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 Mobilized by Banks in Nigeria, 1990 – 2004
Year Amount
Mobilized (N billion) Growth Rate
(%)
1990 43.87
- 1991 59.48
35.6
1992 87.74 47.5
1993 143.85 64.0
1994 166.13 15.5
1995 196.82 18.47
1996 239.28 21.57
1997 295.16 23.35
1998 349.31 18.3
1999 569.81 63.0
2000 838.6 47.2
2001 1,017.2 21.3
2002 1,226.6 20.6
2003 1,415.8 15.4
2004 1,661.5 17.4
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
Yr
Aggregate Banks’ credit(Net) Growth rate(%)
Net Domestic(Cr) Target Actual (%)
1990 42.58 13.5 17.1
1991 49.41 16 10.6
45.3
1992 59.25 19.9 13.2 69.1
1993 125.75 112.2 17.5 91.4
1994 162.83 29.5 9.4 29.2
1995 194.05 19.2 11.3 7.4
1996 266.44 37.3 12.0 23.4
1997 302.31 13.5 24.8 2.8
1998 378.08 25.1 24.5 46.8
1999 608.44 60.1 18.3 30.0
2000 807.01 32.6 27.8 25.3
2001 1,033.64 28.1 15.8 79.9
2002 1,302.2 26.0 57.9
64.6
2003 1,591.2 22.2 25.7 29.1
2004 2,078.1 30.6 24.5 12.0
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
Year Ratio of
non-Performing, Credit to total Credit (%), Ratio of non-Performing Credit to
Shareholders’ Funds (%)
1990 44.10 344.00
1991 39.00 222.00
1992 45.00 299.00
1993 41.00 380.86
1994 43.00 567.70
1995 32.90 496.00
1996 33.90 419.80
1997 25.81 253.09
1998 19.35 89.20
1999 -
-
2000 21.5 92.2
2001 16.9 77.1
2002 21.3 85.9
2003 21.6 89.7
2004 23.08 105.3
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
2001 2002 2003
2004
Category No. of Banks,
% of Total No. of Banks, % of Total No. of Banks, % of Total
No. of Banks, %
of Total:
Sound 10 11.1 13
14.4 11 12.6 10 11.5
Satisfactory 63
70.0 54 60.1 53 60.9 51 58.6
Marginal 8 8.9
13 14.4 14 16.1 16 18.4
Unsound 9 10.0
10 11.1 9 10.4 10 11.5
Total 90 100.0
90 100.0 87 100.0 87 100.0
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-capitalization,
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.
This articles was written and edited in 2013