1.0. INTRODUCTION
You are warmly welcome to your first Note of learning in this
course-Principles of
Banking. You have read the course guide and have known what to
expect in this course.
Therefore, for this first note we shall commence with the concept
of Banking and refresh
your memory on the definitions and meaning of banking. We shall
also look at the origin
and growth of banks the world over and particularly, briefly
consider the growth of banks
in our country-Nigeria. Meanwhile, before you continue, let us
look at the objectives of
this note.
2.0. OBJECTIVES
At the end of this note, you should be able to:
· Explain the concept of banking
· Define a bank
· Trace the origin of banking
· Explain the growth of Banking in Nigeria
3.0. EVOLUTION, ORIGIN AND GROWTH OF BANKS
3.1. The Concept of Banking
Today, the term, bank, means different things to different people
in different
economies. In order to reconcile the divergent views on the
meaning and characteristics
of banks, the banking laws in each economy provides operational
definition and
functional classification which governs banking practices in the
economy. In practical
terms, a bank means what the operating banking law in an economy
defines as a bank
To many people, a bank refers to an institution which accepts
deposits from the
public and in turn advances loans by creating credit. It is
different from other financial
institutions in that they cannot create credit though they may be
accepting deposits and
making advances. Economists on their part have defined a bank in
various capacities,
some emphasizing its various functions.
However, a bank has been defined broadly as any financial
institution that
accepts, collects, transfers, pays, exchanges, lends, invests, or
safe- guards money for its
customers. This broader definition includes many other financial
institutions that are not
usually thought of as banks but which nevertheless provide one or
more of these broadly
defined banking services. Summarizing these definitions a bank is
simply an institution
which accepts deposits from the public and in turns advances loans
by creating credit.
3.2. Origin of Banking
The word “bank” is used in the sense of a commercial bank. It is
of Germanic
origin though some people trace its origin to the French word
“Banqui” and the Italian
word “Banca”. It referred to a bench for keeping, lending and
exchanging of money or
coins in the market place by money lenders and money exchangers.
There was no such
word as “banking” before 1640, although the practice of
safe-keeping and savings
flourished in the temple Babylon as early as 2000B.C.
Many of today’s banking services were first practiced in ancient
Lydia, Phoenicia,
China, and Greece, where trade and commerce, flourished. The 200BC
temples in
Babylonia made loans from their treasuries as early as. The In
Greece also, some
elements of banking activities took place which the temples of
ancient Greece served as
safe deposit vaults for the valuables of worshippers. The Greeks
also coined money and
developed a system of credit. On the other hand, the Roman Empire
had highly
developed banking system, and its bankers accepted deposits of
money, made loans, and
purchased mortgages.
3.3. Growth of Banks
Shortly after the fall of Rome in AD 476, banking decline in
Europe. The increase
of trade in 13th century in Italy prompted the revival of
banking. The money exchangers
of the Italian states developed facilities for exchanging local
and foreign currency. Soon
merchants demanded other services, such as lending money, and
gradually bank services
were expanded. The first bank called the “Bank of Venice” was
established in Venice,
Italy in 1157 to finance the monarch in his war. The bankers of
Lombardy were famous
in England. But modern banking began with English gold smiths only
after 1640.
3.3.1. Growth of Banks in Nigeria
In Nigeria, commercial banking pre - dates central banking and
laid the
foundation of the Nigerian financial system as far back as the
late nineteenth century. The
first commercial bank in Nigeria was the African Banking
Corporation which opened its
first branch in Lagos in 1892. The bank experienced some initial
difficulties and
eventually decided to transfer its interest to Elder Dempster and
Co. in 1893. This led to
the formation of a new bank known as the British Bank of West
Africa (BBWA) in 1893
which is today known as the First Bank Nigeria PLC. Another bank
known as the Bar
Clays Bank DCO (Dominion, Colonial and overseas) opened its first
branch in Lagos in
1917. This bank is known today in Nigeria as the Union Bank
Nigeria Plc. British and
French Bank, now called Noteed Bank for Africa Plc was established
in 1949 making it
the third expatriate bank to dominate early Nigeria’s commercial
banking. The foreign
banks came principally to render services in connection with
international trade, so their
relations at that time were chiefly with the expatriate companies
and with the
government. They largely ignored the development of local African
entrepreneurship.
These three banks controlled almost about 90% of the aggregate
bank deposits as at then.
From 1914 to the early part of 1930s, several abortive attempts
were made to establish
locally owned and managed banks to break the foreign monopoly.
This was as a result of
the weakness of those indigenous banks in such areas as
capitalization and management;
and given the total absence of regulation by any government
agency, the indigenous
banks could not survive the hostile and unfair competition possed
by the foreign banks. It
was therefore not surprising that by 1954, a total of 21 out of 25
indigenous banks had
failed and went into self – liquidation.
In a nutshell, historically, the Nigerian banking industry had
evolved in four
stages. The first stage can be best described as the unguided
laisses – faire phase
(1930-59), during which several poorly capitalized and
unsupervised indigenous banks
failed before their tenth anniversary. The second stage was the
controlled regime
(1960-1985), during which the Central Bank of Nigeria (CBN)
ensured that only “fit and
proper” persons were granted banking license, subject to a minimum
paid – up capital.
The third stage was the post Structural Adjustment Programme (SAP)
or decontrolled
regime (1986-2004), during which the Neo – liberal philosophy of
“free entry” was over
stretched and political authorities on the bases of patronage
dispensed banking licenses.
The emerging fourth stage is the era of consolidation (2004-to a
foreseeable future), with
major emphasis on recapitalization and proactive regulation based
on prudential
principles.
In the area of Central Banking, the West African Currency Board
(WACB)
carried out banking operations in the former British colonies in
West Africa before
independence. The problems of the WACB led to the establishment of
Central Banks in
these colonies. In Ghana, it came into being in 1957, in Nigeria
1959, SierreLeon in
1964, and in the Gambia 1964. The Central Bank of Nigeria (CBN)
was established by
the Central Bank Act of 1958. It was to replace the West African
Currency Board
(WACB) of the colonial government as part of the preparation for
independent Nigeria.
4.0. CONCLUSION
The above analyses show that banking business is an old business
which started some centuries
ago and has continues to grow over time. The growth and
development of banking activities in
the countries of the world differ from country to country
depending on the level of economic and
technological development of each country.
5.0. SUMMARY
In this note, you have learned about the evolution, origin and
growth of banks. The note has also
explained the concept of banking and has also thrown light on the
growth and development of
banks in the Nigerian economy.
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