Merchant Banking – Twenty-five Years In Nigeria

Merchant Banking  – Twenty-five Years In Nigeria

Merchant Banking  – Twenty-five Years In Nigeria

Twenty five years is rather short in the history of an industry. In advance country of the world particularly united kingdom where the history of banking industry date have couple of strike taking.

Merchant banks (Acceptance houses as they are best known in the U.K. and investment bank as they are known in America) are today common and prominent features of most economics of the world. These institutions have existed in the U.K. for over two hundred years.

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In spite of these, to the average educated man today, intending the banker, merchant banking is still mystical. The few who claim to know the institution and are possibly able to describe it, are often incapable of providing a precise instructive and generally acceptable definition. As bank of America’s John lucchesi put it “merchant banking is like being in love different for everybody. No two people experience it the same way. But when you see it, fell it, you known” looking back twenty five years and appraising the growth, development operation and the roles of an industry ( BANK) that was a part of that beginnings would appear justified. Looking back and counting the successes and failure of the industry through useful is not the only goal of the researcher.

Additionally, and rather importantly it is hoped that the insight provided by a critical analysis of the past would enable the development of policies and more potent strategies for making the merchant banking institution perform their catalytic role effectively. In Nigeria for example merchant banks have undoubtedly, in spite of critisms made tremendous and credit with contributions to the general development of our country’s economy and particular to the development of our financial environment.

Merely through their operation, they have in creased the size of financial claims in issue in Nigeria and helped in that way to broaden the country’s financial infrastructure. The researcher may look into the origin and evolution to data of merchant banking industry in Nigeria.

The operations of merchant banking institution the last twenty five years noting and highlighting the operations of merchant banking institution the last twenty five years noting and highlighting the observed growth and development of the merchant banking in Nigeria is undertaken. The achievement constraints and weakness and opportunities facing the industry.

Infact the success and failure of these older and more experience financial industries. The provision of merchant banking system to the economy of a country such as Nigeria has remained a life wire through which the economy grows. It becomes imperative therefore that the provision of these services endeared by merchant banks and other financial institutions are very essential to the economy.


1. There has been a great failure of the merchant bank in Nigeria, loop holes in their roles will be looked into

2. No new merchant bank has been established where other financial institution have been growing rapidly.

3. Therefore these weakness and opportunities facing the industry and why the achievement of merchant bank so poor since twenty five years now.


1. The purpose of the study is to find out the functions performed by merchant banks in Nigeria and loop notes in their roles.

2. To appraise the growth of merchant bank in Nigeria and provide reasons for establishment of new merchant banks

3. To identify the merchant bank constraints and achievement.


Nigeria financial system is still highly under-developed knowledge about this system has been growing gradually with the publication of various books on banking and finance in Nigeria despite the increasing literature in this area the myth surrounding merchant banking activities is yet to be broken the myth stem from the difficult in giving a precise and generally acceptable dessecription of what constitutes merchant banking activities in Nigeria and in drawing a clear line of demarcation between the activities of merchant banking and those of commercial banks.

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An attempt will be made also to increase certain understanding of the concept evolution, development and activities of merchant banks in Nigeria and is this bold attempt to break the fore mentioned myth. I think this attempt will be most welcome as it affords us the opportunity of taking a respective look at merchant banking in Nigeria.


Due to the limited number of branches of merchant banks in Nigeria the scope of the study is on merchant bank in Nigeria only and not other commercial banks.



J.E.H. Collins, chairman Morgan Gianfell holdings in his 1976, annual report talks of merchant banking thus “I am quite sure that merchant banking is by its very nature a business based primarily on skills, a successful merchant bank is an association of men and women of above average ability who makes available to a variety of clients a wide range of free rewarded financial services” parker page 59. 1977).

Another distinguished Enugu banker, Sir Edward Reid in his presidential address to the instate of bankers in 1963, describes neither the term merchant bank as one that is some times to house who are neither merchant nor banks” (Rybirislim 107).

The institutions are difficult to define for various reasons one, until recently, in on country was any attempt made at providing a legal definition of the merchant banks or merchant banking. Attempts were made to define them, in the U.K and Nigeria in 1979 by way of specifying what they can do and cannot do. Another problem is that these institutions vary very widely within the same country and between countries in their size, shapes, and permitted functions. As if to compound the problem the extent to which they specialized in one or more major activities varies almost endlessly.

The way these institutions have evolved or the past two centuries can be said to be major reason for the lack of a working definition.


Up till now, very little is known of the beginning of merchant banking industry in Nigeria existing textbooks and write ups about the industry have been rather short in this regard, an attempt will be made here to probe into the early days of the industry. The two institutions that commenced merchant business in Nigeria were both registered in 1960.

The Nigeria acceptance limited (NAL) was registered on 25th November, while Philip Hill (Nigeria) limited was registered on 14th September, 1960 NAL and Phil hill held their statutory meeting on 28th December 1960, and 13th December 1960, respectively. The two firms were, prior to merger in 1969 engaged in identical set of activities these includes:

a. Financing of commodity exports by granting credits to the marketing boards.

b. Acceptance of deposits from institution.

c. Provision of loans and advances.

d. Provision of issuing housing services.(e.g.) acting as issuing houses for the debenture issue to raise funds for building of Niger house Philip Hills was specially permitted by the ministry of finance to accept deposit up to a stipulated maximum


Functions of merchant bank in Nigeria:

FUNDS AND PORTFOLIO MANAGEMENT: this function is normally assigned to the investment department of a merchant bank the department is a fairly likely home for a practical economist to deploy his stills in researching for the investment advisers who look after the funds wealthy individuals and institutions, such as pension funds, or who advise foreign Government on financial policy. It also involves taking over the management of the investments of an increasing number of bodies and private individuals, working out way to beat inflation and to reduce tax payable devising methods such as the unit trust. Where by the small investor could share in a wind range of investments and share the benefit of specialized expert management.

2. EQUIPMENT LEASING: Has been defined as the hiring of an asset for the duration of its economic life. In leasing the asset normally is purchased by say a merchant bank or a finance company, and then leased to the user who has no capital outlay to make the purchase.

3. CORPORATE FINANCE: it has been seen as the glamorous side of merchant banking. this function therefore ranges from the management of issuance of private and public equity shares to corporate debts securities, being aware of the problems and opportunities created by various rules and regulation of the stock exchange, commercial law and regulations of the stock exchange, and accounting practices both in

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Findings Loop Holes:

1. Most of their credits are still of short maturity instead of being long term credits.

2. They still extended most of their credits to the non priority or “other” sectors of the economy contrary to the CBN credit guidelines.

3. They are not getting into specialized services like equipment leasing, funds and investment or portfolio management, loan syndication.

4. They accept from depositor’s total interest being deposits of an amount by far lower than the statutorily fixed N25, 000.


1. Merchant banks are therefore basically wholesale banking houses which provide financial services like equipment leasing, debt factoring, mergers and acquisitions, corporate financing and promotion to corporate body’s, Government and high net –work individuals.

2. As Nigeria economy becomes more supplicated and specialized that due mainly to those factors already discussed that the role of merchant bank in Nigeria came into lime light.

3. Merchant banks have a great role in an economy such as Nigeria by assisting exporters with short medium and long term export finance.


1. Regarding their very poor performance in the provision of specialized services, almost all of the banks interviewed presented one and similar problems as impending their ability to perform as per expectations. They have low creditable that is the reason for not opening new merchant banks.

2. That the investment elimates in Nigeria is not conducive. Most Nigeria do not like to make long- term deposit and also a lot of Nigerians have huge sums of money abroad, referring to invest in other economic instead of theirs. The reason has to do with instability in official policies to the extent that one cannot actually plan for say, six month ahead.

3. That the maturity structure of assets is largely a reflection of the structure of the availabilities used to finance the assets. In other words, those merchant banks in Nigeria by nature obtain their funds from inter-bank and short money. The banker said that the issue of merchant banks providing medium and long term finance is like calling them to give what they don’t have.


1. Due to the establishment of merchant banks maintain dominant presence in the capital market. They manage equity and debts issues through the Nigeria stock exchange for companies raising new capital.

2. The corporate finance division of the merchant banks. Acts as financial adviser to corporations in identifying and evaluating merger and acquisition opportunities and providing tactical and financial advice for achieving particular corporate objectives.

3. Merchant banks provide finance to corporate bodies by way of long term and medium term financing. The loans are used by the corporations for the paying of fixed assets for the firms and in some cases they are used for project expansion.


Instability in government policies presented a great problem because when the over all economic out look becomes more stable and less short-termic, merchant banks in Nigeria will respond accordingly, and that horizon thinking and practice will be reduce maturely.


Much more can be done by Nigeria merchant bank to help the development of our economy. In the area of export financing, for instance, the expertise and financial support of the banks will be very welcome, as a giving and industrializing economy, our business environment provides almost limit less opportunities for investments. Most of our enterprises are young and heavily under capitalized. In developed countries in these circumstance, merchant banks have for long time been prepared to provide funds in exchange for equity participation in the (needy) company, this type of operation has recently become fashionable under the title of venture capital.

Merchant banks project financing skills can also be profitably employed for the development and business circumstance, and production of law materials and agricultural development efforts the merchant banks loan should increase their equipment in leasing activities since finance provided by way of lease financing is not ordinarily regarded by the monetary authorities as constituting loan or advances the merchant banks can increase their financial assistance to enterprises by leasing equipment in addition to providing loans and advances. In this way more loans can be granted in the aggregate then allowed by CRN credit guidelines and the limit of loans to an individual borrower can exceed without offending the banking decree.

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Merchant Banking  – Twenty-five Years In Nigeria


In order to contribute significantly, meaningfully and “appropriately” to Nigeria economic development. The industry meet more steadily and determinedly out of commercial banking routine reading and deposit mobilization and into the proper merchant banking area where a high proportion of the business consists of free rewarding activity project financing, leasing e.t.c. this will however on the part of the banks call for an intensive marketing of these services. In this regard, the suggests that the older merchant bank should shoulder this responsibility of Educating the public about the industry, generally not so much for the individual gains to be derived but as a contribution to the development of the industry and country.

Under an agreement (more of an under standing) that the CBN would exercise some limited control over its operations. In addition to pure merchant banking activities the two institutions owned stock rocking subsidiaries providing stock booking services as well as subsidiary offering registration services.

Philip Hill owned Philip hill stock broker and Nal securities. The fact that these two institutions were engaged in the some feed of business was one season why they close to merge in 1969. more importantly they emerge because there wasn’t enough business for both and so it made good business sense to come together rather than engage in friat less competition indeed the volume of business was small that even in these early days. Banking engages in marketing of their service. the NAL merchant bank limited remained the only licensed merchant bank operating in the country until late in 1973 the UDT banking ( Nigeria ) limited was born out of the reconstruction of the united Dominion corporation ( Nigeria ) limited a holy owned subsidiary of UDT international, which in turn was a wholly owned subsidiary of united dominion trust limited.


Nigeria merchant banks are governed by the same statutory and central bank regulations as govern the commercial banks and the 1968 December in particular permits them to engage in all the activities earned on by commercial bank except current account although they can now offer cheque for them big corporate customers.

Nigeria merchant banks, like their counter parts in the United Kingdom are whole sale bankers of N10, 000 are fixed for a period and are all in interest bearing. Similarly, the typical loan is usually large. The merchant banks engage in “made to measure” banking only a small proportion of loans and advance of merchant bank is of the over draft type common to commercial banking. Little or a reserve of cash are held (nwankwo p. 90.1979).

Merchant bank dose not provide retail current account and cheque facilities as dose a commercial bank. They also have no indespread branch net work. They obtain their funds. Apart from their capital almost entirely from bank and public and private corporations. As at 1079, merchant bank obtain the fund of 56% from public and Private Corporation (nwankwo p. 91. 1979) they provide term deposit facilities usually to depositors’ requirement with flexible terms and rates within the central bank regulation. They also specialize in providing short term finance by means of acceptance credit cover both the exportees and the exporters. Although basis, they are normally and predominantly made available for period of up to three months. (Merchant bankers) explanatory memoratum.

Merchant Banking  – Twenty-five Years In Nigeria

To place an order for the Complete Project Material, pay N5,000 to

GTBank (Guaranty Trust Bank)
Account Name – Chudi-Oji Chukwuka
Account No – 0044157183

Then text the name of the Project topic, email address and your names to 08060565721.  

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