The Impact of Banking Supervision and Regulation in Nigeria and Its Effects on the Nigerian Economy
CHAPTER ONE
Objectives of the study
To establish the impact of banking supervision and regulation in Nigeria and its effects on the Nigerian economy.
- The impact of banking supervision and regulations on the performance of the banking sector.
- The impact of banking supervision and regulations on the Nigerian economy.
- Proffer solutions towards the development of the Nigerian banking sector and economy through banking supervision and regulations.
CHAPTER TWO
LITERATURE REVIEW
Introduction
This chapter outlines the theoretical review of the study and opinions advanced by various authors, writers, and scholars on the banking supervision and regulation in Nigeria and its effects on the Nigerian economy. It also outlines the various studies done by different scholars in the same knowledge area.
Conceptual review
Monetary policy
Monetary policy is the set of measures taken by the monetary authority or Central Bank to control the volume, value, and cost of money in a society or an economy to achieve the predetermined macroeconomic goal such as price stability, interest rate stability, and exchange rate stability, and economic growth.
Monetary policy can also be said to be the measures the Central Bank takes to determine the cost, availability, and use of money and credit to achieve predetermined macroeconomic goals.
Friedman (1969) explains monetary policy as the “action taken by the monetary authorities, usually the Central Bank, to affect monetary and other financial conditions through influence over the availability and cost of credit in pursuit of the broad objectives of sustainable growth of output, price stability and a healthy balance of payments position.”
INFLATION
Inflation is the circumstances where a persistence general prices of goods and services is rising on a sustained basis over a period of time in an economy or a country as a result of the local currency losing its value or declining.
MONETARY POLICY RATE (MPR)
Monetary policy rate formally called “Minimum Rediscount Rate”, is an “authorized interest rate of the Central Bank which anchors all other interest rates in the money market and economy”. (CBN, 2016). It is one of the monetary policy instruments used to influence intermediate target and objectives. The volume of money in circulation decreases if MPR is increased.
CHAPTER THREE
RESEARCH METHODOLOGY
Introduction
This chapter discusses the research design, the population, the type of data needed and the source of the data. It also explains how the data will be analyzed.
Research Design
A cross-sectional correlation research design was used for this study. In this design, the researcher observes more than one variable at a point in time so that how they relate can be easily analyzed. In a correlation study, more than quantitative variables from the same group of subjects are analyzed (Waters, 2011). The aim of correlational studies is the examination of variables in their natural environments without direct involvement of the researcher.
The essence of a correlational research design is to determine whether the variables under study are related to each other and whether there is any relationship between the variables (Creswell, 2018). This makes the design suitable for this study (Leedy and Ormrod 2020).
CHAPTER FOUR: DATA ANALYSIS, RESULTS AND
DISCUSSION
Introduction
This chapter presents research results, study findings and then concludes by presenting detailed analysis and discussion of the research objectives. Descriptive statistics was used.
CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
Introduction
This chapter summarizes the research findings and also presents conclusions and recommendations of the study. The conclusions are drawn from the findings of the study which sought to establish the impact of banking supervision and regulation in Nigeria and its effects on the Nigerian economy.
Summary
The objective of this study was to establish the impact of banking supervision and regulation in Nigeria and its effects on the Nigerian economy. The variables of regulation included capital regulation requirement, liquidity requirement ratio and risk management while performance of commercial banks was measured using return on assets.
In terms of the study’s goal, it was discovered that capital regulation, liquidity, and risk management all had a favorable impact on return on assets. The research discovered that the correlation between return on assets and mean capital need was 0.561, with a p-value of 0.000, demonstrating a positive association between the two. Since the p-value was 0.0000.05, the connection was significant at the 5% level of significance. Return on assets and mean liquidity requirements have a positive correlation of 0.595, which is significant at the 5% level of significance, whereas return on assets and mean risk management have a positive connection, but it is not significant at the 5% level of significance (p-value 0.115>0.05).
In addition, the regression analysis reveals that capital requirements, liquidity ratio requirements, and risk management have no substantial impact on return on assets. This implies that other variables, including as capital requirements, liquidity, and risk management, may have an impact on the banking sector’s return on assets. The model’s F value yields a p-value of 0.670, which is substantially higher than zero. For normally distributed data, a p-value of 7.060 is more than the predefined threshold of significance of 0.05. This indicates that the model is ineffective in understanding banking sector performance. This implies that other research may incorporate other performance factors.
The correlation coefficient was 0.609, indicating that there was a high positive link between return on assets and mean capital need, mean liquidity requirement, and mean risk management, according to the research.
Conclusions
According to the findings, capital regulation, liquidity requirements, and risk management all have a beneficial impact on return on assets. The research also discovered that the mean capital and liquidity requirements had a considerable impact on return on assets. The average risk management, on the other hand, has no influence on the return on assets. Overall, the research concluded that the model is ineffective in describing banking sector performance. This implies that there are additional factors that influence commercial banks’ return on assets in Nigeria.
Furthermore, bank inspections should continue to be regular and timely, and bank control measures should not be too stringent as to have a long-term and negative impact on banking operations. Finally, ongoing reforms, particularly the decision to reclassify, commercial banks, should be revisited before full implementation, taking into account the negative impact, which includes but is not limited to a reduction in credit loan grants to the public, particularly the private sector. Finally, bank supervision should be carried out by only qualified and neutral bank examiners.
Recommendations
In Nigeria, banking sector regulation is critical, particularly in light of recent commercial bank failures. It is a critical problem in boosting the country’s prosperity via long-term financial stability. As a result, the government should foster a favorable regulatory environment. It is advised that the banking industry not be too restricted since this might lead to knowledge asymmetry and, as a result, poor bank performance. Appropriate restrictions, on the other hand, should be put in place to restore sanity to the industry.
The following recommendations were made based on the findings:
- Bank inspections shall continue to be conducted on a regular basis, as well as in a timely and fair way, in order to detect and address any unfavorable trends in the banks as soon as possible.
- Supervisory and control activities can only be efficiently carried out by qualified and trained bank examiners. As a result, continuous training for bank supervisors is required to keep them up to date on the newest innovations in banking operations and financial reporting oversight and investigation.
- Any allegations of wrongdoing should be thoroughly examined and disciplinary action taken as soon as possible.
- The control measures should be devised and executed in such a manner that they do not have a detrimental effect on bank operations and performance, particularly in terms of loan/credit giving and profitability.
- The CBN’s continuing reforms, including the elimination of universal banking and the reclassification of commercial banks, should be severely reexamined, since the management of the commercial banks under investigation faults their installations.
Suggestions for Further Studies
This research examined the impact of banking supervision and regulation in Nigeria and its effects on the Nigerian economy. As a result, further research will be very useful in determining what actually impacts the financial success of commercial banks. Other academics with a genuine interest in the subject may do research on regulation and its influence on financial performance with the goal of conducting a cross-country comparison study and a thorough analytical review. Another research in Nigeria might be undertaken, but the variables should be expanded. Market discipline, regulatory authority, and beginning capital stringency competition from commercial banks are all elements that might be included. This kind of research will benefit from having a large number of variables.
Further research should be conducted to assess how capital requirements might improve financial stability in Nigerian commercial banks, according to the report. This will provide a comprehensive examination of the influence of capital restrictions on Nigerian financial performance.
REFERENCES
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- Ariss, R.T. (2020). Competitive Conditions in Islamic and Conventional Banking: A Global Perspective. Review of Financial Economics,19 (3), 101–108.
- Bank for International Settlements. (2019). Strengthening the Resilience of the Banking Sector Consultative Document, Basel Committee on Banking Supervision, BIS.
- Bank of International Settlements. (2012). Progress report on Basel III implementation, Basel Committee on Banking Supervision, BIS.
- Bank of International Settlements. (2020). Group of Governors and Heads of Supervision Announces Higher Global Minimum Capital Standards, BIS.
- Barrell, R., E. Davis, T. Fic, D. Holland, S. Kirby and I. Liadze (2019). Optimal regulation of bank capital and liquidity: How to calibrate new international standards’, FSA Occasional Paper, 38.
- Barth, J. R., Caprio, G., and Levine, R. (2014). Bank regulation and supervision: What works best? Journal of Financial Intermediation, 13, 205–248.
- Basel Committee on Banking Supervision. (1999). Capital Requirements and Bank Behavior: The Impact of the Basel Accord. Bank for International Settlements Working Paper No. 1. Basle, Switzerland.
