Banking Sector Reform in Nigeria

Banking Sector Reform in Nigeria had been introduced in 2004. The government aimed to establish a reliable and efficient banking sector so that it could guarantee the safety of the depositors’ money.

Reasons Behind Reform

  • In Nigeria, most of the banks had a low capital base, less than 10 million US dollars.
  • The local banks in Nigeria were not very efficient and also their capacity was low. So, the government had to depend a lot on the foreign banks.
  • Nigeria had been suffering from a weak corporate governance and insolvency for a long time. So the government failed to provide a sound banking system.
  • Most of the banks in the country depended upon the public sector deposits which was lowering their capital base.
  • The public funds had not been distributed equally among all the banks.

Reform Process:

Incentives from the Central Bank of Nigeria: The Central Bank of Nigeria (CBN) provided some incentives for the banks so that they could achieve the minimum capital base within 2005.

These are:
CBN allowed the banks to deal through foreign exchange.
The banks were permitted to take deposits from the public sector and the fiscal authorities were made responsible for the collection of revenue from the public sector.
Some tax incentives were provided for the banks in the area of stamp duty and capital allowance.
Transaction costs had been minimized.
The government formed an expert panel to provide technical support to the banks.

Other Steps to Reform

The government of Nigeria started to merging the banking institutions and introduced a regulatory framework based on some rules.
The government established a web portal for all the citizens so that they could share any confidential information with the Central bank regarding the banking systems.
An automated process had been developed to report the bank returns.
The government revised and updated the banking laws to make the banking system more easy and effective.

Impact of Reform

Several banks were able to increase their capital base through this reform. By merging some banks the government established an efficient and disciplined banking system. Many local banks were emerged , therefore the Nigerian government had no need to depend on the foreign banks fully. In one word, it can be said that , through banking sector reform the government of Nigeria was able to move their economy forward.

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