HISTORY OF BANKING IN NIGERIA

The history of banking is intertwined with the history of Money. Ancient types of money known as grain-money and food cattle-money were used from a time of around at least 9000 BC, as two of the earliest things understood as things to be made use of for the purposes of barter. The history of banking begins with the first prototype banks of merchants of the ancient world, which made grain loans to farmers and traders who carried goods between cities. This began around 2000 BC in Assyria and Babylonia. Later, in ancient Greece and during the Roman Empire, lenders based in temples made loans and added two important innovations: they accepted deposits and changed money. 

In early civilizations a temple is considered the safest refuge; it is a solid building, constantly attended, with a sacred character which itself may deter thieves. In Egypt and Mesopotamia, gold is deposited in temples for safe-keeping. But it lies idle there, while others in the trading community or in government have desperate need of it. Banking activities in Greece are more varied and sophisticated than in any previous society. Private entrepreneurs, as well as temples and public bodies, undertake financial transactions. They take deposits, make loans, change money from one currency to another and test coins for weight and purity. They even engage in book transactions. Moneylenders can be found who will accept payment in one Greek city and arrange for credit in another, avoiding the need for the customer to transport or transfer large numbers of coins. Rome, with its genius for administration, adopts and regularizes the banking practices of Greece.

By the 2nd century AD, a debt can officially be discharged by paying the appropriate sum into a bank, and public notaries are appointed to register such transactions. The collapse of trade after the fall of the Roman Empire makes bankers less necessary than before, and their demise is hastened by the hostility of the Christian church to the charging of interest. Usury comes to seem morally offensive. The Christian prohibition on usury eventually, provides an opportunity for bankers of another religion. European prosperity needs finance. The Jews, barred from most other forms of employment, supply this need. But their success, and their extreme visibility as a religious sect, brings dangers.

During the 13th century bankers from north Italy, collectively known as Lombards, gradually replace the Jews in their traditional role as money-lenders to the rich and powerful. The business skills of the Italians are enhanced by their invention of double-entry book-keeping. Creative accountancy enables them to avoid the Christian sin of usury; interest on a loan is presented in the accounts either as a voluntary gift from the borrower or as a reward for the risk taken. 

Paper currency makes its first appearance in Europe in the 17th century. Sweden can claim the priority (as also, a few years later, in the first national bank). Throughout the commercially energetic 18th century, there are frequent further experiments with bank notes – deriving from a recognized need to expand the currency supply beyond the availability of precious metals. Gradually public confidence in these pieces of paper increases, particularly when they are issued by national banks with the backing of government reserves.

In these circumstances, it even becomes acceptable that a government should impose a temporary ban on the right of the holder of a note to exchange it for silver. With governments issuing the bank notes, the inherent danger is no longer bankruptcy but inflation. In England, banks developed in the 17th century. Sometimes people deposited their money with goldsmiths for safety. The goldsmiths issued a note promising to pay the bearer a certain sum on demand. In time people began to exchange these notes instead of coins because it was easier and safer.

Goldsmiths began to lend the money deposited with them in return for a high rate of interest. They also paid interest to people who deposited money in order to attract their savings. However, not only individuals borrowed money. Governments also needed to borrow, especially in wartime. The government borrowed money from wealthy individuals and later repaid them with interest from taxation.

Modern banks began with the Bank Charter Act of 1844. The Act split the Bank of England (which was still legally a private bank) into two departments – a banking department and an issuing department. From then on, the Bank of England could only issue notes if they were backed up by gold or government securities. The Bank Charter Act also forbade new banks to issue bank notes. When banks merged, they lost the right to issue bank notes. So gradually the Bank of England became the only bank in England that could issue notes. At the end of the 19th century and in the 20th century, many banks merged until in the late 20th century, banking in Britain was dominated by the ‘big four’, Barclays, Lloyds, Midland and National Westminster. In the 19th century, the use of cheques for drawing money and settling accounts became much more common. Travellers’ cheques were invented in the USA in 1891. In 1946, the Bank of England was finally nationalized. Also, in 1946, the International Bank for Reconstruction and Development (otherwise known as the World Bank) was formed.

Period before the 17th century is a period of no banking business in Nigeria as the economy was primitive in nature. However, record have it that banking activities began around 1892 when a merchandizing company called Elder Dempster & Co. was in need of banking services to facilitate its business activities in the country. This led to the establishment of a branch of African Banking Corporation (ABC based in South Africa) in the year 1892. The bank collapsed two (2) years later due to untold hardship it experienced. By 1894, a new bank was opened in Lagos and other West African cities under British Colonial Influence. This new bank known as Bank of British West Africa (BBWA) which later merged with Standard Bank Ltd transformed into what is now known as First Bank of Nigeria Plc.

The second successful bank being Barclay’s Bank Dominion Colonial and Overseas (DCO) was established in 1917, this bank is now known as Union Bank of Nigeria Plc. Up to 1928 more foreign banks were opened in Nigeria which led to monopolization of banking operations by foreign banks. In order to break this yoke of monopolistic and discriminatory banking activities, some Nigerians came together with the aim of establishing indigenous banks. Between 1945 and 1947, four indigenous banks were established. Two of these banks survived, that is, African Continental Bank by Lagos Properties Ltd. and Agbomagbe Bank (Now WEMA Bank). It should be noted that the first indigenous bank in Nigeria, National Bank of Nig. Ltd. (NBN) was established in 1924 by a group of Nigerian Businessmen in London.

As a result of high number of failed banks which later became the fate of most indigenous banks, the colonial government in 1948 to set up a Commission of Enquiry into Banks failure Causes and Cure led by M. P. Paton so as to protect the depositors of these banks. As a result of Paton Report of 1948, the colonial government of Nigeria promulgated the 1952 Banking Ordinance. This ordinance provided for a minimum capital requirement for banks among other things, this issues led to the collapse of more indigenous banks as they could not afford the huge capital base required of them. The enactment of the Banking Ordinance of 1952 brought to an end the era of free banking which also led to closure of some banks leaving the country with just seven banks. 

In the years 1958/59, the Central Bank of Nigeria was established and began full flesh operation; this gave impetus to the era of banking legislation in Nigeria as it led to increased banking supervision and control, and drastically reduction in malpractices within the banking industry. The Federal Government of Nigeria pursue a policy of indigenizing the economy as provided for in Indigenous Enterprises Promotion Decree 1972 as amended in 1977. This make the Federal Government to acquire controlling interest in these expatriate banks in an attempt to control the key sectors of the Nigerian Economy, it also afford the government opportunity to broaden the management teams of the banks by increasing the level of indigenous participation. The establishment of the Central Bank of Nigeria by the introduction of the Central Bank of Nigeria Act 1958 began the era of legal and institutional framework of banking in Nigeria.