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Financial Institutions consist of various economic units which provide the general public with the opportunity to save and accumulate wealth. This financial institutions mobilize savings, contributions in form of deposits, premium,   from their customers. For example, Banks mobilize savings by way of opening and operating various accounts such as savings, current and fixed deposits from customers.

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These accounts are guided by various rules which the customers are expected to abide with. Also the insurance companies collect premiums from their customers in exchange for risks which they undertake to abide. Credit and thrift cooperative societies collect contributions from their members ,while pension fund collect contributions from  workers  from  part of their salaries  as  pension funds which is to be paid  in  bulk sum on retirement.

The mobilized funds are extended as loans to worthy customers. The decision to grant loans are based on stipulated bank criteria’s which the customer must fulfill to qualify for the loan. The ability of the bank to gather deposits from millions of customers facilitates the pooling together of investable funds which they lend to firms and individuals with viable investment ideas or projects to finance production, services and consumer spending.

Financial institution facilitates the establishment of viable productive investment and enhanced economic growth through the provision of long and short term loans. The transfer of funds from the surplus unit to the deficit units is done through the employment of various business tactics such as diversification of depositors fund in such a manner that will encourage a fair liquidity in the banks. They also make arrangement with other bank for withdrawals in case of unexpected large withdrawal.

Edward B. Kitchener (1998) and P.W.V Horlicks (1987).  Postulates that Classical and neo-Classical Economics is primarily interested with the optimal growth of those resources overtime, they hold that countries develop economically via a well-diversified bank and market. In a market economy economic benefits flow from the market to participants for self-interest and voluntary acts whether they are firms or individuals .This is an efficient behavior which produces   the greatest economic growth


The Weak capital base of Banks;

One major problems confronting banks was the weak capital base of many banks in Nigeria. This to a great extent weakened the confidence of the customers who were afraid of the safety of their money. It also led to a great decline of the granting of loanable funds to the public thereby affecting the level of business, the small size of most local banks, coupled with their high overheads and operating expenses, produces negative consequences for the cost of intermediation. As a result they could not also effectively participate in big-ticket deals, especially within the framework of the single obligor limit.


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The problem of ethics and professionalism.

Many Banks resorted to unethical and unprofessional actions in a bid to survive the stiff competition in the market. Some diverted into some businesses that were not be classified as banking. The severity of the problems caused by the non-adherence to professional and ethical standards, led to the setting up of a sub-committee on “ethics and professionalism” by the Bankers committee to handle complaints and disputes arising from unwholesome and sharp practices.


The problem of Poor corporate governance practices.  Board members and management staff in several instances displayed noncompliance behavior and failed to uphold and promote the basic pillars of sound corporate governance. They were preoccupied with the attainment of narrowly defined interests. This led to high   turnover in the Board and management staff, false and   inaccurate reporting and total disregard to regulatory requirements.


Gross insider abuses. This was more pronounced within the credit function. Which led to several cases of huge non-performing insider-related credits?


The Problem of Insolvency.

This depicted a situation where the ratio of nonperforming credit to shareholders fund of a number of Banks has   eroded from 90% in 2003 to 105% in 2004. As a result of the magnitude of non-performing risk assets according to the 2004 NDIC Annual report. This meant that the shareholders’ funds had been completely wiped out industry-wide by the non-performing credit portfolio. Because of the high dependence on public sector funds, a good number of players diverted their attention from small savers who usually constitute a major source of stable funds which should be channeled to finance the real sectors. Rather, they focus attention on a few high net worth individuals, government firms, and agency and blue chip companies. Therefore in responding to this situation and   the need to accord the small and medium enterprises sub-sector the priority it deserves that the Bankers’ Committee came up with the Small and Medium Enterprises Equity Investment Scheme (SMEEIS) with a view to redirecting credit flows to the sub-sector.







1 The Increase of the level of minimum capital base of banks from N2 billion to N25 billion with December 31, 2005 as deadline for compliance brought confidence back to investors

2 The Consolidation of banks through mergers and acquisitions led to a stronger level of financial institution in Nigeria

3 The Phased withdrawal of public sector funds from banks, beginning from July, 2004 ensured trust and safety of customer’s funds

4 The Adoption of a rule-based and risk-focused regulatory framework for the industry;

5 The Adoption of zero tolerance in the regulatory framework especially in the area of information reporting. It ensured that all returns by any bank must now be signed by the Managing Director;

The adoption and use of  the electronic Financial Analysis and Surveillance System (e-FASS);as an  automation for the process for rendition of returns by banks and other financial institutions

The institution of a hotline and confidential internet address to assist Nigerians share confidential information with the Governor of the Central Bank of Nigeria

6 The Strict implementation of the contingency planning framework for systemic banking distress;

7 The setup of an Assets Management Company as a means of distress resolution;

8 The  support of the enforcement of dormant laws,  such as  those relating to the issuance of dud cheques and those  law  concerning the vicarious liabilities of the Board members of banks in cases of bank failure;

9 The Revision, updating, and drafting of new laws regarding the effective operations of the banking system;

The establishment of the Financial Intelligence unit in collaboration with the economic and financial crime commission and the enforcement of the antimony laundering and other economic crimes measures;

The  Restructuring and effective management of  Mint to enhanced the security printing needs of Nigeria, including  that of the  banking system which constitutes over 90% of the  business of Mint.

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Ifiokobong Ibanga

Ifiokobong Ibanga is the founder of InfoGuideNIgeria.com. You can get in touch with him on Instagram @ifiokobong. If you need a personal assistance on this topic, kindly send a message. Much Love!

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