AN EVALUATION OF THE ROLE OF DISCOUNT HOUSES IN THE NIGERIAN FINACIAL SYSTEM

AN EVALUATION OF THE ROLE OF DISCOUNT  HOUSES IN THE NIGERIAN FINACIAL SYSTEM

ABSTRACT

The introduction of discount houses into the Nigerian financial sector in 1993 was a well-applauded idea especially owing to the need for a well-established secondary market for the discounting/re-discounting of government securities as well as other eligible financial instruments.

With over ten years of discount house operations in Nigeria, the question of evaluating their specialized role in financial intermediation becomes necessary. In line with CBN guideline for discount house operation, discount houses are established to meet certain objective/functions which includes serving as intermediaries between the CBN and licensed banks as well as between banks.

Thus, through an extensive literature review as well as an objective and careful analyses of primary data in the course of this study, discount houses are seen as having contributed immensely to the level of financial intermediation in the economy without necessarily duplicating traditional banking functions. It also becomes evident that discount houses enjoy a very high level of awareness amongst other financial actors especially commercial and merchant banks. As such, to a very large extent, bankers recognize their specialized role as financial intermediaries within the Nigerian economy.

However, as this study reveals, discount houses have been greatly saddled with a number of threats to their corporate existence and profitability. Amongst these have been the unhealthy competition from banks as well as the tight-jacket regulation fixed by the CBN on the operations of discount houses within Nigeria.

CHAPTER ONE

        INTRODUCTION

1. BACKROUND OF THE STUDY:

The financial sectors remain the sector of every economy. The specific role of the financial sector to which Discount Houses belong is very crucial to the rapid growth of any economy. Suffice it to say here that the financial intermediation role – that of mobilizing savings from the surplus units and making same available for investment by the deficit units is one, which every modern economy cannot do without. Financial intermediaries evolve to bring the various existing economic sector together.

The intermediaries sell their own liabilities to raise funds which are thereafter used to purchase liabilities of other corporate bodies in the economy.

Thus, the financial intermediaries satisfy simultaneously the portfolios decision of the surplus units (SU) and the deficit units (DU) in the economy (Robert, 1996).

This in effect helps to ensure that such savings are redistributed into their most productive use. Furmore economic output is maximized.

The Nigerian financial sect    or has recorded appreciable growth over the years. This is especially true in terms of the number of existing institutions as well as financial instruments traded there in specifically, the money market sub-sector of the Nigerian financial system has been significant in terms of growth and financial engineering.

AN EVALUATION OF THE ROLE OF DISCOUNT  HOUSES IN THE NIGERIAN FINACIAL SYSTEM