BANKING INSTITUTIONS IN NIGERIA | Everything About The Banking Institutions In Nigeria


The structure of a commercial bank

Commercial banks do retail banking business and deal
with both corporate and personal customers.
They accept small amount of deposits from customers
ranging fro N5,000 and above and make profit by
lending money to the public.
They operate current accounts (demand deposits) and
chequeing facilities.
They operate branch banking system (Branch
They also create money.
The structure of commercial banks in Nigeria is tailored
towards that of the United Kingdom (British Banking). This
could best be described as the branch network banking
system. This is characterized by a few large banks with a
wide network of branches extending throughout the,
Elements of Banking 2 with Revision Kit
However, the commercial banks in Nigeria have common
features in their organizational structure and this means
that they all have either the Managing Director and Chs
Executive Officer or Group Managing Director and chies
Executive officer. They úsually have management boards
whose Chairman and other directors are appointed by the
shareholders. The banks headquarters are usually sited in
There appears to be
most cases in the capital cities.
uniqueness in the distribution of power between the Head
Offices, Area Offices and the branches.
The structure of the commercial banks’ balance sheets is
usually the same.


1, Cash and short term fund

These items are the most liquid of all banks assets. Cash
consists of notes and coins which are kept at the bank‘s
vault (strong rooms) to meet customer’s withdrawals.
Other sources include inter-bank placements for varied
period of time.
The money at call and at short notices indicate funds
with the bank arising out of inter-banks placement
Elements of Banking 2 with Revision Kit
The money
at short notices may be money borrowed for twenty-four
hours but at a very low interest rate. Cash balances are
lodged with CBN to earn interest or invested in the
borrowing that must be repaid on demand
money market.

2, Balances with Central Bank of Nigeria

These include special deposit which does not vield
interest and balances on current accounts.

3, Treasury Bills and Bonds

These are liquid assets that yield interest for commercial
banks. They are means of investing excess funds in the
short dated securities.
Due from other banks
These are income earning assets which include
investment in all money and negotiable certificate and
balances held with overseas banks and cheques in
course of collection.
Loans and advances
The banks do use part of their funds for loans and
advances to the customers in order to maximize their
net profit earnings. The loans and advances are normally
directed at financing projects, agriculture, housing
scheme, industries and commercial ventures.
Investment in subsidiaries and associates
The investment by banks is normally in form of equity
floated their own subsidiaries which are financed with
their funds as part of their investment drive.
subsidiaries could be wholly or partly owned.
holdings in other corporate entities. Some banks have

Banking Institutions in Nigeria
Other assets:

Included in these are accrued interest and fees
receivable, prepayments accounts receivable, etc.
Fixed assets
These are land, buildings, motor vehicles, furniture,
fittings and equipments, capital, work in progress.


Customers’ deposits

These are the largest liability on the bank‘s balance
sheet. Banks always credit customers’ account with the
amount they deposit. These deposits to customers are
assets but liability to banks since they are not owned by
banks. These include current and demand deposits,
and fixed deposit accounts.
Banks can only realize profits from deposits when
investing the money in securities and other businesses.Other liabilities
These include provision for tax, dividend, interest
reserves and others. The other uses are in areas of cash
reserves for meeting daily demands of customers,
acquisition of fixed assets, land for structures.
Computerization of operations, retirement of liabilities,
payment of dividends and taking care of incidental
expenses associated with daily operations.

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This includes income tax for the year, education tax,
Wcapital gain tax, share of tax in associated companies
and other taxes as may be imposed by government.Dividend payable
This includes both interim and final dividend
Capital and reserves

Share capital
This is the initial capital, usually in the minimum of N2s
billion for all banks in Nigeria. In addition to the initil
amount of funds from the capital, new funds are
normally injected into the organization as a result of
frequent changes of share capital (capital base) for the
Such increase in the capital base is inevitable.
considering government demand and

Share Premium
The excess realized on shares sold to the public at a
higher price than the nominal price is placed into share
premium account.

Statutory reserves
It is mandatory for banks to keep part of their funds
with the apex bank in form of minimum legal cash
reserves. The variation comes in form of a decrease or
an increase in the rațio, which is normally dictated by
the Central bank (Vanish, 1980).

Small and medium scale industries reserve
This is computed at the rate of 10% of profit before tax
in accordance with CBN monetary Circular No. 34 of
January 2001.

Revenue reserve is required to be maintained by law
and are set aside from the profit of the bank each year.
Elements of Banking 2 with Revision Kit
Functions of Commercial Banks
Acceptance and safe-keeping of deposits.
Provision of loans, advances and overdrafts to
Money transmission on behalf of customers.
Providing services to importers and exporters
Pro vision of foreign exchange facilities to travellers
Provide facilities for safe. keeping of valuable
title documents (deeds),
documents such as
conveyances, certificates, trinkets, gold. Etc
Providing business status reports and references (status
Acting as agents for the buying and selling of stocks and
shares on customers’ behalf (underwriting and stock-
broking (issuing houses)
Provision of night safe facilities
Provision of insurance and investment advice services
Equipment leasing
Provision of cash for bulk payment of non-customers
salaries and wages.
The services rendered can be broken into the following sub-

Fund Mobilization

Fund transmission

Domestic financial services

International financial services
Credit facilities.

Banking Institutions in Nigeria

Fund Mobilization
Savings Account
Current Account
Fixed Deposit Account
Call Deposit Account
Fund Transmission
Draft issuance
Certified Cheque issuance
Credit Transfer
Direct Debit
Cash and Credit Cards
Electronic Fund Transfer
Mail/Telegraphic Transfer
iii. Domestic Financial Services
Tax and Trust Administration
Stock Broking
Agency Relationship
Status Enquiries
Insurance Services
Portfolio Management
Revenue Collection Agency
International Financial Services
Provision of Travellers cheques
Documentary Letter of Credit
Foreign Currency Exchange
Bills for Collection and payment
Electronic Transfer of Funds (ETF)
Mail and Telegraphic Transfer Funds

Elements of Banking 2 with Revision Kit
Credit facilities
Granting of Loans and Advance
Bill discounting
Syndication of loan
Issuance of Bond and guarantee for customers
Export Financing
Project Financing

Essence of profitability and liquidity for commercial
banking in Nigeria

Liquidity: Liquidity is defined as the bank‘s ability to meet
short term financial obligation to its depositors without
recourse to the sale of its fixed assets.

Reasons for Commercial Bank‘s liquidity

To meet depositors demand (financial obligations) as at
when it falls due

To provide for buffer (insurance) arising from loses
from bad debts

To meet the Central Bank of Nigeria Statutory Cash
reserve requirements.

To provide for timing differences in its cash flows
arising from deposits repayable at shorter notices than
its loans.

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Banking Institutions in Nigeria

To meet other operational needs of the bank

Reasons for commercial bank‘s profitability

To achieve the rate of return on shareholders’ wealth

To grow and expand e.g.
branches/rapid expansion and branch network system

To survive competition in the industry

To meet repayments of interest charges on debts
opening of new


Merchant banking started during the 18th century in Europe
through the activities of Acceptance Houses. However, it
started in Nigeria in 1960 by Philip Hill (Nig.) Limited and
Nigeria Acceptance Limited (NAL).
Merchant banks finance commerce and international trade.
They do wholesale banking and deal with only corporate
customers. They operate few branches mostly in the cities
and accept a minimum deposit of N50,000.

Functions of Merchant Banks

Acceptance of large deposits
Granting of loans
Provision of foreign exchange service
Equipment leasing
Project financing
Underwriting and discounting facilities
Debt factoring
Business advisory services
Portfolio management
Loan syndication

Bridge-over financing
Off balance sheet financing



Development banks are institutions established for the
purpose of providing long term finance for development
The idea of development banking came up in the 1960s
when there were yearnings for some specialized institutions
that could mobilize and intermediate, medium and long
term funds.
Hence, three theses underlying the evolution of
development banking in Nigeria are:
The Macmillan Gap Thesis of United Kingdom
The Exigency Thesis
The Catalyst Thesis
As put up by Prof. G. Nwankwo, “This arises from the need of
the CBN to steer clear of political involvement and the
resulting policy conflicts. The above two factors can be
summarized by saying that the existing financial
arrangement is service-oriented”.
All the world over, there was a development consciousness
immediately after the Second World War II and the need for
development banks became real more than ever before.
The main development banks operating in Nigeria as at date

The Nigerian Agricultural Cooperative and Rural
Development Bank (NACRDB).
The Federal Mortgage Bank of Nigeria (FMBN)
Bank of Industry (BOI)
Nigerian Export Import Bank (NEXIM)
Urban Development Bank of Nigeria Limited


In 2002, NACRDB Limited came into existence as a result of
the merger of the Nigerian Agricultural and Cooperative
Bank Limited (NACB Ltd), people’s Bank of Nigeria (PBN) and
Risk assets
of the Family Economic Advancement
programme (FEAP). It is owned by the Federal Government of
The bank is deposit-taking, credit delivering, mega
development finance institution dedicated to agricultural
financing at both micro and macro levels for individuals,
cooperatives and corporate bodies.
Its objectives are:

To inculcate banking habits in Nigerians especially at
the grassroots level by accepting small amount which
conventional banks will not accept as savings deposits
from customers and yet pay competitive rate of interest
as at when due.
To provide timely credit facility under very liberal
conditions to farmers, artisans, traders, schools, etc.

as well as the small. and medium scale entrepreneurs
who cannot readily access the services of other
conventional banks.
To stem the rural urban migration by empowering the
rural dwellers to engage in economic enterprises and
become self employed within their localities and
eventually become employers of labour.
To provide relevant training and advisory services
aimed at capacity building especially amongst the
entrepreneur in the rural area.
To foster an accelerated growth and development of
the agricultural sectors.
To enhance the productive capacity of co-operative
societies at all levels.
vii. To design and finance through credit facility and well
economic schemes for civil servants and other salary
earners to enhance their income after retirement.
Sources of funds
Financed by the federal government
Equity financing


The bank is a creation of the Federal Military Decree No. 7 of
20″ January 1977. It took over the assets and liabilities of the
Nigerian Building Society which principally was in the
administration of mortgage industry ever since 1956.
The FMBN was established in 1977 with N20m. It is the apex
of mortgage institutions in Nigeria.
required to finance the implementation of Government
housing programmes.
The bank is also
It accepts deposits from the public
through savings accounts facilities .
include Mortgage institutions, Federal Mortgage Finance,
Federal Mortgage Finance, Housing Fund, Building Societies,
Savings and Loans Associations and Federal Housing

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Arms of the FMBN


Provision of long term credit facilities to other mortgage
institutions in the country
Promotion and development of mortgage institutions at
the state and national levels.
Supervision and control of mortgage institutions
Provision of long term credit facilities directly to Nigeria
Provision of loans at competitive commercial rates of
interest or credit facilities to commercial property,
estate, and offices developers and other specialized
types of buildings.


The bank of industry Limited (BOI) was established in
October 2001 following the reconstruction of the Nigerian
Industrial Development Bank Limited (NIDB) to incorporate
the mandates of the Nigeria Bank for Commerce and
Industry (NBCI) and the National Economic Reconstruction
fund (NERFUND).
The bank will consider industries that meet the following

Capacity to add substantially to industrial output
Projects that use largely domestic raw materials
Industries in which Nigeria’s comparative advantages
could be converted to competitive ones.
Ability to promote the.expansion of exports through
the production of high quality products that are
attractive to domestic and export markets.
Niche projects that produce for worldwide
Projects that create both forward and backward
linkages with the rest of the domestic or regional
Ventures that promote inter-state
SMES that can be upgraded through linkages with large
or regional
Enterprises with high employment generation capacity
BOI’s products and services
Medium and long term loans

Working Capital finance
Equity Financing
Lease Financing
Loan Guarantees
Investment in Corporate bonds
Business Development Services
Stock Brokerage
Foreign Exchange Dealership


This is a new development bank in Nigeria with the idea of
providing necessary resources capability for the
development of urban infrastructural amenities such as
lighting, urban mass transportation, sports studio, *
industrial waste disposal, private hospitals, abattoirs,
commercial ventures etc.
The bank also finances market developments, sewage,
and drainage construction and water
The bank grants medium and long-term loans and
engages in syndicated loans with other financial
The bank‘s sources of funds consists of equity
participation from state government, local
government, private international and regional banks
like World Bank, the European Investment Bank, African
Development Bank, etc.


This is yet another develop bank that provides resources to the export and import sectors of the economy . The
Import Bank (NEXIM) by the NEXIM Decree No. 38 of 1991.
The board of the bank was inaugurated by the Federal
Government in 1990 and the bank began operation in
January 1991.
The bank is owned by the Federal
Government and the Central Bank of Nigeria who jointly
subscribed the paid up capital of the bank. It performs
similar functions with that of the Export Credit Guarantee
Department (ECGD) of the United Kingdom and COFACE in


Provision of export credit guarantee and export credit
insurance facilities to its clients.
Purchase and sale of foreign currency and transmission
of funds to all countries.
iii. Provision of investment guarantee and investment
insurance facilities.
iv. Maintenance of a foreign exchange revolving fund or
lending to exporters who need to import foreign inputs
to facilitate export production.
facility is likely to assist export.
of export business.

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