In 1892, Nigeria's first bank, the African Banking Corp., was established, patterned along British lines. Before World War II, two large British banks, the Bank of British West Africa and Barclays Bank, virtually monopolized Nigerian banking. After 1945, a number of African-owned banks entered the field; between 1946 and 1952, however, more than 20 such banks failed. The bank of issue became the Central Bank of Nigeria (CBN) in 1958. It regulated most commercial banking operations in Nigeria, but the federal Ministry of Finance retained control of most international activities of the financial sector. The Nigerian Industrial Development Bank (NIDB) was established in 1964 to provides long-and medium-term financing to concerns in the industrial nonpetroleum, mining, and tourist sectors.
The 1969 Banking Decree required that all banking institutions be incorporated in Nigeria, and a 1976 law gave the government 60% ownership of all foreign banks. The Banking Decree also established minimum capital requirements for licensed banks, based on the total deposits. Important additional sources of credit were provided by thrift and loan societies and by the branches of the National Development Corporation. The National Bank for Commerce and Industry helped finance smaller enterprises. Merchant banking expanded rapidly from 1973 onward, when the Union Dominican Trust Company began operations.
With the adoption of the Structural Adjustment Program (SAP) in 1986, the licensing of new banks was liberalized. In July 1990 the state banks were privatized. Beginning in 1990 the country allowed the establishment of foreign banks, but sixty percent of the foreign banks that were established in Nigeria had to be held by Nigerian interests. In the same year the government began a program to establish 500 community banks. From 1985 to 1993, the number of banks rose from 40 to 120, but declined to 89 in 1998.
While there are over 100 banks in Nigeria, the main banks in 2002 included the Afribank, Universal Trust Bank, FSB International Bank, Diamond Bank Limited, United Bank for Africa (with Banque Nationale de Paris and Bankers Trust shareholdings), Union Bank of Nigeria, and First Bank of Nigeria (partly owned by Standard Chartered), Nigeria International Bank Limited. All but the last bank on the list were charged in 1996 with import duty and excise collection. Twenty-seven ailing banks were liquidated by the government in 1997, while others merged. The International Monetary Fund reports that in 2001, currency and demand deposits—an aggregate commonly known as M1—were equal to $7.3 billion. In that same year, M2—an aggregate equal to M1 plus savings deposits, small time deposits, and money market mutual funds—was $11.8 billion. The money market rate, the rate at which financial institutions lend to one another in the short term, was 20.5%.
The Nigerian (formerly Lagos) Stock Exchange (NSE) began operations on 1 July 1961, following passage of the Lagos Stock Exchange Act; the government promulgated regulations for the exchange and provided that all dealings in stock be carried out only by members of the exchange. The Securities and Exchange Commission (SEC) fixed prices of all new securities, and regulated the prices of those already being traded. Transactions of 50,000 shares or more were subject to SEC approval. The government encouraged public issues of shares by Nigerian companies in an effort to mobilize local capital for the country's development. The exchange, in Lagos, with branches in Kaduna and Port Harcourt, dealt in government stocks and in shares of public companies registered in Nigeria. After the provision of new investment incentives under the Nigerian Enterprises Promotion Decree of April 1974, activity on the stock exchange increased.
In a bid to encourage foreign interest in the NSE, a computerized central securities clearing system (CSCS) was installed on 14 April 1997, although it got off to a quiet start. The custodian bank for the system was Nigeria International Bank/Citibank. The benefit of the system was that trades would be settled within one week and eventually within two days, compared with the long delays hitherto experienced in effecting share transfers after purchases and sales. On 21 April 1997, a CBN directive lifted the restrictions on equity ownership of individual and corporate investors in Nigerian banks. Under this legislation, it was possible for an individual or another corporation to own up to a 100% share in a bank. Prior to the directive, the maximum shareholding for an individual was just 10%, while for companies it was 30%.
Market capitalization of the Nigerian Stock Exchange was $5.4 billion in 2001, up 27.5% from the previous year. The NSE All Share Index was up 35% in 2001, at 10,963.1