In 1892 Nigeria's first bank, the African Banking Corporation, was established. No banking legislation existed until 1952, at which point Nigeria had three foreign banks (the Bank of British West Africa, Barclays Bank, and the British and French Bank) and two indigenous banks (the National Bank of Nigeria and the African Continental Bank) with a collective total of forty branches. A 1952 ordinance set standards, required reserve funds, established bank examinations, and provided for assistance to indigenous banks. Yet for decades after 1952, the growth of demand deposits was slowed by the Nigerian propensity to prefer cash and to distrust checks for debt settlements.

British colonial officials established the West African Currency Board in 1912 to help finance the export trade of foreign firms in West Africa and to issue a West African currency convertible to British pounds sterling. But colonial policies barred local investment of reserves, discouraged deposit expansion, precluded discretion for monetary management, and did nothing to train Africans in developing indigenous financial institutions. In 1952 several Nigerian members of the federal House of Assembly called for the establishment of a central bank to facilitate economic development. Although the motion was defeated, the colonial administration appointed a Bank of England official to study the issue. He advised against a central bank, questioning such a bank's effectiveness in an undeveloped capital market. In 1957 the Colonial Office sponsored another study that resulted in the establishment of a Nigerian central bank and the introduction of a Nigerian currency. The Nigerian pound (see Glossary), on a par with the pound sterling until the British currency's devaluation in 1967, was converted in 1973 to a decimal currency, the naira (N), equivalent to two old Nigerian pounds. The smallest unit of the new currency was the kobo, 100 of which equaled 1 naira. The naira, which exchanged for US$1.52 in January 1973 and again in March 1982 (or N0.67 = US$1), despite the floating exchange rate, depreciated relative to the United States dollar in the 1980s. The average exchange rate in 1990 was N8.004 = US$1. Depreciation accelerated after the creation of a second-tier foreign exchange market under World Bank structural adjustment in September 1986.

The Central Bank of Nigeria, which was statutorily independent of the federal government until 1968, began operations on July 1, 1959. Following a decade of struggle over the relationship between the government and the Central Bank, a 1968 military decree granted authority over banking and monetary policy to the Federal Executive Council. The role of the Central Bank, similar to that of central banks in North America and Western Europe, was to establish the Nigerian currency, control and regulate the banking system, serve as banker to other banks in Nigeria, and carry out the government's economic policy in the monetary field. This policy included control of bank credit growth, credit distribution by sector, c 1550 cash reserve requirements for commercial banks, discount rates--interest rates the Central Bank charged commercial and merchant banks--and the ratio of banks' long-term assets to deposits. Changes in Central Bank restrictions on credit and monetary expansion affected total demand and income. For example, in 1988, as inflation accelerated, the Central Bank tried to restrain monetary growth.

During the civil war, the government limited and later suspended repatriation of dividends and profits, reduced foreign travel allowances for Nigerian citizens, limited the size of allowances to overseas public offices, required official permission for all foreign payments, and, in January 1968, issued new currency notes to replace those in circulation. Although in 1970 the Central Bank advised against dismantling of import and financial constraints too soon after the war, the oil boom soon permitted Nigeria to relax restrictions.

The three largest commercial banks held about one-third of total bank deposits. In 1973 the federal government undertook to acquire a 40-percent equity ownership of the three largest foreign banks. In 1976, under the second Nigerian Enterprises Promotion Decree requiring 60-percent indigenous holdings, the federal government acquired an additional 20-percent holding in the three largest foreign banks and 60-percent ownership in the other foreign banks. Yet indigenization did not change the management, control, and lending orientation toward international trade, particularly of foreign companies and their Nigerian subsidiaries of foreign banks.

At the end of 1988, the banking system consisted of the Central Bank of Nigeria, forty-two commercial banks, and twentyfour merchant banks, a substantial increase since 1986. Merchant banks were allowed to open checking accounts for corporations only and could not accept deposits below N50,000. Commercial and merchant banks together had 1,500 branches in 1988, up from 1,000 in 1984. In 1988 commercial banks had assets of N52.2 billion compared to N12.6 billion for merchant banks in early 1988. In FY 1990 the government put N503 million into establishing community banks to encourage community development associations, cooperative societies, farmers' groups, patriotic unions, trade groups, and other local organizations, especially in rural areas.

Other financial institutions included government-owned specialized development banks: the Nigerian Industrial Development Bank, the Nigerian Bank for Commerce and Industry, and the Nigerian Agricultural Bank, as well as the Federal Savings Banks and the Federal Mortgage Bank. Also active in Nigeria were numerous insurance companies, pension funds, and finance and leasing companies. Nigeria also had a stock exchange (established in Lagos in 1961) and a number of stockbrokerage firms. The Securities and Exchange Commission (SEC) Decree of 1988 gave the Nigerian SEC powers to regulate and supervise the capital market. These powers included the right to revoke stockbroker registrations and approve or disapprove any new stock exchange. Established in 1988, the Nigerian Deposit Insurance Corporation increased confidence in the banks by protecting depositors against bank failures in licensed banks up to N50,000 in return for an annual bank premium of nearly 1 percent of total deposit liabilities.

Finance and insurance services represented more than 3 percent of Nigeria's GDP in 1988. Economists agree that services, consisting disproportionately of nonessential items, tend to expand as a share of national income as a national economy grows. However, Nigeria, lacked comparable statistics over an extended period, preventing generalizations about the service sector. Statistics indicate, nevertheless, that services went from 28.9 percent of GDP in 1981 to 31.1 percent in 1988, a period of no economic growth. In 1988 services comprised the following percentages of GDP: wholesale and retail trade, 17.1 percent hotels and restaurants, less than 1 percent housing, 2.0 percent government services, 6. percent real estate and business services, less than 1 percent and other services, less than 1 percent.

Outdoor market along the railroad line near Lagos
Courtesy Orlando E. Pacheco

Shopkeeper's stall in Jos, capital of Plateau State
Courtesy Orlando E. Pacheco

Data as of June 1991