International Trade Financial Role Of Central Bank Of

Nigeria And Merchant Banks : (A Case Stud Of CBN !nugu

And Cro"n Merchant Bank Benin#
International Trade Financial Role Of Central Bank Of Nigeria And Merchant Banks : (A Case
Study Of CBN Enugu And Cron Merchant Bank Benin!
R!$I!% OF R!&AT!' &IT!RAT(R! AN' ST('I!S OF NI)!RIA BAN*IN) S+ST!M
"here has not #een e$tensi%e ork and research done es&ecially on the Nigeria e$&erience ith regards
to the rules of the central #ank and 'erchant #ank in financing foreign trade in the country( Although a
lot has #een ritten on the su#)ect #ut not s&ecifically in the Nigeria situation(
"o &lace an order for the Co'&lete *ro)ect Material+ &ay N,+--- to
."Bank (.uaranty "rust Bank!
Account Na'e Chudi/O)i Chukuka
Account No --001,2134
"hen te$t the na'e of the *ro)ect to&ic+ e'ail address and your na'es to -3-5-,5,261(
Fro' the fe research ork on the su#)ect+ a lot has #een said on Nigeria #anking syste' and its
i'&act on the rules of the #anking industry to the econo'y( 7n Nigeria e ha%e to financial syste's:
'oney and #anking and go%ern'ent treasury( "he legiti'ate functions of #anks in an econo'y are the
'o#ili8ation of sur&lus funds+ &ro%ision of li9uidity+ &ro%ision of credit and in%est'ent o&&ortunity and
ensuring effecti%e 'onetary control(
"he #anking syste' in Nigeria consist of si$ classes of #anks(
1( "he co''ercial #anks
6( "he de%elo&'ent #anks
4( "he 'erchant #anks
0( "he federal 'ortgage #anks
,( "he federal sa%ing #anks
5( "he central #ank of Nigeria
"he #anking syste' has continued its e%aluation in the 1:3-s( according to Christ (A( ;do+ the
continuity e%olution of the Nigerian #anking syste' in the 1:3-s has #een gi%en a'&le i'&etus #y
se%eral factors such as:
a( "he continued groth of e$iting #anks and increasing nu'#er of a&&lications to float ne ones(
#( 7nstruction of co'&uter technology in so'e of the #anks(
c( 7ncrease in 'ost #anks re&orted &rofit in recent years(
d( "he fall in oil &rices and the conse9uent reduction in our ca&acity to i'&ort hich has led to a
reduction in de'and for i'&orts(
e( "he autono'y hich the central #ank has recently on fro' the 'inistry of finance hich has
increased its &ortfolio of res&onsi#ility(
7n our on o&inion+ there has #een an o#ser%ed secular increase in 'ost #anks &rofit+ #ut such as
increase is #eing 'atched #y a corres&onding increase in &ro%isions 'ay not #y une$&ected of this
&hase of econo'ic circle and as lending to agriculture and industries increases+ un'anagea#le increases
in #ad de#t 'ay ser%e as or'ing signal to i'&ro%e the 9uality of &ortfolio 'anagers( Also the #anks
in their effort to 'ake huge &rofit constitutes the'sel%es into a nuisance to the econo'y #y floating the
central #ank 'onetary &olicies ai' at sta#ili8ing our econo'y(
Also+ the introduction of co'&uter technology in the #anking syste' #ut the rate of effecti%e utili8ation
is still lo( "here has also #een a ne de%elo&'ent in our #anking syste' ai'ed at &ro'oting e$&orts(
"he resuscitation of the dor'ant e$&orts sector to di%ersify the econo'y<s e$&ort &ortfolio has had to a
ne aareness #y #oth 'erchant #ank and co''ercial #anks of their e$&ort de%elo&'ent rule+ in that
as&ect 7 suggest all the #anks should 'aintain s&eciali8ed de&art'ent charge ith the res&onsi#ility to
&ro'ote e$&ort(
"he central #ank as an autono'ous institution should a&art fro' its traditional rule or function ha%e to
'anage the 'onetary &olicy in a de&ressed econo'y( 7t as also gi%en res&onsi#ility of conducting
foreign e$change 'arket #idding session and this has also reduced the docu'entation #urden lither to
face #y the central #ank of Nigeria in using the e$change control syste'(
6(6 INT!RNATIONA& TRA'! AN' !,C-AN)! RAT! .O&IC+ IN NI)!RIA
7nternational trade is #ased on the ad%antages of geogra&hical s&eciali8ation( 7t is reci&rocal
'ultinational and 'utually ad%antageous( (O(A =aal S;CCESS 7N ECONOM7C >(A( E?7"7ON
A;O *;B=7S@ERS 1:30 *. 6,-!( Aust as ithin each country+ it &ays one &erson to s&eciali8e in
soa& 'aking and another in agriculture and yet another in heat culti%ation and then e$change their
resources( 7t is ad%antageous for each country to de%ote its industry to these &roduct for hich its
resources are 'ost suita#le+ e$&orting its s&ecialty in e$change for the s&ecially of other countries ("(
"ER7BA ECONOMCS FOR @7.@ER E?;CA"7ON MACM7==AN *RESS 1:30!
According to @ollis B Clenery( Sustained econo'ic groth re9uires a transfor'ation of the structure of
&roduction that is co'&uta#le ith #oth the e%olution of do'estic de'and and o&&ortunities for
international trade(
7nternational trade co'&rises e$&ort and i'&ort of goods and ser%ices of one<s country( No dou#t+
e$&ort is an engine of groth+ a &otent strategy for 'utual inter de&endence a'ong orld nation and
of course an instru'ent for technological and industrial e'anci&ation( According to Bela Balasea+
e$&ort oriented &olicies a&art fro' &ro%iding si'ilar incenti%es to sales in #oth do'estic and in foreign
'arket lends to resources allocation according to co'&arati%e ad%antage allo for greater ca&acity
utili8ation &er'it the e$&loitation of econo'ics of scale+ generate technological i'&ro%e'ent in
res&onse to co'&etition a#road and in la#our sur&lus countries contri#ute to increased e'&loy'ent(
7nternational trade in Nigeria has contri#uted a lot to the country<s infrastructure and 'an&oer
de%elo&'ent( "he structure of Nigeria<s e$ternal trade co'&rises its e$&ort and ser%ices outside the
country( "he do'inant features of Nigeria<s e$&ort trade and one that is co''on to 'ost de%elo&ing
countries is the &redo'inance of &ri'ary &roduct and the relati%e insignificance of 'anufactured
goods( Nigeria<s 'ost single e$&ort co''odity is crude &etroleu' hich constitutes o%er :-B of total
e$&ort earning( Other 'a)or e$&ort &roducts are: cocoa+ &al' kernel+ ru##er hose share of total
earning a'ounted to 6(2+ -(3+ -(5 and -(0B res&ecti%ely(
A conco'ittance of the increase in i'&ortance of &etroleu' a'ong Nigeria e$&ort is the fall in the
de&endence of the country on agricultural &roducts es&ecially in the 1:2-s(
7n ter's of i'&ort+ 'anufactured goods for'ed Nigeria<s 'ost i'&ortant i'&ort co''odities(
7n dealing in international trade+ an e$change rate 'ust #e a&&lied #eteen nations engaging in the
#usiness( According to Alha)i .(O( Otiti+ the role of e$change rate in foreign transaction and &ay'ent
cannot #e o%er e'&hasi8ed for no international trade transaction #eteen one country and another can
#e settled ithout a&&lying on e$change rate #eteen the to currencies(
"he e$change rate is this a 'ediu' of e$change of one currency for the other( 7n Nigeria the central
#ank is res&onsi#le for the deter'ination of e$change rate &olicy( "he Nigeria e$change rate &olicy in
recent ti'es has #een influenced #y it<s &ossi#le contri#ution toards anti inflation effort and the
#alance of &ay'ent needs of the country( (Alaha)i A#u#aka Ah'ed Bello CBN *u#lication Col( 6 Aune
*g( 2!(
7n 'y on o&inion+ international trade is a trade #eteen nations of the orld and it has contri#uted a
lot in the acceleration of &olitical and social econo'ic de%elo&'ent of our country( *rior to 1:2-(
Nigeria<s e$&ort co'&rised &rinci&ally of agricultural &roduct including( Cocoa+ cotton+ groundnut+
&al' oil+ ru##er and ti'#er( At the ti'e of inde&endence in 1:5-+ these and other non/oil e$&ort( By
1:2- the shore of these &roduct in total e$&ort had dro&&ed to only 06B 'ainly as a result of the
de%elo&'ent in the &etroleu' oil sector(
Since 1:2-+ therefore+ &etroleu' #egan to take the head in Nigeria<s total e$&ort as it accounted for
a#out ,:B of total e$&ort in that year( "his do'inant &osition of oil e$&orts contri#uted to #e
'aintained such that #y 1:24 it has risen to a#out 34B and rise further to a#out :3B of the total e$&ort
of
N1-(, Billion and N3(5 Billion at the end of 1:31 and 1:36 res&ecti%ely(
"he o%er de&endence on oil as the country<s 'a)or e$&ort should not #e alloed to continue as a fall in
the oil 'arket ill kee& the econo'y in standstill( Nigeria should encourage the e$&ortation of non/oil
goods like agricultural &roduct( 7 suggest that go%ern'ent should shift e'&hasis on the e$&ort of non/
oil &roductsD they should encourage agriculture to ena#le the &eo&le to &roduce agricultural &roducts
'ore than they need on the i'&ortation+ and the go%ern'ent should #ase their i'&orts on co''odities
that are essential #ut not necessarily score( "he country should reduce i'&ort and shift e'&hasis on the
&ro'otion of e$&ort and less de&endence on i'&ort to ena#le the' conser%e the scarce foreign
e$change(
7n 'y o&inion+ e$change rate is the &rice for hich one national country is e$changed for another for
any transaction to take &lace+ e$change rate 'ust #e a&&lied+ if this follos that settle'ent of i'&ort
#ills #eteen the i'&orter and e$&orter cannot #e effect ithout first of all ascertaining the orth of
one currency in ter's of settle'ent co'es in+ the original contract #eteen the to &arties ould ha%e
#een taken into consideration the relationshi& #eteen the currency of the i'&orter and e$&orter
countries( 7 suggest that attention should #e directed toards e$change rate of Nigeria<s e$&enditure on
i'&orted rates of recei&t for e$&ort(
6(4 BA&ANC! OF .A+M!NT AN' NI)!RIAN FOR!I)N TRA'!
"he international #alance of &ay'ent is one of the 'onetary 'echanis' in%ol%ed in international trade
it is a co'&rehensi%e record of all actual or official transactions ith financial and econo'ic #eteen
one country and the rest of the orld( (Odusanya "(O Balance of &ay'ent lecture!( According to M(C(
Caish Balance of &ay'ent is a statistical record ke&t in for' of #alance sheet co'&rising of all
econo'ic transactions #eteen one country and her trading &artners o%er a &eriod of ti'e usually one
year(
"he 7(M(F descri#es it as a syste'atic record of all econo'ic transactions during a &eriod #eteen the
resident of re&orting countries( 7t 'ay #e defined in statistical sense as on ite'i8ed account of all
transaction in%ol%ing recei&t fro' foreigners on the one hand and &ay'ent 'ade to foreigners on the
other hand(
"he #alance of &ay'ent is not only di%ided into credits and de#its+ according to the &rinci&les of
dou#le entry #ookkee&ing+ it is also di%ided hori8ontally into to 'a)or categories according to the
#oard nature of the transaction concerned and the relationshi& to the national econo'y( "hese
categories are the current account and the ca&ital account( "he current account consists of all
transaction relating to the re&orting country<s current e$&enditure( "hese include e$&ort and i'&orts of
goods and ser%ices along ith unilateral transfers (&ersonal+ official or institutional transfers!( "he
current account transaction also include such ite's as trans&ortation ("rans&ort and 'erchandise
insurance! tra%el in%est'ent inco'e (interest+ di%idend and &rofit on securities outside the country!(
"hese are called current transactions #ecause they gi%e rise to or are a use of current national inco'e(
"he current transactions are distinguished fro' ca&ital transaction+ hich directly affect ealth and
de#t+ hence national in future &eriod #ut not national inco'e &roduct or consu'ed currently(
"he 'easure of sur&lus or deficit in the #alance of &ay'ent reflect changes in the net li9uidity &osition
of the country thus a deficit a&&ears in the #alance of &ay'ent hen antony'ous transaction re9uiring
'oney &ay'ent e$ceed autono'ous transaction in%ol%ing 'oney recei&ts( "he deficit 'eans that
country is loosing li9uidity to othersD it is running don its li9uid foreign assets and or accu'ulating
li9uid foreign lia#ilities( Con%ersely a sur&lus e$ist hen autono'ous &ay'ent are less than
autono'ous recei&ts( Essentially therefore+ a deficit or sur&lus in the #alance of &ay'ent in%ol%ed #oth
current and ca&ital transaction(
6(0 R!C!NT '!$!&O.M!NT IN NI)!RIA BA&ANC! OF .A+M!NT
For a #etter understanding of the #alance of &ay'ent+ let us re%ie so'e recent de%elo&'ent in the
country<s #alance of &ay'ent( "he #egin ith+ it should #e 'entioned that hile the co'&lication of
Nigeria is #alance of &ay'ent is #ased on the line discussed earlier( "ransactions are usually se&arated
into those of the oil sector and non/oil sector( "he oil sector co'&rises the transactions of the crude
&etroleu' &roducing and e$&loring co'&anies hile the non/oil sector is 'ade u& of the rest of the
econo'y including the %arious go%ern'ent &arastatals and enter&rises( "hus+ oil hich is an i'&ortant
&heno'enon in Nigeria<s econo'y is also %ery crucial as far as Nigeria<s #alance of &ay'ent is
concerned(
"he current situation is such that de%elo&'ents is the #alance of &ay'ent long &recariously on the
situation in the oil sector #efore the disco%ery of oil+ the Nigerian econo'y as funda'entally an agro/
#ased econo'y+ relying 'ainly on the &roduction fro' agric sector for her foreign e$change earnings(
Agriculture accounted for 36B and other non/oil e$&orts a#out 1,B of total e$&orts %alue of the
country in 1:56( #y 1:2- the share of these &roducts in total e$&ort had droo&ed to only 16B+ 'ainly
as a result of the de%elo&'ent in the &etroleu' oil sector(
?uring this &eriod+ the country found itself ith 'assi%e oil re%enue+ there as a &roliferation of
&ri%ate sector fir's hich ere largely de&endent on i'&orted in&ut( Conse9uently+ although the
&olicy of the go%ern'ent as to use the huge oil re%enue to di%ersify the econo'y and in &articular to
de%elo& the agricultural sector( >ide s&read i'#alances and distortions in the Nigerian econo'y
e'erged during the oil #oo'( According to Alha)i A#u#akidi Ah'ed+ in his #ook ENigerian Econo'y
and SFEMF Billion CBN &u#lication Se&te'#er 1:32 *g( 16 the country as transfor'ed fro' one
de&endent on oil during the &eriod of oil #oo'+ for e$a'&le the share of agriculture in .ross do'estic
&roduct decline fro' a#out 0-B in the early 1:2-<s to 6-B in 1:3-( Moreo%er+ #y 1:3- oil
accu'ulated for a#out 63B of .(?(*+ 31B of go%ern'ent re%enue and :5B of e$&ort earning( "he
hea%y de&endency on oil and i'&orted in&uts rendered the econo'y %alua#le to e$ternal shocks ith
the colla&se of the orld oil 'arket in 'id 1:31( to 'ake 'atters orse+ the country &ursued restricti%e
trade and e$change control &olicies hich in retros&ecti%e ere counter &roducti%e( >ithin fi%e years
of oil #oo'+ Nigeria as a#le to s9uander hat reser%e it has #uilt u& and ended u& in a chronic deficit
in her #alance of &ay'ent(
Before the do'inance of the oil sector+ &articularly #eteen 1:5- 1:2-+ the #alance of &ay'ent<s
#eha%iour as less erratic( @oe%er+ the #alance of &ay'ent had sang at one ti'e or the other fro' a
&osition of strength o that of eakness(
"he discussion a#o%e re%ies #riefly the de%elo&'ent of the #alance of &ay'ent in Nigeria since
inde&endence in 1:5-( it also re%eals that the #eha%iour of the #alance of &ay'ent in Nigeria as rather
erratic &articularly since 1:2-( further 'ore the &eriod since 1:2- is one ith a nu'#er of
un&recedented records in ter's of #oth #alance of &ay'ent sur&lus and deficit( 7t is a &eriod 'arketed
ith u&s and dons in the country<s #alance of &ay'ent de%elo&'ent( 7n addition+ the rather erratic
#eha%iour or our #alance of &ay'ent &osition since 1:2- has led to the go%ern'ent attending to each
#alance of &ay'ent &ro#le' ith so'e short generally rela$ed during &eriod of #alance or &ay'ent
sur&lus and tightened against hen the &osition falls #ack to that of a deficit( "hus language solutions
are not e'&loyed to tackle the #alance of &ay'ent &ro#le'(
6(, .RINCI.&! OF COM.ARATI$! COST
"he fact that countries fro' international trade is su''ed u& in &rinci&le of co'&arati%e cost+ hich
states that countries ill #enefit fro' international trade #y s&eciali8ation in those co''odities in the
&roduction of hich they ha%e greatest co'&arati%e cost ad%antage o%er other countries or the least
co'&arati%e cost disad%antage( Basically this 'eans that countries should concentrate on &roducing
those co''odities hich they &roduce 'ore chea&ly than other co''odities( 7t 'ay #e #ecause of
a%aila#ility of chea&er la#our+ ca&ital or natural resources(
7n 'y understanding+ the idea of co'&arati%e ad%antage can #e e$&ressed #y the use of an analogy in
hich the #est architect in a &articular ton also ha&&ened to #e the #est car&enter in the ton+ it ould
not 'ake an econo'ic sense for the 'an to #uild his on fra'e #ecause he can earn 'ore 'oney #y
de%oting all his &rofessional energy to his )o# as an architect+ e%en though he has to e'&loy a car&enter
less skillful than hi'self to #uild his ho'e( A country like the architect ill gain if it concentrate it<s
resources on the &roduction of those co''odities it can &roduce relati%ely 'ore chea&ly and 'ost
efficiently( A country 'ay re9uire a co'&arati%e ad%antage in any one of nu'#er of ays( 7t also result
fro' the skill of the la#our force ac9uired though the tradition or through the si8e of the la#our force
relati%e to the a'ount of land or ca&ital( 7t 'ay also co'e a#out #ecause of cli'ate and geogra&hy(
6(5 TRA'! R!STRICTION
A restriction on trade is any 'easure that interferes ith the free 'o%e'ent of flo of goods #eteen
countries and there#y &re%ent resources #eing used in accordance ith co'&arati%e cost(
Restriction could #e #y &rohi#ition+ Guatas+ "a$es on trade+ su#sides+ E$change control 'essages etc(
All these are ai'ed at reading the %olu'e of i'&orts of country( ?uring the &eriod of oil #oo' in
Nigeria+ there as a &roliferation of &ri%ate sector fir's+ hich ere largely de&endent on i'&orted
in&uts( "his resulted in the searcity of our foreign e$change+ since that ti'e the go%ern'ent has #een
a&&lying so'e restricti%e in 'easure to conser%e our 'eager foreign e$change+ this had led the #een
&laced on i'&ortation of so'e co''odities that are essential #ut not necessarily scarce(
6(2 INT!RNATIONA& TRA'! '!$!&O.M!NT AN' T-! !$O&(TION OF T-!
NI)!RIAN !CONOM+
"rade has long &layed a 'a)or role in the social and &olitical life of Nigerian co''unities( 7n &re/
colonial ti'es+ the area of &resent day Nigeria consisted of thousands of societies and &olitics ranging
fro' the large scale e'&ire Sudan+ through forest kingdo's to the s'all scale autono'ous
co''unities of the south/east( >hile econo'ic relationshi&+ de&ending 'ore #asically on the relati%e
distri#ution of units of &roduction and consu'&tion+ often cut across social/&olitical #oundaries+ the
&olitical syste' often &ro%ided on internally coherent organi8ational fra'e ork for 'editating the
flo of trade #eteen the &olities(
Agriculture as the #asic econo'ic acti%ity and &ro%ided the sta&le of trade( "he &attern of flo of
agricultural co''odities reflecting ecological and cultural differences+ #ut #esides agricultural
&roducts there as an acti%e 'arket in ra 'aterials and 'ineral &roducts as ell as craft and
'anufactures(
7n the 'ain+ traditional trade as a &oerful integrating force+ the #ulk of trade as locali8ed #ut a
significant &ro&ortion as trade o%er long distances+ co''odities for long distance trade as 'ainly
strategic goods and lu$ury ite's+ includingD salt+ gold+ leather+ goods+ te$tile+ )eelry+ horses and
sla%es+ a li'itation i'&osed #y high cost of trans&ort ith &ri'iti%e technology(
?irect contact ith Euro&ean traders on the coast #rought a ne di'ension to trade+ the restructuring
of le%el 'assi%e re9uire'ent of Euro&ean and A'erican 'arkets and &rofound affected the state of the
society and &olitics(
"he trade in sla%e as directly associated ith the rise of 'ilitaristic e'&ire kingdo's and
&rinci&alities( S&eciali8ed trading co''odities de%elo&ed along the 'a)or routes and coast to 'ediat
the trade #eteen the interior sla%e &roducers and the e$ternal sla%e #uyers(
"he e$&ort #ase #egan to change hen Nigerian entered the &etroleu' e$&ort 'arket in 1:,3( "he
re%olution ca'e ith the e$&losion of international &etroleu' &rices in 1:2-<s( unlike agricultural
e$&orts+ the link #eteen the &etroleu' industry and do'estic &roduction and consu'&tion syste'
ha%e #een 'ini'al(
AS*EC"S OF ?E*EN?ENCH
Co''odity trade is only one of the co'&le$ of econo'ic relationshi& hich lie Nigeria to the outside
orld #ut it is the 'ost #asic and underlies 'ost of the others( "he other i'&ortant econo'ic
relationshi&s 'ay he classifies under ser%ices+ direct in%est'ent and finance(
COMMO?7"H "RA?E
Si8e and co'&osition: "he Nigeria econo'y is one of the 'ost o&en in the orld( An e$a'ination of
international statistics slos that in 1:34 Nigeria<s 'erchandise trade as e9ui%alent to ,,B of it<s
.(?(*( "he &erfor'ance as #y for the highest a'ong the ten 'ost &o&ulous third orld countries
(a%erage &erfor'ance 64B!( A'ong the ten 'ost &o&ulous industrial 'arket econo'ics it as
sur&assed only #y the Netherlands (:0B! hat kind of trade is this+ e ay #egin our analysis #y
considering the e$ternal trade in co''odities in the content of co''odity structure of the Nigeria
'arket as a hole(
6(3 T-! B!N!FITS OF INT!RNATIONA& TRA'!
Fro' the econo'ic &oint of %ie+ international trade is i'&ortant since it allos countries to s&eciali8e
in the &roducts or ser%ices it can #est &roduce( "hese can #e e$changed ith the &roducts etc( of other
countries to the 'utual ad%antage of #oth( "his &rocess is kno as co'&arati%e cost(
7nternational trade #rings a#out loer cost as a result of larger econo'ics of &roductions( 7nternational
trade could also destroy the 'ono&oly &oer that a single &roducer ithin a country has o#tained and
'ay also ha%e good effects on relations #eteen countries as it leads to great contact different &eo&le(
7nternational trade is orld ide and has the folloing ad%antages:
i( "he &roducts of the orld are distri#uted o%er a greater are and therefore hen e$change+ a greater
nu'#er of ants are satisfies( Britain ha%e adherent su&&lies of a fe ra 'aterials #ut the range of
agrie &roduct is li'ited on account of cli'ate( Countries such as Nigeria+ est/7ndies etc( ha%e national
conditions hich fa%or agriculture and are a#le to gro &roducts hich cannot #e gron or &roduced
in Britain for cli'ate reasons( "he e$change of goods and ser%ices ill encourage high standard of
li%ing for the inha#itants of all &artici&ating countries(
ii( "he &eo&le of the orld differ in national a#ility )ust as 'aterials co''odities differ in order
res&ects( "e differences 'ay #e in skills ac9uired #y traditions+ or those thought through ha%ing the
o&&ortunity of &ro&er education and #raining( Foreign trade ena#les the orld to 'ake the #est use of
these differences that e$ists a'ong the &eo&le of the orld(
iii( 7nternational trade 'akes the countries of the orld interde&endent and the ell #eing of each
country is to the #enefit of all( "he industry of the orld is si'ilar to a large 'achine here there are
thousand &arts and each de&ends on the s'ooth and efficient orking of others(
F(NCTIONS OF M!RC-ANT BAN*S
"he 'erchant #anks is Nigeria in kee&ing ith the econo'ic &olicies of go%ern'ent+ trend to &erfor'
the folloing ser%ices to #oth the &referred and less &referred sectors of the econo'y at &resent as
re%ealed #y the study carries out on croun 'erchant Benin(
1( COR*ORA"E F7NANCE SERC7CES
a( =oan syndication: "his is a ty&e of ser%ice offered #y 'erchant #anks hich nor'ally in%ol%es 'any
#anks co'ing together to 'ake a large loan for a &eriod of fi%e years( "his ser%ice is ado&ted hen
clients re9uire large loans hich one #ank cannot 'ake due to financial or legal constraints( "he #anks
ca'e together to for' a consortiu' to 'ake the loan( "he ad%antage to #ankers is that they share the
risk hile the client has #een a#le to secure the loan hich otherise ould #e i'&ossi#le in the light
of it<s largeness and long &eriod of ti'e(
#( E9ui&'ent leasing: E9ui&'ents are leased to industrialists to facilitate &roduction #y #ank( the
e$ercise in%ol%es onershi& of e9ui&'ent on one side and control or use of the e9ui&'ent on the other(
.enerally ith this+ industries are relie%ed of the financial constraint of &urchasing (outright!
e9ui&'ent for their &roducti%e &rocess #y the a%aila#ility this facility(
c( Ca&ital issues: As issuing house+ the 'erchant #anks ad%ise in raising ne ca&ital either #y &u#lic
issues or &ri%ate &lace'ents and also underrite and 'arket such issues(
6( BAN*IN) S!R$IC!S
a( Money 'anage'ent and re'ittances: Merchant #anks are s&ecialists in funds 'anage'ent and %ery
often they are called u&on to assist co'&anies in de%elo&ing in%est'ent &rogra''es for e$cess funds(
Money 'anage'ent is one of the earlier functions of 'erchant #anks( As for re'ittances the #anks
re'it funds arising fro' trade and non/trade transactions ithout delay( "hey also recei%e and deli%er
fund re'itted fro' a#road to cor&orate client at ho'e(
#( ?ocu'entary and clean creditsIcollections: "he 'erchant #anks &ro%ide docu'entary sight and
acce&tance credit ser%ices to their cor&orate clients( ?ocu'entary credits are %ery useful instru'ents in
facilitating co''ercial relati%es such as #eteen an i'&orter in one country and a 'erchant a#road+ or
in financing or shi&'ent of 'erchandise fro' one country to another( Collection ser%ices co%ering
co''odities and ser%ices i'&orted into and e$&orted out of Nigeria constitute another ty&e of ser%ices
i'&orted into and e$&orted out of Nigeria constitute another ty&e of ser%ice &ro%ided #y the 'erchant
#anks in Nigeria to their cor&orate clients( "he ser%ice also enhances relations in ter's of i'&orts and
e$&orts of co''odities and ser%ices(
c( ?e&art'ent factoring and &u#lic 'anage'ent : "he #anks carry out de#ts factoring ith or ithout
resources( ?e#t factoring ith resources 'eans that the de#t is &ledged #y a cor&orate any other
institution for the &ur&ose of collecting funds fro' the #anks for the cor&orations concerned and not to
loose anything in the e%ent of default #y the #y the de#tors #ut the oners of the de#ts that 'ay result(
?e#t &etering ithout resources on the other land 'eans that the de#t has #een sold out/right to the
#anks of a discount in this case the #ank of a discount in this case the #anks #eco'e the oner of the
de#t and ill #ear any loss in the e%ent of default #y the de#tors( Merchant #anks also offer de#t
'anage'ent ser%ices to this clients hich include ad%ising the' or &ro&er ter's for an issue+ guidance
or regulations drafting and 'arketing the issues(
d( ?irect loans: =oans are directly 'ade a%aila#le to clients for orking ca&ital( "rade finance+ &lant
e$&ansion+ e9ui&'ent &urchases outside the leased ones and for 'ost other nor'al cor&orator
&ur&oses( "hese loans are often 'ade on short 'ediu' and long ter' #asis in #oth the &referred sectors
and su#/sectors of the central #ank credit guidelines hich #eco'e a&&lica#le to 'erchant #anks
ser%ice A&ril 1:25(
e( *ro)ect finance: "he #anks ha%e in%ol%ed in &ro)ect financing &articularly here ne &ro)ects are
a#out to #e esta#lished e$a'&le is the NA= 'erchant #ank =td handled the &ro)ect financing of S"HR
Nig ="d( A co'&any esta#lishing a co''ercial %ehicle &lant in Bauchi in &artnershi& ith the federal
'ilitary go%ern'ent and a nu'#er of state go%ern'ent(
f( @andling of letters of credit: "he ser%ices of 'erchant #anks in Nigeria include such o&erational ones
as 'aintenance of letters of credit for clients( A letter of credit is one issued #y the #uyer<s (i'&orter<s!
#ank guaranteeing that the e$&orter ould #e &aid for his ite' (of trade! hen they are shifted( "his
letter usually goes fro' the i'&orter<s #ank to the e$&orter<s #ank and 'ost #usiness 'en like this
transaction #ecause of it<s si'&licity in o&eration(
g( Other ser%ices: Other ser%ices &ro%ided #y 'erchant #anks to it<s custo'er include: feasi#ility
studies and ad%ice on ca&ital structure+ 'arketing su&&ort and &ricing securities+ stock #roking and
de#enture stock issues+ offering trustee ser%ices and organi8ing se'inars acce&tance of de&osit+ #ill
discounting and foreign transactions to 'eet the need of co''erce and industry+ 'erger and
ac9uisitions+ e$&ort &ro'otion(
6(1- F(NCTIONS OF T-! C!NTRA& BAN* OF NI)!RIA
Based on the infor'ation o#tained fro' CBN Enugu( "he central #ank of Nigeria Act is s&ecific as to
the ty&e of functions the #ank should &erfor'( "hese functions knon as traditional function are
further disenssed #elo:
1( 7ssue of legal tender currency: One of the 'a)or tasks confronting the #ank at ti'e of it<s
esta#lish'ent as the need to re&lace the est African currency #oard notes and coins ith it<s on(
Conse9uently on Auly 1+ 1:,:( "he #ank issued the first Nigeria country and #egan the &rocess of
ithdraing the >ACB currency fro' circulation in the country( Since then se%eral currency changes
has #een carried out in the country+ the change as 'eant in each case to underscore so'e &articular
o#)ecti%es of the Nigerian go%ern'ent for e$a'&le: there as in 1:5, design to reflect the re&u#lican
statues of Nigeria( "he one undertaken in 1:53 during the ci%il ar ai'ed at ensuring the success of the
federal go%ern'ents trade e'#arked on the secessionist<s areas and to forceful the use unissued
currency notes that had #een illegally re'o%ed fro' the CBN %oults in Enugu+ &ort @arcourt and
Benin( 7n Aanuary+ 1:24 deci'al notes ere issued for the first ti'e folloing the authority<s decision
to change o%er to the decisional syste' of currency(
"his as folloed #y the introduction of N6- notes in 1:22 to honor the assassinated head of state
general Mortala Moha''ed( 7n Auly 1:2:( ne designs of N 1+ N , and N 1- notes ere introduced
and standardi8ed to #e of the sa'e si8e of the N 6- notes( "hey ere also designed as the N 6- notes to
carry the &ortraits of National horses(
Another changes ere 'ade in A&ril and 'ay 1:30( hen the la#ours of %arious currency notes (e$&ect
,- ko#o! ere changed in other to forestall the acti%ities of currency traffickers and counterfeit
'ongers( =ater in 1::1+ the hole currency ere changes and another ne one ere added i(e( N ,-
note and today e ha%e N 1-- and N 6--+ and the 'ost recent the N ,-- notes in circulation(
6( Manage'ent of e$ternal reser%e: "he #ank has res&onsi#ility for 'aintaining e$ternal reser%e in
order to safeguard the international %alue of the Nigeria currency( 7t is legally re9uired to 'aintain
e$ternal reser%es e9ual to 6,B of it<s issue and other de'and lia#ilities( "o this end the #ank de'and
custodian and 'anager of the country<s foreign e$change reser%es( "he #anks res&onsi#ility for the
'anage'ent of Nigeria<s e$ternal reser%es dates #ack to 1:,: folloing the recei&t of the starting
assets #acking of the est African currency #oard( 7n 1:52 as a result of a'end'ent to the e$change
control @et 1:5-+ authori8ed foreign e$change dealers ere re9uired fro' that ti'e to surrender all
their e$&ort &roceed to the central #ank of Nigeria( "his de%elo&'ent essentially centrali8ed all the
reser%e holding of the country in the central #ank hich until 1:24 in%ested the' through it<s to
corres&ondents #anks a#road that is the #ank of England and the federal reser%e #ank of Ne Hork
;(S(A( "he grinding consideration in its in%est'ent choices #eing li9uidity security and inco'e(
@oe%er+ since 1:24+ as a result of the 'ulti&le increase in reser%es+ &ositi%e ne action as called for
hich essentially 'eant that ne inco'e o&&ortunity could #e e$&lored hile at the sa'e ti'e
reducing to the 'ini'u' &ossi#le losses fro' &ro#a#ly de%aluation or de&reciation of reser%e
currencies as &ossi#le instead of only in ;(S( ?ollar and found starling hich as discussed earlier+ as
the case &rior to 1:24+ currently the central #ank 'aintains accounts in %irtually e%ery 'a)or central
#ank in the estern orld( An i'&ortant as&ect of the e$ternal reser%e 'anage'ent is the
deter'ination of the e$change rate of the Naira( ;ntil early in 1:23+ the e$change rate of the Naria as
ties to the 'o%e'ent of the ;( S( ?ollar and &ound starling in the international 'oney 'arkets(
Currently hoe%er+ a #asket of currencies a&&roach si'ilar to the 11:e %aluation 'ethod for the S( ?(
R is used(
4( Banker and financial ad%iser to the go%ern'ent: "he central #ank of Nigeria as ith 'ost other
central #ank is oned #y the federal go%ern'ent hich fully su#scri#ed to the &aid u& ca&ital of N 4(-
'illion sti&ulated in the C(B(N( Act( of 1:,3( "he Act itself+ stated that the #ank shall #e entrusted ith
federal go%ern'ent<s #anking and foreign e$change transactions in Nigeria and a#road including
&ay'ent to or in res&ect of the international 'onetary fund( "he C(B(N Act s&ecifically assigns the
central #ank of Nigeria ith the role of recei%ing and distur#ing federal go%ern'ents 'oney and
kee&ing account thereof ithout re'uneration for such ser%ices( Further+ in any &lace here there is no
#ranch of the #ank( it 'ay a&&oint another #ank to act as it<s agent for #anking transactions of the
go%ern'ent( 7n &ursuance of this statutory re9uire'ent+ the #ank tool o%er fro' other #ank institution
'ost of the federal go%ern'ent #anking transactions in the country+ i''ediately folloing it<s
esta#lish'ent in 1:,3( this is the o#ligated to &erfor' those #anking functions for the go%ern'ent that
a co''ercial #ank ill nor'ally &ro%ide for its custo'ers( @ence in addition to kee&ing the account of
the federal go%ern'ent+ it also grants short and long/ter' loans to the go%ern'ent in the for' of ays
and 'eans+ ad%ances+ "reasury hill+ treasury certificate and de%elo&'ent stock( "he central #ank of
Nigeria is also a 'a)or &artici&ant in the negotiation of internal loans for the federal go%ern'ent and
'anage this loans on #ehalf of the go%ern'ent( 7n addition to acting as #anker to the federal
go%ern'ent+ CBN Act+ also &ro%ide that the #ank 'ay also act as #ank to any financial institution or
cor&oration of the federal go%ern'ent or any state go%ern'ent( "he #ank is also a key ad%iser to the
federal go%ern'ent on do'estic and international econo'ic affairs( "here is continuous consultation
#eteen the federal go%ern'ent and the #ank on 'a)or econo'ic issues and re&resentati%e of the CBN
often ser%e in %arious econo'ic ad%isory #odies of the federal go%ern'ent(
0( Relationshi& of the CBN ith the co''ercial #anks: Section 43 of the central #ank Act 1:,3+
s&ecifically states that the CBN E'ay act as #anker to other #anks in Nigeria and A#roadF( "he Act
further en)oying the #ank to see the cor&oration of and coo&erate ith other #anks in Nigeria to
&ro'ote and 'aintain ade9uate #anking ser%ices for the &u#lic as ell as ensure high standard of
conduct and 'anage'ent throughout the #anking syste'( Along ith this+ the Act also direct s that the
central #ank after consultation ith the 'inister of finance+ to &rescri#e a 'ini'u' ratio of total loans
and ad%ances to #e granted to indigenous &erson as ell as the &ro&ortion of a co''ercial #ank<s total
de&osit lia#ilities that 'ust #e held as cash reser%e at the central #ank and as li9uid assets( "o this end+
the #anks are re9uires to su#'it 'onthly returns to the CBN and also allo the CBN to 'onitor their
acti%ities+ &articularly ith res&ect to co'&liance ith s&ecific CBN guideline( "he returns are also
useful in that they hel& the #ank<s hich 'ight re9uire ad%ice in the 'anage'ent of their affairs(
Further'ore+ the reco''endation of the CBN is %ery critical to the esta#lish'ent of any ne
co''ercial or 'erchant #anks in Nigeria( 7ndeed the &rocess for granting of a #anking license in
Nigeria re9uires that any a&&lication for such a license should in the first &lace #e su#'itted to the
central #ank for re%ie and reco''endation u&on the reco''endation of the central #ank the
a&&lication is forarded to the 'inistry of finance and through the 'inistry of finance to the
go%ern'ent for final a&&ro%al u&on a&&ro%al #y the go%ern'ent+ CBN along ith se%en other #anks
inaugurated E"he #anker co''itteeF on the 6:th Se&te'#er 1:,3 a fe 'onths after its esta#lish'ent(
"he co''ittee<s 'e'#ershi& is 'ade u& of all licensed #ank<s o&erating in the country and central
#ank of Nigeria( One of the 'a)or o#)ecti%e of the co''ittee is to de%elo& a foru' for co/o&eration
a'ong all #anks in their o&eration( "he CBN %ery fre9uently uses the foru' to announce so'e of it<s
'a)or &olicies as they affect the #anking syste' as ell as to a&&eal to #ank<s to co/o&erate in the
i'&lantation of so'e s&ecific go%ern'ent and central #ank 'easures( "he co''ittee has also designed
s&ecific codes of condnet for all 'e'#ers that are ai'ed a'ong others( "o &rotect the #anks against
frauds and 'al&ractices and to &ro'ote the efficient o&eration of the #anking syste' in the country(
"he chair'an of the co''ittee is the go%ernor or in his a#sent the de&uty go%ernor of the central #ank(
the secretary of the co''ittee is also a senior staff of CBN(
"he central #ank of Nigeria also &lay an i'&ortant role of lender of last resort to all co''ercial #anks(
"he role is %ery i'&ortant and has resulted in significant reduction in #ank failures in the country( As a
lender of last resort+ the CBN is o#liged to co'e to the aid of any licensed #ank in the country that
'ight #e in financial crises(
,+ *ro'otion of 'onetary sta#ility: "he central #ank of Nigeria has &ri'ary res&onsi#ility in
consultancies ith the federal 'inistry of finance for for'ulation and e$ecuting 'onetary &olicy+ a
%ery i'&ortant function of the #ank(
@oe%er+ folloing the CBN Act+ (A'end'ent! ?ecree No 4 of 1:54+ these &oer ere so'ehat
curtailed+ hile the CBN is the recogni8ed 'onetary authority ith res&onsi#ilities for 'onetary
&olicy+ 'onetary &olicy is actually &ro&osed %ia a 'e'orandu' sent #y the #ank to the go%ern'ent
through the honoura#le 'inister for finance( "he a'end'ent to the CBN the #oard of directors of the
#ank kee& the honora#le 'inister infor'ed of the 'onetary and #anking &olicy &ursued or intends to
#e &ursued #y the #ank( >here the 'inister disagree ith any of the CBN<s &olicy &ro&osal+ he 'ay
su#)ect his o#)ections and alternati%e &ro&osals along ith those of the CBN directly to the
go%ern'ent( "he final decision of the go%ern'ent is e'#odied in the annual 'onetary &olicy circular
issued y the #ank to all co''ercial and 'erchant #anks in a sense+ the federal go%ern'ent is the
ulti'ate 'onetary authority and the central #ank &lays #asically an ad%isory role(
"he CBN also &rescri#e the ratio of de&osit lia#ilities hich co''ercial #anks 'ust hold in the for'
of li9uid assets( "he ratio is ai'ed at &rotecting the interest of de&osit oners and control the o%erall
%olu'e of credit( So'e of the ite's included in the co'&utation of #ank li9uid ratio are "reasury #ill+
"reasury certificate and eligi#le de%elo&'ent stock (i(e( go%ern'ent stock 'ini'u' li9uidity ratio
&rescri#ed #y the CBN has ne%er #een changed fro' the original 6,B(
Banks as a grou& hoe%er constantly e$ceeded his forget #y significant 'argin( Belo it could #e said
that Nigeria #ank<s ha%e not regarded this ratio as a 'onetary &olicy tool designed to e$&and or cur#
their credit acti%ities if need #e #ut as a )ustifia#le 'eans of lending short+ &articularly to the
go%ern'ent sector( 7ndeed co''ercial #anks in Nigeria ha%e #een accused of sitting tight on old age
orthodorcy in #ills doctrine of lending short ithout talking so'e risk in 'ediu' and long/ter'
in%est'ent(
6(11 T-! RO&! OF T-! M!RC-ANT BAN*S IN FINANCIN) INT!RNATIONA& TRA'!
M!RC-ANT BAN*/S AN' INT!RNATIONA& TRANSACTIONS
Cron 'erchant #ank has ac9uired a re&utation for fast and efficient &rocessing of international
#usiness transactions such as foreign e$change for co'&anies engaged in i'&orting and e$&orting of
ca&ital goods and co''odities+ 'erchant #ank<s &ro%ide ser%ices hich include the &rocessing of
re'ittances+ ?ocu'entary credits such as ?ocu'entary ?raft for collection (??C! and letters of credit
(=C!(
a( Re'ittance: Co'&anies hich i'&ort goods fro' o%ersees su&&liers 'ay use 'erchant #ank for the
re'ittance of foreign e$change as co''issions for this ser%ices are controlled #y the CBN+(
#( ?ocu'entary ?raft For Collection (??C!: 7n order to safeguard his goods until &ay'ent has #een
'ade #y the i'&orter or until the i'&orter has entered into a legal o#ligation to &ay an e$&orter of
goods to Nigeria 'ay re9uire that &ay'ent #e 'ade through the use of ??C( "he 'ethodology of this
international collection (??C! is as follos( "he e$&orter shi&s his goods and then dra<s a sight or
ti'e draft on the i'&orter and deli%ered the draft on the i'&orter together ith the rele%ant docu'ents
to his o%ersees #ank( "he e$&orter<s #ank then sends this infor's the i'&orting co'&any that can co'e
and collect the docu'ents necessary for release of the goods fro' the &orts+ if it 'eets the ter's of the
draft+ the i'&orter ould ha%e to &ay for the goods #efore collecting the docu'ents hilst in the case
of a ti'e draft+ the i'&orter ould ha%e to acce&t a legal o#ligation to &ay for the draft of 'aturity( 7n
essence the #ank acts as an agent in the transaction and changes fees set #y the CBN for it<s ser%ices(
c( O&en account: 7n o&en account transaction+ the #usiness transaction #eteen the i'&orter is #ased on
trust i(e( the e$&orter on the send the goods on trust i'&orter on the #elief that the i'&orter ill &ay as
soon as he sell the goods( "he e$&orter+ it is no the duty of the i'&orter to sell the goods and &rocess
the docu'ents to ena#les &ay'ent to #e 'ade usefully the i'&orter ill a&&ly for foreign e$change to
the tone of the a'ount of the goods through his #ank to the CBN( >hen this is a&&ro%ed+ the i'&orter
can then &ay the e$&orter through his #ank(
d( =etters of credit (confir'ed J unconfir'ed!: 7n 'odern international trade+ the co''ercial letters
credit ha%e #eco'e %ery useful instru'ent for facilitating transactions #eteen a #uyer or i'&orter in
one country say Nigeria and a seller or e$&orter in another country say Austria( Confir'ed letters of
credit 'ay #e used in the folloing ty&ical 'anners( "he #uyer instructs his on #anker here in
Nigeria in the fallour of a seller ith a #ank in the sellers country ("he inter'ediary or corres&ondent
#ank!( the #uyer instructs the issuing #ank the seller should only #e alloed to dra on the credit on
&resenting to the corres&ondent #ank+ docu'ents shoing that the goods su#)ect to the contract ha%e
already #een shi&&ed to the #uyer in accordance ith the contract re9uire'ent(
*AHMEN": "his docu'ents ould nor'ally consists of the seller<s in%oice+ the #ill of lading and the
insurance &olicy or certificate es&ecially in C(7(F contracts( >here these docu'ents are &resented #y
the seller to the corres&ondent #ank and this #ank is satisfied that they are in order+ they ill &er'it the
seller to dra against the credit e%en though issuing #ank has not yet 'ade a%aila#le the necessary
funds( "his &ay'ent #y 'eans of #anker<s confir'ed letter of credit o&erates not 'erely as a 'ethod of
&ay'ent #ut as a 'eans of guaranteeing &ay'ent(
Co''ercial letters of credit co'e in %arious for's( "here are to 'ain ty&es: Re%ocation and
7rre%ocation letters of credit( "he letter 'ay #e confir'ed or unconfir'ed(
AN IRR!$OCATION &!TT!R OF CR!'IT
7s a definite undertaking #y the issuing #ank that the credit ill #e 'ade a%aila#le to the seller on his
co'&liance ith the sti&ulated conditions+ that e$&ort of goods to the #uyer and tender of the in%oice
and issuance &olicy as the case 'ay #e to the inter'ediary or corres&ondent #ank(
A R!$OCAB&! CR!'IT does not constitute a definite co''it'ent #y the issuing #ank and 'ay #e
ithdraing at any ti'e(
A co''ercial letter of credit is confir' of the corres&ondent #ank acce&ts a direct o#)ecti%e to the
seller to honour the credit hether or not funds ha%e #een 'ade a%aila#le to it #y the issuing #ank(
Nor'ally+ this ould #e done for on e$tra co''ission &aya#le #y the seller+ here the credit is
unconfir'ed the seller can only #e &aid if funds are 'ade a%aila#le #y the issuing #ank( otherise the
sellers has a recourses against the corres&ondent #ank for &ay'ent(
An irre%oca#le letters of credit i'&oses an a#solute o#ligation on the corres&ondent #ank to &ay u&on
the lender of the necessary docu'ents ithin the &eriod alloed( No su#se9uent instructions fro' the
#uyers and no dis&utes #eteen the #uyer and the sellers as to ether the #ank fro' its o#ligation
here an irre%oca#le letter of credit is a%aila#le+ the #uyer cannot for e$a'&le order the corres&ondent
#ank to sto& &ay'ent #ecause the goods su&&lied are not satisfactory &ro%ided the docu'ents &resented
#y the seller ere in accordance ith the conditions laid don #y the issuing #ank(
7t is this characteristic that a&&eals to foreign e$&orters( "he 'ade of &ay'ent a%oid any o#stacle hich
the #uyer 'ight raise after the goods ha%e #een &ut in transit(
6(16 RO&! OF T-! C!NTRA& BAN* OF NI)!RIA IN FINANCIN) INT!RNATIONA&
TRA'!
7nfor'ation o#tained fro' CBN Enugu re%eals that the central #ank of Nigeria like 'ost other central
#ank<s in the orld o%er &erfor's certain national and other international functions(
"he 'ain functions of the central #ank to international trade has #een in ter's of e$ecution of foreign
e$change in 'ost de%elo&ing countries like Nigeria+ recei&ts of foreign e$change is usually inade9uate
to 'eet current or &erha&s future de'and for foreign &ay'ent( 7n addition+ a nation needs to conser%e
or hold foreign e$change resources at a le%el that her trading &artners do not ha%e dou#ts as her a#ility
to 'eet her international o#ligations( "he federal go%ern'ent of Nigeria in effort to see to the &ro&er
e$ecution of the foreign e$change &olicy to &rotect the country<s #alance of &ay'ent and to 'aintain
sta#ility in the do'estic econo'y+ she ado&ts so'e fiscal and 'onetary &olicies to introduce e$change
control 'easures(
"hese change fro' ti'e to ti'e de&ending on the state of the econo'y( "here as on oil #oo' in
Nigeria in the 1:2-<s during hich ti'e the country found itself ith 'assi%e oil re%enue(
At the ti'e the nation did not ha%e &ro#le' ith its foreign e$change and #alance of &ay'ent(
Conse9uently+ although the fiscal &olicy of the go%ern'ent at the ti'e as to use the huge oil re%enue
to di%ersify the econo'y and in &articular to de%elo& the agricultural sector( >ide s&read un#alances
and distortion in the Nigeria econo'y e'erged during the &eriod of oil #oo'+ the country as
transfor'ed fro' one de&endent on agriculture to one hea%ily de&endent on oil(
"o 'ake 'atters orse the country &ersuade restricti%e trade and e$change control &olicies hich an
retros&ect ere counter &roducti%e( As a result of the oil ghit hich started early in 1:31+ the country<s
#alance of &ay'ent deter'ined(
By A&ril 1:36+ the situation #eca'e so serious that the hardly finance foru 'onths i'&ort (a resources
le%el hich is con%entionally! regarded as inade9uate #y the international 'onetary fund (7MF!(
"he central #ank as &art of go%ern'ent 'achinery for for'ulating and i'&le'enting econo'ic
&olicies &artici&ated in the design of 'easures to re%a'& the econo'y in the circu'stances it as
i'&erati%e to design short ter' drastic 'easure to address the unhealthy de%elo&'ent( "his therefore
led the federal go%ern'ent to introduce so'e econo'ic sta#ili8ation 'easure ai'ed at drastically
curtailing i'&orts and conse9uently reducing foreign e$change dis#ar'ent( "he 'easures include
reduction of "ra%el alloances &egging the annual nu'#er of &ilgri's &erfor'ing the ha)) &rescri&tion
of co'&ulsory ad%ance de&osits against in&ut ith &ercentage ranging #eteen 1-B and 1,B for ra
'aterial and s&are &arts res&ecti%ely the 6,B for &assenger cars and re/introduction of &reshi'ent
ins&ection for industrial ra 'aterials(
"he a#o%e 'easures notithstanding the 'eager inflo of foreign ere rationed ith &riority gi%en to
&ay'ent for ser%ices such as ho'e re'ihance+ Education+ Medical+ interest on a&&ro%ed loan+
Re&ay'ent of loan+ "ra%els etc(
"hese 'easures ere 'ade 'ore straight and &er%asi%e #eteen 1:36 and 1:3,( Further'ore+ in
kee&ing the regi'e of controls the naira as su#stantially o%er %alued through canlious ad'inistrati%e
action( Moreo%er+ the restricti%e 'easures( For fro' dealing effecti%ely ith the funda'ental econo'ic
&ro#le's confronting the econo'y 'ade 'atters orse( .i%en those &re%ailing circu'stances+ hich
'any &eo&le ha%e no con%eniently forgotten+ the &ressure for radical econo'ic refor' could the
longer #e resisted(
"his is a #rief #ackground to the introduction of the structural Ad)ust'ent &rogra''e #y the
Ba#angida Ad'inistration in 1:35( "he #road o#)ecti%e of the SA* ere to restricti%e and di%ersify the
&roducti%e #ase of the Nigeria econo'y in order to reduce de&endence on oil sector and i'&orts and
also to foster self reliance and enhance efficiency in the &u#lic and &ri%ate sector of the econo'y(
"he central Bank as the 'a)or ad'inistrator of e$change control has the res&onsi#ility of allocating
foreign e$change to &ri%ate sector i'&ort+ freight and insurance &assengers fares+ &ilgri' charter fees
and s&ecial transfer on e$ternal account(
"he 'erchant #anks e$ercise so'e a&&ro%ing functions too in the folloing areas: &ri%ate sector
i'&orts+ #asic tra%el alloance( @o'e re'ittance+ corres&ondence courses and education( All
a&&lication for hich e$change control a&&ro%al has #een gi%en one &assed to the CBN for checking
and %erification of a'ount and the conse9uent a&&lication of foreign e$change( Shi&&ing docu'ents as
collateral security for the ad%ances(
STOC* !,C-AN)! MAR*!T
"his is a #ody of hich the central #ank of Nigeria is a 'e'#er+ as a 'atter of destination+ stock
e$change 'arket in%ol%es the esta#lish'ent of a centrali8ed clearing syste' in order to &ro%ide for a
s&ecific 'echanis' of settle'ent for transaction(
R!MITTANC!
All a&&lications e$ce&t those that #order on the federal 'inistry of finance<s schedules are &rocessed
a&&ro%al(
"he a&&ro%ed a&&lication are sent to the central Bank of Nigeria for checking+ hen checking is
co'&lete and a&&lication found satisfactory+ a letter of ad%ice on release of foreign e$change ill #e
forarded to the authorised dealers( 7n this ay+ the CBN effects &ay'ent of foreign e$change for all
a&&ro%als eather #y the federal 'inistry of finance+ CBN or the authorised dealers(
6(10 S;MMARH OF "@E =7"ERA";RE REC7E>
7n this literature re%ie+ 7 ha%e #een a#le to ha%e a look on the #anking syste' in the country and it<s
i'&act on this role of central #ank and 'erchant #anks in financing international trade in Nigeria+
further'ore 7 as a#le to recei%e #riefly the #asic conce&ts of international trade in Nigeria+ the la of
co'&arati%e cost and the #asic conce&ts of #alance of &ay'ent and it<s de%elo&'ent in Nigeria since
inde&endence in 1:5-(
"he discussion re%eals that the role of Bank to international trade is #eing deter'ined #y changes and
de%elo&'ent in the #anking syste'+ there has #een a continuing e%olution of #anking syste' 'ade
&ossi#le #y se%eral factors like huge &rofit+ #eing 'ade #y #anks+ introduction of co'&uter technology
and autono'y hich the central #ank has recently on fro' 'inistry of finance(
So'e #anks in effort to 'ake huge &rofit &la'ount the central #ank of Nigeria 'onetary &olicies+
hich are ai'ed at i'&ro%ing our econo'y( 7 suggest that the CBN should ensure strict co'&liance
ith these &olicies #y the co''ercial and 'erchant #anks(
Banks 'ust ac9uire sufficient international and entre&reneurial outlook to su&&ort not only e$&ort of
Nigeria<s &roducts and ser%ices #ut also co'&any<s technology( "he e$&ort led groth strategy ado&ted
through the structural Ad)ust'ent &rogra''e (SA*! de'and the ser%ices of #ankers ith strong
'arketing skill like the central #ank and 'erchant #anks to co'&ete and &enetrating in the acceleration
of &olitical and social econo'ic de%elo&'ent of our country( "he study re%eals that Nigeria as a
country ith an agro/#ased econo'y #efore 1:2-( "he later turned to de&end 'uch as oil+ this as
found to #e the cause of our &resent econo'ic &redica'ent+ 7 suggest that Nigeria should encourage the
'anufacturing and e$&ortation of other non/oil &roduct and increase the e$&ort of her agricultural
&roducts(
On the #alance of &ay'ent &osition of the country the study re%eals that the #eha%iour of the #alance of
&ay'ent as erratic &articularly since 1:2-( 7 suggest that the federal go%ern'ent should de%elo& a
long/ter' solution to the #alance of &ay'ent in %ie of a future &ros&ect of di'inishing %olu'e of oil
e$&orts(
6(1, S;MMARH OF *ROCE?;RE 7N 7N"ERNA"7ONA= "RA?E
"he #uyer and seller conclude a sale contractly &ro%iding for &ay'ent usually #e docu'entary credit(
"he #uyer instructed his #ank E the issuingF #ank to issue a credit in fa%or of the seller (#eneficiary!(
"he issuing #ank asks another #ank usually in the country of the seller to ad%ice or confir' the credit+
the ad%ising or confir'ing #ank the seller that the credit has #een issued(
As soon as the seller recei%es the credit and is satisfied that he can 'eet its ter's and conditions he is
in a &osition to load the gods and dis&atch the'(
"he sellers then sender the docu'ents to the #anks here the credit is a%aila#le i(e( the no'inated
#ank( "his 'ay #e the issuing of #ank+ or the confir'ing #ank or #ank na'ed in the credit as the
&aying acce&ting or negotiating #ank(
"he checks the docu'ents against the credit( 7f the docu'ents 'eets the re9uire'ent of the ter's of
the credit( "he #ank of other than the issuing #ank sends the docu'ents to the issuing #ank(
"he issuing #ank checks the docu'ents and if they 'eet the credit re9uire'ent+ either effects &ay'ent
in accordance ith the ter's of credit or rei'#urses is the &re/agreed 'anner the confir'ing #ank or
any #ank that has &aid acce&ted or negotiated under the credit(
>hen the docu'ents ha%e #een checked #y the issuing #ank and found to 'eet the credit re9uire'ent+
they are released to the #uyer u&on &ay'ent of the a'ount due or u&on other ter's agreed #eteen
hi' and the issuing #ank(
"he #uyer sends the trans&orts docu'ent not to the carrier ho ill then &roceed to deli%er the goods(
!,.ORT .ROC!'(R!S
1( R!C!I.T OF OR'!R: An agent recei%es an order (indent! fro' o%erseas #uyers( "he indent 'ust
#e 'ade out as 'uch details as &ossi#le in order to &resent 'istakes and 'isunderstanding( "he indent
re9uired:
a( "he a&&ro$i'ate &rice
#( ?ate of deli%ery
c( 7nstruction on &acking and shi&&ing
d( ?ate of shi&'ents
e( A'ount of co''ission &aya#le to the agent(
6( .&ACIN) T-! OR'!R: 7f the agent recei%es a close indent he contact the na'ed fir' gi%ing
instructions regarding his foreign &rinci&al agent( "he agent o#tains 9uotations fro' different su&&liers
and then &laces on order ith the one he has chosen if it is an o&en one(
4( .AC*IN): @e sends instructions to the su&&liers on ho to get the goods deli%ered( "he si8e of any
&ocket or &acking case should #e suita#le for acce&tance into container ith 'ini'u' loss or s&ace(
0( FOR%AR'IN) TO T-! S-I.: "he su&&lier deli%ers the goods to the agent ho send ad%ice note
of shi&'ent to the ducks instructing the' to &lace the goods on #oard a certain shi& of no #ill of lading
is a%aila#le+ a 'aster recei&t is issued( 7t is signed authori8ed officer of the shi& and stakes that the
goods ha%e #een recei%ed in good condition( 7f any of the &ackage are da'aged in anyone not 'ade on
'ates recei&ts if the if the officer of the shi&&ing co'&any is different fro' shi&&ing yard(
,( S-I.M!NT OF T-! )OO'S: Shi&&ing docu'ents are &re&ared #y the agents+ they include+ #ill
of lading+ insurance certificate+ e$&ort in%oice+ consular in%oice+ certificate of origin( "he shi&&ing
docu'ents are sent to the #ank of the i'&orter fro' trans'ission to the o%erseas #uyer(
5( C(STOMS S.!CIFICATION: "he agents su#'it e$&ort &articulars to the custo' authority( "his
re9uire'ent 'ust #e co'&leted #efore the clearance of the shi&( 7t ena#les the go%ern'ent to co'&ile
trade statistics during any gi%en &eriod(
0(1 ANA=HS7S OF ?A"A *RESEN"A"7ON
Further findings as regards to this ork ha%e that fro' the study so far conducted on the roles of
central and 'erchant #ank in financing international trade in Nigeria+ a lot of o#ser%ation ha%e #een
'ade( As far as #anking function is concerned 'erchant #anks are not so i'&ortant as &ro&osed #y
other riters( "hey a&&ears to #e indis&ensa#le yet their roles in financing international trade #anks+
other #anks and financial institutions( "o ha%e 'erchant #anks 'ay roles ger'ane to our econo'ic
de%elo&'ent( So'e s&ecific roles and o#)ecti%es e$&ected of the' should #e e$&ressly stated and
closely 'onitored(
"he central #ank su#stantially failed in so'e res&ect es&ecially in the 'aintenance of our foreign
reser%es( "his is due to erosion of its autono'y #y the go%ern'ent ad its agencies(
"he Nigeria #anking industry is su#stantially facing the &ro#le' of lack of #anking ha#its in 'a)ority
of the &o&ulace( *eo&le are #eginning to loose confidence in the #anking syste'(
,(4 RECOMMEN?A"7ONS
After conducting the research so'e reco''endations are under listed hich ill hel& the hich ill
hel& the #ank in discharging their international ser%ices 'ore efficiently(
1( *u#lic relation: Not 'uch is kno a#out the functions of the 'erchant #anks #y the &u#lic( "hey
ha%e a res&onsi#ility to the &u#lic( "hey cannot )ust kee& 9uit since they are e$&ected to #e in%ol%ed in
'atters of &u#lic concern( 7f they are 'is/re&resented or their roles 'isunderstanding+ their usefulness
to the econo'y ill #e little or nothing(
6( =iterature: "here are still fe literature on 'erchant #anking in Nigeria+ so it is the researcher<s ith
that our e'inent scholars in the area of #anking to rite #ooks on this as&ect of #anking the i'age of
the 'erchant #anks in the country(
4( Nu'#er of 'erchant #anks and #ranches: More 'erchant #anks should #e esta#lished hile the
e$isting one increase their nu'#er of #ranches to take care of the large &o&ulace(
0( "he CBN su&er%isory roles: Also in the area of i'&ort su&er%ision the central #ank should ensure
strict su&er%ision in order to control the %olu'e of i'&orts(
,( Manage'ent of e$ternal reser%e: "he central #ank should tighten/u& it<s #elt to ensure that our
resources are ade9uately 'aintained(
5( 7'&le'entation of incenti%es sche'es: "he central #ank should encourage e$&ort trade #y
i'&le'entation of it<s e$&ort incenti%es sche'es( @a%ing K/rayed the acti%ities of the 'erchant #anks
and the central #ank in foreign trade financing( 7t can #e seen that they #oth 'ade so'e co''enda#le
achie%e'ent( @oe%er+ it is the researcher<s o&inion that if the a#o%e reco''endation are adhered to
strictly+ it ill go a long ay in 'aking 'erchant #anks 'uch #etter agents in foreign trade financing
and ill hel& the central #ank to carry out it<s su&er%isory roles 'ore effecti%ely(
,(4 CONC=;S7ON
"his &ro)ect has not only tries to identify the roles of 'erchant #anks and the central #ank in financing
foreign trade #ut also seeing the #ank as agents for the &ro'otion of a #alanced and sustaina#le
de%elo&'ent of the national econo'y(
Fro' the foregoing+ it can #e seen that the #anks do contri#ute trade and the si8e of its e$ternal reser%e
de&end largely on the strength or &urchasing &oer of the Naria(
"he 1:,3 Act of &arlia'ent hich esta#lished the CBN changed if ith the res&onsi#ility of the
country<s e$ternal reser%es 'anage'ent and it<s &olicies on this ha%e #een dictated #y the e$igencies of
the &eriod( @oe%er+ the CBN #y 'aking the use of this su&er%isory roles and so'e instru'ents as
letters of credit+ draft+ docu'entary credit e(t(c( has 'ade a great contri#ution( "heir roles in the
'anage'ent of foreign reser%es and e$ecution of foreign &ay'ent are #y no 'eans or si'&le one(
7t is ho&ed therefore+ that they should continue to 'aintain these roles to ensure ade9uate 'anage'ent
of our foreign reser%es(
Merchant #anking is a recent occurrence in Nigeria<s #anking industry and the to&ic E"he roles of
central #ank and the 'erchant #anks in financing international tradeF (A case study of CBN Enugu and
cron 'erchant #ank Benin! is an atte'&t to create an aareness on the duties of these #anks toards
financing international trade in Nigeria( 7t also ai's at assessing ho far these #ank ha%e constituted
toards the reali8ation of this o#)ecti%e(
Based on the foreign+ data for this ork ere #oth &ri'ary and secondary( "he &ri'ary data as
o#tained through oral inter%ie and 9uestionnaires ith the staff of the central #ank Enugu and cron
'erchant #ank Benin( "he secondary data as fro' te$t#ook+ )ournal &u#lication+ central #ank of
Nigeria+ Econo'ics and financial re%ies of 'oney years(