Central Bank of Nigeria
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1958 |
GovernorA governor is a governing official, usually the executive of a non-sovereign level of government, ranking under the head of state...
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Sanusi Lamido Sanusi Sanusi Lamido Sanusi is the Governor of the Central Bank of Nigeria.He was previously the Group Managing Director/Chief Executive Officer of First Bank Plc, Nigeria's oldest bank and one of the biggest financial institutions in Africa...
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HeadquartersHeadquarters denotes the location where most, if not all, of the important functions of an organization are coordinated. The corporate headquarters is the entity at the top of a corporation taking full responsibility managing all business activities...
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AbujaAbuja is the capital city of Nigeria. It is located in the centre of Nigeria in the Federal Capital Territory . Abuja is a planned city, which was built mainly in the 1980s and officially became Nigeria's capital on 12 December 1991, replacing the role of the previous capital Lagos...
, NigeriaNigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising thirty-six states and one Federal Capital Territory. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger...
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The
Central Bank of Nigeria was established by the CBN Act of 1958 and commenced operations on July 1, 1959.
The major regulatory objectives of the bank as stated in the CBN act of 1958 is to: issue legal tender, maintain the external reserves of the country, promote monetary stability and a sound financial environment, and to act as a banker of last resort and financial adviser to the federal government. The central bank's role as
lender of last resortA lender of last resort is an institution willing to extend credit when no one else will.-Origin:Originally the term referred to a reserve financial institution that secured other banks or eligible institutions, as a last resort; most often the central bank of a country...
and adviser to the federal government has sometimes pushed it into murky regulatory waters. After the end colonial rule, the desire of the government to become pro-active in the development of the economy became visible especially after the end of the
Nigerian civil warThe Nigerian Civil War, also known as the Nigerian-Biafran War, 6 July 1967 – 15 January 1970, was a political conflict caused by the attempted secession of the southeastern provinces of Nigeria as the self-proclaimed Republic of Biafra....
, the bank followed the government's desire and took a determined effort to supplement any short falls in credit allocations to the real sector. The bank soon became involved in lending directly to consumers, contravening its original intention to work through commercial banks in activities involving consumer lending. However, the policy was an offspring of the indigenisation policy at the time. Nevertheless, the government through the central bank has been actively involved in building the nation's money and equity centers, forming securities regulatory board and introducing treasury instruments into the capital market.
Authorizing legislation
In 1948, an inquiry under the leadership of G.D Paton was established by the colonial administration to investigate banking practices in
NigeriaNigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising thirty-six states and one Federal Capital Territory. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger...
. Prior to the inquiry, the banking industry was largely uncontrolled.
The G.D Paton report, an offshoot of the inquiry became the corner stone of the first banking legislation in the country: the banking ordinance of 1952. The
ordinanceLaw is a system of rules, usually enforced through a set of institutions. It shapes politics, economics and society in numerous ways and serves as a primary social mediator of relations between people. Contract law regulates everything from buying a bus ticket to trading on derivatives markets...
was designed to prevent non viable banks from mushrooming, and to ensure orderly commercial banking. The banking ordinance triggered a rapid growth in the industry, with growth also came disappointment. By 1958, a few number of banks had failed. To curtail further failures and to prepare for indigenous control, in 1958, a bill for the establishment of Central Bank of Nigeria was presented to the
House of Representatives of NigeriaThe House of Representatives of Nigeria is the lower house of the country's bicameral National Assembly. The Senate of Nigeria is the upper house....
. The Act was fully implemented on July 1, 1959, when the Central Bank of Nigeria came into full operation. In April 1960, the Bank issued its first treasury bills. In May 1961 the Bank launched the Lagos Bankers Clearing House, which provided licensed banks a framework in which to exchange and clear checks rapidly. By July 1, 1961 the Bank had completed issuing all denominations of new Nigerian notes and coins and redeemed all of the West African Currency Board's previous money.
Policy implementation and criticism
The CBN's early functions were mainly to act as the government's agency for the control and supervision of the banking sector, to monitor the
balance of paymentsIn economics, the balance of payments, measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year.The BOP is determined by the country's...
according to the demands of the federal government and to tailor monetary policy along the demands of the
federal budgetFederal budgets are the national budgets of federations, including:* Federal budget * Federal budget * Federal budget * Federal budget * Federal budget...
. The central bank's initial lack of financial competence over the finance ministry led to deferment of major economic decisions to the finance ministry. A key instrument of the bank was to initiate credit limit legislation for bank lending. The initiative was geared to make credit available to neglected national areas such as agriculture and
manufacturingManufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
. By the end of 1979, most of the banks did not adhere to their credit limits and favored a loose interpretation of CBN's guidelines. The central bank did not effectively curtail the prevalence of short term loan maturities. Most loans given out by commercial banks were usually set within a year. The major policy to balance this distortion in the credit market was to create a new Bank of Commerce and industry, a universal bank. However, the new bank did not fulfill its mission. Another policy of the bank in concert with the intentions of the government was direct involvement in the affairs of the three major
expatriateAn expatriate is a person temporarily or permanently residing in a country and culture other than that of the person's upbringing or legal residence...
commercial banks in order to forestall any bias against indigenous borrowers and consumers. By 1976, the federal government had acquired 40% of
equityEquity, in finance and accounting, is the residual claim or interest of the most junior class of investors in an asset, after all liabilities are paid. If valuations placed on assets do not exceed liabilities, negative equity exists...
in the three largest commercial banks. The bank's slow reaction to curtail inflation by financing huge deficits of the federal government has been one of the sore points in the history of the central bank. Coupled with its failure to control the burgeoning trade arrears in 1983, the country was left with huge trade debts totaling $6 billion.
Today
Currently, under the leadership of Lamido Sanusi, the bank's recent success is partially due to the rise in crude oil prices. The bank's use of
capitalizationCapitalization is writing a word with its first letter as a majuscule and the remaining letters in minuscules , in those writing systems which have a case distinction...
has given more strength to the banking sector against an earlier failure by the central bank to control the fall of many
merchant bankIn banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals. The term can also be used to describe the private equity activities of banking...
s and commercial banks in the early 1990s. By 1990, the liberalizing agenda of an adopted Structural Adjustment Programme led to unprecedented growth in the banking sector.
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