If we were writing this article several years ago, we would probably be able to describe commercial banks distinctly.
Today, that’s not exactly possible. The lines are now blur given that these institutions have evolved to offer diversified services. You can think of it as commercial banks increasingly multitasking or expanding - whatever suits better.
Commercial Banks Definition
Commercial banks are banks designed to serve large businesses or a group of companies. Originally, these banks did not attend to regular everyday businesses.
Also, they did not get involved with individual banking customers.
It’s okay to call that the standard definition of a commercial bank. It is what commercial banks are supposed to be like.
Nevertheless, in our today’s world, the need to innovate and the drive to make profit pushes businesses to stretch their limits. This is what happens with commercial banks providing support for new types of customers. Of courses, we are referring to individuals and small businesses.
Serving new customers extends the services offered by commercial banks. The former definition of such institutions also change along.
List of Commercial Banks in Nigeria
In this section, we list some popular Commercial banks in Nigeria and what they’re known for.
- UNITED BANK FOR AFRICA (UBA):
one of the few Nigerian banks to have over 1000 branches in 20 African countries. Notably one of the five largest banks in Nigeria.
The bank owns the UBA Foundation which receives one percent of its profit after tax. This funding is used for social intervention.
- FIRST BANK OF NIGERIA (FBN):
the very first commercial bank to exist and operate in Nigeria. One of the five largest banks in Nigeria.
First bank maintains over USD 28 billion in assets. It also boasts of over 100 branches spread across Arizona, Colorado, and California.
- GUARANTY TRUST BANK (GTB):
known for its annual Fashion Weekend event. The premium event showcases African dresses and style, and promotes enterprise within the local fashion industry.
GTBank displays unmatched interest in building innovative and personalized products. Two examples of such are Habiri - an app, and a Digital Play Centre located in Lagos State.
- ACCESS BANK:
one of the five largest banks in Nigeria in terms of assets, loans, deposits, and branch network.
The bank owns over 700 branches across 3 continents. This means operating in 17 different markets and serving an impressive 52 million customers.
- ZENITH BANK:
completes the list of five largest banks in Nigeria. With just over 400 local branches, the bank does remarkably well in disbursing its services.
Zenith bank serves over 33 million customers. The back also features some very unique product such as the Aspire account for undergraduates and Z-woman account for women entrepreneurs.
- WEMA BANK:
known for its fully online banking platform ALAT. The ALAT service was launched in 2017. Its aim is to service customers without having them visit a bank branch.
Wema bank continues to prioritize the use of ICT and innovative technology.
STERLING BANK:
one of the few commercial banks in Nigeria to have completed a total of 4 mergers.
PROVIDUS BANK:
has a remarkable range of cards and impressive card features and benefits.
The bank emerged in the Nigerian financial scene only a few years ago. However, it is already making huge strides.
Functions of Commercial Banks
This section explains the functions of commercial banks. will be highlighting the functions of commercial banks
Deposit Taking:
Commercial banks take deposits from customers. These deposits could be made to savings, fixed, or current accounts with various agreements.
Deposits are a big part of the financial system in place today. They directly impact reserve, make available funds for withdrawal, and drive brand influence.
Discounting Bills of Exchange:
Transactions in which a customer deposits a Bill of Exchange to a bank in order to get an advance of the bill. The bank may offer lesser interest and lower fees for this unexpired Bill of Exchange.
Securities Trading:
Commercial banks make it possible for customers to buy and sell securities. This feature is often offered by a bank in partnership with a trusted brokerage firm.
More established banks may run securities trading services by themselves. Having such capability means customers get a full-packaged services.
Although unrelated, we should mention that commercial banks also use their own capital to trade securities in a bid to make profit.
Locker facilitites:
Assets and valuables can be stored in a bank controlled locker facility. This is referred to as a safety deposit box service in Nigeria.
Customers may store anything from copies of will to real estate deeds and even jewellry. All these is kept in a secure vault with advanced systems and 24/7 surveillance.
High value customers and high networth individuals particularly make use of this service. The primary reason is due to the level of security involved.
Charges for the safety deposit box service depends on several factors. They include the deposit box size, level of security, and the period of storage.
Loans:
Commercial banks offer loans and other forms of financial support to customers.
The availability of loan services depend on the status of the borrower. This is measured in terms of their credit score. Customers with high credit scores get enticing loan terms involving lower fees, exteneded repayment periods, etc.
A variety of loan types exist for customers to choose from. Some are peculiar to the purchase of a specific good or property. Examples include car loans and mortgages.
On the other hand, many loans are not tied to any specific purchase. This gives users the freedom to utilise them as they wish.
Interest on loans serve as a major source of income for banks.
Overdraft:
Overdraft refers to the withdrawal function on an account after it hits zero. This ensures that account owners can make payments, covering unexpected charges or emergency bills, even after they run out of funds.
Businesses benefit from overdraft as it is quickly accessible and costs less compared to loans.
Credit Gathering:
Another function of commercial banks is credit gathering.
Credit gathering may be defined as keeping track of credits or other payments owed to a bank. Also, it refers to the act of collecting such credits.
This operation benefits both bank and customers. Here’s how. By gathering credit, banks are protected from loses and customers are safe from overcharge.
Credit gathering is facilitated by instruments such as cheques and promissary notes.
Foreign Exchange:
Commercial banks are heavily involved in foreign exchange or forex dealings. By this, they take away the currency barrier that hinders transactions between local and foreign businesses.
If you want a more indepth definition of forex, we recommend you read this previously published Monierate article.
Credit Creation:
Credit creation, as a function of commercial banks, refers to a special way in which banking institutions make new money. When a customer is issued a loan or credit, the bank makes a mandatory deposit into its reserve.
This reserve account is held by the Central Bank.
The reserve deposit could be less than the issued loan/credit amount, equivalent to it, or even higher. The amount depends on a factor known as the Credit Reserve Ratio (CRR) and on the following formula:
Total credit creation = Deposit amount x (1/r)
Central banks are responsible for determining the CRR which each commercial banks must adhere to. A fun fact here is that lower CRR values result in the creation of higher reserve deposits and vice versa.
Making reserves ensures that there is always money in the economy. Moreover, reserve funds are used to service depositors who may want to withdraw.
Frequently Asked Questions
In this section, we cover frequently asked questions people ask concerning commercial banks in Nigeria.
What was the First Commercial Bank in Nigeria
The very first commercial bank in Nigeria was First Bank of Nigeria (FBN). The bank was established in 1894 and has so far run for 40 years.
At inception, the bank was located in Lagos state and was named the Bank of British West Africa (BBWA).
How Many Commercial Banks are in Nigeria:
There are a total of 23 commercial banks operating in Nigeria. Just a few weeks ago, there were 24 commercial banks. However, Heritage Bank Plc was recently liquidated by the Central Bank of Nigeria (CBN) in June 3, 2024.
Conclusion
Commercial banks are the most common type of banks operating in Nigeria. Providers now diversify to cover the functions of retail and investment banks. These makes commercial banks a go-to for whole and complete banking services.