CASE STUDIES FROM AFRICA

true financial position, and to adopt a new reporting format for the bank’s unaudited and
audited financial statements.
This phase of banking reform stabilised the system, and encouraged recovery of the bad
loans and the raising of fresh capital. Thus, the Nigerian banking sector has witnessed
distinct phases of reforms. The most recent reforms were basically carried out to ensure
stability and instill confidence in the banking system. The regulations were adjudged to be
successful in some cases and largely seen as a failure in some other situations. An inference
that can be made from the sequence of these reforms is that banking regulations must be
dynamic to adequately respond to situational challenges and conform to international best
practices. It is not yet clear whether these regulatory changes were responsible for the
outward orientation of Nigerian banks and whether the markets which these banks targeted
are relatively less regulated. These are empirical issues which require discussions with bank
operators that will be dealt with in detail in the sections below.
Regulatory Environment
The Nigerian banking industry is a highly regulated one because of the importance of the
sector in the economy. Banking services operations in Nigeria are governed by the CBN Act
(2007); Banking and Other Financial Institutions Act (BOFIA), (1991 as amended); Money
Laundering Act (1995); the CBN Prudential Guidelines; and any other monetary, credit,
foreign trade, and exchange policy circulars that may be issued by the regulatory authorities
from time to time. The key regulators in the Nigerian banking industry are the CBN, NDIC,
and SEC.
The CBN became fully operational on July 1, 1959, with the aim to prevent bank failures and
prepare for indigenous control. The CBN is solely responsible for the formulation of
monetary, credit, and exchange rate policies, and plays an overall supervisory and
regulatory role for financial institutions. Traditionally, the CBN functions as the
government's agency for the control and supervision of the banking sector, monitors the
balance of payments according to the demands of the federal government, and regulates
investment intermediaries and all depository institutions except mortgage firms. It performs
banking supervision and examination, grants licenses, and imposes reserve requirements,
prudential guidelines, and monetary policy guidelines. In addition to these traditional roles,
the CBN engages in compliance-based supervision using the Basel Core Principles.
It has also assisted in the establishment of specialised banks such as the Nigerian Industrial
Development Bank (NIDB), the Nigeria Agricultural Co-Operative and Rural Development
Bank (NACRDB), the Nigerian Bank for Commerce and Industry (NBCI), the Nigerian
Agricultural Insurance Company (NAIC), National Economic Reconstruction Fund
(NERFUND), the NEXIM, and the Federal Mortgage Bank of Nigeria (FMBN). These banks
are geared towards making cheap credit available to the agriculture and manufacturing
sectors and also to address perceived gaps with respect to lending requirements of the real
sector by the commercial banks.
The Governor of the CBN is also involved in policy making as a member of the Economic
Management Team, which is chaired by the Minister of Finance. The Governor is also a
member of the National Economic Council, which includes the state governors, the Minister
of Finance, and the Minister of National Planning. The 2007 Act also permitted the CBN to
enter into information-sharing agreements with foreign authorities, to develop an electronic
payment system, and to license and regulate credit bureaus.
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