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Reasons why Government Participate in Banking business in Nigeria

Last Updated on November 25, 2023 by admin

Government participation in the banking business is a phenomenon observed in various countries, including Nigeria.

The Nigerian government’s involvement in this sector stems from several reasons that have shaped its economic policies over the years. This  aims is to explore these reasons and shed light on the underlying motivations behind the government’s decision to participate actively in banking.

Nigeria, as one of Africa’s largest economies, recognizes the pivotal role played by a robust banking sector for sustainable economic growth and development.

By directly participating in banking activities, the government seeks to exert influence over monetary policy formulation, ensure stability and integrity within the financial system, foster financial inclusion for all citizens, support national economic objectives, and safeguard public interest against exploitative practices.

Government participation in Banking business is not only peculiar to Nigeria,it is a general phenomenal all over the world. For example the Bank of England is the English central bank and owned by the British Government.

 

You can also read: Factors that determine exchange Rate of a country

According to CBN report, 22 Banks were said to have been registered in Nigeria during the free banking era.

In 1959 Central Bank of Nigeria was established to assist the development of money market in the country .

It could be recalled that one of the set back of the indigenous Banks in Nigeria was fund or capital to compete with the expatiate banks .By implication ,established of central bank was to assist Business men to raise short term funds for their investment ,

Secondly to transfer funds from the surplus economy unit to deficit economy unit. Thirdly, to assist the government of the country to raise short term funds to finance some of its expenditure of budget deficit.

You can also read: Role of banks in country economy development and Growth

Reasons for Government Participation on Banking Business.

1. Economic Stability And Development Through Government Banking Involvement

The government’s participation in the banking business in Nigeria contributes to economic stability and development. By engaging in the banking sector, the government can regulate and monitor monetary policies effectively, ensuring price stability and controlling inflation rates.

This involvement facilitates targeted lending to key sectors, such as agriculture, manufacturing, and small businesses, which are vital for economic growth. Additionally, government-owned banks can promote financial inclusion by extending services to underbanked areas and low-income individuals who may have limited access to formal financial institutions.

Through its banking involvement, the government can also foster foreign direct investment by providing a stable financial environment that instills confidence in investors. This ultimately leads to increased capital inflow and overall economic progress for Nigeria.

 

2. Ensuring Financial Inclusion And Access To Banking Services For All Nigerians

Ensuring financial inclusion and access to banking services for all Nigerians is a significant reason why the Nigerian government participates in the banking business. By being involved in the sector, the government can formulate policies and regulations that promote financial inclusivity, allowing even marginalized populations to access banking services. This helps bridge the gap between the unbanked and banked population, providing opportunities for economic growth and reducing poverty levels.

Additionally, government participation ensures that banks prioritize serving all citizens, including those in remote areas or with limited resources. Through initiatives such as mobile banking and agent banking networks, the government facilitates convenient and affordable access to financial services, fostering economic empowerment and promoting overall development in Nigeria.

3.Promoting Sound Monetary Policy And Regulation Through Government Banks

One prominent reason for the Nigerian government’s involvement in the banking business is to promote sound monetary policy and regulation. Government banks play a crucial role in implementing and enforcing policies that ensure stability in the financial sector.

By participating in the banking industry, the government can closely monitor economic activities, manage inflation rates, and control interest rates to maintain a stable currency value.

Furthermore, government banks act as regulatory bodies, overseeing commercial banks’ operations and ensuring compliance with established guidelines.

They have the authority to set capital requirements, supervise risk management practices, and enforce anti-money laundering measures. This active participation by the government helps safeguard against financial crises, protect consumers’ interests, and foster confidence in Nigeria’s banking system.

4.Enhancing National Security And Control Over Financial Transactions Through Government Banking Intervention

Enhancing national security and control over financial transactions through government banking intervention is a key reason for the government’s participation in the banking business in Nigeria.

By having a stake in banking institutions, the government can effectively monitor and regulate financial transactions, ensuring that they are conducted transparently and within legal boundaries. This enables the government to detect and prevent illicit activities such as money laundering, fraud, and terrorist financing.

Additionally, through its intervention in the banking sector, the government can implement measures to safeguard national security interests by scrutinizing transactions that may pose a threat to stability or involve individuals or entities with potential links to criminal or extremist activities. Such proactive involvement serves to protect both the country’s financial system and its overall security framework.

 

5. To refocus expatriate Banks to work in the interest of the country-Government participation in the ownership of banks and acquiring more equity shares in expatriate banks was to re-organize and re-focus the attention of the expatriate bank towards a new system and assist in nation building ,especially in their policies .

6. The need to speed banking habit. before t government intervention in bank participation, rural banking was not encourage. for even development to take place banks need to have branches in the rural communities with government intervention, rural banking was possible.

7. To encourage mutual understanding between both the expatriate banks and the indigenous bank so as to work together in the same regulated environment without a dominating power for rapid bank expansion in the Nigeria.

8. To discourage one bank from using a superior powers and experience to manipulate government and other government officials.

You can also read: History and origin of Banking in Nigeria

9. To encourage Manpower development for effective management of sub-sector of banking and finance .

10. To encourage state to own bank to assist then for rapid development and to reduce idle fund.

`Hope this content has able to explain reasons why government participate in banking business in Nigeria. i will welcome your comments and contributions.

Meet Ogbeide Frank, popularly known as perere, a blogger who loves writing about finance and Tech. He studied Business administration at the Ambrose Alli University Ekpoma and Mobile Communication at Orange College Malaysia .Frank have worked as a banker and consultant in variety of Nigeria agencies

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