AN APPRAISAL OF MERCHANT BANKING IN NIGERIA

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AN APPRAISAL OF MERCHANT BANKING IN NIGERIA

ABSTRACT

The purpose of this study is to Appraise Merchant bank and to evaluate the extent Merchant bank have achieved their desired policy within 1981 to 2000.During this period of time, there was fluctuation in the growth rate of bank loans and advances due to inability of debtors to repay loaned fund and wrong perception of the intent of the banking reform. Data were obtained from Central Bank of Nigeria (CBN) statistical bulletin 2006 and was presented using frequencies, charts, and table in analyzing the research question. It was found by the researcher that the total bank loans and advances issued by merchant bank to interested sector of the economy has been on decrease, which means to an extent, they have not achieved their desired policy which aimed at financing large corporate organization. Therefore, this research work ended on this note that bank loans and advances of Merchant bank has been on decrease which enable the researcher do an inference that they have not achieved their desired policy. The essence of Merchant bank in existence is to finance large corporate organization.

CHAPTER ONE

INTRODUCTION TO THE STUDY

The usefulness of merchant banking (accepting and issuing house) in the United Kingdom is to finance sovereign government through grant of long-term loans and the acceptance of commercial bills pertaining to domestic as well as international trade, and the acceptance of the trade bills and their discounting gave rise to acceptance houses, discount houses and issue houses, finance foreign trade, issue capital, manage individual funds, undertake foreign security business and foreign loan business. Many major merchant banking activities (money-market lending, corporate finance and investment management), are also performed by money market dealers, commercial banks and finance companies, share brokers and investment consultants, unit trust managers, finance foreign trade, issue capital, manage individual funds, undertake foreign security business, foreign loan business and facilitate the business process between a product and the financial requirements for its development. Many major merchant banking activities (money-market lending, corporate finance and investment management), are also performed by money market dealers, commercial banks and finance companies, share brokers and investment consultants, and unit trust managers. In the United Kingdom, merchant banks came on the scene in the late eighteenth century and early nineteenth century. Industrial revolution made England into a powerful trading nation. A merchant banker as primarily a merchant rather than a banker but was entrusted with funds by his customers.

A merchant bank should contain some eleven characteristics: high proportion of decision makers as a percentage of total staff; quick decision process; high density of information; intense contact with the environment; loose organizational structure, concentration of short and medium term engagements; emphasis on fee and commission income; innovative instead of repetitive operations; sophisticated services on a national and international level; low rate of profit distribution; and high liquidity ratio.

Merchant banking services span from the earlier negotiations from a transaction to its actual consummation between buyer and seller.

In particular, the merchant banker acted as a capital sources whose primary activity was directed towards a commodity trader/cargo owner who was involved in the buying, selling, and shipping of goods. The role of the merchant banker, who had the expertise to understand a particular transaction, was to arrange the necessary capital and ensure that the transaction would ultimately produce “collectable” profits. Often, the merchant banker also became involved in the actual negotiations between a buyer and seller in a transaction.

The usefulness of merchant banking in Britain involves collecting deposits and grant credit to a limited extent, act as intermediaries, channeling short term credit from commercial banks through discount houses to merchants engaged in the import and export trade or in the marketing of goods in the domestic market and channeling medium and long term capital from those who wish to lend to those who are in need of funds

Merchant banking in Britain developed partly as a result of the operation of historical factors and partly in response to the requirements of trade and industry for their short and long term needs.

The usefulness of merchant banking in India involves rendering diverse services and functions, such as organizing and extending finance for investment in projects, assistance in financial management, acceptance house business, raising Eurodollar loans and issue of foreign currency bonds, financing of local authorities, financing export of capital goods, ships, hydropower installation, railways, financing of hire-purchase transactions, equipment leasing, mergers and takeovers, valuation of assets, investment management and promotion of investment trusts, engaged in internal finance and long term loans for multinational corporations and governments, advise corporations and wealthy individuals on how to use their money, encourage rapid industrialization, accelerate the growth of economic development, transferring capital funds to those borrowers who are interested in borrowing and the job of generating loans and initiating other complex financial transactions. Not all merchant banks offer all these services. Different merchant bankers specialize in different services. Merchant banking may cover a wide range of financial activities and in the process include a number of different financial institutions.

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