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6 Functions Of Commercial Banks In Nigeria

Here in this post, we are going to bring you 6 functions of commercial banks in Nigeria. We hope this information is invaluable to you.

The banking system in Nigeria was actually started during the British colonial era. Today, however, the Nigerian banking system is controlled and regulated by the Central Bank of Nigeria.

Taking a closer look at Nigeria’s banking system, one will discover that, the system actually consists of about 21 commercial banks, and there are about 5 development finance banks, including 64 finance companies, as well as 860 micro-finance banks, and I think about 5 discount houses.

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6 Functions Of Commercial Banks In Nigeria
Commercial Banks In Nigeria – Photo Source: https://www.nigerianinfopedia.com

Nonetheless, I am of the opinion that as the day passes by, there are possibilities that, there would be an increase in the number of banks in Nigeria and perhaps, other avenues, by which funds can be loaned and borrowed.

But today, my focus will be on the commercial banks. It is true that commercial banks have about three key functions to perform in order to achieve its goals.

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And these functions include granting of loans, and accepting of deposits, as well as, operating payment and settlement system.

Having said that, besides the three outstanding functions of the commercial banks, there are several other functions assigned to commercial banks in Nigeria, and these functions will be my focus of discussion in this article.

What Then Are The Functions Of The Commercial Banks In Nigeria?

We have been told earlier in this article that the commercial banks in Nigeria have about three major functions statutorily charged the banks with.

We made mentioned pf these functions to include granting of loans and accepting of deposits and the operations of payments and settlements system.

But there are yet other functions of the commercial banks in Nigeria, as was assigned to it when the bank was incorporated. And in this article, I will be discussing these functions of the commercial banks in Nigeria. Below are the functions:

1. Commercial Banks Satisfy Financial Needs Sectors Such As Agriculture And Industry And Trade And Others

Commercial banks are financial houses or organizations, they carried out different types of functions, particularly, when it comes to satisfying the financial needs of business organizations, even government agencies and departments.

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There are quite a number of sectors in the Nigerian economy, apart from private business organizations, which the commercial banks have assisted financially.

For example, the agriculture sector, and the industrial sector, and the communication sector and trade among others.

In other words, the commercial banks by the virtue of their functions have played a vital role in making sure that, they make provisions for the social and economic needs of these economic sectors and other organizations.

Although functions performed by commercial banks in Nigeria often varies according to some changes in time, but of recent, the commercial banks are quite becoming customer-centric hence, have widened their functions.

2. Commercial Banks Transfer Money On Behalf Of Customers

The commercial banks in Nigeria do transfer money as part of its functions, but they will do this on behalf of the customers.

Transferring of money on behalf of commercial bank’s customers is important function of the commercial banks, and quite necessary too, since that will help to enable customers, and non-customers to make sure that their payments are made to other individuals or other organizations, once they have completed the forms given to them, and then handed over the money.

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3. Commercial Banks Involve In Credit Creation

Credit creation from commercial banks is one of the most vital, and quite significant function as it is always discharged by the commercial banks in Nigeria. How did the commercial banks go about this aspect of their functions?

The commercial banks actually did this, when they sanctioned a loan to any of its customers. In this case, however, the commercial banks will not make cash provision to their customers or to the individual or organization, who actually borrowed the money.

What the commercial banks will be doing will be to open a deposit account from where the individual or organization borrower can withdraw the money.

For instance, anytime commercial banks sanctioned loans, they will automatically with immediate effect, create deposits. Once this is done, you can rightly say that commercial banks have involved in credit creation.

4. Commercial Banks Make Advances and Provide Loans

The commercial banks are said to make advances. How did the commercial banks make their advance? The commercial banks make their advances when they make provisions for loans and advances.

The commercial banks do make provision for their loans, and as well, make advances of different types. For example, the commercial banks’ loans and advances, which the banks did in different ways, includes an overdraft facility, another one is cash credit, and bill discounting is also another form among others.

Accordingly, there is this one called, ‘demand’. The commercial banks also make sure that, they give demand and also term loans to every type of client against proper security.

5. Commercial Banks Provides Foreign Exchange Facilities

Another function of commercial banks is the provision of foreign exchange facilities. When we talk about foreign exchange facilities, we are referring to a situation, where the commercial banks will make provisions of allowing travellers particularly, those travelling outside the shores of Nigeria, like say the , United State of America, or South African, or Dubai or even England to collect travellers’ cheques and sometimes, foreign currency in order to ease the difficulty and minimize the trouble of trying to exchange some foreign currency, when in foreign countries. The business men, who travelled foreign countries for business also enjoy this services from commercial banks.

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6. Commercial Banks Grants Loans To Individuals And Organizations And Government Agencies

The commercial banks performed several functions in order to achieve its goals, but however, their functions of granting of loans is a primary function of the commercial banks in Nigeria, it is considered relevant, and the most necessary and important function of the commercial banks in Nigeria.

In granting of loans by the commercial banks, these loans can be granted in different ways, it can be by means of overdraft to individuals or to organizations, or government.

The government or corporations or individuals can received these loans from the commercial banks in form of loans account, etc.

Whatever means or form however, what is more important is the fact that, the commercial banks in Nigeria do grants loans to individuals and private business organizations, and even government.

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Conclusion

It is true that, commercial banks have about three key functions to perform in order to achieve its goals. And these functions include, granting of loans, and accepting of deposits, as well as, operating payment and settlement system.

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Joseph Athanasius

Joseph Athanasius is a Content Developer at InfoGuideNIgeria.com. InfoGuide Nigeria is a team of Resource Persons and Consultants led by Ifiokobong Ibanga. Page maintained by Ifiokobong Ibanga. If you need a personal assistance on this topic, kindly contact us.

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