THE ROLES OF CENTRAL BANK OF NIGERIA AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA

THE ROLES OF CENTRAL BANK OF NIGERIA AND MERCHANT BANKS IN FINANCIAL INTERNATIONAL TRADE IN NIGERIA

Chapiter 1

Introduction

1.1 History Of The Study

A thorough investigation should be done into how international relations might hasten the political and socioeconomic growth of any country. The word “international trade” refers to the trading activity carried out across international borders, often known as export and import. It makes it feasible for a nation to get goods that they are unable to create on their own. So a country can export its resources in exchange for the goods and services of other countries, shifting its industry to the goods and services for which its resources are most fit.

A robust export-oriented strategy should be developed in order to prevent the export growth rate in Nigeria from becoming a major hindrance to fast development. Any economy’s import and export sectors need to be nourished, safeguarded, and promoted in order to increase their positive and significant contributions to the survival of the financial system. Banking institutions are essential to the financing of international trade in addition to government incentives, help from private and public corporations, and specialist financial institution support. As a result, it is essential to research the contributions that merchant banks and the Nigerian central bank have made to funding this global trade in Nigeria.

Every nation’s banking system is centered on its central bank. It represents the government in the banking industry and primarily serves as the government’s banker.

For the federal government banks, merchant banks, and other financial institutions, it serves as banker and advisor. Additionally, it holds the exclusive right to print money that is accepted as legal tender in Nigeria and accumulates foreign exchange reserves to protect the value of the local currency abroad, advance monetary stability, and maintain a stable financial system.

The central bank decides what and how much to approve in terms of international trade in the areas that fall under its authority, such as payment for visible and invisible imports and limits in the inflow of foreign exchange gains from export. It handles requests for exchange control, allots foreign currency to qualified applicants, and aids in the formation of policies that guarantee the maximum level of employment and preservation of the nation’s foreign exchange revenues.

Two more licensed banks complement the central bank’s rates in addition to the roles they serve in regulating foreign commerce. both merchant banks and commercial banks. Because of the way that commercial banks operate, they are often referred to as retail banks. They have a large deposit base and run their business through a nationwide network of locations. In other words, commercial banks accept deposits from all sources, not just a select few (the deposits are typically referred to as demand deposits).

The merchant banks, who are wholesale bankers in that their deposits are typically made in very large blocks, make up the second group of authorized banks. They did their business out of a few branches in the nation’s commercial hubs. They also accept deposits from wealthy individuals, wealthy corporations, and public and private cooperatives; their duties include investing and medium- and long-term financing. management, unit trust management, debt factory equipment leasing, as well as the creation and acceptance of bills of exchange.

The merchant banks have developed a reputation for swift and effective processing of international business transactions, such as foreign exchange for businesses involved in the import and export of capital goods. The merchant banks also offer services such as the processing of remittances, documentary drafts for collection, and letters of credit. According to the aforementioned, the central bank and merchant banks are crucial to global trade and as such, they merit careful examination.

2.2 a. International Trade Defined

International trade is the interchange of goods and services between nations, allowing one to focus its industry on the commodities and services for which its resources are best suitable while importing the specialization of another nation.

b. State Bank

It is the nation’s bank responsible for preserving foreign reserves, supervising other banks, supporting monetary stability, advising the government on financial issues, and maintaining a solid financial system. These functions define it.

c. Commercial Bank

Any financial organization that does wholesale banking, medium- and long-term financing, investment management, unit trust management, debt fractioning, equipment leasing, and the issuance and acceptance of bills of exchange is referred to as a merchant bank.

1.2 The Study’s Goal

An assessment of the central bank’s and merchant banks’ operations, with a focus on their contributions to Nigeria’s foreign trade finance, is the goal of this study. Both banks serve complementary roles in international trade since one cannot function without the “acquit of the other.” Let’s just say that one bank’s efforts to finance international commerce are complimented by those of another, which is why the topic is “the role of Nigeria’s central bank and merchant banks in financing international trade in Nigeria.”

The country’s banking sector has only recently seen the emergence of merchant banks. Public knowledge of their actions is limited.

Therefore, the purpose of this research project is to emphasize the contributions that central banks and merchant banks make to the financing of global trade.

1.3 State of the problem:

Trade between nations of the world is known as international trade, and it develops for two main reasons. One of the reasons for this is that the majority of nations find themselves in need of goods that they are unable to provide. The fact that various nations utilise national resources differently and to varying degrees of efficiency is a fundamental justification for international commerce.

Nigeria’s infrastructure and human resource development have greatly benefited from foreign trade. Specialized financial institutions like the central bank and merchant banks are needed to provide assistance and financial support for promoting international trade.

The following are some of the responsibilities that these banks play in facilitating international trade in Nigeria:

i. understanding their responsibilities in lending and borrowing.

II. determining how much money they have invested in supporting the commerce in Nigeria.

3. Evaluate these institutions’ performance to learn as much as you can about the underlying causes of a negative trade balance.

IV. to understand how banks have been aided in acting out their duties.

1.4 The Meaning Of The Study

When we consider that our economic system, which is a subset of our national economy, is supported by international trade, we can appreciate the importance of the study. It serves as a catalyst for progress, a strong plan for international interdependence, and, of course, a tool for economic and technological liberation.

It aims to define the duties of the Nigerian central bank and merchant banks as they relate to global trade. The functions that have been identified are observed through the recommendations that have been made. If these roles are not recognized and encouraged, Nigeria’s economy will continue to lag behind, which would inevitably halt its overall progress.

Because the central bank’s functions in this nation are frequently misunderstood, it is susceptible to public criticism, especially during times of economic crisis. In order to demonstrate the functions it plays in fostering the economy, this study has been created. It should be remembered that the 1958 Central Banks Act and its numerous revisions largely governed how the central bank worked.

The merchant banks follow regulations relevant to the public’s commitment to our nation’s economic development. The purpose of this study is to identify these functions and offer suggestions. Business leaders, decision-makers, economists, retailers, and governmental organizations all find value in the study. The paper draws attention to the functions that banks perform and suggests ways to support them.

1.5 The study’s scope and limitations

With CBN Enugu and Crown Merchant Bank Benin as case studies, this study will examine how the operations of the central bank of Nigeria and the merchant banks effect the financing of foreign trade in Nigeria.

The incapacity of the research work to obtain all the necessary resources that were pertinent and sufficient for this study is one of the study’s flaws.

For instance, the personnel of Crown Merchant Bank maintained a high level of discretion during the oral interview, which constrained the scope of the information the study waited to acquire. They were concerned that if they revealed this information, it would end up in the hands of their rivals. While the CBN Enugu personnel persevered and persisted in providing broad facts about CBN as an organization.

Although efforts were made to explain the job, the problem of restricted time is a bigger restraint. The money to go these far distances was also lacking, especially in this country with its pricey and deficient transportation system. Additionally, an inadequate communication network reduced the study’s scope.

1.6 The Central Bank Of Nigeria’s Historical Background, Development, Constitution, And Structure

The history of CBN Enugu can be traced back to the 11th of June 1995, when the then-governor of Eastern Nigeria, His Highness Sir Francis Akanu Ibiam G.C.O.N K.C.M.G, lay the cornerstone for the building. The building was later commissioned on the 12th of April 1973 by the then-administrator of the East Central state. The honorable Mr. Ukpabi Asika.

According to additional information, the central bank Act, a parliamentary act that founded its parent organization, was passed in 1958. A crude monetary system had been working to change Nigeria’s economy from a barter economy for many years prior to the foundation of the. However, the means of trade at the time were numerous, making it difficult for the functioning of the contemporary monetary system. Therefore, until the foundation of the West African Currency Board (WACB) and the adoption of the single currency system for West Africa in 1992, one could not properly view Nigeria as having a monetary system, at least in terms of orderliness. The West African Currency Board’s founding essentially paved the path for Nigeria’s emerging contemporary financial system.

When it comes to exercising any discretionary power to limit the expansion of credit and the money supply in the economy, the W.A.C.B. itself is scarcely what one would call a monetary authority under the way it was created.

As a result, the W.A.C.B. has been referred to as a straightforward moneychanger. This significant flaw in the WACB’s operation served as the foundation for protests in favor of the establishment of central banks in other West African nations as well as Nigeria.

In April 1952, the first formal steps toward the creation of a central bank in Nigeria were taken. The establishment of a central bank in Nigeria to effectively carry out those functions normally associated with central banks was then requested in a private members resolution in the then house of representatives. This is due to the colonial government’s belief that it was premature to establish a central bank in Nigeria at the time given the local financial system’s relative underdevelopment. However, the house approved an amended motion requesting that the administration investigate and report to it on the viability of setting up a central bank in Nigeria.

Mr. J.L. Finisher, a bank of England adviser, was tasked with investigating this possibility as a result. While the finisher’s report did not support the immediate establishment of a central bank in the nation, it did endorse a three-step plan that it hoped would eventually result in the CBN’s establishment. These actions triggered the relocation of the WASB’s main office from London to West Africa. This, it was believed, would provide the locals a chance to become more directly involved with the board and give them a chance to gain experience from its activities.

The establishment of a Nigerian currency to replace the CBN was the second step in the Fishers initiative.

The program also mandated the creation of a bank of issue, which would ultimately evolve into a central bank. However, none of these actions were carried out, particularly because the study did not advocate for the rapid creation of a central bank in Nigeria.

While agreeing with Fisher that Nigeria’s establishment of a central bank was premature, a World Bank team visiting Nigeria in 1953, a year after the fisher report, considered the same issue and pushed for a swift reform of the WASB to address some inconsistencies in its operation. It also advocated, as did Fisher, for the creation of a Nigerian national bank to replace WACB in charge of currency issuance.

What ultimately resulted in the development of the last research on the subject by Mr. J.B. Loynes, who was also a bank of England adviser?

In his report, Loynes supported the creation of the Central Bank of Nigeria, and his key suggestion served as the foundation for the CBN Act, which actually brought about the bank’s existence. As a result, the CBN was founded by an Act of Parliament known as the CBN Act to carry out the traditional central banking tasks and serve as the primary national financial intuitions in response to the J.B. Loynes report.

Therefore, the west African currency board operations in Nigeria were moved out, taken over, and improved by the bank with the foundation of the bank.

Condition Of The Bank

According to the bank’s original statute, a board of directors made up of a governor, a deputy governor, and five additional directors, all of whom were to be appointed by the president of the federation, was responsible for setting policy and overseeing the general administration of the bank’s affairs and business. The governor acted as the board’s chairman, and he and the deputy were in charge of running the bank on a daily basis. They had to answer to the board for their actions and decisions.

On the other hand, after a management consulting business called Mckingsay International Mc. In 1977, the bank’s organizational structure was altered for the United Kingdom. The bank hired the management consulting firm to conduct an assessment of the bank’s organizational structure and management practices. Currently, there are thirteen people on the board of directors, including the governor and deputy governor; three of them are executive directors. As a result, the governors are currently in charge of running the bank on a daily basis. The administration of the bank is crucial to its ability to carry out its duties. There are 10 departmental directors, all of whom are career bank employees and are in charge of carrying out the board’s varied decisions. In essence, each departmental director is in charge of the operations of his division. Additionally, the bank’s existing organizational structure calls for a group of department directors to answer to a single executive director who is responsible for the department’s overall management.