THE COLLAPSE OF UNIVERSAL BANKING SYSTEM IN NIGERIA:
AN ASSESSMENT OF THE INTRODUCTION OF SPECIALZED BANKING AND HOLDING COMPANY
AIMINHIEFE OSAGIE BENEDICT
BEING AN M.Sc. (ACCOUNTING AND FINANCE)
DEPARTMENT OF ACCOUNTING,
FACULTY OF MANAGEMENT SCIENCES,
BENUE STATE UNIVERSITY, MAKURDI.
The Central Bank of Nigeria (CBN) recently reviewed the universal banking system in favour of separate banking licenses under the Banks and Other Financial Institutions Act (BOFIA). The proposed changes are as a result of 2009′s audit of Nigeria’s entire banking sector that found a number of banks in a “grave situation” with a high percentage of non-performing loans in their books, poor risk management, and weak corporate governance structures in place. According to the Central Bank of Nigeria, banks in Nigeria currently carry out a wide range of banking and non-banking services, which include insurance, investment advisory, asset management services, etc, by virtue of the universal banking license regime. The regime, however, has exposed the banking business to greater risks that challenges the stability of the financial system. The new Regulations require banks to divest from all non-banking businesses and obtain fresh licenses to operate as commercial, merchant, specialized or development banks. This paper examines the collapse of the universal banking system and the assessment of the adoption of the specialized banking and holding company model. The paper has carefully examined the causes of the collapse of the universal banking system and assessment of the introduction of specialized and holding banking system. The paper is of the view that although changes in system and structure may have good intention, the supervisory and regulatory authorities should ensure adequate supervision of these banks, so that the nation will have no cause to revert to the repealed system of universal banking. Moreover the banks and their officers should ensure that there is adequate internal control and good corporate governance in place for the system to work.
Keywords: Universal Banking, Bank Reforms, Specialized Banking, Holding System.
Since 1986 when Nigeria introduced the Structural Adjustment Programme (SAP), Nigeria has been undergoing financial sector reforms in one form or the other. These include: •
The banking Liberalization 1986 – 1990
Universal Banking: 2001 - 2010
Banking Consolidation: 2004 – 2005
August 2009 – October 2009 Central Bank interventions
Reforms (actually Reversal) of Universal Banking system 2010 to date Nigeria adopted Universal Banking Model in 2001 in accordance with global trends driven by United States deregulation of financial services. The rationale behind universal banking was based on economies of scale, lowering of financial costs, integration of financial markets and deregulation of the financial market and free enterprise. Prior to the introduction of Universal Banking, Nigeria maintained a separation between commercial and merchant banking and insurance. The Universal Banking (UB) model adopted in 2001 allowed Nigerian banks to diversify into non-banking businesses, as against the banking businesses specified under BOFIA, including the business of receiving deposits or current account, savings account or other similar account, paying or collecting cheque drawn by or paid in by customers, provision of finance or such other business as the Governor of CBN may, by order published in the Gazette, designate as banking business.3 However, banks did not immediately diversify until the post-consolidation exercise in 2005 when they experienced significant boost in their capital, causing the big banks to diversify into non-banking businesses, including insurance, stock broking and other proprietary trading in capital markets. The era of universal banking,...
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