The banking industry in Nigeria has witnessed a remarkable growth, especially since the de-regulation of the financial services sector in the last quarter of 1986. In terms of headcount for instance, the number of banks increased by about 154.8% from 42 in 1986 to 107 in 1990. It further increased by about 12% to120 in 1992. By 2004, however, the number had reduced to 89. This was because some banks had to be liquidated on account of their dwindling fortunes. The number of bank branches also rose from 1,394 in 1986 to 2,013 in 1990, 2,391
In 1992 and by 2004 in spite of the reduction in number of banks, it had reached 3,100. This translates to an inter-temporal increase of 44%, 18.8% and 29.7%, respectively. Given this scenario, the pertinent question agitating the critical mind is the extent to which the expansion in the number of banks and their branch network had impacted on the economy. To answer this question, it is essential that we return to the indices identified in section I. One of these indices is the volume of deposits mobilized of which the relevant data for the Nigerian economy during the last one and a half decades are presented in table 1 below:
Table 1: Deposits Mobilised by Banks in Nigeria, 1990 – 2004
Sources: Oboh, (2005) Selected Essays on Contemporary
Issues in the Nigerian Banking System, of Central Bank of Nigeria, Annual Report and Statement of Accounts, (various years) The statistics in the table show that total deposits in the banking industry increased by 3,687.3% from N43.87 billion in 1990 to N1,6615 billion in 2004. Due to the structure of the industry, however, the bulk of these deposits were held by a few banks. For instance, of the eighty-nine banks in existence in 2004, only ten accounted for 55.3% and 55.4% of the total deposits in 2003 and 2004, respectively. Even though total deposits in the banking industry has grown over time as indicated above, a lot still needs to be done, if one considers the potentials in the market. For instance, according to the Central Bank of Nigeria, as high as 83.9% of the money in circulation in the country is still outside the banking system. Banks will therefore, need to come up with innovative ways of tapping into those market segments that are underserved so as to mobilize the huge pool of funds that are there. Another way to evaluate the performance of banks is to carefully examine the credits they granted, both in terms of volume, distribution by sectors, and the maturity profile. The data on banks’ credit to the economy are shown in table 2 below.
Table 2: Banks’ Credits to the Economy, 1990 – 2004
Source: Central Bank of Nigeria, Annual Report and Statement of Accounts, (various years)
As the figures show, the rate of growth of aggregate bank credit (net) to the domestic economy ranged from 13.5% in 1997 to 112.2% in 1993. However, according to the Central Bank of Nigeria, in its 2004 Annual Report and Statement of Accounts, an analysis of the sectoral allocation of these credits revealed that the less productive sectors of the economy continued to be favoured. For instance, in 2003, those sectors comprising agriculture, solid minerals and manufacturing got only 40.2% of the credits. The situation worsened in 2004 as this figure further declined to 37.0%. The corollary of this is that, on average, it was more attractive for banks to lend to such sectors as distributive trade, especially import financing, because the risks associated with such lending were relatively lower. The turnaround time was equally shorter. Furthermore, as shown in the last column of table 2, actual domestic credit (net) consistently deviated from target for most of the years for which data was shown. If we take the targets to be representative of societal preference, what this means is that the flow of credit for each of those years was far from what was socially desirable.
The quality of these risk assets has worsened progressively since 2002 as the statistics in table 3 demonstrate graphically. Table 3: Asset Quality of Nigerian Banks, 1990 – 2004
Source: Nigeria Deposit Insurance Corporation, Annual Report & Statement of Accounts, Various Issues
The data in table 3 reveal that the ratio of non-performing credit to total credit declined from 45% in 1992 to 23.08% in 2004. This means that of every N100.00 lent out during these years, banks lost an average of N30.60. These losses contributed in no small way to the erosion of shareholders’ funds as shown in the table. These bad accounts represented 567.7%, 419.8% and 105.3% of shareholders’ funds in 1994, 1996 and 2004, respectively. Indeed, in the years 1990 to 1997, the shareholders’ funds had been impaired by non-performing risk assets in several multiples. The factors responsible for the poor quality of risk assets range from inadequate appraisal of credit proposals, unfavourable environmental factors that adversely affected the cash flow of the clients’ businesses to sheer unwillingness to repay credit facilities on the part of borrowers and the corresponding ineffectiveness of the rule of law to catch up with pathological loan defaulted some of whom moved round and ravaged one bank after the other. The deterioration in the quality of banks’ risk assets took its toll on the health of the industry as the outcome of the rating of all licensed banks by the Central Bank of Nigeria using the CAMEL parameters has shown. The result of that exercise, which is reproduced in table 4 below, has shown glaringly that the performance of banks in the country has deteriorated since 2001.
Table 4: Rating of Banks Using the CAMEL Parameters, 2001 – 2004
Source: Central Bank of Nigeria, Annual Report and Statement of Accounts, 2004
From the table above, it can be seen that the banks adjudged to be sound was consistently less than 15% of the total number for the four-year period. In addition, those whose performance was considered satisfactory represented as high as 70% of the total in 2001. By 2004, however, this group represented only 58.6% of the total number of banks covered by the exercise. Apart from poor quality assets, other factors responsible for this state of affairs include under-capitalisation, weak corporate governance practices, and the challenges of ethics and professionalism. It is these factors that the on-going reform agenda seeks to address with a view to totally overhauling the system. These issues are examined in more details in the next section.
BIBLIOGRAPHY
Central Bank of Nigeria, Annual Report and Statement of Accounts, (various issues.)
Nigeria Deposit Insurance Corporation, Annual Report and Statement of Accounts, (various issued)
Mckinnon, R. I. (1973), Money and Capital in Economic Development Washington, D.C.: The Brookings Institution.
Oboh, G. A. T. (2005), Selected Essays On Contemporary Issues In The Nigerian Banking System. Ibadan: University Press Plc.
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