An Assessment Of The Regulatory And Supervisory Frame Work In The Nigerian Banking System

Project and Seminar material for Banking and Finance

Project and Seminar material for Banking and Finance


Abstract


This work is an articulated and comprehensive assessment of the regulatory and supervisory frame work in the Nigerian banking system.

This topic has been chosen specifically to assess and know the extents and impacts of the regulation and supervision on banks in the country Nigeria.

To make for easy understanding, this study also attempts to examine the techniques of banks regulation and supervision, i.e. banks On-site examination and Off-site supervision.

It was discovered that, banking examination have effects on the depositors and monetary and also financial stability.

In Chapter one of this work, the study was introduced, the statement of problem, objectives of the study, statement of hypothesis, significance of the research and scope of study. Also some terms used in the main body of the work are defined as to enable readers of this work to have easy understanding and assimilate what the topic is all about.

Chapter two dwelled on the literature review of the work, banks supervision was discussed to the background level, the structure of the regulatory and supervisory bodies was detailed, regulatory and supervisory framework was also looked at, also with the implications for regulatory change on the banks. Chapter three is all about the research methodology and design, method and sources of data collection.

Chapter four discusses the presentation and analysis for data and it is in this chapter four, that the test of hypothesis was carried out, the main source for the test of hypothesis is from Nwachukwu Vitalis (2005) and the Chi-Square method was used to carryout the test, maintaining 5% level of significance and 95% confidence interval.

Finally, the chapter five is centered on summary, conclusion and recommendation. The recommendation of this work is specifically addressed to the stake holders, the CBN, the government, management, staffs and to the customers of banks.

After this chapter five, there is also a letter questionnaire and bibliography for this work.


Table Of Contents


Preliminary Page(s)

  • Title Page
  • Approval Page
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Contents

Chapter One

1.0 Introduction

  • 1.1 General Overview of the Study
  • 1.2 Statement of Problems
  • 1.3 Objectives of the Study
  • 1.4 Statement of Hypothesis
  • 1.5 Significance of the Research
  • 1.6 Scope pf Study
  • 1.7 Definition of terms

Chapter Two

2.0 Literature Review

  • 2.1 Background to Bank’s Supervision
  • 2.2 Regulatory and Supervisory frame-work
  • 2.3 An Assessment of the Structure of the existing Regulatory Frame-work.
  • 2.4 Scope of Bank Supervision in Nigeria and its conduct
  • 2.5 Bank Examination technique / the structure of the regulatory and supervisory authorities.
  • 2.6 Implications for regulatory change.

Chapter Three

3.0 Research Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Method of data collection
  • 3.4 Sources of data collection
  • 3.4.1 Primary Sources
  • 3.4.2 Secondary Sources
  • 3.5 Sampling Plan
  • 3.6 Method of data analysis

Chapter Four

4.0 Presentation and Analysis of Data

  • 4.1 Presentation of data
  • 4.2 Analysis of data
  • 4.3 Test of Hypothesis

Chapter Five

5.0 Summary, Conclusion and Recommendation

  • 5.1 Summary
  • 5.2 Conclusion
  • 5.3 Recommendation
  • Bibliography
  • Appendix – Questionnaire

Chapter One


1.0 Introduction

1.1 General Overview Of The Study

An efficient financial system is admittedly a necessity though not a sufficient condition for a well functioning economy. For the financial system of every economy to be efficient, it must be adequately regulated, supervised and coordinated. Regulations and supervisions is necessary to protect depositors especially the small and ignorant ones, with neither the required knowledge nor access to sufficient information needed to evaluate the safety and soundness of the financial institutions.

Regulation is undertaken to ensure monetary stability by protecting the payments system from business down to other micro economic shocks. In addiction, financial markets are regulated because of the failure of the market system to recognize social rationality of the banking system.

The adequacy of a regulatory framework must be assessed not only in terms of the sufficiency of the regulatory structure, but also in terms of the effectiveness of the regulatory measure. The measures which are usually rules of agreed behaviour either imposed by government within the industry have the effect of limiting the business activities of banking institutions.

It is for the fact of noticing the roles of the regulatory bodies that Nigeria Deposit Insurance Corporation (NDIC) was established in 1998 as an additional supervisory institution in the nations banking system to see to the following functions, issue bank deposits, contribute to banking policies and ensure a safe and sound banking system in the country.Ebhodaghe,1997.

Also the role Central Bank of Nigeria (CBN) has played in the failure resolution are examined. The CBN brief, (1995) has noted that one of the principal objectives of Central Bank of Nigeria is to promote monetary stability and soundness of banking system. To achieve this, the CBN conducts regulations, supervisions and examinations of banks as a means of maintaining surveillance on banking laws and other directives stipulated by the monetary authorities. This helps to promote high level and quality banking services. The functions of the CBN are Off- Site supervision while the examination division of the Federal ministry of finance handles On-site Scrutinizing of banks.

This arrangement lasted till the end of 1965, the CBN supervision and examination in 1966, base on the awareness that adequate and proper supervision would be better accomplished by a specialized institution which would bring together an experienced team of banks and other related professionals to facilitate the exercise of banks supervision. This gave rise to the establishment of NDIC.

It is a well-known dictum, that an efficient banking system is necessary, though not a sufficient condition for a stable economy. For a banking system to be efficient, it requires adequate supervision and regulation.


1.2 Statement Of Problem

The government in an attempt to reverse the growing distress of banks in the banking sector came up with idea of regulating and supervising the activities of the banking system. These roles and its activities were given to the bodies, the NDIC and the CBN. But since their inception, banks are today still distressed and frauds are still going on. Therefore with the presence of the regulatory and the supervisory institutions in the banking system, the banking system is still not stable, why? This is where we have to take a look at the problems of the regulatory and supervisory bodies, which are the following according to NDIC (1997), annual report:

  1. Continuous dissolution of boards which gives rise to instability of supervisory operations, as each board that comes in, tends to alter the system regulation. This therefore pushes a bank to be distressed giving banks an opportunity to operate the way they want.
  2. The examination bodies have not embarked on supervisory over sight or if they have, it is not improved inadequate supervisory oversight allows banks to grow and increase in size necessarily without being monitored. This way, they neglect the regulatory instructions and directives, and when they are finally examined by the examination bodies, they get distressed and liquidate.
  3. Another reason why banks today are still being distressed is the fact that the regulatory and supervisory environment has found it hard to be able to detect the banks that come up illegally.
  4. The inability of the researchers’ Department to effectively take control of off-site monitoring on a continuous basis of the activities and performance of the insured banks. And also inability to assess the premium liabilities payable by insured banks. Another reason for this department’s deficiency is the fact that it has only 20 employees.

These and others which could not be reached are the problems of the supervisory and regulatory institutions that affect the banks and their systems in the country as a whole.


1.3 Objectives Of The Study.

This project aims at appraising and assessing the regulatory and supervisory frame work of the Nigerian Banking system, identifying their role towards the rules and regulations which are reviewed from time to time to reflect the changing economic environment. This project also aims at:

  1. Creating awareness on the regulatory and supervisory imperatives in a globalized financial system.
  2. Creating awareness on the relevant available number of newspapers, articles, journal and magazines relating to the banking regulation and supervision.
  3. It can also serve as an instrument of bibliographical control especially in the field of relevance to researchers and students.

1.4 Statement Of Hypothesis

Hypothesis means ‘some testable belief or opinion’. Theories to be proved or disproved by reference to the facts a provisional explanation of anything. Test of hypothesis is the process by which the belief is tested by statically means, based on the result obtained from the sample. The hypothesis would either be accepted or rejected.
Based on these problems statement the researcher proceeds to formulate the following hypothesis which will be tested in the course of the study.

  • H1: Banking regulation has helped in increasing banks deposits and profits.
  • H2: Banking regulation and supervision has helped in increasing the banks capital structure.

1.5 Significance Of The Research

The need for diversifying the countries resources of foreign exchange earning cannot be over emphasized, and the banking sector being one of the potential sources has in time past contributed over 40% of our total foreign exchange income. But to inexcusable faults of our past leaders, who had made the sectors contribution to now fall below 5% of the nations total forging exchange earnings. The adoption of Structural Adjustment Program (SAP) was aimed at many things, one of which was to establish banks in the rural dwellers, and correcting structural imbalance.

The significance of this research therefore is to seek improvement, efficient promotion and financial incentives to the regulatory and supervisory institutions, to diversify the foreign exchange earning sector to enable it contribute more than 40% of the foreign exchange income and to achieve awareness in the rural areas in terms of banking sector and improving of the banking system as a whole. This will enable them cope with the demands of the public and the internal bodies, and also improve the stability of the banking system is in their hands.


1.6 Scope Of The Study

The scope of the study includes the Off-Site and On-Site scrutiny of the banks which was carried out by the Central Bank of Nigeria CBN and the federal ministry of finance (FMF) respectively up till the end of 1965. It also includes the fact that CBN started Supervision and examination activities in January 1966, based on the awareness that adequate and proper supervision would be better accomplished by a specialized institution. This gave rise to the establishment of the NDIC in 1988.

The scope continued to cover the problems of the regulatory and supervisory bodies that effect its adequacy and banking system as a whole. This will only be achieved by proper addressing of the inhibiting factors identified in the cause of the research


1.7 Definition Of Terms

Asses:

To estimate the nature, quality or values of some body, or something, but in our case of study “Banks”.

Assessment:

A carefully considerable opinion or judgment or the action of assessing somebody/ something and banks as well.

Regulations:

Laid down rules or principles guiding the conducts of banks, which if they do not do or when they do such attracts sanction or closure.

Supervision:

The act of supervising a regulating the acts of banks to see that banks do not compromise to the don’ts and to make sure that they observe the do’s.

Regulatory Body:

This is the organ or the body in charge of regulating the deeds of banks and punishes offending banks.

Authorities:

This means the organ or body empowered also to give orders and make others obey i.e. to make banks obey. To make decision or take action.

Bank:

A bank is an institution – corporate or unincorporated, recognized by a country’s highest monetary authority or government for the purpose of caring on banking business determined by the monetary authority or government. Source: Kanu (2003:9).

Banker:

Any person or group of persons licensed to carry on the business f banking as specified in the banking laws.

Banking:

This is defined as the performance of any of the banking business.

Nigerian Banking:

This is the mode and how banking business is been carried out in Nigeria.

Central Bank Of Nigeria (CBN):

This institution is the apex financial institution in Nigeria, which controls all other banks in Nigeria. It is the central monetary authority, it is not profit oriented.

Commercial Banking:

This is the oldest of all the banking institutions in Nigeria. It is the most popular and most important unique in its performances, it holds the nations money, and it is profit oriented.

Structure:

This is the way in which somebody is organized, built or put together or state of being well organized or planned. Imperatively, the way which banks are organized, built and put together as to achieve the goal of such banking business.

Framework:

A structure giving shape and support to something a set of principles or ideas used as a basis for ones judgments, decisions etc.

On-Site Examination:

This means the appraising of banks on continues basis and the suggesting improvement in performance standard.

Off-Site Supervision:

This involves the analysis of banks returns to the CBN as statutorily required. To ensure that banks operations and activities are reported accurately as possible.

Deposit:

This is money, individuals, groups or institutions keep with banks for safety purposes. Which attracts interest depending on the type of account been operated.

Bank Balance Sheet:

This is a book or document stating financial position of a bank at any given period of time, say one year or above. Or books stating the assets position, liability position and equity position of a bank.

NDIC:

This means Nigerian Deposit Insurance Corporation, this regulatory or supervisory organ was set up to insure the deposit liabilities of licensed banks and other deposit taking financial institutions operating in Nigeria.

FMF:

This means Federal Ministry of Finance, this organ that formulates and implements the fiscal policies of the government.


Chapter Five


5.0 Summary, Conclusion And Recommendations,

5.1 Summary

In the regulatory and supervisory frame work in Nigerian banking system, the researcher has carried out intensive study on the topic, in this passage of this work; effort has been made to establish the researchers’ findings and provide suggestions to the regulatory and supervisory imperatives in the Nigerian banking system. It is believed that the researchers’ purpose of this study would have been met through these means.

Thorough assessment was made on the scope of supervision, bank examination technique and structure of the supervisory and regulatory authorities. The banks on-site examination and off-site supervision was also looked at. A close look at the effort of supervion on banks was detailed in the course of the writing.

The researcher made effort in examining the banks performances and succeeded in presenting two typical current balance sheets of United Bank for Africa (UBN) and Standard Trust Bank plc. The implication of the regulatory change was also detailed.


5.2 Conclusion

From the for-going, and the data used above on the previous chapters of this work, and from the hypothesis tested above, and also from the questionnaire sent out and the answers gotten, shows that banks in the country are been supervised and there are rules and regulations set to be guiding the actions and operations of our banks in the country.

As one injunction puts it that ‘where there is no law, people perish’ so it is in our present banking industries, if banks are not supervised, the economy will be adversely affected and mismanagement and fraud will characterize our banks.

Based on the assessment of regulatory and supervisory framework in our banking system in the country, the researcher concludes that these bodies set to supervise, if on any occasion of failure in these act, bank managements act they way the suppose it should be. That is why these bodies i.e. CBN, NDIC and FSRCC punish any bank that go in contrast with the laws and regulations of the banks.

From the hypothesis tested, we concluded that regulation and supervision has helped in increasing the banks capital base and also has helped banks in increasing their deposits and profits. Presently, banks despite all supervision and regulations still go depressed, now the CBN governor, professor Charles Chukwuma Soludo announced on the 6th July 2004 that banks sum up their capital base to be #25 billion and that any bank that did not measure up should go for mergers and acquisition or give way for others so as to have stronger and reliable banks in the country.


5.3 Recommendations

Having carried out the appropriate research due for this topic, the writer specifically makes the following recommendations to the bodies concerned for their effective and efficient operations in the field of banking.

The Stake holders of banks in the country should on their annual meetings, instruct the managements of their banks to always keep to rules and regulations of the authorities guiding banking activities on specific issues as to save the image of their bank and against problems like fraud and mismanagement.

The CBN should make sure that banks in the country are appropriately supervised, as to see that the bank can be relied upon and always punish any bank that act against the stipulated laws guiding them. They should also from time to time review the laws or ordinances prevailing in the banking and non-banking sector as suit the on-going banking reforms.

Government other their own should also review the laws of the nation that is adversely affecting the operation banks in the country. Management of these banks has to guide against mismanagement, organize seminars or training and such like for the staffs for effective and efficient administering of their duties. They also that their banks do not go in contrast to the requirements expected of them. They should also guide against fraud and mismanagement and other conducts that may amount to the detriment of their banks. They should observe the clauses of the bank, set their eyes on the workers and staffs so that they do not carry out any operation that may lead to the failure of the bank.

Staffs on their own should always keep to the secret of thee bank, carryout their works confidently, and see that they do not contribute to any act that will amount to the discharge of their customers, fraud and related acts.

Finally, the customers of these banks should help the bank to help them by always meeting to their commitments and debts obligations with the bank, so that the bank will not accumulate much bad and doubtful debt. They should also have good morals in their dealings with the bank.


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