Banking Regulation And The Performance Of The Nigeria Banking Industry
This study is intended to evaluation the effect of banking regulation on the performance of the Nigeria banking system from 1999-2006. Since bank failure and distress may result in server monetary contraction and dislocation of the real economy making people to loss confidence in the banking system. This brings about supervision and regulation of banks in order to improve the performance of the banking industry The objective of undertaking this research therefore includes the following. To find out the necessarily to regulate banks To find out the necessity to regulation/ guidance on the operations and performance of the banking industry and to find out the feeling of bank personnel concerning there regulation. Primary and secondary sources of data were in writing this research work the methodology used is the chi-square model and the operative assumption used are degree of freedom given as (R-DCc-1) and level of significance is 5%. From the analysis the following awning other were the finding. Regulation of the banking system in Nigeria are desirable of the in that their implementation will sanitize the banking system and improve their performances in the long run secondary many of the old banks that are heavily burdened with bad and doubtful debts have begun to bear the effects in different degree of the implementation of this regulatory guideline. Based on the findings the following among other were recommended. Government should embark on feature regulation and deregulation of the banking system. When necessary or distress this banking regulation/guideline should be backed with sanctions.
1.1 Backgrounds of the Study
Confidence is the pillar or pivot around which banking revolves. Hence lack of confidence by depositor in the stability of a bank can lead to serious problem for such a bank. Official concern for the stability of bank failure may result is server monitory contractions and dislocation of the real economy.
Therefore this given rise to the supervision regulation of banks in order to improve the performance of the banking industry.
The government considers an affective system of matter of matter of first importance. The primary role is to reduce the risk of capitals loss to the depositor. In this way supervision also perform a wider role by stability the whole banking regulations play in the effective management of banks in order to improve their performance led the monetary authorities to issue guideline for licensed banks and their auditors in November 1990.
The monetary authority have given a strong indications of their determination to improve the performance fog the Nigeria banking industry by regulating the industry and to make sure it is absorbed. The fact that in deregulated financial environment bad debt have continued shows the imperfection of the market system inability to protect the interest of depositors and the financial system.
Hence guideline regulation and their implementation are necessary to protect the economy as a whole. Viewed from this perspective the regulation and guideline are capable of industry sanity into the system by inducing banks to improve the quality fog their loan portfolio’s, ensure discipline in lending and unanimity in reporting especially regulation will enable banks to adopt a move provident and him form approach in their classification of credit portfolio, providing for non performing facilities creditor disclosure interest on non performing assets and off balance sheet engagement.
Hopefully they will ensure reliability on published accounting information and operation result and also save banks from attracting hinder attention and operating result and also save banks form attracting hinder attention to one another. Therefore, because of their pivotal position and role in the saving and investment process and in promotion of monetary policy and other macroeconomic objectives of government banks are resulted to correct market failure and ensure stately and systematic stability of the financial system not only nationally but also internationally.
1.2 Statement of Problem
This research is concerned with the problem of banking regulation and performance of the Nigeria banking industry (1990-20060).
In spite of many banking regulation banks failure and bank distress which occur frequent in our present day economy. In Nigeria many businessmen have decided not to deposit their monetary in the bank to avail capital loss. And this research work want to restore confidence in our banks in order to changers the attitude of those who cost confidence in Nigeria banking system.
1.3 Objective of the Study
- To find out whether preventions of network failure is one of the effects of bank regulations one the performance of Nigeria banks
- To find out whether the frequency appointment of bank director and top management staff of bank is one of the effect of bank regulation on the performance of Nigeria banks.
- To find out whether controlling the power to grant credit out hence over all equipment in the economy is one of the effect of bank regulation on the performance of Nigeria banking industry.
- To identify the different ways banking regulation affect the performance of Nigeria banking.
- To find out whether the operating minimum capital base of Niger bank can be describe one of the effect of banking regulation on the performance of banking industry.
1.4 Research Questions
- How does the supervisory and regulatory functions of the regulators impacts on Nigerian banks?
- What is the relationship between the banking supervision and the incidence of bad loan portfolio in the Nigerian banking industry?
- What is the efficiency and effectiveness of Deposit Insurance Scheme in Nigerian banks as a means to boosting depositors’ confidence in the system?
- What is the effectiveness of regulation on the pricing of banks products and services offered to their customers?
- What is the relationship between the CAMEL performance rating of banks and the effect of regulation in the industry?
1.5 Research Hypotheses
- Ho: Banking regulation guideline have no positive impact on the performance of the Nigeria banking industry
Hi: Banking regulation guideline and performance have positive impact on the performance of the Nigeria banking industry
- Ho: The failure if many bank in Nigeria in recent time is not due to lack of regulation and effective supervisor of the Nigeria banking industry by the monetary authorities
Ho: The failure if many bank in Nigeria in recent time due to lack of regulation and effective supervisor of the banking industry by the monetary authorities.
1.6 Significance of the Study
This study will from base for reference to any person who will work on a related study in future.
This research project will educate the public on the nature and consequence of various banking regulation quid line and its effects on the banking industry and the entire economy.
This research work also show how tries regulation and its implementation had protected the interest of the bank business community and the economy as the whole.
1.7 Definition of Term
1. Banking Regulation/Guideline:
This is seen as a body of specific by some government agreed behaviour either imposed by some government within industry that units the activities and business operation of financial institution Central Bank of Nigeria prudential guidelines for licensed bank (1991)
2. Prudential Regulation / Guideline:
The ultimate justification for prudential guideline in the recognition of credit risk and proving for writing of some to avoid a false picture of the balanced sheet. This business practice existing in the manufacturing sector and is necessary for measuring up to accounting standards. The objectives of prudential regulation are therefore to protect the microeconomics interests of the depositor and microeconomic interest of financial system. Effect consideration is another justification for prudential.
3. Now Performances Credit:
There are interest or principle due but not paid for 90 days or more.
4. Open Market Operation (OMO):
On a weekly basis also he central bal of Nigeria buy and sell treasury bills with a view to affecting the liquidity in the system. Inventors are require to send their bids only to discounts houses which will in turn bid both as agents for their own investment.
Maturity of bill sold at (OMO) are much less than the 91day sold at the primary tender unlike the primary market (OMO) allocation is based on a multiple rate acceptable to him for the applicable maturity. Successful bids are those bids that come under the marginal rate of the CBN’s stop rate for the particular auction.
5. Discount Rate:
This represents the cost of borrowing by commercial banks from the central bank when they reserves in need of funds to replenish reserves in order to create deposits (money) by extended loans to customers. Raising the discount rate increase interest rates and cut down their lending investing activities. Consequently the rise demand for bank loan by customers. The lowering of the discount rate will have the opposite effect.
This ceteris Para bus the central bank can discourage or encourage money creation by commercial banks simply by raising or lowering the discount.
6. Liquidly Ratio:
Banks must have enough funds to meet maturating obligation. As such enough cash must be held to ensure that expected receipts appropriately match the profit of cash flows Bank are required to have a minimum liquidly ratio of 30 percent out of treasury securities treasury bill and certification. The bank conducts equal check on each bank stock of liquidity and analyses the liquid assets which includes eligible envelopments stock (EDS) certificates of deposits (CDS) Treasury certificates, treasury bill and commercials papers.
7. Requirements Reserves Of Fund:
These are the reserves of fund which the commercial banks are hinder statutory or conventional obligation to hold against their deposit liabilities. The exercise of control by the central bank over these reserves is one method by which it can affect the commercial bank to lend money to customers excess reserve i.e reserves over and above the minimum required. Consequently the central bank can effetely control the ability of the commercial bank to create money by simply varying their reserves requirement for instance if tight money policy is desired the Central Bank raises the reserved or liquidity ratio thereby forcing commercial bank to curtail their lending operations. The opposite action by the Central Bank would require an easy money in circulation.
Conclusion and Recommendations
From the investigation carried out by the researcher, the study draws the following conclusions:
- The supervisory and the regulatory functions of the CBN and the NDIC have not been effective in curtailing distress in the Nigerian banking system.
- Depositors’ confidence in the banking system needs to be encouraged through an integrated process involving all stakeholders.
- The Supervisory and Regulatory activities of the CBN and the NDIC have impacted positively on the pricing of banks’ products to their external customers.
- The Supervisory and Regulatory functions of the Central Bank and the NDIC have not been effective in improving Corporate Governance issues in the Nigerian banking industry.
- Effective regulations and supervisions of the CBN and the NDIC would boost the volume and the value of transactions witnessed in the Nigerian banking industry.
- The Regulatory and Supervisory functions of the CBN and the NDIC have not stemmed the incidence of widespread bad loan portfolio the in Nigerian banking system.
Based on the findings of this study, the banking supervisory structure currently being pursued by the regulatory authorities should stay with some slight modification.
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 belong, should be empowered to stipulate minimum prudential standards ranging from entry requirements, thresholds 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 all licensed 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-region. Requirements 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.
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