History of Reformation in Nigerian Banking Sector

The reformations that have taken place in Nigeria’s banking sector can be divided into two main periods. These reforms and their effects on the Nigerian economy will be discussed in this article:

Banking Reform of 2004 and its Effect(s)

This reform of 2004 was focused on bank consolidation, which is uniting two or more corporations by the dissolution of existing ones and the creation of a single new corporation. This was achieved through the mechanism of merger and acquisition.

This resulted in the rebasing of commercial banks and a raise from ₦2 billion to ₦25 billion was obtained. Rebasing has to do with up-to-date financial data in sources of revenue which resulted in an increase that can be attributed to new sectors that were realized.

Another effect of the rebasing was that the 89 existing commercial banks in the country became 25.

Apart from capitalization, the Central Bank of Nigeria also invested in banking automation with the aim of improving banking returns. Banking automation is the system of operating the banking process by highly automatic or mechanized means so that human engagement is reduced to the barest minimum.

The reform established a reporting portal for bank customers for the purpose of better means of information sharing.

Under this reform, deposits from public sectors and government-owned agencies can be collected by the commercial banks so as to increase their level of liquidity. Liquidity has to do with the conversion of liabilities into assets.

Banking Reform of 2009 and its Effect(s)

In 2009, the second phase of Nigerian banking reforms began.

In 2009, the Asset Management Corporation of Nigeria AMCON was established by the National Assembly of Nigeria.

This institution was founded with the mission of acquiring non-performing loans that belong to commercial banks. A non-performing loan (NPL) is a loan that is in default, that is payments of interest and principal are past due by 90 days or more. It could also mean when 90 days of interest payments have been capitalized, refinanced or delayed by contract between the two parties. AMCON was to address the issues of recapitalisation and management of the acquired assets.

The financing of AMCON was to be done by the Central Bank of Nigeria ₦50 billion funds and by 0.3% of total assets of involved commercial banks

The Asset Management Corporation of Nigeria also re-enacted the implementation of International Financial Reporting Standards (IFRS) for compliance with global reporting standards.

This reform was also to evaluate the universal banking model by limiting commercial banks to banking activities only. The reform also addressed extreme banking interest rates by creating non-interest banks.

The board announced its approval of the purchase of all the margin loans in the banking sector and all the non-performing loans of the rescued banks, which it totalled in an excess of N2.2trillion.

The Deputy Governor of the Central Bank of Nigeria, Sarah Alade also announced that five Nigerian bank CEOs were to be removed from their positions in August 2009.

It was announced that The Union Bank of Nigeria was to be headed by Funke Osibodu while Fin Bank was to be led by Suzanne Iroche.

Basically, banking reforms are made to achieve the goals of high economic growth, balance and stability. Banking reforms continue to be made in response to global financial crisis and mismanagements of Nigerian banks to boost confidence in the Nigerian banking system.

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