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The Impacts of Banking Industry on Nigeria’s Economy

In this post, we will explain the the impacts of banking industry on Nigeria’s economy. Banks are financial institutions that accept deposits and makes loans. They also provide other financial services as wealth management, currency exchange, mortgages, retirement accounts, alternative investments, financial management amongst others.

The banking industry however, refers to the section of the economy that holds financial assets for others, invests these assets to generate more revenue.

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The banking sector is regulated by the government because they are vulnerable to liquidity problems and loss of public confidence, the regulations are put in place to ensure checks and balances and not limit or restrict them.

The Impacts of Banking Industry on Nigeria’s Economy


The central bank of Nigeria issued operating licenses for three classification of banks in Nigeria which are commercial banking, Merchant banking, specialized and development banking (Micro finance, mortgage and non interest banking).


These are mostly owned by a group of individuals. Examples are zenith bank, access bank, guaranty trust bank, eco bank, first city monument bank, sterling bank, heritage bank, unity bank, diamond bank enterprise ban, fidelity bank, key stone bank, main street bank, skye bank, stanbic ibtc, standard chartered bank, united bank of Africa, union bank, wema bank and first bank.

Commercial banks perform the following functions: provide short term loans, accepts deposits, makes business loans to individuals and organisations, international banking, documentary collection and trade financing.


Merchant banks are financial institutions that provide capital to businesses in form of share ownership instead of loans. Examples of merchant banks in Nigeria are: FBN Merchant bankers limited, Indo-Nigerian bank limited, Investment banking and trust company limited, NAL Merchant PLC, Stanbic Merchant Bank Nigeria Limited.

Merchant Banks provide the following functions: management of securities and portfolio, offering financial advice, providing mutual funds and are large brokers of stock.

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This is also known as Micro Finance, Mortgage and Non interest banking, Micro finance banks are financial institutions that grant access to credit facilities such as micro loans to individuals, small businesses and organisations.

Example of is LAPO an NGO that operates as a micro finance bank in Nigeria and FBN Microfinance bank, a subsidiary of First Bank Nigeria. Mortgage Banks are financial institutions that aim solely at providing housing needs in Nigeria.

It collects and administers the national housing fund in accordance with the provisions for national housing fund act. The federal mortgage bank of Nigeria is an example of a mortgage bank.

Non interest banking is an alternative form of banking contrary to conventional banking, it operates on some Islamic principles that prohibit interest, banks that offer non interest services in Nigeria are JA’iz bank and Stanbic IBTC.


A development bank is a bank whose aim is solely to aid merchant banks in areas where they unable to play their roles especially in providing short and medium term loans to entrepreneurs and investors in different economic sections.

Other functions may include providing loans to sectors in need and to regulate private institutions to ensure that they fulfil their obligations. Examples of development banks in Nigeria are:

Federal Mortgage Bank Of Nigeria (FMBN), Nigerian Agricultural And Co-operative And Rural Development BANK (NACROB), The Nigerian Bank For Commerce And Industry (NBCI) and the Nigerian Industrial Development Bank (NIDB).


This is the mother to all banks in Nigeria, the nation’s bank that is charged with issuing legal tender, maintaining a stable price and money in Nigeria, maintain foreign reserves to safeguard the value of the naira in the international market, supervise other banks and advise the government on financial matters while maintaining a sound financial structure.

The Impacts of Banking Industry on Nigeria’s Economy

The importance of financial institutions in the growth and sustainability of the economy is largely positive. Although the banking industry is not completely responsible for economic development in Nigeria, it plays an effective and important role.

Every sector of the Nigerian economy works interdependently to move the economy forward, a decline in any of the sector will likely affect the others. There is no world economy that has developed without the help or role of a capable financial sector.

Banks facilitate business by providing loans to individuals for business purposes, most small medium enterprises get their start up capitals from banks in form of loans, micro finance banks particularly have birthed the rise of small businesses in Nigeria indirectly abating the challenge of unemployment and giving rise to participation of the private sector in economic development and promoting entrepreneurship.

The loans made available by banks to other sectors of the economy like the agricultural, hospitality, industrial or entertainment sectors, facilitates the process of economic development in Nigeria.

Commercial banks facilitate the development of saving plans which are a core instrument of the government’s monetary strategy.
Banks facilitate the transfer of money from one place to another for business, personal or leisure purposes.

The facilitation of financial transactions in distant places has aided both local and international trade, as people are no longer limited by the inability to carry large amounts of money from place to place.

This also enables businesses and individuals to be part of the commodity market and global foreign exchange. Importation of goods for business purposes cannot be done without the aid of a bank.

The provision of credit by banks allows business owners to invest beyond their capital, creating room for business growth and expansion. Mortgage banks also allow individuals to purchase homes without paying the entire cost instantly.

It must be noted the interest rates provided by banks is far lesser than interest rates from money lenders.

Provision of credit creates room for the government to invest in infrastructure projects and to control revenue expenditure by depending less on tax revenues.

Development banks also play a massive role in economic development because they are responsible for providing loans to fund industrial projects, promoting Nigerian enterprises by implementing effective measures, supports the agricultural sector by loans, provides loans to co-operatives, individuals and crafts. Development banks also aim at developing capital market by creating opportunities for alternative investments.

The Central Bank of Nigeria plays a vital role in processing exchange control and makes foreign exchange allocation to promote international trade; the promotional trade contributes immensely to the growth of infrastructure and manpower development.

International trade is an engine of economic growth and very potent for mutual interdependency among world nations.

Without the central and commercial banks, international trade in Nigeria will be grossly hindered and the effect on the economy is undesirable.

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Lami Ogar

Lami is from cross river state and holds a B.sc in accounting from a Nigerian university. Writing for her is a form of detoxification, she has written several articles for Essence magazine and runs political commentary on twitter. 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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