CHAPTER ONE

INTRODUCTION

1.1 Introduction

The history of commercial banking in the world extends to ancient times when money was stored in and lent by religious temples in Babylon, Egypt, Greece, and Rome. Modern-day banks, run by private corporations rather than governments, developed in Europe in the 17th century. The first U.S. bank was founded in the 1780s.

The Romans built the first bank that was not associated with a religious institution, and Julius Caesar is credited with enacting laws that allowed banks to seize property if debtors defaulted on their loans. As the Roman Empire faltered, churches again began lending money through papal banks.

The Amsterdam Wisselbank provided the blueprint for the creation of modern banks. The Wisselbank was created in 1609 to lend money to the Dutch government and began lending to private individuals in 1683.

Europe’s commercial banks developed early banking methods that are still in use today. Pre-printed checks were invented in the 18th century and processed by bank clerks who met in person to exchange the checks for cash. The Royal Bank of Scotland instituted the first overdraft system in 1778.

The banking industry in the United States started during the American Revolution. By 1861, America had as many as 1,600 commercial banks, a number that ballooned to 30,000 by the early 1920s. The United States established the Federal Reserve Bank in 1914 to oversee banks and regulate currency. Origins of Commercial Banking in the United States, 1781-1830 Robert E. Wright, University of Virginia  Early U.S. commercial banks were for-profit business firms, usually structured as joint-stock companies.

Many, but by no means all, obtained corporate charters from their respective state legislatures. Although politically controversial, commercial banks, the number, and assets of which grew quickly after 1800, played a key role in early U.S. economic growth. Commercial banks, savings banks, insurance companies, and other financial intermediaries helped to fuel growth by channeling wealth from savers to entrepreneurs. Those entrepreneurs used the loans to increase the profitability of their businesses and hence the efficiency of the overall economy.

Description of the Early Commercial Banking Business

As financial intermediaries, commercial banks pooled the wealth of a large number of savers and lent fractions of that pool to a diverse group of enterprising business firms. The best way to understand how early commercial banks functioned is to examine a typical bank balance sheet. Banks essentially borrowed wealth from their liability holders and re-lent that wealth to the issuers of their assets. Banks profited from the difference between the cost of their liabilities and the net return from their assets.

In December 1988, Commercial Bank opened its first location where a restaurant used to be.  Waiters were replaced with tellers and the kitchen became a bank vault secured with a 21-ton steel door.  Having survived a fire that destroyed a major bank building years before, this door was chosen as a symbol of security and resilience, and it still stands today as a reminder of the strong foundation that Commercial Bank was built upon.

As an influential part of the community, Commercial Bank found great success in West Port.  A second location was opened in 1997 in Florissant and like the first location, secured its vault with a strong, historic door.  The bank’s continued success generated a desire to extend its exceptional services to a third location.

Opened in 2005, the Chesterfield Valley location followed the lead of the first two, with a commitment to provide friendly, personalized customer service. Most recently, a fourth location opened in 2014 at the corner of Mason and Manchester Road expanding our footprint in the West County area. Today with the support of our customers, all four locations continue to thrive and grow.  Commercial Bank now looks forward to branching out and developing new relationships with more local communities in the future.

In Africa, the history of commercial banks started in Egypt from early times, grain having an intrinsic value as food functioned, in addition to precious metals, as money. The regional granaries were used to store and loan the grain of communities, functions similar to banking services although not the same.

Under the dynastic rule of the Ptolemies, the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This centralized administration was the first known governmental bank (according to de Soto), functioning as a trade credit system that transferred payments between accounts without passing money.

In Cameroon, banking started in the pre-colonial era.

Pre-colonial Cameroon did not witness the operation of the banking profession as it exists today. Before her contracts with the Europeans, small groups of contributions existed in which money circulated among members providing credit and saving facilities on interest such groups were generally known as “Njangi” or “Tontine”.

It was not until the flourishing trade at the coast of Cameroon and the subsequent German colonization that the country witnessed the creation of the first banks. These were the German banks of Deutsch Westafrikanischee Handelsgesellschaft M.B.H Bibundi and Westafrikansche Pflanzungsgellschaft Victoria.

After the defeat of the Germans by Britain and France in 1916, the German lost the colony of Cameroon to Britain and France who then partition it. To meet up with the high level of trade at that time, and in their desire to replace Germans in all spheres, the British created branches of Barclays Bank in British Cameroons. This was not the only British bank that operated at that time in British Cameroons.

They later created branches of the Bank of West Africa even though its activities were not as extended as those of the Barclays Bank.  In 1959, the Government of Southern Cameroons decided to create a National Bank in order to enhance Southern Cameroon. Development Agency set out proposals for the establishment of a Commercial Bank in a memorandum which was sent to the central bank of Nigeria on the 15^th of September 1960 for an opinion.

The Central Bank of Nigeria replied favorably to this wish on the 19^th of November 1960 in these terms “The interest of the central bank is in seeing that any bank which may be established shall be in a position to carry out its functions on a sound basis and serve the interest of its depositors and the economy of the country as a whole”

After some background work following this favorable reply from the Central Bank of Nigeria, Cameroon Bank Ltd was incorporated on the 29^th of July 1961 and started with a share capital of 250 million CFA divided into 250 thousand shares of 1000 CFA each. Meanwhile in East Cameroon, where the French were administering the Banque de l’Afrique Occidentale a bank created under the French Banking Law of 1921 provided the economy banking services.

After East and West Cameroons had their independence and fused to the Federal Republic of Cameroon, a local law Decree No 62 DF/90 of 24^th March 1962 was passed regulating the banking profession in Cameroon. The consequences of this decree were two-fold that is

steps were taken to create new banks in conformity with the decree.

Banks created under foreign law that is British and French which did not deem it appropriate to continue to operate under the new law had to fold up or amalgamate with others.

In the light of the creation of new banks, banks were created like Credit Lyonnais helped to create Societe Cameroonaise des Banque (SCB), Banque Nationale pour le Commerce et Industrie du Cameroun (BNCI) made way for Banque Internationale pour le Commerce et L’Industrie du Cameroun (BICIC), Societe Generale became an associate of the Societe Generale des Banque du Cameroun (SGBC) IN 1963.

With respect to those that did not deem it necessary to continue under the new law folded and some amalgamated, they are; Banque Internationale pour L’Afrique Occidentale du Cameroun BIAOC 1974, Boston Bank 1980, Chase Bank 1988, Banque de Paris et de Pays-Bas 1980, Meridian Bank 1988, First Investment Bank 1991, Amity Bank 1991, Bank of Credit and Commerce 1981, Credit Agricole 1990, International Bank of Africa Cameroon (IBAC) 1982, Standard Chartered Bank 1992.

1.2 Problem Statement

The improvement in the banking industry may not wholly attribute to the rapid increase in the number of banks but is the rapid growth of our economy that brought about the structural adjustment program.

Though the banking industry plays an important role in the development of the economy of any nation, there is no doubt, it is an indispensable role to the Cameroon economy. Though they have lapses which are; financial distress, inadequate management, inadequate capital bases, risk asset portfolio, and board room crisis.

1.3 Research Questions

1. What is the role of commercial banks in the economic development of Cameroon?
2. Can commercial banks assist small and medium-scale businesses in Cameroon?
3. What are the difficulties faced by commercial banks in Cameroon?

1.4 Objectives of The Study

The aim and objectives of the research work are to investigate the role of commercial banks on the economic development of Cameroon.

1.4.2 Specific Objectives

1. To examine the role of commercial banks in the economic development of Cameroon’s economy.
2. To assess the contribution of commercial banks in the development of small and medium-sized businesses in Cameroon.

1.5 Hypothesis

H0: There is no significant impact of commercial banks on the economic development of Cameroon.

H1: There is a significant relationship between commercial banks on the economic development of Cameroon.