2.0 Role of banking in general
2.2 Characteristics of a good
2.3 Procedure for taking
securities for bank lending
3.0 Finding conclusion and
A bank could be described as a major financial institute; other such
institutions include fiancé house, insurance companies, mortgage companies etc.
The main function of those financial institutions is to provide financial
support to those who are in need. Apart from this function, counseling,
acceptance of deposits, provision of loans and advances and also providing
safekeeping place for people valuables. Many banks play intermediary roles in
the financial sector of the economy which focus primarily on the following
Moderation of the rate of inflation
Reduction of pressures on the external sector so as to achieve a sustainable
balance of payment position.
Establishing the naira exchange rate in Nigeria.
Banks could be classified into
the following categories.
Obviously with an observers
first contact with a developing economy, all these categories of banks play
important roles in stimulating the economy. They deal with members of the
public. Firstly, they all provide first information and investment advice to willing
customers to spread banking services to the grass-root considering the
fact that a greater percentage of the country’s population reside in the rural
Development banks by implication tend to carry out their functions effectively because
they diversify into specialized areas such as Agricultural and Industry. An
example is the Nigeria Agricultural and commercial bank (NACB) and Nigeria
Industry Development Bank (NIDB). Hence the development of the economy is
stimulated through these agency functions.
In order to achieve their set out objectives all these banks rely on certain
instruments and policies which include reserve requirements, stabilization of
securities, interest rate policy (lending policy) exchange rate and foreign
exchange management. Discount rate policy among others which in Nigeria a
developing country are put in place and over seen by the government owed
Lending has over the years become one of the most important functions in banking
operations. It provides money for investments which in turn yields
turnover and increases the liquidity in circulation, due to this direct effect,
it has on the economy and business development, it is being pursed in many
developing countries where banks and their lending activities have been
usefully integrated into government policy formulation in the national economic
development process. In Nigeria for example, where majority of the
population live in object poverty, funds are very difficult to come by either
for investment purposes or otherwise.
Thus, the federal government finds it necessary and critical to interview in
the formulation of bank lending policies.
Lending is giving something to someone else for use over a short period of time
(in this case money with interest where being paid bank).
In the objective of lending activity, the banks in the country have come up
with policy guidelines which basically provides the frame-work for dealing with
loans and advances. Some of these policies are designed to have relevance
to the interval constraints of each bank for instance, sector performance,
deposit base, risks existing exposure while others are derwed mainly from the
guidelines issued periodically by the central banks for control reasons and
known as monetary and credit policy guidelines for each fiscal year. A
lending policy if properly articulated could provide a guide for safe.
Sound and profitable banking activities. If on the other hand, the
lending policy is not properly formulated, it could lead to the banks
Irrespective of the amount of liquidity available in a bank, it may find it
practically impossible to satisfy all the requests it lies for loans since the
requests may outstrip available resources. The bank thus has to
discriminate in its decision to lend. Such actions must however be based
on objectives funds available for loans must be judiciously applied strictly
along the banks policy guidelines. When the policy has been formulated,
lending procedures evolves as check towards ensuring that the objectives it
Lending procedures which acts as checks towards making sure that the objectives
of the policy guidelines are achieved includes.
How loan are to be processed
What documents are required
Where various documents should be sent
Recommendation to be forward etc
Like any other operational
procedures, these should not be breached in any way otherwise it could cause
doubtful debts etc. Due to improper lending, most banks make prevision
for bad debts but on the other hand, what is known as recovery procedure in
savouning doubtful debts. They include the steps by steps action by this
specialized unit either legal or other wise to this effect.
In summary, this tends to take
critical appraisals at these lending policies and procedures for loan
recovery. These policies and procedures for play important role in
achieving a goal and effective banking system.
SERVICES IN NIGERIA
Banking services in Nigeria dates back in 1897 when the elder
Dumpster company was engaged in the business of moving coins up and down the
country. In the same year, African Banking Corporation was formed to
provide banking services to elder Dumpster company. This bank failed in
the same year and was over run by the bank of British west Africa. The
National Bank of Nigeria Ltd was established in 1933 as the first indigenous
bank, the Agbonmagbe bank was registered in 1943 and the African continental
Bank was found in 1947 by late Dr. Nnamdi Azikiwe. This was as a result
of the shoody treatment he received in one of the expatriate banks.
Co-operative banks of western and Eastern Nigeria was established between 1984
Indeginisation of the Nigerian Banking system started ORJI LINDA N.
AC/N2002/077 essentially and banking facilities in the economy. These
credit facilities could be placed under two broad groups long term facilities
and short term facilities. The former normally covering long term
investment. Capital market investments, credit financing,
self-employment, consumer credit etc. funds obtained are usually for
either commercial purposes or for industrial development. In recent
years, the major interest of loan seekers is earning of profits. Banks in
their realization of the need to develop the economy, encourage the
disbursement of loan. In aid or assistance of variable projects, such
projects will either result in the expansion or development of firms and industrial
Transactions of businessman and other professionals are also not left
out. In the need for liquid cash, which are sometimes made possible
through the provision of credit facilities from banks. The availability
of funds gives to the growth in other sectors of and economy. As
indicated earlier, there are direct and indirect beneficiciries of a loan
administered by a bank. The direct benefit is the one obtaining the loan
for him even if it is for self employment. However the facilities is
there for other people who will directly benefit from it in terms of employment
and job creation in the same way short and long term loans do the same.
1.2 STRUCTURE OF BANKING
The structure of banking in Nigeria is similar to that of united
kingdom. This could be attributed to the country’ colonial heritage as
the first two bank to operate in Nigeria were of British origin while the new
sur-country as a result of a decree copulating 40% indigenous participation in
foreign banks was viewed which was put in place after the introduction of
federal constitution in 1954 to indigenize the banking system. A part
from the central bank, banking facilities in Nigeria were provided by two
classes of banks. The foreign banks and the indigenous banks on the other
hand, dissatisfactory with the facilities provided by the foreign banks and led
to the establishment of indigenous banks.
As a result of the indigenization process and also the oil boon of
the 1970’s more commercial, merchant and development banks sprang up in the
country soas to keep up with the increase of cash flow in the economy.
Banking services in Nigeria are rendered to various sectors of the
country’s economy and they include Health, industry, Agriculture, trade and
In order for the economy to remain buoyant, adequate funds have to
be made available to these sectors to enable them function satisfactorily and
also to ensure steady development. In this country, the required capital
in inform of funds from banks and other financial institutions. Loans and
advances, credit facilities utilized by individual companies, corporate bodies
and the government for the purpose of expansion and development. This
facility is not only beneficial to those obtaining it directly but its also
indirectly creates jobs for the people who will provide the labour for standard
of living which in turn results in the development of the nation. In
considering the great importance of loans to the economy, it becomes imperative
to explain the benefits derived from loans in order to show its importance in
the development of a nation an in the maintenance of stable giving indigenous
banks attracted the buck of their staff from the pioneer. British banks
are drawn extensively from British experience. The banking business was
defined in section 41 of Nigerian Banking Acts of 1969 as the business of
receiving monies from outside sources as deposits irrespective of the payment
of interest or the granting of loans and aceptane of credits or the purchase of
bills and cheques or the purchase and sell of securities for account of others
or the assumption of guarantees and clearing an such other warranties for
others and the affecting of transfers and clearing and such other transactions
as the ministry may on recommendation of central bank by order published in the
federal gazettee designates as banking business.
Also according to Asuzu (1996), he states the section 61 of the
banks and other financial institutions Decree No. 25 of 1995 (Bofio) defined
banking business as the business of recovering deposits on current account
savings account, or other similar accounts, paying or collecting cheques drawn
by or paid in by customers provision of finance or such other business as the
governor may be order published.
To differentiate between commercial banks and other banks, the act
went further to state that any person who transacts banking business in Nigeria
and whose business include the acceptance of deposits. Withdrawal by
cheque is a commercial banker. While merchant banking was defined as
whose sale banking, medium and long term financing, equipment leasing, debt
factoring, investment management, issue and acceptance of bills and the issue
management of unit trust.
main features of a commercial bank includes:- acceptance of deposits that are
drawable by cheques procurement of short term loans.
In Nigeria, the commercial banking industry is a few large banks with a wise
network of branches extending all over the nation. This is the type of
banking system being operated in the United Kingdom in contrast to that of the
united states where they operate a unique two tier of banking structure which
embraces both the branch banking and the united banking system.
In the unit banking system, there are numerous individuals, local or state
banks with a limited number of branches in most cases just one branch.
They provide special services which includes
Acceptance of bill of exchange
Provision of medium and long term loans
Debt factoring and investment management
In Nigeria, merchant banks came into the line light with the oil boom of the
1970’s and the subsequent increase in liquid cash available in the economy due
to the fact that the cash in circulation had wind led, merchant banks are
diversifying participating in international finance and short term capital
market. Thus, the demarcation lines between the functions of merchant banks
and commercial banks are not less clearly defined them in the past.
Their unique features as their name implies includes loans that help in
developing the nation. Loans for capital projects such as road
construction, building of infrastructures. Agricultural investment that
provide for the nation, such banks in Nigeria have specialized sectors which
they serve and they include the Nigerian industrial development bank (NIDB) for
the industrial sector, Nigerian Agricultural and co-operate bank (NACB) for the
The federal mortgage bank of Nigeria for assisting customers in acquiring their
THE CENTRAL BANK OF NIGERIA
According to Famoyin (1973), central bank is defined as an institution which is
charged with the responsibility of managing the expansion and contraction of
volume, cost and availability of money in the interest of public welfare, it is
called central bank because it occupies a central position in the banking
system in any country in which it operates and it is vested by the authority to
exercise certain powers not possessed by other banks.
The Nigerian Banking industry has at it speak and in control of its regulation
by the central bank of Nigeria. This was created to achieve the following
1. To issue lender currency in Nigeria
2. To safeguard the international value of currency
3. To maintain external reserves.
4. The promotion of monetary stability an a sound
financial structure in Nigeria.
Its main functions as a bank includes.
(i). Currency issue
(ii). Banker and adviser to
the federal government.
(iii). Banker and supervisor to the
regulator of commercial and merchant banks and other financial institutions.
The central bank is empowered by law periodically to examine the books and
affairs to each and every. Licenced bank. The main are in which
banks in Nigeria maintenance of reserve funds, adequacy of equity extension of
credit, reporting and auditing. Bank are required to extend a minimum
percentages of the total lending to indigenous exterprises. A sector
distribution of loans and advances is also enforced. An overall cellina
is usually imposed on the growth of the banks loan and advances through the
annual monetary policy circulars issued by the central bank of Nigeria.
TERMS AND CONDITIONS APPLY
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