ROLE OF CENTRAL BANK OF NIGERIA AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA
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ROLE OF CENTRAL BANK OF NIGERIA AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA
CHAPTER ONE: THE ROLE OF NIGERIA’S CENTRAL Bank AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA
1.1 INTRODUCTION
The function of international in the acceleration of any nation’s political and socioeconomic growth merits careful examination. The word international trade refers to trade conducted beyond national borders, often known as export and import.
It allows one country to have access to commodities that it could not produce on its own. As a result, a country can shift its industry to the products and services for which its resources are most suited, exporting its resources in exchange for those of other countries.
Currently, the export growth rate in Nigeria is displayed and accurately viewed as a key impediment to accelerated development, and in order to avoid this, robust export-oriented initiatives should be developed.
The import and export sectors of every economy must be nourished, protected, and promoted in order to increase their positive and relevant contributions to the economic system’s existence.
Banking institutions, in addition to government incentives, private and public firms, assistance, and specialised financial institutional support, play critical roles in financing international trade. As a result, it is vital to investigate the activities of merchant banks and the Nigerian Central Bank in financing international trade in Nigeria.
Every country’s banking system is centred on the central bank. It is the government’s representative in the financial industry and primarily serves as the government’s banker.
It serves as a banker and consultant to federal government banks, merchant banks, and other financial entities. It also has the exclusive right to issue legal tender currency in Nigeria and to accumulate external reserves in order to protect the currency’s international value, promote monetary stability, and ensure a sound financial framework.
In terms of international trade, the central bank decides what and how much to allow in areas where it can justify it, such as payment for visible and invisible imports and limitations on the inflow of foreign exchange gains from exports.
It processes exchange control applications and allocates foreign exchange to qualified applicants, as well as assists in the monitoring and formulation of policies aimed at maximising employment and conserving the country’s foreign exchange revenues.
Aside from the central bank’s restrictions in foreign trade, there are two other licenced banks that augment its rates. Commercial banks and merchant banks. Because of the nature of their operations, commercial banks are referred to as retail banks.
They have a large deposit base and operate through a network of branches across the country. That is, commercial banks accept deposits from all sources, not just a few (the deposits are commonly referred to as demand deposits).
The merchant banks, who are wholesale bankers in the sense that their deposits are frequently in very large blocks, are the second group of licenced banks. They operated from a few branches in the country’s commercial centres. They receive deposits from public and private cooperatives,
as well as affluent people, and its functions include medium and long-term finance and investment. Management, unit trust management, debt factory equipment leasing, and issuing and accepting bills of exchange are all examples of management.
In terms of international trade, merchant banks have earned a reputation for quick and efficient processing of international business transactions such as foreign exchange for companies engaged in importing and exporting capital goods.
Merchant banks also offer services such as remittance processing, documentary draught collection, and letters of credit. Based on the foregoing, the central bank and merchant banks are critical to international trade and, as such, demand careful examination.
2.2 a. INTERNATIONAL TRADE DEFINITION
International trade is the flow of commodities and services between countries so that one country can shift its industry to the items and services for which its resources are best suited, exporting its resources in return for other countries’ specialties.
b. THE CENTRAL BANK
It is defined by the responsibilities it performs, such as producing legal cash, maintaining foreign reserves, supervising other banks, fostering monetary stability, advising the government on financial problems, and maintaining a solid financial framework.
c. THE MERCHANT BANK
A merchant bank is any financial institution that engages in wholesale banking, medium and long-term financing, investment management, unit trust management, debt fractioning, equipment leasing, and bill of exchange issuing and acceptance.
1.3 OBJECTIVES OF THE STUDY
The goal of this research is to provide an overview of the activities of merchant banks and the central bank in Nigeria, particularly their responsibilities in financing foreign trade. Both banks’ responsibilities in international trade are complementary in the sense that one cannot function without the “acquit of the other.”
To summarise, one bank’s international trade financing efforts are supported by the other, thus the issue “the role of the Central Bank of Nigeria and merchant banks in financing international trade in Nigeria.”
Merchant banks are a relatively new addition to the country’s banking market. The general population is unaware of their operations.
As a result, the goal of this research is to highlight the responsibilities of central banks and merchant banks in international trade financing.
1.4 STATEMENT OF THE PROBLEM
International trade is the exchange of goods and services between nations around the world, and it occurs for two primary reasons. One of the reasons for this is that most countries find themselves in need of commodities that they cannot produce.
Another fundamental reason for international commerce is because countries differ in their efficiency in using national resources.
International trade has made significant contributions to the development of Nigeria’s infrastructure and human resources. International trade promotion necessitates the assistance and financial support of specialised financial institutions such as central banks and merchant banks.
The purpose of this study is to identify the responsibilities that these banks play in financing foreign commerce in Nigeria. These roles include:
i. Understanding their responsibilities in borrowing and lending.
II. Evaluating the degree of their financial investment in Nigerian trade financing.
III. Evaluate the performance of these institutions in order to determine the root reasons of the negative trade balance as far as possible.
IV. To learn how banks have been encouraged to fulfil their roles.
1.5 SIGNIFICANCE OF THE STUDY
The study’s significance may be recognised when considering that international trade exists as a backbone of our economic system, which is a subdivision of our national economy. It is a growth engine, a powerful strategy for global interdependence, and, of course, a tool for technological and economic emancipation.
Its goal is to identify the involvement of Nigeria’s central bank and merchant banks in foreign trade. The recognised roles are observed through recommendations to be made;
if these roles are not identified and encouraged, development and expansion of international trade will continue to escape Nigeria, which would invariably restore the nation’s development as a whole.
The duties of the central bank in this country are frequently misunderstood, and as a result, the central bank can become a focus of popular criticism, particularly during times of economic instability.
As a result, this study has been created to demonstrate the functions it plays in economic development. It should be emphasised that the central bank operated primarily in accordance with the terms of the 1958 Central Bank Act and its subsequent amendments.
Merchant banks follow rules that are relevant to our country’s economic development and public commitment. The purpose of this research is to uncover these positions and make recommendations.
The study is important for CEOs, policymakers, economists, merchants, and government organisations. The study focuses on the responsibilities that banks play and strategies for encouraging these functions.
1.6 SCOPE AND LIMITATIONS OF STUDY
This study will look at how the operations of the Nigerian central bank and merchant banks effect the financing of international trade in Nigeria, using CBN Enugu and Crown Merchant Bank Benin as case studies.
The inability of the research work to obtain all of the necessary resources relevant and suitable for this study is one of the study’s flaws.
For example, during an oral interview with Crown Merchant Bank officials, they maintained a high level of secrecy, limiting the scope of the information that the study waited to acquire.
They were concerned that disclosing such information might put it in the hands of their competitors. While the personnel of the CBN Enugu insisted and continued to issue generic information about the CBN as an entity.
Although efforts were made to justify the job, the problem of restricted time is more constraining. There was also a dearth of funds to travel these large distances, especially in this country with a weak and expensive transportation network. The investigation was also limited by an inadequate communication network.
1.7 HISTORICAL BACKGROUND DEVELOPMENT CONSTITUTION AND STRUCTURE OF NIGERIA’S CENTRAL BANK
CBN Enugu was founded on June 11, 1995, by the then-governor of Eastern Nigeria, His exchange Sir Francis Akanu Ibiam G.C.O.N K.C.M.G, and was later commissioned on April 12, 1973, by the then-administrator of the East Central state. Mr. Ukpabi Asika, Excellency.
According to additional information, its parent body was founded in 1958 by an Act of Parliament called as the Central Bank Act. A crude monetary system had already begun the process of changing the Nigerian economy from a barter economy many years before the creation of the.
However, the mediums of trade at the time were diverse and thus unsuitable for the operation of the contemporary monetary system. As a result, until the foundation of the West African Currency Board (WACB) and the introduction of a single currency system for West Africans in 1992,
Nigeria could not be considered to have a monetary system, at least in terms of orderliness. The formation of the West African Currency Board paved the path for Nigeria’s emerging modern financial system.
However, as designed, the WACB is hardly a monetary authority in terms of exercising discretionary power to restrict the expansion of credit and money supply in the economy.
As a result, the WACB has been described as only a positive moneychanger. This significant flaw of the WACB created the foundation for agitation in favour of the establishment of a central bank not only in Nigeria but also in other West African currency Board countries.
In April 1952, the initial steps were taken towards the establishment of a central bank in Nigeria. Then, in the then-house of representatives, a private members motion was introduced calling for the establishment of a central bank in Nigeria to execute essentially the functions commonly associated with central banks.
This was due to the colonial government’s belief that establishing a central bank in Nigeria at the time would be premature due to the relative underdevelopment of the local financial system.
The house, on the other hand, passed an amendment motion requesting that the government investigate and report back to it on the feasibility of establishing a central bank in Nigeria.
To that purpose, Mr. J.L. Finisher, an adviser to the Bank of England, was tasked with investigating this possibility. While the finisher’s report did not favour the immediate formation of a central bank in the country, it did recommend a three-step strategy that it hoped would eventually lead to the establishment of the CBN.
These actions are in charge of the relocation of the WASB headquarters from London to West Africa. This, it thought, would allow locals to become more closely affiliated with the board while also providing them with the opportunity to gain some experience from its operations.
The second phase in the fishers project was to establish a Nigeria currency to replace the CBN.
Furthermore, the programme provided for the construction of a bank of issuance, which would subsequently evolve into a central bank. However, none of these actions were taken, especially since the study itself did not suggest the rapid establishment of a Nigerian central bank.
A World Bank team to Nigeria a year after Fisher’s report studied the same issue and, while agreeing with Fisher that the establishment of a central bank in Nigeria was premature,
recommended for a speedy reform of the WASB to resolve several inconsistencies in its operation. It also advocated, like Fisher, for the establishment of a Nigerian state bank to take over currency issuance from the WACB.
What eventually led to the establishment of the final research on the subject by Mr. J.B. Loynes, who was also a bank of England adviser?
Loynes advocated for the establishment of the Central Bank of Nigeria in his report, and his key suggestion served as the foundation for the CBN Act, which successfully founded the bank. As a result of the J.B Loynes report, the CBN was founded by an Act of Parliament called as the CBN Act to conduct traditional central banking tasks as well as serve as the pivotal national financial intuitions.
As a result of the bank’s founding, the west African currency board operations in Nigeria were placed out, taken over, and polished by the bank.
THE BANK’S DESIGN
The policy and general administration of the bank’s affairs and business were the responsibility of a board of directors comprised of a governor, a deputy governor, and five other directors, all of whom were to be appointed by the president of the federation.
The governor was the chairman of the board, and he and the deputy were in charge of the bank’s day-to-day operations and were accountable to the board for their actions and decisions.
However, on the advice of management consultants Mckingsay International Mc. The structure of the bank was revised in the United Kingdom in 1977. The bank hired a management consulting firm to conduct an assessment of the bank’s organisational structure and management policies.
The board of directors currently consists of thirteen members, including the government and deputy governor; three board members are executive directors. As a result, the governors are currently in charge of the bank’s day-to-day operations. The bank’s management is essential in the performance of its duties by eleven departmental directors,
all of whom are career bank employees and are responsible for implementing the board’s varied decisions. Each departmental director is essentially in charge of his department’s activities.
Furthermore, the bank’s current organisation is such that a group of department directors reports to a specific executive director who is in charge of the department’s overall oversight.
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