The Financial System in Nigeria: An Overview of Banking Sector Reforms E. J. Ofanson (Ph.D)1 O. M. Aigbokhaevbolo (Ph.D)2 G. O. Enabulu3 Abstract
The paper overviews the banking sector reforms within the framework of the Nigerian Financial System. A theoretical approach was adopted although empirical evidence was presented in some cases. It was clear that developments in the banking sub-sector of the Nigerian financial system have contributed to some extent in promoting economic growth and development in the country. However, the operations of some of these institutions were characterized by inefficiency and ineffectiveness. It was also found that the challenges facing the regulatory authorities in promoting a sound, stable and efficient banking system are enormous. Indeed, the adoption of financial sector reform as an element of the Structural Adjustment Programme (SAP) has to a considerable extent, helped to reduce or eliminate most of the institutional rigidities and administrative controls that had hindered the efficiency and effectiveness of the system, in achieving the nation’s growth and development objectives. In particular, the deregulation of the financial sector has stimulated competition and enhanced efficiency in resource allocation. Specifically some of the major achievements include: increase in the number of operating bank branches; improved service delivery and products innovation; improved approach to monetary management; improved payments system. Given that the challenges facing the regulatory authorities in promoting a sound, stable and efficient financial system are enormous it requires the strengthening of each institution’s regulatory framework and capacity as well as maintaining effective coordination of various regulatory efforts to avoid conflict of roles and duplication of efforts.
Financial systems, all over the world, play fundamental roles in the development and growth of the economy. The effectiveness and efficiency in performing these roles, particularly the intermediation between the surplus and deficit units of the economy, depend largely on the level of development of the 1 2
Department of Banking and Finance, Ambrose Alli University, Ekpoma. Department of Accounting, Ambrose Alli University, Ekpoma. 3 Department of Banking and Finance, Ambrose Alli University, Ekpoma AAU JMS Vol. 1, No. 1, December 2010.
E. J. Ofanson (PhD); O. M. Aigbokhaevbolo (PhD) and G. O. Enabulu
financial system. It is to ensure its soundness that the financial sector appears to be the most regulated and controlled by the government and its agencies. The surveillance role of the regulatory/supervisory authorities is critical to ensuring the soundness and efficiency of financial institutions in order to build up confidence and stability of the system. The components of these bodies are the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), the Securities and Exchange Commission (SEC), the Federal Ministry of Finance (FMF), the National Insurance Commission (NAICOM), the Federal Mortgage Bank of Nigeria (FMBN), the Financial Services Regulatory Coordinating Committee (FSRCC) and National Pension Commission (NPC). Generally, the stage of development and, thus, the efficiency of the system varies among countries and changes over time in the same country, in tandem with the development of the real economy. In other words, the more developed and sophisticated financial systems tend to be associated with the mature economies, while under-developed financial systems feature in developing economies. As a process, the financial system adjusts to changes in the real economy just as the economy responds to developments in the financial sector. In the words of Revell (1973), the financial system is a superstructure created on the basis of the real wealth of the community. The overall aim of the...