CHAPTER ONE
1.0 INTRODUCTION
A central bank in any country is the apex of banking institution. Central bank is the only financial institution established and charged with responsibility of co-ordination and supervision of banking and financial activities as well as monetary affairs of a country.
A central bank, reserve bank, or monetary authority is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system of their respective countries. In contrast to a commercial bank, a central bank possesses a monopoly on increasing the monetary base in the state, and usually also prints the national currency, which usually serves as the state’s legal tender. The primary function of a central bank is to control the nation’s money supply (monetary policy), through active duties such as managing interest rates, setting the reserve requirement, and acting as a lender of last resort to the banking sector during times of bank insolvency or financial crisis.
Central banks usually also have supervisory powers, intended to prevent bank runs and to reduce the risk that commercial banks and other financial institutions engage in reckless or fraudulent behavior. Central banks in most developed nations are institutionally designed to be independent from political interference. Still, limited control by the executive and legislative bodies usually exists.
The period 1892-1952, there was an enquiry by the colonial administration to investigate banking practice in Nigeria the G. D Paton report which emanated from the enquiry was the basis for the first banking ordinance of 1952, this designated to the establishment of (C.B.N) and was presented to the House of Representatives in March, 1958, The act was fully implemented on lst July, 1959 when the (C.B.N) came fully into operation.. The central bank act 1958 (as amended) and the banking degree 1969 (as amended) constituted the Legal frame work within which the (C.B.N) operates and regulates banks the wide range of economic liberalization and deregulation measures following the adoption, in 1986 of a Structural Adjustment Program (SAP) resulted in the emergence of more banks and other financial institution (BOFIA) degree 24 and 25 of 1991, which repeated the banking degree 1969 and ail it’s amendments, were therefore enacted to streamer and extend the powers of (C.B.N) to cover new institution in order to supervision of banks as well as non banking financial institutions. Unfortunately in 1997, the Federal Government of Nigeria enacted the (C.B.N) (Amendment Decree No.3 and Bofia) (Amended) Decree No.4 in 1997, to remove completely the limited which the enjoyed since 1991. During colonial era most of African countries colonialized by British such as Nigeria, Ghana, sierra loan etc. had received financial instructions, directives as well as issuance of currencies from west African Currency Board (WACB).
The Central Bank of Nigeria was established by the CBN Act of 1958 and commenced operations on July 1, 1959.
The major regulatory objectives of the bank as stated in the CBN Act are to: maintain the external reserves of the country, promote monetary stability and a sound financial environment, and to act as a banker of last resort and financial adviser to the federal government. The central bank’s role as lender of last resort and adviser to the federal government has sometimes pushed it into murky regulatory waters. After the end of imperial rule the desire of the government to become pro-active in the development of the economy became visible especially after the end of the Nigerian civil war, the bank followed the government’s desire and took a determined effort to supplement any short falls in credit allocations to the real sector. The bank soon became involved in lending directly to consumers, contravening its original intention to work through commercial banks in activities involving consumer lending. However, the policy was an offspring of the indigenisation policy at the time. Nevertheless, the government through the central bank has been actively involved in building the nation’s money and equity centers, forming securities regulatory board and introducing treasury instruments into the capital market.
1.1 HISTORICAL BACKGROUND OF UNION BANK NIGERIA PLC, (UBN)
The bank was founded in 1917 as Colonial Bank. In 1925, Barclays Bank acquired Colonial Bank, changing the bank’s name to Barclays Bank (Dominion, Colonial and Overseas) or Barclays Bank (DCO). In 1969, Barclays Bank DCO was incorporated in Nigeria, as Barclays Bank of Nigeria Limited, to comply with new banking laws enacted in 1968.
In 1971, the shares of the bank stock were listed on the Nigerian Stock Exchange. In the same year, 8.33% of the bank’s shares were offered to Nigerians. The following year, the Federal Government of Nigeria acquired 51.67% ownership of the bank, leaving Barclays Bank Plc. of London with 40% ownership. In 1979, that 40% was sold to Nigerian individuals and businesses to comply with then recently enacted banking and investment laws. The bank changed its name to Union Bank of Nigeria Plc,to reflect its new ownership structure.
In 1993, the Federal Government of Nigeria completely divested its ownership in the bank. Subsequently, Union Bank of Nigeria Plc. acquired the formeeUniversal Trust Bank Plc and Broad Bank Limited. It also absorbed its former subsidiary Union Merchant Bank Limited.
Union Bank is a large commercial bank, serving individuals, small and medium-sized companies, as well as large corporations and organizations. In July 2009, it was rated the 556th largest bank in the world and the 14th largest bank in Africa. As of June 2012, the bank’s asset base was estimated at US$6.784 billion (NGN:1,049 trillion). The shareholders’ equity at that time was estimated at US$1.22 billion (NGN:188.4 billion).
Union Bank of Nigeria’s rich history can be traced to 1917 when it was first established as Colonial Bank. In 1925 the bank became known as Barclays Bank DCO (Dominion, Colonial and Overseas) resulting from its acquisition by Barclays Bank. Following Nigeria’s independence and the enactment of the Companies Act of 1968, the bank was incorporated as Barclays Bank of Nigeria Limited (BBNL, est. 1969).
Between 1971 and 1979, the bank went through a series of changes including its listing on the NSE and share acquisitions/transfers driven by the Nigerian Enterprises Promotion Acts (1972 and 1977); this resulted in its evolution into a new wholly Nigerian-owned entity. To reflect the new ownership structure, and in compliance with the Companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc. (UBN “the Bank” or “Union Bank”).
In 1993, in line with its privatisation/commercialisation drive, the Federal Government divested by selling its controlling shares (51.67%) to private investors. Thus, Union Bank became fully owned by Nigerian citizens and organizations all within the private sector. During the Central Bank of Nigeria’s (CBN) banking sector consolidation policy, Union Bank of Nigeria Plc acquired the former Universal Trust Bank Plc and Broad Bank Ltd. and absorbed its one-time subsidiary, Union Merchant Bank Ltd.
Following the banking crisis in 2009 and the intervention of the CBN via Asset Management Company of Nigeria (AMCON), the bank was recapitalized in 2012 with an injection of $500 million by Union Global Partners Limited (UGPL), a consortium of local and international investors. UGPL acquired 65% of the bank’s shareholding and in the last quarter of 2014, AMCON’s remaining 20% stake in the bank was acquired by Atlas Mara. UGPL comprises:
v Africa Capital Alliance
v ADC African Development Corporation
v Corsair Capital
v FMO (the Netherlands Development Finance Company)
v Chandler Corporation
v Standard Chartered Private Equity
In compliance with CBN’s Regulation 3, UBN is divesting of all non-core banking subsidiaries, which aligns with our core banking business model. Union Bank, United Kingdom (UBUK) will remain the only subsidiary of the bank.
1.2 OBJECTIVE OF THE STUDY
The main objective of the study is to create awareness about the centra1 bank of Nigeria controls the activities of commercial banks in the Nigeria. Other specific objectives of the study are:
Ø To identify the roles of central bank in developing Nigerian’s economy.
Ø It also assists people to know that central bank is the only authority, authorized by law to issue currency in the Nigeria.
Ø It also help in educating people to understand that the central bank is the only highest financial institution in the country,
Ø It also creates awareness to the people about the various tools or instruments used by the central bank in controlling the activities of commercial banks in Nigeria.
Ø To let Nigerians to aware that central bank is serving as a financial adviser to the Federal Government of Nigeria.
Ø So also helps to let people know that central bank can use commercial bank and other financial institutions in the country to control the volume of money in circulation in Nigeria.
Ø It also create awareness to the community in understanding that central as apex financial institution in Nigeria is a non- profit making organization.
1.3 SIGNIFICANCE OF THE STUDY
It is well known fact that all commercial banks are under supervision and control of central bank. This research work is significant because it will bring a clearer meaning of important instruments use by the central bank in controlling the activities of commercial banks. The study will aim at educating general public to know how money is controlled in circulation so also if can be a beneficial to students who can use this research work to get relevant information concerning the topic.
1.4 STATEMENT OF HYPOTHESES
For the purpose of resolving the research problems and questions articulated above, the following hypotheses were formulated and tested in the course of this study;
H0: CBN have not performed their roles in line with the enabling Acts establishing them.
H1: CBN have performed their roles in line with the enabling Acts establishing them.
H0: CBN structures have no positive relationship with how well they perform their functions.
H1: CBN structures have positive relationship with how well they perform their functions.
H0: Regulatory Acts of CBN have not assisted to protect the depositors against losses of fund.
H1: Regulatory Acts of CBN and BOFIA have assisted to protect the depositors against losses of fund.
1.5 RESEARCH HYPOTHESES
The following two (2) hypotheses would be tested in the course of the study.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this research work will pay a serious attention on the highest financial institution in the country which is central bank of Nigeria (C.B.N). This project intends to look at the various significance tool or instrument used by the central bank. While the limitation of the study is that behind every project there must to be at least an atom of the problem thought their little problems concentrated during the research work but with aids of extra effort possible solutions come up. The sources of data collection were into folds, primary and secondary data. Opportunities were given to have access to document and extract information required from various departments at the central bank of Nigeria branch office to conduct interview and questions, A part of cost of survey another constraints is the data collection through text books, bulletins. Journals, newspapers and other documented materials.
Consequently, due to resources constraints and the time frame allowed for the completion of the study, the scope of the study would have to be limited in terms of school’s programmers and course of studied.
1.7 DEFINITION OF THE KEY TERMS
CENTRAL BANK: This refers to the only monitory authority or apex financial institution within the entirely financial structure of a country promoting monetary stability and a sound system. A bank that provides financial and banking service for the government of a country and its commercial banking system as well as implementing the government’s monetary policy.
A central bank, or monetary authority, is a monopolized and often nationalized institution given privileged control over the production and distribution of money and credit. In modern economies, the central bank is responsible for the formulation of monetary policy and the regulation of member banks.
The central bank of the United States is the Federal Reserve System, or “the Fed,” which Congress established with the 1913 Federal Reserve Act.
COMMERCIAL BANK: Is a joint stock company engaged in the banking business to receive all kinds of deposits and make loans a general short-term nature, such as short-term loans are usually required by business to meet their working capital required. A privately owned bank that provides a wide range of financial services both to the general public and to firms. The principal activities are operating cheque current accounts, receiving faking in and paying out notes and making loans.
A commercial bank is a financial institution that provides various financial service, such as accepting deposits and issuing loans. Commercial bank customers can take advantage of a range of investment products that commercial banks offer like savings accounts and certificates of deposit. The loans a commercial bank issues can vary from business loans and auto loans to mortgages.
“Commercial bank” can also refer to a bank, or a division of a large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business – retail banking, or merchant banks.
POLICY: Is the process or rules and, regulation by monetary authority of a country adopts in order to control the supply of money in circulation often targeting a rate of the purpose of promoting economic growth and stability. The use of central bank of a country by it’s government to control the money supply.
WEST AFRICAN CURRENCY BOARD (WACB): this refers to the body that regulates the financial activities of some of the West African countries before independent such as Nigeria, Ghana, etc. the board which had its headquarters in London was the apex of monetary policy of those countries during colonial regime. A currency board is a monetary authority which is required to maintain a fixed exchange rate with a foreign currency. This policy objective requires the conventional objectives of a central bank to be subordinated to the exchange rate target.