if you want to know about banking and banks in Nigeria, then you have come to the right place as we are going to be explaining everything you need to know about the banking sector in Nigeria and also all the types of banks in Nigeria.
READ ALSO: List Of Top Best Commercial Banks In Nigeria
The article is going to clarify you on the functions of the types of banks we will be discussing in this article and without further ado, let’s proceed with the article.
What is a Bank?
A bank is said to be a financial institution that is authorized to accept deposit, grant loans or credit, act as intermediary in financial transactions, save valuables, clear cheques and provide some other financial services to its customers.
If you look from our definition, you will see that we clearly stated that banks are financial institutions and these financial institutions are further divided into banking institution and non-banking institutions.
The banking institution involves all the types of bank we will be talking about in this article while the non-banking institutions are the insurance companies.
Brief History Of Banking
Before we proceed with our article, we would like to take you through the history of banking and how the world came about banking.
This can be traced back to the goldsmiths in London in the 17th century. They were in charge of keeping valuables because they have a strong room where they stored these valuables.
They also accepted cash from merchants who had no place to keep their money and these goldsmiths collected accepted the cash deposits from the merchants and stored them.
They further went ahead to give receipt to the merchants who deposited money with them and these merchants started using this deposit as a means of payment.
The goldsmith used the cash and valuables deposited with them to carry out business activities and to encourage merchants to keep their money and valuables with them, they started giving interest to merchants who deposited money and valuables with them and this was how the modern banks came into existence.
Types Of Banks In Nigeria
We will be looking at the major banks in Nigeria and they are:
- Central bank
- Commercial banks
- Mortgage banks
- Merchant banks
- Development banks
- Savings bank
- Microfinance banks
Let’s explain them one by one…
Central Bank Of Nigeria
This is the apex financial institution in the country and it carries out monetary policy of the government. It was established in 1958 and commenced operations in July, 1959.
This bank has the sole authority over all the banks in Nigeria and they are also in charge of managing the Nigerian Currency and supervising the activities of all the banks in the country.
The central bank is not profit oriented and there is only one central bank in the country.
The bank is owned by the government and there are no transactions with private individuals.
Functions of the central bank of Nigeria
- It serves as the government bank
- It serves as the bankers’ bank
- It serves as the lender of the last resort
- It helps to manage the national debt of the country
- It helps to hold the foreign reserve of the country and also enforce foreign exchange control
- It controls the commercial banks in Nigeria through systems like the Open Market Operation (OMO), special deposit, Moral persuasion and liquidity ration or cash ratio.
- It helps the government in borrowing money from international bodies like International Monetary Fund (IMF) and World Bank.
These banks are very popular in Nigeria and when people are asked to list types of bank, they begin to mention the commercial banks.
These banks are in charge of accepting deposit, storing valuables, acting as intermediary in business transactions and granting loans with the main aim of making profit.
They deal with private individuals, firms and government as they are a limited liability company.
They are owned by private individuals, group of individuals and even organizations.
Examples of commercial banks in Nigeria are United Bank of Africa, Zenith Bank, First Bank of Nigeria etc.
Functions of commercial banks in Nigeria
- They accept deposits
- They serve as agent of payment
- They accept and keep valuables
- They help in Foreign exchange transactions
- They provide financial advice to their customers
- They lend money to people
Mortgage Banks In Nigeria
These types of banks were established to help coordinate and oversee the housing policy and land development in the country.
This bank grant loans to individuals and corporate bodes to help them build houses and these loans given by the Mortgage banks can be repaid by installments and can be spread over years.
The Mortgage banks were established to encourage people to save money in order to own their houses.
The federal Mortgage Bank is the apex in all other mortgage banks in Nigeria.
Functions of Mortgage banks
- They accept deposit from customers in order to encourage them to save to own their houses.
- They give specialist advice on housing matters
- They provide houses by building and offering them to people for sale
- They provide long-term loans to people or estate developers to build houses.
They are not really as popular as the commercial banks and they are usually referred to as acceptance houses. They are important in every country.
The first merchant bank in Nigeria was the Nigerian Acceptance Limited (NAL) that was established in 1966. There are some other merchant banks in Nigeria like the Nova Merchant Bank and Coronation Merchant Bank.
They are one of the banks in Nigeria that have special functions.
Functions of the Merchant banks
- They accept and discount bills of exchange
- They issue new shares
- They can be used as trust management
- They provide medium and long term loans
- They issue loans for foreign trade transactions
These banks are known to provide long-term loans for capital projects either by private individuals, firms or governments.
They do well to encourage businesses especially in agriculture, commerce and industry and they do not accept deposits from private individuals.
They get their funds from international financial institutions like IMF, World Bank and also African Development Bank.
Functions of Development Banks
- They provide financial development by providing medium and long term loans
- They embark on studies that will help them know the kind of projects that the society needs
- They stimulate the growth of private sectors of the economy
- They underwrite security issues
- They help to execute government policies on industrial, agricultural and commercial development
- They provide special advice to industrialists on how best to invest.
This bank encourages people to save. The money owned by customers of a savings bank is often invested in business to generate more money. Although majority of the commercial banks in Nigeria have savings account that encourages their customers to develop saving habit.
Functions of savings bank
- They promote thrift more than any other financial institution
- They gather the capital of the community, conserve the idle wealth and other funds and lend it to business enterprises.
This bank can also be called microcredit and they provide financial services to unemployed and low-income earners.
This financial institution helps people to become self-sufficient as they provide low-income earner who have limited financial resources with funds to meet up with their needs.
This bank allows these individuals to take loans and they charge interest on the loans with specific repayment plans which can be weekly or monthly.
Examples of microfinance banks in Nigeria are: Acorn Microfinance Bank Limited, ABC microfinance bank etc.
Functions of microfinance banks
- It gives people access to loans
- It allows people to be able to meet up with their needs
- It encourages people to save
- It creates possibility for future investments
These are the types of banks operating in Nigeria and you can see that these banks do not offer the same services but one thing they have in common is that they all deal with money. This is what makes them a bank or financial institution.
So since you have known the types of banks in Nigeria, you can go ahead to choose the one that suit your needs better.