Banking and Finance

The discernible sub-sectors in the Nigerian financial services industry are banking, insurance, capital markets, investment management, real estate, and regulatory. Financial services companies are concentrated in Lagos and national companies dominate the various sub-sectors. Except for the banking industry, the majority of the operators in the financial services industry are small-sized companies. Until recently, there was a dearth of long-term funds in the industry.  However, with the introduction of the new Pensions Act in 2004, employers and employees in the public and private sectors are mandated to contribute 7.5% each of the emoluments of the employee into a Retirement Savings Account (RSA).  RSAs maintained by millions of workers have the potential to generate massive long-term funds, which will be available for productive investment in the economy. The scheme has the long term objective of promoting national savings, economic growth, and capital market development.

Use of technology is high in the banking sub-sector but low in the rest of the financial services industry. Within banking, the average number of years of service of staff in each institution is low due to the relatively high mobility of bankers. The banks achieve significantly greater profitability and growth than many other sectors of the Nigerian economy, and pay higher staff compensations.

The universal banking system currently operating in Nigeria enables most banks offer a wide range of services covering core banking areas such as lending, treasury, trade finance, private banking and financial advisory services. Some of the products and services include: asset based finance, structured trade finance, equipment leasing, finance leases, loan syndication, advances, bonds, guarantees, cash management, mutual funds, company flotation, capital reconstruction and restructuring, mergers and acquisitions, project finance, custodial services, and trust services among others.

In July 2004, the Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma C. Soludo announced a reform of the banking sector. The first phase of the reforms was designed to ensure a diversified, strong and reliable banking sector, which will ensure the safety of depositors money, play active developmental roles in the Nigerian Economy and become competent and competitive players both in the African and global financial systems. The second phase will involve encouraging the emergence of regional and specialised banks.

Under the reforms, banks must now hold minimum financial reserves of 25bn naira compared with 2bn naira previously with full compliance by the end of December 2005. The reforms led to a series of mergers and takeovers as businesses tried to build up sufficient financial reserves to escape sanctions. As a result of the process the number of banks operating in Nigeria shrunk from 89 to 24.  More banks are also spreading their tentacles to other parts of Africa and beyond.

Over the years, the government has drafted policy initiatives on the provision of microfinance services in Nigeria.  In Jan 2008, the Central Bank of Nigeria (CBN) put into effect its new National Microfinance Policy which aims to enable microfinance institutions (MFIs) to act as new sources of development.  The policy is part of the reforms designed to ensure that operators are better positioned to perform their primary role of financial intermediation.

Under the regulatory and supervisory framework for microfinance banks, the CBN stated that there shall be two categories of licenses available for promoters (both local and foreign) of Micro Finance Banks based on geographical coverage.

The first category would be Micro Finance Banks licensed to operate as a unit bank (also known as community banks) and which shall operate and open branches within a specified local government area (LGA). The minimum capital requirement is N20 million or such amount as may be prescribed by the CBN from time to time.

The second category would be Micro Finance Bank licensed to operate in a state and open branches within a specified state or Federal capital territory and the minimum capital requirement of N1billion only is required or such an amount as maybe prescribed by the CBN from time to time. All community banks were expected to convert to the appropriate category of microfinance banks by 31 December 2007.

In line with the policy, 600 out of 761 community banks successfully converted to microfinance banks.

Industry consolidation is also envisaged in the insurance sector. This sub-sector offers insurance cover for various types of risks. Most non-life businesses cover risks such as fire, burglary, marine, accident, engineering, workmen's compensation and loss of income; while most life businesses offer life assurance and increasingly pension administration and funds management services. The composite business is growing rapidly with significant number of insurance companies now underwriting both life and non-life risks.

The financial services industry is highly regulated by the following bodies: The Central Bank of Nigeria, Nigerian Deposit Insurance Corporation, National Insurance Commission, Securities & Exchange Commission, Corporate Affairs Commission and the Federal Ministry of Finance.

PricewaterhouseCoopers is actively providing a wide range of services to the leading organisations in the Nigerian financial services industry.