So, we’ve always heard or talked about commercial banks in Nigeria, how we rush to the ATM to withdraw, and to the customer care when there’s a deduction in our account, right?
Who knows what life is going to look like without commercial banks, assuming we have just the Central Bank. Don’t forget, the CBN has no dealings with private individuals.
In this article, I’ll share with you what commercial banks in Nigeria are all about, features and functions of commercial banks, and list of commercial banks in Nigeria.
Shall we begin?
What Is a Commercial Bank?
Commercial banks are one of the 7 types of banks in Nigeria, owned by private individuals, serving as a financial institution that collects surplus funds from the general public, safeguard funds and makes funds available to owners when requested.
A commercial bank also makes part of the funds available to individuals, different forms of business organizations, and government who may come to borrow.
Features of a Commercial Bank
The following features makes a commercial bank what it is:
- Commercial banks are incorporated and registered with the CAC.
- Profit motive: Commercial banks in Nigeria are not just set up, they are profit oriented.
- Limited Liability: Commercial banks in Nigeria are a good example of joint stock companies. They suffer liability in case of business failure, but not beyond the share capital of owners of the bank
- Commercial banks in Nigeria belong to the money market financial system of the country. A market where short term funds are available.
- Commercial banks accept deposits and other valuables from their customers.
- Ownership: Commercial banks are owned by private individuals, groups of individuals, organizations, state governments, etc.
- Limited number: Unlike the Central Bank which is one with branches, commercial banks in Nigeria can exist in any number. There’s no limit to their establishment both in terms of number and branches.
So, those are a few features of Nigerian commercial banks. Some examples of commercial Banks include First Bank of Nigeria Plc, Union Bank of Nigeria Plc, Access Bank Plc, etc.
Types of Commercial Banks
Commercial banks are classified into two categories i.e. scheduled commercial banks and non-scheduled commercial banks.
The common scheduled commercial banks are now further classified into three types, namely;
- Private Commercial Bank
- Public Commercial Bank
- Foreign Commercial Bank
Now, let’s explain..
Private Commercial Bank
This refers to a kind of commercial banks in which major part of share capital is held by private businesses and individuals.P
When private individuals own more than 51% of the share capital, then that banking company is a private one. They are banks registered as companies with limited liability.
Public Commercial Bank
This is a type of commercial bank that is nationalized by the government of a country. The major stake is held by the government. A good example is Bank of Industry controlled by the Federal Government of Nigeria.
When the Government holds more than 51% of the share capital of a publicly listed banking company, then that bank is called a Public sector bank.
Foreign Commercial Bank
This is a type of commercial bank set up in foreign countries, and operate their branches in the home country and other countries
Roles of Commercial Banks In Nigeria and Their Functions
From the features of commercial banks given right above this section, you can tell what the functions of this companies are.
Here, we’ll take a deeper dive into what the roles of commercial banks are:
1. Accepting Deposit: Commercial banks in Nigeria accept deposits from the public for safekeeping. This is the oldest function of commercial banks, as they operate different types of bank accounts to suit customers needs.
2. Issuance of Bank Statements: At regular intervals, commercial banks in Nigeria prepare and send bank statements to their customers to show transactions with them, most times monthly.
3. Safe Keeping of Valuables: Another function of commercial banks is to keep customers valuables like jewelry, certificates, will, etc.
4. An agent of Payment: Commercial banks in Nigeria act as an agent of payment on behalf of customers. They encourage and permit current account holders to draw cheques without prior notice. Also, money can be transferred from one account to another.
5. Lending of Money: This is perhaps the most profitable function of commercial banks, as deposits from different customers are pooled together and given out as loans and overdrafts with interest to people and firms.
6. Foreign Exchange Transaction: Commercial banks in Nigeria make foreign currencies available to their customers, and they participate in the Foreign exchange market.
7. Provision of financial advice: Business people get professional financial advice from commercial banks as they are encouraged to put their funds in promising projects or investments.
8. Commercial banks assist the government in putting new money in circulation. For example, this happened in Nigeria iin 1984.
9. Commercial banks in Nigeria also work on standing order requests given by their customers.
Now that you know the roles of commercial banks in Nigeria and their functions, let’s talk about the credit facilities provided by commercial banks.
Credit Facilities Provided By Commercial Banks In Nigeria
Commercial banks act as an agent of leding by means of loan, overdraft and discounting bills of exchange. Commercial banks lend through:
- Loans and;
Loans: Through loans, money is lent out to customers of the bank at an agreed rate of interest for a specifi period of time.
In this case, the borrower’s current account will be credited by the amount of the loan. At the same time, a loan account for the amount will be opened.
The customer is required to have collateral security before he can be given the loan, and interest is paid on the full amount he has borrowed.
Overdrafts: Overdraft is a method of credit facility in which a customer is allowed or permitted to draw a cheque more than the amount of money in his account.
Read more about 8 different types of cheques in this post.
For example, If you have N100,000 in your current account, you can be granted a withdrawal of N110,000. The N10,000 is the overdraft.
Note: Interest is also paid on overdraft.
The Difference Between Loan and Overdraft
Here’s a summary of distinctive features of a loan and overdraft options provided by commercial banks in Nigeria.
|Collateral secuirity is required||No collateral security is required|
|It attracts lower interest rate||It attracts higher interest rate|
|The money is re-payable at fixed time||There is gradual deduction|
|A seperate account called loa account||No separate account|
So before you can be granted a loan, commercial banks want to know:
- Purpose of the loan
- Ability to pay back
- Your credibility as a customer
- Your financial position
- Total amount applied for as a loan
- Collateral security provided
- Your guarantors
- Period of repayment.
List of Banks In Nigeria
At this point, I’m sure you’re asking, how many banks do we have in Nigeria? Isn’t it?
I have done well to give you the full list of banks in Nigeria today. Check it out and let’s see if you know them all.
Commercial Banks In Nigeria (Summary)
So far, you’ve understood what commercial banks In Nigeria are, their features, roles and functions, types, and loans facilities they provide.
Commercial banks are required to keep a certain percentage of their deposits with the Central Bank, known as liquidity ratio or cash reserve.
This is done in order to protect customers account and prevent bank crisis. Commercial banks in Nigeria create credit or money by purchasing treasury bills from the government and by discounting bills of exchange.
What would you say about this article on commercial banks in Nigeria? Let’s have your comment in the box provided below.