Appraisal of the role of CBN and NDIC in the monitoring of commercial Bank in Nigeria
CHAPTER ONE
OBJECTIVE
The objective of this study is to make a comprehensive examination of the regulation of commercial banks activities. One of the main functions of commercial banks is to provide short-term and medium term loans and advances to various sectors of the economy. It is therefore obvious that its activities do not constitute any obstacle towards the realization of the objectives in regulating commercial banks of the Nigeria economy. In view of the above, the specific objectives of the study include;
(1)To find out how the regulatory authorities, CBN and NDIC have been performing their role creditably.
(2)To ascertain the impact of the authorities had on their functions.
(3) To identify the various functions of the regulatory authorities.
(4) To ascertain the CBN protection on commercial bank depositors against loss.
(5 To ascertain the NDIC protection on commercial bank depositors against loss.
(6) To evaluate the effectiveness of CBN and NDIC.
(7) To appraise and make adequate recommendation on findings.
It is my belief that the project will be of much importance to the public to know the reasons why commercial banks in Nigeria always experience problems due to mismanagement and inadequate regulation.
CHAPTER TWO
REVIEWED OF RELATED LITERATURE
THE BANKING SYSTEM
The banking system in any economy plays the important role of promoting economic growth and development through the process of financial intermediation. Development economists argue that the existence and evolution of financial institutions and markets constitute an important element in the process of economic growth. The banking system, in promoting economic growth, plays the following roles among many others:- – Improving the efficiency of resource mobilization by pooling individual savings; – Increasing the proportion of societal resources devoted to interest-yielding assets and long-term investments, which in turn facilitate economic growth. This relates to the savings function of banks and the pivotal role of savings is demonstrated by the fact that when it is in short supply in any nation, investment and the standard of living decline. 23 – Providing a more efficient allocation of savings into investment than the individual savers can accomplish on their own. This flow of savings into investment ensures that more goods and services can be produced, thus increasing productivity and the nation‟s standard of living. – Reducing the risks faced by firms in their production processes by providing liquidity and capital; – Enables investors to improve their portfolio diversification by providing insurance and project monitoring. Apart from providing insurance services as part of the practice of universal banking, banks have developed a number of products linked to specific insurance policies which are designed to offer protection against life, health, property and income risks. In addition to these, the banks have been used by businesses and private consumers to “selfinsure” against risk; that is holdings of cash and other similar products are built up as protection against future losses. – Provides a veritable platform for an effective monetary policy implementation thereby enhancing the effective management of the economy. The banking system has been one of the channels through which government 24 carries out its policy of stabilizing the economy and controlling inflation. Through the manipulation of certain key variables such as interest rates and the quantum of credit, government is able to influence borrowing and spending within the economy. These in turn affect employment, production and prices. – Facilitates a reliable payments system which provides support for the economy. In this regard, certain financial assets such as current accounts, deposit / savings accounts, domiciliary accounts etc, which serve as media of exchange for payments readily, come to mind. Cheques, credit cards and electronic transfers are the principal means of payment today. – Provides credit. The banking system provides credit to finance investment and consumption. This is a major function of the banking system.
BANKING SUPERVISION SYSTEM
Supervision is the system of monitoring banks to ensure that they are carrying out their activities in a safe and sound manner and in accordance with laws, rules and regulations. It is a means of determining the financial condition and of ensuring compliance with laid down rules and regulations at 25 any given time. Bench (1993) asserts that effective supervision of banks leads to a healthy banking industry. Vitas (1990) also believes that good regulation and supervision will minimise the negative impact of moral hazard and price shocks on the banking system, thereby leading to a reduction in bank failures and banking system distress. Traditionally, the role of banks whether in a developed or developing economy, consists of financial intermediation, provision of an efficient payments system and serving as a conduit for the implementation of monetary policies. It has been postulated that if these functions are efficiently carried out, the economy would be able to mobilize meaningful level of savings and channel these funds in an efficient and effective manner to ensure that no viable project is frustrated due to lack of funds. In view of the importance of the banking sector in economic development and the imperfection of the market mechanism to mobilize and allocate financial resources to socially desirable economic activities of any nation, governments the world over, do regulate them more than any other sector in an economy. This underscores the need for banking sector regulation. However, in addition, the nature of banking business (being 26 highly geared and conducted with greater secrecy when compared with other real sector businesses) provides added reason for strict supervision. This is to constantly beam a search-light on the sector‟s activities with a view to ensuring that operators play by the rules of the game and imbibe sound and safe banking practices. Furthermore, such an oversight is intended to assist supervisory authorities in timely identification of deterioration in banks‟ financial conditions before it degenerates to threaten the stability of the banking system or even the economy. This was the view of Donli (2003) Radical reforms to the system of prudential regulation and supervision have been implemented since the late 1980s. These reforms are essential because the prudential system has proved ineffective in ensuring sound bank and local banks indicates.
CHAPTER THREE
RESEARCH METHODOLOGY
INTRODUCTION
In this chapter, we described the research procedure for this study. A research methodology is a research process adopted or employed to systematically and scientifically present the results of a study to the research audience viz. a vis, the study beneficiaries.
RESEARCH DESIGN
Research designs are perceived to be an overall strategy adopted by the researcher whereby different components of the study are integrated in a logical manner to effectively address a research problem. In this study, the researcher employed the survey research design. This is due to the nature of the study whereby the opinion and views of people are sampled. According to Singleton & Straits, (2009), Survey research can use quantitative research strategies (e.g., using questionnaires with numerically rated items), qualitative research strategies (e.g., using open-ended questions), or both strategies (i.e., mixed methods). As it is often used to describe and explore human behaviour, surveys are therefore frequently used in social and psychological research.
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
INTRODUCTION
This chapter presents the analysis of data derived through the questionnaire and key informant interview administered on the respondents in the study area. The analysis and interpretation were derived from the findings of the study. The data analysis depicts the simple frequency and percentage of the respondents as well as interpretation of the information gathered. A total of eighty (80) questionnaires were administered to respondents of which only seventy-seven (77) were returned and validated. This was due to irregular, incomplete and inappropriate responses to some questionnaire. For this study a total of 77 was validated for the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was to ascertain Appraisal of the role of CBN and NDIC in the monitoring of commercial Bank in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing Appraisal of the role of CBN and NDIC in the monitoring of commercial Bank in Nigeria
Summary
This study was on Appraisal of the role of CBN and NDIC in the monitoring of commercial Bank in Nigeria. Seven objectives were raised which included: (1)To find out how the regulatory authorities, CBN and NDIC have been performing their role creditably, to ascertain the impact of the authorities had on their functions, to identify the various functions of the regulatory authorities, to ascertain the CBN protection on commercial bank depositors against loss, to ascertain the NDIC protection on commercial bank depositors against loss, to evaluate the effectiveness of CBN and NDIC and to appraise and make adequate recommendation on findings. A total of 77 responses were received and validated from the enrolled participants where all respondents were drawn from CBN and NDIC, Lagos state. Hypothesis was tested using Chi-Square statistical tool (SPSS).
Conclusion
The Nigeria deposit Insurance Corporation (NDIC) has a positive role in the prevention of banks failures in Nigeria..The corporation since its establishment in 1988 and commenced operation in march 1989 under decree No. 22 now CAP 301 law of the federation 1990 has played that role wonderfully with factors and figures contained in this research work. In conclusion, it could be said that there was prevalence and widespread existence of distress condition in the Nigeria Banking industry between 1980’s and early 1990’s but between 1994 to 2008 the number reduced to industry has barely witnessed any distress due to intervention of CBN in 2009 the injection of N620 bn of liquidity into the banking sector and replaced the leadership at 8 Nigerian Banks coupled with establishment of AMCON to absorb loans.In terms of causes, the study confirmed that the distress condition has been due to a wide range of institutions factors. The most critical factor was widely acknowledge to be bad management which manifested itself in various forms such as bad lending policy, poor internal controls and wide ranging fraudulent practices industry insider abuses. The preventive control and detection of failure should be collaborative efforts of of regulatory bodies, banks and the customers, their public and the government industry relevant agencies. There is optimism on the future of the NDIC and the safety of depositors’ fund. Many plans and contribution are underway towards revamping the nation’s banking industry. “ prevention is better than cure” and “an ounce of prevention is better than a pound of cure” in other words the authorities banks, customers and the entire public should be proactive in dealing with possible problem which may eventually lead to future. With all hands on deck significant and political changes and improvement are no doubt realizable in the years ahead.
Recommendation
The modification which I propose is the establishment of a committee of Banking Supervisory Authorities (CBSA). The Institutionalised CBSA to which all banking supervisory authorities (including the Central Bank of Nigeria, the National Deposit Insurance Corporation and the designate of the licensed banks amongst others) should be long, should be empowered to stipulate minimum prudential standards ranging from entry requirements, thre sholds for illiquidity and insolvency, to failure resolution options. Such harmonized prudential standards should be binding on all financial institutions. Also, banking laws, rules and regulations should be harmonized by the CBSA for adoption and execution by alllicensed banking institutions. The CBSA which should have an administrative secretariat should meet quarterly, if not more frequently. The existence of the CBSA in line with the consolidation initiative would relate with the regulatory authorities of other nations in West Africa (as a take -off initiative ) and this would ease crossborder growth of banks within the sub-re gion. Re quirements for cross-border mergers and acquisitions would be stipulated by CBSA in conjunction with the monetary authorities of other West African member states. Any bank in a member state should be able to establish branches or subsidiaries or associates provided they offer banking services within the sub-region.
References
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