Roles Of Central Bank And Merchant Banks In Financial International Trade
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In classical economic theory, trading is good for you. You are better off concentrating on producing and selling the commodities for the production of which you have a comparative advantage and buying from others those commodities you need which they can produce relatively more cheaply.
This through the market mechanism, a high level of output of goods and services is attained and shared to the benefits of energy participant in the transaction. As with individuals, so with nations.
In Nigeria, international trade has contributed a lot of the country’s infrastructural and manpower development. It therefore becomes necessary to look at the central bank of Nigeria and the merchant banks and their contribution towards financing international trade in Nigeria, with a case study of CBN Enugu, and crown merchant bank Benin.
In this work, the key features of international trade are enumerated and well analyzed. This work went a long way in attempting to see the specific roles played by merchant banks and central bank of Nigeria in financing international in Nigeria.
This work is structure into five chapters the basic highest of all the chapters can be summarized as follows:
1. Introduction to the research mark.
2. International trade in Nigeria, its feature benefits and constraint.
3. Research methodology, analysis of data findings.
4. Historical background, function and structure of the banks.
This work opens with the introduction and definition of international trade, aims of study, scope and limitation, and the significance of the study. The literature are viewed which focuses on international trade in Nigeria is contained in chapter Two. Topics of varying nature and included here, among them are: Nigeria banking system, benefits of international trade, trade restriction, balance payment and Nigeria foreign trade. Chapter three looks at the research methodology and analysis of its findings. The historical background, structure, functions of central bank is highlighted in chapter four. This in charge their roles in international trade.
This work is concluded in chapter five with observation and recommendation.
1.1 INTRODUCTION
The role of international in the acceleration of political and socio – economic development of any nation deserves a good study. The term international trade refers to the trading operation conducted beyond national boundaries otherwise called export and import. It enables one country t have access to those commodities they could not possible produce themselves. Thus a country is able to shift its industry to those products and services for which its resources are most suitable exporting its resources in exchange for the specially of other countries.
Currently in Nigeria, the export growth rate is shown and correctly perceived as a major ousted to accelerated development and in other to avert this, virile export oriented strategies should be evolued. The import and export sector of any economy has to be nurtured, protected and promoted to enhance its positive and meaningful contributions to the survival of the economic system. Apart from government incentives, private and public companies, assistance and specialized financial institutional support, banking institutions play vital roles in financing international trade. As a result of this, it becomes necessary to study the roles of merchant banks and central bank of Nigeria in financing this international trade in Nigeria.
The central bank stored as the apex of the banking system of every country. It is the government representatives in the banking sector and acts mainly as banker to the government.
It acts as banker and adviser to the federal government banks, merchant banks and other financial institutions. It also has the monopoly of issuing legal tender currency in Nigeria and materials external reserves in order to safeguard the international value of the currency, promote monetary stability and sound financial structure.
In relation to international trade the central bank determines what and how much to approve in the areas within its justification such as payment for visible and invisible imports and controls in inflow of foreign exchange earnings from export. It processes exchange control application and makes foreign exchange allocation to qualifying applicants, assist in the monitoring and in the formulation of policies designed to ensure the optimum employment and conservation of the country’s foreign exchange earnings.
Apart from the rules played by the central bank in the international trade, there are two other licensed banks that supplement its rates. The commercial bank and the merchant banks. The commercial banks are referred to as retail banks because of the nature of their operations. They operate through a network of branches throughout the country and have board deposit base. That is the commercial banks accepts deposits from all and not from a particular sources (The deposits are usually called demand deposits).
The second category of the licensed banks is the merchant banks, which are wholesale bankers in the sense that their deposits are usually in very large blocks. They operated from few branches in the commercial centers of this country. They also accept deposits from the public and private co-operations as well as wealthy individuals; their functions include medium and long-term financing, investment. Management, management of unit trust, debt factories equipment leasing and issuing and acceptance of bills of exchange.
As regards international trade the merchant banks have acquired a reputation for fast and efficient processing of international business transactions such as foreign exchange for companies engaged in importing and exporting of capital goods, the merchant banks provide services which include the processing of remittance and documentary draft for collection and letters of credit. From the foregoing, the central bank and the merchant banks are indispensable as for as international trade is concerned and as such deserved a good study.
2.2 a. DEFINITION OF INTERNATIONAL TRADE
International trade is the movement of goods and services between countries such that one country is able to shift its industry to those products and services for which its resources are most suitable, exporting its resources in exchange for the specialty of other countries.
b. CENTRAL BANK
It is defined by functions it performs, it is the nations bank charged with the issuing of legal tender, maintaining external reserves, supervisor of other banks, promoting of monetary stability, adviser to the government on financial matters and maintaining sound financial structure.
c. MERCHANT BANK
A merchant bank is any financial institution that engages in wholesale banking, median and long-term financing, investment management, management of unit trust, debt fractioning, equipment leasing and issue and acceptance of bills of exchange.
1.3 AIMS OF THE STUDY
The purpose of this study is to give an overview of the activities of merchant banks and the central bank, particularly their roles in financing international trade in Nigeria. In international trade the roles being played by both banks are complementary in the sense that one cannot function without the “acquit of the other”. Suffice it to say that international trade financing activities of one bank is complemented by the other hence the topic “the role of central bank of Nigeria and merchant banks in financing international trade in Nigeria.
Merchant banks are recent occurrence in the country’s banking industry. Not much is known by the public about their activities.
The aim of this research work therefore is to highlight the roles of central bank and merchant banks in international trade financing.
1.4 STATEMENT OF THE PROBLEM
International trade is a trade between nations of the world and this trade arises from two basic reasons. One of this reason is that most countries find themselves in need of commodities they could not possible produce. Another basic reason for international trade is that countries different in their efficiencies in the use of national resources.
In Nigeria, international trade has contributed a lot to the country’s infrastructure and manpower development. Promoting international trade requires the assistance and financial support of specialized financial institutions like the central bank and merchant banks.
This study attempts to identifying the roles these banks play in financing international trade in Nigeria, these include:
i. Knowing their roles in terms of borrowing and lending.
II. Evaluating the extent of their financial investment in financing the trade in Nigeria.
III. To appraise the performance of these banks to know as far as possible the remote causes of adverse balance of trade.
IV. To know how the banks have been encourage in playing the roles.
1.5 SIGNIFICANCE OF THE STUDY
The significance of the study could be seen on reflecting, that international trade exists as a backbone of our economic system, which is a subset of our national economy. It is and engine of growth, a potent strategy for mutual interdependency among world nations and of course, an instrument for technological and industrial emancipation.
It is aimed at identifying the roles of the central bank of Nigeria and the merchant banks as it affect international trade. The roles as identified are observed through recommendations to be made, where these roles are not identified and encourage, development and growth of international trade will continue to elude Nigeria which will invariably retord the development of the nation as a whole.
The central banks roles in this country are often misunderstand and as a result the central bank can become a target of public criticism, particularly doing period of economic upheavals. This study has been designed therefore to show the roles it plays in building the economy. It should be noted that the central bank operated basically withing the provisions of the 1958 central banks Act and its various amendments.
The merchant banks play rules germane to our economic development country to public commitment. This study aims at revealing these roles and making recommendation. The study is significant to business executives, policy makers, economist, merchants and government agencies. Through the study, attention is drawn on drawn on the roles the banks play and ways to encourage these
1.6 SCOPE AND LIMITATION OF THE STUDY
This study is to cover the central bank of Nigeria and the merchant banks operations as it affects the financing of international trade in Nigeria with CBN Enugu and crown merchant bank Benin as a case study.
The shortcomings in this study include the inability of the research work to get all the necessary materials relevant and adequate for this study.
For example, during the oral interview with the staff of crown merchant bank, they maintained a high seereey which limited the scope of the information that the research waited to gather. They were afraid that if they disclose such information it would go into the hands pf their competitors. While the staff of CBN Enugu insisted and maintained in issuing general information of CBN as body.
The problem of limited times is more constraint although efforts were made to justify the work. There was equally lack of fund to travel these long distances, especially this country where transport network is poor and expensive. Also poor communication network contributed to the limit of the study.
1.7 HISTORICAL BACKGROUND DEVELOPMENT CONSTITUTION AND STRUCTURE OF THE CENTRAL BANK OF NIGERIA
CBN Enugu was traced back to the 11th day of June 1995 where its foundation block was laid by the, then governor of Eastern Nigeria, His exchange Sir Francis Akanu Ibiam G.C.O.N K.C.M.G and later commissioned on the 12th of April 1973, by the then Administrator of the East central state. His Excellency Mr. Ukpabi Asika.
Further information reveals that its parent body was established in 1958 under an Act of parliament known as the central bank Act. For many years before the establishment of the, a rudimentary monetary system had already began the process of transforming the Nigeria economy from a barter economy. The media of exchange then were however multifarious and therefore not very conducive to the operations of modern monetary system. Hence one could not really regard Nigeria as having a monetary system, at least in terms of orderliness until the establishment of the West African Currency Board (WACB) and the introduction of single currency system for West African in 1992. The establishment of the West African currency Board essentially prepared the way for the emergent modern financial system in Nigeria.
However, the W.A.C.B itself as designed could hardly be described as a monetary authority in terms of using any discretionary power to control the growth of credit and money supply in the economy.
Thus the W.A.C.B has been described as simply a positive moneychanger. This major shortcoming of the WACB provided the basic for agitation in favor of the establishment of a central bank not only in Nigeria but also in other countries operating under the West African currency Board system.
The first formed move towards the establishment of a central banks in Nigeria was in April, 1952. Then a private members motion was proposed in the then house of representative calling for the establishment of a central bank in Nigeria to perform essentially those functions generally associated with central bank. This because the colonial government considered the establishment of a central bank in Nigeria then was premature in view of the relative underdevelopment of the local financial system. The house however passed amendment motion asking the government to examine and report back to it on the possibility of establishing a central bank in Nigeria.
To this end, an adviser to the bank of England, Mr. J.L. Finisher was accordingly given the task of examining this possibility. While the finisher’s report did not favor the establishment of a central bank in the country in the immediate feature, it did, however recommend a three step programme which it hopped would eventually lead to the establishment of the CBN. These steps in charge the transfer of the WASB headquaters from London to West Africa. This it hoped would allow the local people to be move closely associated with the board and also provided them with opportunity of acquiring some experience from its operations.
The second step in fishers programme was that a Nigeria currency should be established to replace the CBN.
In addition the programme called for the establishment of a bank of issue, which was later to develop into central bank. None of these steps was however implemented especially since its report itself did not recommend any immediate establishment of a Nigeria central bank.
In 1953, a year after the fisher’s report a world bank mission visiting Nigeria considered the same issue and while agreeing with fisher that the establishment of a central bank Nigeria was premature however, urged for a rapid reform of the WASB to remove some anomalies in its operation. It also recommended, like fisher for the establishment of a state bank of Nigeria which would take over the issue of currency from WACB.
What would eventually lead to the establishment of the final study on the issue by Mr. J.B. Loynes who was also an adviser to the bank of England?
Loynes in his report favoured the establishment of central bank of Nigeria and his main recommendation because the basis of the CBN Act that effectively established the bank. Thus following the J.B Loynes report, the CBN was established by an Act of parliament known as the CBN Act to perform the traditional central banking functions end serve as the pivotal national financial intuitions.
With the establishment of the bank therefore, the west African currency board operations in Nigeria were placed out and taken over and refined by the bank.
STRUCTURE OF THE BANK
Under the original statute of the bank, the policy and general administration of the affairs and business of the bank was the responsibility of a board of directors consisting of a governor, a deputy governor and five other directors of all whom were to be appointment by the president of the federation. The governor served as the chairman of the board and he and the deputy were responsible for the day-to-day management of the bank and were answerable to the board for their acts and decisions.
However, following the recommendation of a firm of management consultants Mckingsay international Mc. Of the United Kingdom in 1977, the structure of the bank was changed. The firm of management consultants was appointed by the bank to undertake a review of the organization structure and management protectices of the bank. The board of directors is currently made up of thirteen members that include the government and deputy governor; three of the board members are executive directors. Thus the governors are currently responsible for the day-to-day management of the bank. The management of the bank is essential in the performance of its duty by ten departmental directors all of whom are career staff of the bank and are responsible for implementing the various decisions of the board. Each departmental director is basically responsible for the activities of his department. Furthermore, the current structure of the bank is such that a group of department directors report to a specific executive director assigned to the overall supervision of the department.
1.8 HISTORICAL BACKGROUND OF MERCHANT BANKING IN NIGERIA
Crown merchant bank Benin is a private merchant bank founded by chief Gabriel Igbinedion in April 1990.
Further information revealed that the two institutions that commercial merchant banking in Nigeria were both registered in 1960. while Philip Hill (Nigeria) was registered on 14th September 1960, later they merged to form the Nigeria Acceptance Ltd (NAL) in 1969.
There was in new merchant bank until 1973 when no new (Nig) Ltd was established. The names of the bank were changed in 1977 to Nigeria merchant bank Ltd (NMB). In 1974, Two more merchant banks were established. They were the first National city bank of New York and first National bank of Chicago Ltd which is new international merchant bank (Nig) Ltd.
Five merchant banks in 1974 but only two opened for operation that year. The others, ICON Ltd (merchant bankers and chose merchant bank (Nig Ltd) commenced operations in 1975. in 1976 the First National city bank of New York went into voluntary liquidation. In 1976, the Nigerian American bank Ltd came into the merchant banking areas. Between 1982 and 1985, six new merchant banks were establishes and today they are more than thirty-five in number.
I TITLE PAGE
ii APPROVAL PAGE
iii DEDICATION
iv ACKNOWLEDGMENT
v ABSTRACT
CHAPTER ONE
1.1 Introduction
1.2 Definition of international trade
1.3 Aims of the study
1.4 Statement of the problem
1.5 Significance of the study
1.6 Scope and limitation
1.7 Historical background of merchant banking in nigeria
CHAPTER TWO
2.0 Review of related literature and studies
2.1. Nigerian banking system
2.2 International trade and exchange rate policies in Nigeria
2.3 Balancing of payment and Nigerian foreign trade
2.4 Recent development in Nigeria’s balance of payment
2.5 Principle of comparative cost
2.6 Trade restrictions
2.7 International trade development and evolution of the Nigeria economy
2.8 The benefit of international trade
2.9 Functions of merchant banks
2.10 Functions of the central bank of Nigeria
2.11 The role of the merchant banks in financing international trade in Nigeria
2.12 The roles of central bank of Nigeria in financing international trade in Nigeria
2.13 Instruments of foreign payment
2.14 Summary of the literature review
2.15 Summary of procedure in international trade.
CHAPTER THREE
3.1 Methodology
3.2 Sampling Procedures
CHAPTER FOUR
4.1 Analysis of findings
4.2 Questionnaires
CHAPTER FIVE
5.1 Summary of findings
5.2 Recommendations
5.3 Conclusion