Day 1 - Module 1 - Business of Banking PDF

 INTRODUCTION The business of banking involves providing financial services to individuals, businesses, and governments. It involves among others: Deposit Mobilizations: Accepting deposits...

 INTRODUCTION The business of banking involves providing financial services to individuals, businesses, and governments. It involves among others: Deposit Mobilizations: Accepting deposits, providing checking and savings accounts. Lending: Providing loans, credit cards, and other credit facilities. Payment Services: Facilitating transactions, such as wire transfers and bill payments. Investment Services: Offering investment products, such as stocks, bonds, and mutual funds. Risk Management Services: Providing guarantees, insurance, hedging, and other risk management products. Regulatory Compliance: Adhering to laws, regulations, and industry standards  STRATEGIC BUSINESS UNIT Corporate Banking- Providing Investment Banking- Providing Private Providing wealth Retail Banking- Providing services to individual customers. services to businesses and advisory services, underwriting, management services to high- corporations. and trading. net-worth individuals. Transaction Banking-Providing cash management, trade finance, and supply chain finance. BANKING REVENUE STREAMS: Interest Income: Interest earned on loans and investments. Non-Interest Income: Fees, commissions, account maintenance, and trading revenue. Investment Income: Income from securities, investments, and insurance. DEVELOPMENT OF THE MONEY The development of the money system has undergone significant changes throughout history as highlighted below: a. Early Forms of Money (9000 BCE - 500 CE) Bartering (9000 BCE): Trading goods and services without using money. Commodity-based currencies (5000 BCE): Using valuable items like cattle, grains, and precious metals as money. Shell money (1200 BCE): Using shells as currency in some African and Asian cultures. Coins (700 BCE): Introduction of coins made from precious metals like gold, silver, and copper. b. Medieval and Early Modern Periods (500 - 1800 CE) Gold and silver standards (500 CE): Coins minted from gold and silver became widely accepted. Paper money (1000 CE): China introduced paper money, which later spread to Europe. Merchant banking (1200 CE): Merchants and traders provided financial services, including lending and exchange. Goldsmith banking (1600 CE): Goldsmiths stored gold and issued receipts, leading to the development of banking. c. Modern Money System (1800 - 2000 CE) Fiat currency (1800 CE): Governments declared paper money as legal tender, not backed by gold or silver. Central banking (1800 CE): Central banks regulated money supply and interest rates. Fractional reserve banking (1800 CE): Banks kept a fraction of deposits in reserve, lending out the rest. Electronic money (1970s CE): Introduction of digital payment systems and credit cards. d. Contemporary Money System (2000 CE - present) Digital currencies (2009 CE): Emergence of cryptocurrencies like Bitcoin. Mobile payments (2010s CE): Widespread adoption of mobile payment systems. Contactless payments (2010s CE): Introduction of contactless payment technologies. Decentralized finance (DeFi) (2020s CE): Development of decentralized lending and borrowing platforms. e. Trends in Banking Digital Banking: Online and mobile banking platforms. Fintech Partnerships: Collaborations with fintech companies. Blockchain and Cryptocurrencies: Exploring uses for distributed ledger technology. Artificial Intelligence (AI) and Machine Learning (ML): Improving customer service and risk management. Sustainable Banking: Emphasizing environmental, social, and governance (ESG) considerations ROLE OF FINANCIAL MARKETS AND INSTITUTIONS Financial markets and institutions play a crucial role in Nigeria's economy, facilitating economic growth, development, and stability. ROLES OF THE MARKETS Mobilization of Savings: Financial markets mobilize savings from individuals and institutions, channeling them into investments. Allocation of Resources: Markets allocate resources efficiently, directing funds to productive sectors. Risk Management: Markets provide instruments for managing risk, such as insurance and derivatives. Price Discovery: Markets determine prices for securities, reflecting economic fundamentals. Liquidity Provision: Markets provide liquidity, enabling buyers and sellers to trade securities. Financial Advisory: Institutions offer advisory services, guiding investment decis ions.  Commercial Banks: Provide basic banking services, accepting deposits and making loans. TYPES OF FINANCIAL Commercial Banks: Provide basic banking services, accepting deposits and making INSTITUTIONS IN NIGERIA loans. Development Banks: Focus on long-term development financing, supporting infrastructure projects. Microfinance Banks: Provide financial services to small businesses and individuals. Insurance Companies: Offer risk management services, providing insurance products. Pension Funds: Manage retirement savings, providing income in old age. Stock Exchange: Provides a platform for buying and selling securities.  CHALLENGES FACING NIGERIAN FINANCIAL MARKETS AND INSTITUTIONS 1. Infrastructure Deficits: Limited infrastructure hinders market efficiency. 2. Regulatory Challenges: Inadequate regulation and supervision pose risks. 3. Lack of Financial Inclusion: Many Nigerians remain unbanked or underbanked. 4. Macroeconomic Instability: Economic instability affects market performance. 5. Corruption: Corruption undermines market integrity  MARKET STRUCTURES AND FINANCIAL INSTITUTIONS Financial Market Structures in Nigeria: 1. Money Market: Deals with short-term instruments, such as treasury bills, commercial paper, and deposits. 2. Capital Market: Deals with long-term instruments, such as stocks, bonds, and shares. 3. Foreign Exchange Market: Facilitates currency exchange and international trade. 4. Over-the-Counter (OTC) Market: A market for trading securities outside the Nigerian Stock Exchange.  01. Central Bank of Nigeria (CBN): The 05. Microfinance Banks: Provide financial apex bank, responsible for monetary services to small businesses and policy and regulation. individuals. 02. Commercial Banks: Provide basic 06. Insurance Companies: Offer risk banking services, such as deposits management services, providing and loans. insurance products. Financial 03. Institutions in 07. Pension Funds: Manage retirement Nigeria: savings, providing income in old age. Merchant Banks: Specialize in corporate finance, investment banking, and advisory services. 04. 08. Development Banks: Focus on long- term development financing, 09. Securities and Exchange Commission Stock Exchange: Provides a platform for buying and selling securities. supporting infrastructure projects. (SEC): Regulates the capital market.  1. Nigerian Deposit Insurance Corporation 1. Nigerian Deposit Insurance Corporation (NDIC): Insures bank deposits and (NDIC): Insures bank deposits and regulates deposit insurance. regulates deposit insurance. Other Financial Institutions: 2. Securities and Exchange Commission 1. Nigerian Deposit Insurance Corporation (SEC): Regulates the capital market. (NDIC): Insures bank deposits and regulates deposit insurance.  Financial Market Regulators: 1. Central Bank of Nigeria (CBN): Regulates banks and other financial institutions. 2. Securities and Exchange Commission (SEC): Regulates the capital market. 3. National Insurance Commission (NAICOM): Regulates the insurance industry. 4. National Pension Commission (PenCom): Regulates pension funds and administrato rs. Challenges Facing Nigerian Financial Markets: 1. Infrastructure Deficits: Limited infrastructure hinders market efficiency. 2. Regulatory Challenges: Inadequate regulation and supervision pose risks. 3. Lack of Financial Inclusion: Many Nigerians remain unbanked or underbanked. 4. Macroeconomic Instability: Economic instability affects market performance. 5. Corruption: Corruption undermines market integrity  REGULATION OF MARKETS AND INSTITUTIONS Regulation of markets and institutions in Nigeria is crucial for maintaining financial stability, protecting investors, and promoting economic growth. Here are some key regulatory bodies and frameworks: Regulatory Bodies: 1. Central Bank of Nigeria (CBN): Regulates banks, other financial institutions, and the payment system. 2. Securities and Exchange Commission (SEC): Regulates the capital market, including stocks, bonds, and other securities. 3. National Insurance Commission (NAICOM): Regulates the insurance industry. 4. National Pension Commission (PenCom): Regulates pension funds and administrators. 5. Nigerian Deposit Insurance Corporation (NDIC): Insures bank deposits and regulates deposit insuranc e. Regulatory Frameworks: 1. Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT): Regulates financial transactions to prevent money laundering and terrorism financing. 2. Know-Your-Customer (KYC): Requires financial institutions to verify customer identities. 3. Cash Reserve Ratio (CRR) 4. Capital Adequacy Ratio (CAR): Ensures banks maintain sufficient capital. 4. Liquidity Ratio: Ensures banks maintain sufficient liquidity. 5. Corporate Governance Code: Regulates corporate governance pract ices. Key Regulations: 1. Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT): Regulates financial transactions to prevent money laundering and terrorism financing. 2. Know-Your-Customer (KYC): Requires financial institutions to verify customer identities. 3. Cash Reserve Ratio (CRR) 4. Capital Adequacy Ratio (CAR): Ensures banks maintain sufficient capital. 5. Liquidity Ratio: Ensures banks maintain sufficient liquidity. 6. Corporate Governance Code: Regulates corporate governance prac tices. Challenges: 1. Inadequate Regulatory Frameworks: Gaps in regulatory frameworks hinder effective oversight. 2. Limited Resources: Regulatory bodies face resource constraints. 3. Corruption: Corruption undermines regulatory effectiveness. 4. Enforcement Challenges: Difficulty enforcing regulations and sanctions. 5. Lack of Transparency: Limited transparency in regulatory decision -making. Reforms and Initiatives: 1. inancial System Strategy (FSS) 2020: Aims to strengthen financial regulation and supervision. 2. National Financial Inclusion Strategy: Seeks to increase financial inclusion. 3. Payment System Vision 2020: Enhances payment systems and infrastructure. 4. SEC's 10-Year Capital Market Master Plan: Develops the capital market. 5. CBN's Banking Sector Reform: Strengthens banking regulation and supervision. Thank you!