Evolution of Banking legislation in Nigeria

History and Evolution of Banking Legislation in Nigeria – Victor Odii

History and Evolution of Banking Legislation in Nigeria


Modern banking practices, as we know it today, is a concept totally alien to the precolonial Nigeria. Apparently, the evolution of banking system in Nigeria, through West Africa, owes its existence wholly to the advent of the Europeans and colonialism in the 19th century.

Prior to 1880, trade were conducted through wide varieties of exchange medium, including the barter system. However, in order to curb some prevalent unsound practices, the then British Government placed a regulation to demonetize certain coins and recognized the British gold and silver coins as the only legal tender.

In 1891, the African Banking Corporation (ABC) became the first recognized bank to be established in Nigeria, under the Joint Stock Companies Act of 1862 and 1867. Unfortunately, the bank was closed down in 1893 and the Bank of British West Africa emerged the following year. In 1916, the monopoly power of the Bank of British West Africa was broken by the establishment of the Colonial Bank, authorized by the Act of Parliament.

The following decades witnessed the eruption of various banks, both foreign and indigenous in the Nigerian colony. This saw to the existence of over 89 banks in Nigeria, most of which had poor capitalization. As a result, the Central Bank of Nigeria ordered the consolidation of banks through the shoring up of the capital ratios.

Evolution of Banking Legislation

The first attempt towards the enactment of a legal framework for the banking sector in Nigeria, is traced down to 1892–1952. During this period, the Colonial Government constituted an enquiry, with the aim to investigate banking practices in Nigeria. The government adopted the report by G. D. Patron, which formed the basis of the first Banking Ordinance of 1952.

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The ordinance was designs to regulate commercial banks and prevent the establishment of unviable banks. Also, the Central Bank Act was enacted in 1958 by the House of Representative, and on 1 July 1959, the Central Bank of Nigeria came into full operation. Subsequent legislations are as follows:

Central Bank Act, 1958

The powers of the Central Bank of Nigeria were defined in the Cenal Bank Act, 1958 (as amended) and the Banking Decree 1969 (as amended), which also authorized it to regulate banks. The adoption of these legislations became responsible for the emergence of more banks and financial institutions due to the adoption of Structural Adjustment Program (SAP), in 1986, due to its liberal economic policies.

In 1991, the Banks and Other Financial Institutions (BOFI) Decrees 24 and 25, were enacted to strengthen and extend the powers of CBN to cover the new institutions in order to enhance the effectiveness of the monetary policy, regulation and supervision of banks as well as non-banking financial institutions. This repealed the Banking Decree of 1969.

However, in 1997, the Federal Government of Nigeria enacted the CBN (Amendment Decree No. 3 and BOFI (Amended) Decree No. 4, which completely removed the limited autonomy that the Central Bank enjoyed since 1991.

The Amendments of Central Bank Acts (1997–2007)

The 1997 CBN Amendment Decree brought the CBN back under the supervision of the Ministry of Finance. It made CBN supervision and control of other banks and financial institutions were subject to the Minister of Finance directly, while extending the supervisory role of the bank to other specialised Banks and Financial Institutions. The amendment placed enormous powers on the Ministry of Finance while leaving the CBN with a subjugated role in the monitoring of the financial institutions with little room for the Bank to exercise discretionary powers.

In 1998, the CBN (Amendment) Decree No. 37, repealed the CBN (Amended) Decree No. 3 of 1997. The Decree provided a measure of operational autonomy for the CBN to carry out its traditional functions and enhances its versatility.

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The extant legal framework regulating CBN operations is the CBN Act of 2007 which repealed the CBN Act of 1991 and all its amendments. The Act made CBN a fully autonomous body in the discharge of its functions under the Act and the Banks and Other Financial Institutions Act, with the objective of promoting stability and continuity in economic management. Also, the Act widened the objects of the CBN to include ensuring monetary and price stability as well as rendering economic advice to the Federal Government.

The BOFI Amendments (1997–2020)

In 1998, the regulatory powers of the CBN were strengthened by the promulgation of the Banks and other Financial Institutions (Amendment) Decree No. 38, which repealed BOFI (Amendments) Decree No. 4 of 1997. It empowered the CBN to vary or revoke any condition subject to which a license was granted or may impose fresh or additional conditions to the granting of a license to transact banking business in the country.

By the Decree, the CBN’s powers on banks, specifically those relating to the withdrawal of licenses of distressed banks and appointment of liquidators of these banks, including the Nigeria Deposit Insurance Corporation (NDIC) was restored. The NDIC is responsible for insuring all deposit liabilities of licensed commercial banks and providing assistance to insured institutions in the interest of depositors in cases of financial difficulty.

The BOFI (Amendment) Decree No. 40 of 1999, recognized the financial shortcomings of some banks, which empowers the Governor of the CBN to remove any manager or officer of a failing bank or other financial institution.  

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Presently, the BOFI Act of 2020 is the principal legislation that sets out the regulatory framework for banking activities in Nigeria. It empowers the CBN to regulate and supervise other Nigerian banks, including the issuance and revocation of banking licences, the opening and closing of bank branches and the restructuring and reorganisation of banks, as well as the operation of foreign banks in Nigeria. Under Nigerian law, no entity shall undertake any banking business in Nigeria unless it is duly incorporated in Nigeria and holds a banking licence issued by the CBN.

Other Legislations

The CBN has also taken responsibility for nurturing the money and capital markets. In furtherance of this, the CBN introduced treasury bills in 1960, treasury certificate in 1968, and facilitated the establishment of the Lagos Stock Exchange in 1961 and the Capital Issue Committee now known as the Securities & Exchange Committee in the early 1970s.

Other legislations includes: the Corporate Affairs Commission, which is responsible for the incorporation of all corporate entities in Nigeria, including banks and other financial institutions; and the Financial Reporting Council of Nigeria, responsible for developing and enforcing compliance with accounting, auditing, corporate governance and financial reporting standards by public interest entities, including banks and other financial institutions.

About Author

Victor Odii is a law student at the University of Nigeria, Enugu Campus. With the advancement of technology and digitisation, he has demonstrated enthusiasm in the area of digital rights protection as well as campaigns for robust incorporation of technology in the dispensation of court justice which promises more efficiency.

Odii Victor

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