigeria: A Historical Overview.

The history of banking operation and supervision in Nigeria could be traced to the

period between 1892 and 1894 when African Banking Corporation and First Bank of Nigeria

(which was formerly known as the Bank of British West Africa (BBWA) was established5.

There was no doubt that along the line of history, the Colonial Banks established their

presence in Nigeria. They ran commercial affairs, affected financial activities, and influence

trade and commercial transactions throughout West Africa, from Nigeria6. Barclays bank

entered into financial operation in Nigeria around 1925, through merger between the Colonial

Bank, the Anglo-Egyptian Bank and the National Bank of South Africa to create Barclays

Bank (Dominion, Colonial and Overseas)7. In 1948, the British and French Bank for

commerce and industry was established (later to become the United Bank for Africa). These

banks therefore did not aim at meeting the needs of the Africans 8. In 1949, Dr Nnamdi

Azikwe established the bank with an African heritage (the African Continental Bank). He

decided to establish the bank all in the name of Pan Africanism because foreign banks

discriminated against him and his group of companies9. It is a fact that ACB was actually not

the first Nigerian Bank to be founded. In 1929, the Industrial and Commercial Bank became

the first indigenous bank to be established, but an anaemic existence and therefore went into

5
See IR Onoja “The Contributions of Research Development in the Banking Industry in Nigeria”. Nigerian
Journal of Management Research 1998 at page 210.
6
See Chibuike Ugochukwu Uche” Foreign Banks, Africans and Credit in Colonial Nigeria 1890-1912” The
Economic History Review New Series, Vol. 52, No. 4 1999 page. 669-691
7
Ibid.
8
See Richard Sklar “Nigerian Political Parties: Power in an Emergent African Nation” African World Press,
First edition 2004, at page 165-166.
9
Ibid at page 166

4
liquidation fifteen month later, specifically in 1930.10 Its failure has been attributed to

mismanagement, accounting incompetence, embezzlement, even though economic repression

of that period also contributed to its failure. In 1931, its remains were replaced by Mercantile

Bank most of its directors were also directors in the defunct ICB. A year later, it created

branches in Lagos and Aba, but six years later, it also went into voluntary liquidation. In

1947, the Nigerian Farmers and Commercial Bank also came into existence. Worried by the

spate of establishment of these indigenous banks, the Government in 1948, appointed Mr.

G.D. Paton, an official of the bank of, England to ‘enquire generally into the business of

banking in Nigeria and make recommendations to the Government on the form and extent of

control which should be introduced’. Its report of this inquiry submitted in 1952, formed a

foundation for the establishment of the first Banking Ordinance Act that same year. It was

designed mainly to ensure orderliness in commercial banking, and prevent the establishment

of unviable banks and unregulated banking transactions11. Draft legislation for the

establishment of Central Bank of Nigeria was presented to the House of Representatives later

in March, 1958. It was passed and fully implemented on the 1st of July 1959 establishing the

full operation of the Central Bank of Nigeria. Therefore from 1892 to 1952 can be regarded

as “free banking era” because there was absence of sustainable banking legislation, as

anyone could set up a bank, provided it is registered under the Companies’ Ordinance Act 12.

Between 1959 and 1989, when deregulation of the finance and banking sector was technically

10
See WT Newlyn and DC, Rowan “Money and Banking in British Colonial Africa”. Oxford Clarendon Press,
1954 at page 12. See also Charles V Brown, “The Nigerian Banking System” North-western University Press,
Department of Business & Economics, 1966.
11
See Central Bank of Nigeria/ History. http://www.cenbank.org/AboutCBN/history.asp visited on the 26th,
June, 2013, at 20.03pm. see also Duncan Alford, “ Nigerian Banking Reform, Recent Actions and Future
Prospects” University of South Carolina School of Law Coleman Karesh Law Library, April 2010 at page 2
12
See Victor Murinde, Atsede Woldie (ed) “African Business and Finance Development Policy” Volume 4, No
2 International Business Press, New York, 2003 at page 71.

5
introduced through the creation of Structural Adjustment Programme (SAP)13 inspired by

Bretton Woods’s conference14, there was a heavy increase in the establishment and operation

of financial Banks. New deposit-taking financial institutions became a norm as a result of

financial sector reforms. There were numerous establishments of community banks, finance

and short loan houses. One major advantage of this financial supervision was the creation of

People’s and Mortgage Banks, (officially called Primary Mortgage Institutions)15 which

unfortunately presently exists only in name and logo. In 1988, the government established

Nigeria Deposit Insurance Corporation (NDIC)16 with the responsibility of carrying out some

sort of financial reforms and assisting the Central Bank of Nigeria in formulation of policies.

It was charged with the responsibility of ensuring safe and sound banking services and

insuring bank deposits through effective supervision. It was the basis of its assistant

supervisory role with the Central Bank that the NDIC Act was useful.17

However, we must note that concept of “regulation or supervision”18 whether

contemporarily or historically, (from the above) as far as banking is concerned has no

universally accepted definition. This is because the term is wide, and has an extensive scope,

cutting across various art or social science fields, especially in law, economics and political

science. Although the word “supervision” and “regulation” is being used interchangeably, but

13
N.E Nwabugo “The Story of Structural Adjustment Programme in Nigeria; From The Perspective of The
Organised Labour” Australian Journal of Business and Management Research Vol.1 No.7 October-2011, at
page 30.
14
See C S Venkata Ratnam “Trade Union and Structural Adjustments” International Labour Office, Geneva,
1996 at page 6.
15
Opcit.
16
See http://www.ndic.org.ng/ visited on the 27th of April 2013 at 19:56pm.
17
See NDIC Act
2006.http://www.lawnigeria.com/Federationlaws/LawsoftheFederation/NigerianDepositInsuranceCorporationA
ct.html visited on 27th of April 2013, at 20:05pm.
18
The word Regulation and Supervision is used interchangeably in this essay.

6
from this particular point, a successful construction of these words (i.e. regulation or

supervision) largely depends on the context in which they are being used, and field to which

they are related. In Nigeria, “banking regulation” has more to do with policies, and quasi-

legal structures established in form of Codes, Bye-laws, Acts and Decrees (during the

Military rule). Therefore, one can safely submit that a general understanding of banking

regulations as far as Nigerian Banking system is concerned is more statutory rather than

financial.

Thus, a general survey of literature shows how some authors tried to give a

constructive definition of the word “regulation” from in a socio-economic perspective.

Kahn19 taking a position on the concept of regulation sees it as "direct governmental

prescription of major aspects of their structure and economic performance ... control of

entry, price fixing, prescription of quality and conditions of service and the imposition of an

obligation to serve all applicants under reasonable conditions”. But Stigler20

comprehensively explained that “as a rule, regulation is acquired by the industry and is

designed and operated primarily for its benefit ". He successfully highlighted four inter-

related category that sums up the concept of regulation as far as banking is concerned. (a)

Direct subsidies of money, (b) control of new entry, policies (c) promoting complimentary

goods and (d) discouraging substitutes as well as control of prices21. As good as these

economic perspectives it sounds, they were seriously criticised by a chore economic positivist

19
See Kahn, A. E “The Economics of Regulation: Principles and Institutions”, Massachusetts Institute of
Technology, 1988, (3rd Edition) at Page 8.
20
See George J Stigler. “The Theory of Economic Regulation” , 2 Bell Journal of Economics and Management
Science. Volume 2, No 1 (1st edition) 1973 at Pages 3-21.
21
Ibid.

7
as being myopic, as they omitted a very important factor called “The Market”, Spulber22

submitted that regulation should be seen as “general rules or specific actions imposed by

administrative agencies that interfere directly with the market allocation, mechanism or

indirectly by altering consumer and firm demand and supply decisions”.

22
See Daniel F Spulber, “Regulation and Markets”, the MIT Press, Cambridge. Massachusetts,London,
England. ( 1989)at page 2 1.

8
3. Supervisory Mechanisms of the Nigerian Banking System: Supervisors and

Their Roles.

The Nigerian Banking sector is primarily regulated by two bodies. The first is

.Central Bank of Nigeria, (CBN) which has the superior regulatory power, and then, the

Nigerian Deposit Insurance Company (NDIC), and external auditors (EA).These bodies,

are used by the government to regulate and supervise the Banking sector. They are set up

through an Act of Parliament to regulate and control financial activities and monitor

actors within the Nigerian banking system. The CBN’s core supervisory role is feasible in

the area of policies formulation, establishment of specific administrative or bureaucratic

procedures that must be adhered to by all banks and financial institutions in Nigeria.

Thus, CBN is seen as lender of last resort to all banks in the nation.

On the other hand, NDIC is known also as a government’s agency, which is

responsible for insuring financial institutions, paying and controlling deposits in accordance

with the in the event of failure of an insured financial institution. The NDIC also has a

supervisory role, which it performs by protecting the depositors and their deposits in banks,

ensures monetary and transfer stability, supports, and encourages an efficacious payment

system, making sure that dodgy, unsafe and unsound banking practices does not occur, and

where it occurs, it must be checked for prevention of future reoccurrence. The NDIC has

three ways in which it supervises the banking system (a) transaction-based supervision, (b)

risk-based supervisions and (c) consolidated supervisions23. There are also external auditors,

often from private companies, providing periodic audits of the financial books and records of

the banks. Their judgments are empirical in nature, using accounting and arithmetic

calculations to measure banking development or decline. Even though these auditors are in

23
Ibid see also http://www.ndic.org.ng/types-of-bank-supervision.html visited on 6th of May, 2013, at 13:15pm.
9
most cases appointed by the banks, they are approved by the NDIC or respective regulators to

provide requested services.

10
 4. Supervisory Mechanism of the Nigerian Banking System: The CBN

The functions and importance of the CBN as the chief supervisor cannot be over

emphasised. It is the premier institution and the acne of Nigeria’s financial sector. CBN’s

board of directors are allotted the power to formulate and implement monetary policies24,

although, subject to the directives of the Federal executive council. This check is necessary in

cases where there is a conflict between the board and the minister of finance (whose position

is political) on a proposed policy25.Section 3 of the Central Bank of Nigeria Act26 provided

that:

(1) The board shall keep the Commissioner informed of the monetary and banking policy

pursued or intended to be pursued by the Central Bank.

(2) The Commissioner shall, from time to time if he disagrees with the board on the monetary

and banking policy pursued or intended to be pursued by the Central Bank, so inform the

board of his disagreement thereto, and the Commissioner may submit his representation and

that of the Central Bank on the disagreement to the Federal Executive Council

(3) The Federal Executive Council may in writing after considering the representations direct

the Central Bank as to the monetary and banking policy pursued or intended to be pursued

and the direction shall be binding on the board which shall forthwith take all steps necessary

or expedient to give effect thereto. This regulatory structure weakened the authority of the

CBN since the final authority for monetary and banking policy was with the Federal

Executive Council

24
See Section.3 (1) of the Central Bank of Nigeria Act (amendment) (No. 3) Decree No. 50 of 1968.
25
See Section 3(2-3) Ibid
26
See Central Bank of Nigeria Act (Amendment No. 3) Decree No. 50 of 1968.

11
 From the quoted section above, it is clear that the Act provided some sort of

“checks” on the regulatory powers of the CBN, and in this context, one can rightfully argue

that these checks weakens or undermines the authority of the CBN, this is because according

to the provision. Although the CBN is seen as the chief supervisory body of the Nigerian

banking Sector, as far as monetary and banking policies in Nigeria is concerned, it seems

clear from the statutory provisions above that the final authority rests with the Federal

Executive, which is under the First tier of Government (The Executive arm).27 This is a

major issue that that do undermine the supervisory powers of the CBN, which would be

treated in the next chapter but then we need to know in what way the CBN carries out its

supervisory activities on banks and financial institutions in Nigeria.

27
The Federal Structure of Nigerian Government is divided into three arms, namely; Executive, Legislative, and
the Judiciary.

12
4.1. Corporate Governance Policies.

The establishment of Central Bank of Nigeria marked the introduction of corporate

governance policy as a supervisory method by the government on the banking and financial

sector of the country, as we well know, the CBN is an indigenized body established by an

Act, empowered to carry out these policies and control the daily affairs of Nigerian Banking

sector28. This is the chief corner stone of banking and regulatory policies in Nigeria.

Corporate governance policies in Nigeria could be traced to colonial days. There were

several Acts created under this platform, from Bubble Act of 1720 29which was passed by the

English Parliament, forbidding the creation of a joint stock company without an approval

(royal charter), which was done to manage competition and control unwarranted creation of

companies30 to The Joint Stock Companies Act of 1844, which allows creation of companies

though the process of registration was to be incorporated by a process of registration, and

them Companies Allied and Matters Act 1990, which now forms the corner stone of Nigerian

Company and Business laws. Generally, corporate governance can be defined as the exercise

of power supervision of executive actions, and acceptance of a duty to be accountable 31. It is

the regulation of corporation(s) within the jurisdiction of the states in which it operates.32 But

recently, S Anazett33 gave it a comprehensive definition as "a system of law and sound

29
See Joel Mokyl (ed) “Oxford Encyclopaedia of Economic History” Oxford University Press, 2003 at page 12.
This Act is also known as the Royal Exchange and London Assurance Corporation Act 1719.
30
ibid
31
See Fabian Ajogwu SAN “Corporate Governance and Ethical Business Dealings in Nigeria: The Imperatives
“Business Day 21st February 2013. http://www.businessdayonline.com/NG/index.php/business-
intelligence/51906-corporate-governance-and-ethical-business-dealings-in-nigeria-the-imperatives visited on
29th of April 2013, at 6:30 pm.
32
Ibid. see also Emeka Offor “Critical Evaluation of the Role of the Central Bank of Nigeria in Ensuring
Corporate Governance in Nigerian Banks Post Consolidation” SSRN 2009 at page 1.
33
See Sifuna, Anazett "Disclose or Abstain: The Prohibition of Insider Trading on Trial". Journal of
International Banking Law and Regulation, 2012 at page 9
13
approaches by which corporations are directed and controlled focusing on the internal and

external corporate structures with the intention of monitoring the actions of management and

directors and thereby mitigating agency risks which may stem from the misdeeds of corporate

officers34.

Therefore, the concept of corporate governance as an instrument of control and

intervention ( or supervision) in banking operations can be explained in the light of “public

interest theory35” developed by the New Institutional Economies( NIE) School. This is

because, regulations (in this case corporate governance, codes or laws as applicable) are

designed to benefit the society by solving collective action problems and intervening where

and when private market fails to allocate resources properly36. Therefore, one can argue that

the similarity between corporate governance and public interest theory expatiated by the NIE

is that both concept are designed for the benefit of the society, and the nation at large37.

Corporate governance policy in Nigeria is feasible in the CBN, s power to create the Central

Bank Code of Governance, which is a regulatory instrument for corporate supervision and

control, it deals mainly with “ethics and efficiency” in services rendered by the regulated

banks. A critical action occurred in 2009, when the CBN tightened code of governance and as

a result, eight Banks’s CEOs were removed and their respective Board of directors where

scrutinised. The justification for this new movement was based on lack of sufficient ethics of

services, inadequate financial standing, dodgy transactions and over-riding public

34
See ibid
35
See Kofi Oteng Kufuor “The Institutional Transformation of the Economic Community of West African
States”, Ashgate Publishing Company, Aldershot, England, 2006 at page 9-14
36
Ibid.
37
See Kofi Oteng Kufuor “The Struggle for Entry into Ghana’s Commercial Transport Sector” Global Journal
of Comparative Law, 2012 at page 2, 3.

14
interests.38Even though there was tacit push for deregulation of the Nigerian Banking sector

during the late 80’s, specifically at the introduction of the SAP (Structural; Adjustment

programme) which was a policy of the IMF and World bank for developing nations 39, yet the

Nigerian Government did place a great deal on regulating banks mainly because of massive

role the latter plays in assisting and transmitting government policies to the larger society.

The government is also keen on “regulation “or supervision failure of a single bank may

likely cause a contagion effect and in the process affect other banks and the overall national

economy40 The Central Bank’s corporate governance policy is one important instrument

through which it supervises, regulates and controls the nation’s financial or banking sector. It

gives which gives certain prescription(s) to banks, in relation to their transactions, and

practice. It may decide to tighten or loosen the prescription belt, depending on the situation.

However, corporate governance code as a form or regulation and supervision, does

not necessarily prevent bank failures or financial crackdown in any economy. This code and

possibility of its regulatory efficacy on banks is undermined behavioural problems from bank

directors and bank executives, to achieve the ultimate aim of financial supervision and

sophisticated banking services aimed by the regulatory agencies (especially the Central Bank

of Nigeria) these extra- legal factors must also be taken into consideration. That was why in

2010, the CBN reviewed its code of corporate governance for banks, by drawing some salient

38
See Francis C. Chiejine “Corporate Governance in the Nigerian Banking Sector: An Ethical Analysis Of the
2009 Regulator Intervention and Operators’ Behaviours” University of Pennsylvania Scholarly Commons,
2010 at page 2.
39
See Patrick Imam “Effect of IMF Structural Adjustment Programs on Expectations: The Case of Transition
Economies” IMF Working Paper African Department, 2007 at page 4.
40
Central Bank of Nigeria, Op cit.

15
but critical supervisory ideas from the “Walker Report41” which suggests that “comply or

explain” principle, taking the view that the chief deficiency of banks and financial

Institutions ‘was behavioural problems rather than organizational problems42’

4.2 Interests Rate Regulation

Regulation of interests’ rate is also another way through which the Central Bank supervises

and controls the financial and banking sector of Nigeria’s economy. Even though there was

no specific regulation until early 60’s when section 7(4) was inserted into the Banking

Ordinance of 195843 . This section provided that rates of interest charged on credit facilities

and advances by the banks shall be linked to the minimum rediscount rate of the Central

Bank subject to a stated minimum rate of interest. The same law was made it clear that

approval of Central Bank is needed; it is a precondition for the interest rate structure of each

bank, and that "the minimum rate of interest when so approved shall be same for all licensed

banks"44, but in 1970, there was an amendment, creating a special proviso, included in the

amendment to allow different which allows different rates of interests to be approved for

various categories of banks45 There had being a record of low interest rates between early 70s

and late 80’s, and it has being early 90s till late 2000’s has being characterised with either an

even or eased rate, but from early 2010 to late 2011, the interest rates has tremendously

41
Walker Report “A review of Corporate Governance in UK Banks and other Financial Industry Entities. 2009
at page 99., available at http://webarchive.nationalarchives.gov.uk/+/http://www.hm-
treasury.gov.uk/d/walker_review_consultation_160709.pdf. Visited 14:54pm on the 1st May, 2013.
42
Ibid
43
See Banking Amendment Act No. 19 of 1962 as amended. It also gives a summarised explanation on impact
of financial regulation on Nigerian banking sector. see also A Seidman, “Money, Banking & Public Finance in
Africa”. Zed Books Ltd. London. 1986, page. 77 - 83
44
Ibid. See also section 14 of 1969 Banking Decree
45
Banking (Amendment ) Decree No. 3 of 1970
16
skyrocketed.46, this scares multinationals away from borrowing, preferring to source for

funds from other sources, either from their parenting company or foreign banks47

46
See http://www.bloomberg.com/news/2011-10-10/nigeria-central-bank-interest-rate-history-table-.html
visited on 10th of May 2012 at 12:32pm.
47
See Obina Chima “Multinationals Shun Nigerian Banks over High Interest Rates” This Day Live, 2012. Link
at http://www.thisdaylive.com/articles/-multinationals-shun-nigerian-banks-over-high-interest-rates-/124326/
visited on the 10th of May 2013, at 12:43pm

17
 5. Challenges of Banking Regulations in Nigeria

Challenges of banking regulations in Nigeria are still as obvious as they were

30 years ago. Despite tireless efforts of regulatory policies and laws introduced to control the

banking sector and ensure its development, politics, unenforceability of prescribed

regulations are dealing great blows on government’s efforts.

5.1 Regulations

In some cases the government do introduce some regulatory measures that are

anti-developmental and inimical to the interest of development, and results into

inefficiencies, inadequacies and bureaucratic confusion in the nation’s banking. These

inimical measures consists of deficit financing, totally confusing and reckless government

fiscal operations, deficit financing, complicated credit guidelines, all these and a host of

others, are principal instruments of banking regulation in Nigeria. These measures are often

burdened with conflicting objectives and therefore, unpalatable results. The regulatory setting

of the banks and especially the epileptic control coming from the supervisors, do have

adverse effects not only their contributions to the national developmental objectives, but also

the level of performance and international recognition and competitiveness.

5.2 Politics, Law

The challenges effect of banking regulations by Central Banks of Nigeria cannot be

corporate over-emphasised. Politics and Legal inadequacies are clear challenges of efficient

supervision of Nigerian banking sector. As mentioned earlier, the final authority of scrutiny,

assessment assent rests with the Federal Executive (ministry of finance) whose members are

politically appointed. Thus the CBN is seen as being tacitly controlled by the Ministry of

Finance because the former does submit its proposals, containing proposed monetary policies
18
to the latter and other related fiscal matters for scrutiny and assessment by the latter, at the

end of each year. These kind of controls therefore forces the CBN to make some sort of

policies that are either politically motivated under the guise of “state interventionism48” ,

such policies that do not corresponds with the tenets of adequate and efficacious banking

supervisory policies49. In Nigeria, politics is reflected in policies, and that is one reason why

state interventionism is being criticised, it is often seen as a means to perpetrate political

motives, rather than a method of economic control.

5.3 Elitism

Elitism is one political concept that affects the efficacy of regulatory and supervisory

laws, made by the CBN and other financial regulators in Nigeria. It is an idea or belief that

certain group of people or certain classes should be favoured or deserve favour and better

treatment by virtue of their perceived superiority, in terms of intellect, social status, or

financial resources50, mostly demonstrated when state interventionism is being used as an

instrument of economic regulation. It is simply a means of generating economic power

through the application and use of political power. Notwithstanding the fact that the selection

of the governor of the CBN is more of political than qualification (even though a minimum

qualification is needed), the role has its own short coming, since politics, wealth, power,

position and status are not permanent, there are often changes in administration and

personnel, who wants to create a different set of regulatory rules and policies different from

what is on ground. And the implication of these on the banking sector is lack of continuity,
48
This is an economic position which supports interventions in the “market” in public interest, or on behalf of
the government.
49
See S.B Falegan “Restructuring Nigeria's Financial System For Economic Recovery “Nigerian National
Economic Recovery. 1996, Page. 85
50
See. O. Jason Osai “Nigeriana: Portraiture on Ethnicity and Elitism in Nigeria”. Journal of Nigerian Studies.
Volume 1, 2010 at page 14.

19
internal politics and confused based bureaucracy and bottlenecks. Another challenge is the

compulsory submission of proposals by the CBN compelled to submit proposals containing

proposed monetary policies and other related fiscal to the Federal Ministry of Finance for

scrutiny and assessment by the latter, at the end of each year. These kind of controls therefore

forces the CBN to make some sort of policies that are either politically motivated or do not

corresponds with the tenets of adequate and efficacious banking supervisory policies51

Moreover, the regulatory authority of the CBN (as provided for by the Banking Act or

Decree), over the banking system does not extend to some banking institutions (specialised

banks) on the grounds of their specialisation52, even though it is apparent that they do carry

out banking or financial activities even though they performed essentially banking activities,

the only types of banks that falls within supervisory purview of the CBN are commercial and

merchant banks. These specialised banks had various ministries as their supervisory

authorities53.

Another challenge is inconsistency in the laws and regulatory frameworks initiated

by the CBN, they are replaced too quickly even when there is on reasonable excuse to do so,

a very good example is the initiation the Universal Banking Guidelines in December 2000 to

Nigerian banking system, which “authorised banks to engage in non-core banking financial

activities, either directly as part of banking operations, or indirectly through designated

51
Ibid. see also Section 38B of the Central Bank of Nigeria Decree No. 24 of 1991, incorporating all its
Amendments in Central Bank of Nigeria (Amendment) Decree (Decree No. 41 of 1999). Link available at
http://www.cenbank.org/OUT/PUBLICATIONS/BSD/1991/CBNACT.PDF visited on the 9th of May 2013 at
11:00am.
52
Examples of specialised banks are Nigerian Industrial Development Bank, Nigerian Bank for Commerce and
Industries, Nigerian Agricultural and Co-operative Bank, Urban Development Bank and a host of others. Link
available at See http://www.nigeriasite.com/finance/banks2.html visited on the 9th of May, 2013 at 11:09am
53
Opcit see also G.O Nwankwo, “The Structure of The Nigerian Economy and the Nigerian Banking
Environment “, Nigerian National Economic Recovery at page 16.

20
subsidiaries”. But nine years later, this law was repealed by the powers conferred on the

governor54

54
See Section 57 of the Banks and Other Financial Institutions Act(BOFIA) Cap. B3 Laws of the Federation of
Nigeria 2004,

21
 Conclusion

Looking at the Nigerian Banking sector as a whole, one can argue that ultimate reasons

why regulations and policies are employed is to serve socio-economic purposes or to achieve

socio economic ends. This perspective can be confirmed by the series of Central Bank

policies and financial regulations, to which the banks are bound.

However, there is a general downplay of facts, regarding the influence of political groups

on financial and monetary policies. Nigerian banking policies, laws and regulations are often

dominated by political redistributive considerations. The leading law and economics scholar,

Richard Posner affirms this by submitting that the “ultimate premises of law are political55,

and the Nigerian financial laws, regulatory policies and supervisory structures reflect this

position.

55
See Richard Posner “How Judges Think” Harvard University Press, 1 Jul 2009.at page 49. See also “Theories
of Economic Regulation” 1975 Yale Journal of Economics, and Management Science., at page 200.

22
 BIBLIOGRAPHY

Books

1. Rahul Prabhakar “Globalized Finance and National Regulation: The Influence of

Internationalization on Supervisory Consolidation” University of Oxford, 2010.

2. R. Cooter et al. “Law and Economics”, Addison-Wesley reading, 2nd edition. 1997.

3. Jean Jacques du Plessis et al “Principle of Contemporary Corporate Governance”,

Cambridge University Press, 2nd Edition, 2004

4. IR Onoja “The Contributions of Research Development in the Banking Industry in

Nigeria”. Nigerian Journal of Management Research 1998.

5. Chibuike Ugochukwu Uche” Foreign Banks, Africans and Credit in Colonial Nigeria

1890-1912”. The Economic History Review New Series, Vol. 52, No. 4 Nov.1999

6. Richard Sklar “Nigerian Political Parties: Power in an Emergent African Nation”

2004 African World Press, First edition2004

7. WT Newlyn and DC, Rowan “Money and Banking in British Colonial Africa”.

Oxford Clarendon Press, 1954

8. Charles V Brown, “The Nigerian Banking System” North-western University Press,

Department of Business & Economics, 1966.

9. Kahn, A. E “The Economics of Regulation: Principles and Institutions”,

Massachusetts Institute of Technology, 1988, 3rd Edition

10. Daniel F Spulber, “Regulation and Markets”, the MIT Press, Cambridge.

Massachusetts, London, England, 1989.

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11. Duncan Alford, “Nigerian Banking Reform, Recent Actions and Future Prospects”
University of South Carolina School of Law Coleman Karesh Law Library, 2010

12. Kofi Oteng Kufuor “The Institutional Transformation of the Economic Community of

West African States”. Published by Ashgate Publishing Company, Aldershot,

England, 2006

13. A Seidman, “Money, Banking & Public Finance in Africa”. Zed Books Ltd. London.

1986

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Articles and Journals

1.Victor Murinde, Atsede Woldie (ed) “African Business and Finance Development Policy”
Volume 4, No 2 International Business Press, New York, 2003.
2. N.E Nwabugo “The Story of Structural Adjustment Programme in Nigeria; From
Perspective of the Organised Labour” Australian Journal of Business and Management
Research Vol.1 No.7 -2011.
3. C S Venkata Ratnam “Trade Union and Structural Adjustments” International Labour
Office, Geneva, 1996
4 George J Stigler. “The Theory of Economic Regulation”, (1971) 2 Bell Journal of
Economics and Management Science. Volume 2, No 1 1973 (1st edition).
5 Joel Mokyl (ed) Oxford Encyclopaedia of Economic History” Oxford University Press,
2003
6 Emeka Offor “Critical Evaluation of the Role of the Central Bank of Nigeria in Ensuring
Corporate Governance in Nigerian Banks Post Consolidation” SSRN 2009
7. Sifuna, Anazett "Disclose or Abstain: The Prohibition of Insider Trading on Trial", Journal
of International Banking Law and Regulation.
8 Kofi Oteng Kufuor “The Struggle for Entry into Ghana’s Commercial Transport Sector”
Global Journal of Comparative Law, 2012
9 Francis C. Chiejine “Corporate Governance in the Nigerian Banking Sector: An ethical
Analysis of the 2009 Regulator Intervention and Operators’ Behaviours” University of
Pennsylvania Scholarly Commons, 2010.
10. Patrick Imam “Effect of IMF Structural Adjustment Programs on Expectations: The
Case of Transition Economies” IMF Working Paper African Department, 2007.
11 . Walker Report “A review of Corporate Governance in UK Banks and other Financial
Industry Entities. 2009.
12. Obina Chima “Multinationals Shun Nigerian Banks over High Interest Rates” This Day
Live, 2012
13 S.B Falegan “Restructuring Nigeria's Financial System for Economic Recovery “Nigerian
National Economic Recovery. 1996
14. Jason Osai “Nigeriana: Portraiture on Ethnicity and Elitism in Nigeria”. Journal of
Nigerian Studies, volume 1, 2010
15 G.O Nwankwo, “The Structure of the Nigerian Economy and the Nigerian Banking
Environment “, Nigerian National Economic Recovery.2nd edition
16 Richard Posner “How Judges Think” Harvard University Press, 1 Jul 2009, “Theories of
Economic Regulation” 1975 Yale Journal of Economics, and Management Science.

25
Acts and Decrees
1. Banks and Other Financial Institutions Act (BOFIA) Cap. B3 Laws of the Federation
of Nigeria 2004.
2. Central Bank of Nigeria Decree No. 24 of 1991, incorporating all its Amendments in
Central Bank of Nigeria (Amendment) Decree (Decree No. 41 of 1999.
3. Bubble Act or , Royal Exchange and London Assurance Corporation Act 1719
4. Section.3 (1) of the Central Bank of Nigeria Act (amendment) (No. 3) Decree No. 50
of 1968.
5. Central Bank of Nigeria Act (Amendment No. 3) Decree No. 50 of 1968.
6. Banking (Amendment ) Decree No. 3 of 1970
7. Cameron. R.(ed.). Banking and Economic Development: Some Lessons of History.
Oxford University Press, Inc...U. S. A. (1972, 2002 ed

26
 Web links
1. Central Bank of Nigeria/ History. http://www.cenbank.org/AboutCBN/history
2. http://www.ndic.org.ng/
3. NDIC Act
http://www.lawnigeria.com/confederationlaws/LawsoftheFederation/NigerianDeposi
tInsuranceCorporationAct.html
4. http://www.ndic.org.ng/types-of-bank-supervision.html
5. Fabian Ajogwu SAN “Corporate Governance and Ethical Business Dealings in
Nigeria: The Imperatives “Business Day 21st February 2013.
http://www.businessdayonline.com/NG/index.php/business-intelligence/51906-
corporate-governance-and-ethical-business-dealings-in-nigeria-the-imperatives
6. http://webarchive.nationalarchives.gov.uk/+/http://www.hm-
treasury.gov.uk/d/walker_review_consultation_160709.pdf
7. http://www.thisdaylive.com/articles/-multinationals-shun-nigerian-banks-over-high-
interest-rates-/124326/
8. http://www.cenbank.org/OUT/PUBLICATIONS/BSD/1991/CBNACT.PDF
9. http://www.nigeriasite.com/finance/banks2.htm
10. See http://www.bloomberg.com/news/2011-10-10/nigeria-central-bank-interest-rate-
history-table-.htm

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