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APPRAISAL
OF THE ROLE OF CBN AND NDIC IN THE MONITORING OF COMMERCIAL BANKS IN NIGERIA
ABSTRACT
This study was
designed with the aim of appraising the roles of CBN/NDIC in the management and
regulation of commercial banks activities.
In order to actualize
the objectives, five banks as sample were selected/chosen for analysis to
assess financial institutions performance in relation to the regulatory
authorities, CBN and NDIC. Various literature and theoretical issues were
discussed. In addition an empirical regression and descriptive analysis was
carried out to investigate how CBN/NDIC regulation variables impact on
commercial banks’ activities in Nigeria. The findings from both analysis
revealed that CBN structure, CBN/NDIC performance and their relationship with
commercial banks had a significant impact on the management and regulation of
commercial banks’ activities in Nigerian. While depositors’ protection was the
only variable that had an insignificant impact on the management and regulation
of commercial banks’ activities. With the aid of regression, the research was
able to establish that CBN and NDIC make significant impact in commercial
banking sector.
It is
recommendation that continuous review of prudential guidelines and regulations
in the light of dynamics of operating environment for commercial banks as well
as enforcement of regulation and compliance with prudential guidelines and
regulations to reduce the systematic effects and prevent deterioration in the
financial condition of distressed institutions.
TABLE OF
CONTENT
Title Page
Abstract
CHAPTER ONE
1.1
Introduction
1.2 Statement of
Problems/Questions
1.3 Statement of
Objective
1.4 Statement of
Hypotheses
1.5
Significance/Regulation of the Study
1.6 Scope of the
Study
1.7 Limitation of the
Study
1.8 Definition of
Terms
References
CHAPTER TWO:
LITERATURE REVIEW
2.0 Introduction
2.1 Banking
Regulation Defined
2.2 Rationale for
Banking Regulation
2.3 How the CBN
Regulates Banks
2.4 Banks’ Regulation
2.5
How the Nigerian Deposit Insurance
Corporation Regulates
Banks
2.6
CBN Monitory and Credit Policy Concept,
Administration and
Guidelines
2.7
The Practice of Banking Regulation in Nigeria
2.8
How Has the Banking Industry Performed
Under
Regulation
2.9 Structure of
Commercial Bank
2.10
Regulatory/Supervisory Framework for
Asset/Liability
Management
2.10
The Establishment of an Asset/Liability Management
of Committee
(Policies Guidelines)
2.11
Increased Supervisory Responsibilities of
Central Bank of
Nigeria
2.13
Core Principle for Effective Banking Supervision:
The Basle Committee
Guidelines
2.14
A Review of Actions Taken By CBN/NDIC to
Tackle Distress in
Commercial Banks
2.15
Summary of Resolution Option Implemented by
CBN and NDIC
References
CHAPTER THREE: METHODOLOGY
4.1
Introduction
4.2
Research Design
4.3
Population and Sample
4.4
Sampling
Procedure
4.5
Source of
Data
4.6
Research Instrument
4.7
Theoretical Framework
4.8
Model
Specification
4.9
Data Presentation and Analysis
References
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
5
Descriptive Analysis
4.1 Inferential
Analysis
4.2 Hypothesis
Testing
References
CHAPTER
FIVE: SUMMARY OF
FINDINGS, RECOMMENDATION AND CONCLUSION
1.1
Introduction
1.2
Summary of Findings
1.3
Policy Implication of Findings
1.4
Recommendation
5.4 Conclusion
Bibliography
Appendix
CHAPTER ONE
1.1
INTRODUCTION
Commercial banks are generally
all-purpose retail bankers, Ajayi (1991). They mobilize deposits of all sizes
and from all and sundry in retail as well as in wholesale markets. They engage
mainly in borrowing and lending activities. The lending activities of Nigerian
commercial banks have been increasing steadily over the years and recently, the
pace of increase has acquired a tempo that needs some explanation.
Management of banks is the process of
managing money and providing a whole gamut of banking services. Beginning with
the management itself, it involves finding the optimal size and composition of
banks overall assets and liabilities, Nwankwo (1991).
An essential feature of a good
financial system in the banking industry is the existence and implementation of
a well developed and cleared defined set of rules, regulations, enforcement of
sanction in case of contravention. Since several developments in the Nigeria
economy had necessitated major review of the existing rules, regulations and
laws. Consequently, the CBN No. 25 of 1991 (as amended) was promulgated to give
CBN wider powers to handle all issues relating to banks from licensing to
liquidation.
Further development and needs to
sanitize the system brought about the promulgation of CBN 1997 decree to amend
the existing ones. The 1997 decree was to regulate other areas of Nigeria
financial system with CBN assuming control of banks, thus a comprehensive
framework for more effective supervision and optimal resolution of problems of distressed
finance commenced in 1995. In this regard, the CBN has been taken over the
operations of some banks, revoked the licenses of others and appointed the NDIC
as a receiver and liquidator of some of these banks.
But over the years, the regulatory authorities
have not performing their role creditably. They are not even functioning
effectively because enabling environment is not prevalent. Prior to 1988 there
was no institution to insure the depositors’ fund and as a result of the
accelerated expansion of banking sector the need to insure depositors’ fund
became more obvious. The Nigeria Deposit Insurance Corporation was thus
established by Decree 22 of June 1988 to provide insurance cover for
depositors’ fund and complement the supervisory role of CBN. Currently all
institutions licensed as banks by the CBN are covered by depositors’ protection
scheme.
A committee comprising representative
of banking supervisions and bank examination department of CBN and NDIC was
thereafter set up to draw up guidelines to assist banks examining in managing
financial institutions.
To this end, this research is an
attempt among others to examine management and regulation of commercial banks
activities in Nigeria in order to determine their concreteness and paradigm.
1.2
STATEMENT OF PROBLEMS/QUESTIONS
The problem of this study focuses on
the importance of managing and regulating commercial banks activities. To
appraise the role of CBN and NDIC in the regulation of banking system in
Nigeria, the following research questions are stated for consideration.
(1)
Have the regulatory authorities, CBN and NDIC been performing their role
creditably?
(2)
What impact has the structure of the authorities had on the functions?
(3)
Would the regulatory authorities have functioned effectively if enabling
environment were prevalent?
(4)
How does the CBN protect commercial banks depositors against loss?
(5)
How does NDIC protect commercial banks depositors against loss?
(6)
How effective has the CBN and NDIC being as regulatory/supervisory authorities?
1.3
STATEMENT OF 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.
1.4
STATEMENT OF HYPOTHESES
For the purpose of resolving the
research problems and questions articulated above, the following hypotheses
were formulated and tested in the course of this study;
H0:
CBN/NDIC have not performed their roles in line with the enabling
Acts establishing them.
H1:
CBN/NDIC have performed their roles in line with the enabling Acts
establishing them.
H0:
CBN/NDIC structures have no positive relationship with how well
they perform their functions.
H1:
CBN/NDIC structures have positive relationship with how well they
perform their functions.
H0:
Regulatory Acts of CBN/NDIC and BOFIA have not assisted to protect the
depositors against losses of fund.
H1:
Regulatory Acts of CBN/NDIC and BOFIA have assisted to
protect the depositors against losses of fund.
1.5
SIGNIFICANCE/REGULATION OF THE STUDY
To analyze the management and
regulation of commercial banks activities, we need to consider the role of CBN
and NDIC in the regulations of the banking system in Nigeria and how the
banking industry has performed under regulation and how does it benefit;
(1)
Government: It is expected that the findings of this research will be
very useful to the government in managing and regulating commercial banks
activities.
(2)
Investors in the Financial Services Industry: Investors especially
entrepreneurs who wish to establish and run their own financial institution may
find this work useful.
(3)
The Banking Public: This research will be useful to depositors who
patronize financial institutions and commit their funds into these
institutions.
(4)
Future Researcher: People who wish to carry out further research in this
area will certainly find this work relevant.
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