The Effects Of Bank Inspection In Enforcing Banking Regulation In Zenith Bank, UBA Or FBN etc

Project and Seminar Topics with material for Banking and Finance

The Effects Of Bank Inspection In Enforcing Banking Regulation In Zenith Bank, UBA Or FBN etc


Abstract


Just as every sector of the economy is eager to improve her condition through various research work, it is high time for the banking sector to gear up along with others by searching deep into the effect of banking inspection on enforcing banking regulations. This idea has been conceived in for a long time through my over 3 years of experience in carrying out internal control and inspection function with the banking industry. The study suggests a forward steps towards the needs to have a sound effective and efficient inspection division in all banks and financial institutions alike in order to enforce banking regulations and of this is adopted, it will reduce irregularities, persistent (CBN) penalty frauds thereby resulting to a greater profits, high return of shareholders, tends greater growth and sustainability in the banking sector.


Table of Content


  • Title page
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract vi
  • Table of content vii

Chapter One

  • 1.0 Introduction
  • 1.1 Statement of the Problem
  • 1.2 Objective of the Study
  • 1.3 Research Questions
  • 1.4 Significance of the Study
  • 1.5 Scope of the Study
  • 1.6 Historical Background of First Bank of Nigeria Plc Kaduna Branch Yakubu Gowon Way Kaduna
  • 1.7 Definition of the Terms

Chapter Two

Literature Review

  • 2.0 Introduction
  • 2.2 Definitions of The Term Inspection
  • 2.3 Theories of Bank Inspections
  • 2.4 Types of Inspection
  • 2.5 Methods of Bank Inspection
  • 2.6 Relationship Between Bank Inspection And Regulation
  • 2.7 Impact of Bank Inspection on Regulation In The Banking Industry

Chapter Three

Research Methodology

  • 3.0 Introduction
  • 3.1 Research Method Used
  • 3.2 Justification for the Method Used
  • 3.3 Instrument and Tools Used
  • 3.4 Research Population And Sample Size
  • 3.6 Statistical Techniques Used In Analyzing
  • 3.7 Summary

Chapter Four

Data Presentation and Analysis

  • 4.0 Introduction
  • 4.1 Presentation of Data Analysis
  • 4.2 Summary of findings

Chapter Five

Summary and Recommendation

  • 5.0 Introduction
  • 5.1 Summary
  • 5.2 Recommendation
  • Bibliography

Chapter One


1.0 Introduction

In an increasingly competitive banking environment which is characterized by frequent changes in the regulatory environment, high cost of operations, dim misting spreads on profit from business as a result of sharp practices and the restriction imposed by unstable political and economic climates. It is imperative that who are able to detect irregularities and monitor discrepancies before impose a cost burden on the bank.

The relevant of the forgoing emphasis is underlined by the fact that in the banking sector, the most essential differences between one bank and another is the quality of staff. The degree of efficient operations and effective internal control system. The system in attaining these overriding objectives is the effectiveness and efficiency of the banks inspector policy system and procedure.

It is common realization than on effective inspection system services as a foundation for ensuring that the assets of the bank are adequately protected in order to support the banks aggressor business plans therefore, it is essential that banks as a matter of deliberation policy should continually obtain information about the inspection policy, system and pattern in the industry so as to ensure that availability of a verifiable and consistent basis if assessing the maximum utilization of shareholders finds and of its internal control and monitoring mechanism.


1.1 Statement of the Problem

It has been observed that some banks are by for performing better than others and these performing banks are mostly those with a sound inspection division. Bank inspection as a banking career has over the years been regarded as the most volatile aspect of responsibilities despite certain contradictory view of inspections, staffs who are other been looked upon as the police of the bank as well as those that flock into the abyss of a death and isolated from the existing bank customers international relationship.

On the other, the dilemma on the part of the branch staff being inspected. They see inspection staff as enemies of progress whose objectives are to checkmate their career growth and also sees work by magic work and unwritten rules rented in enclosure knowledge.

This research is carried out to debone those fears assumption and wrongly held views and in particular to real the truth of the subject to other researchers, scholar bankers and banks as a whole. Though recently introduced reforms imposed by the immediate past CBN Governor – Charles Soludo and the present CBN Governors Sanusi Lamido Sanusi.


1.2 Objective of the Study

  1. To find out the need for fostering and maintain a sound inspection system in the banking industry.
  2. To determine whether banks comply with the condition of the regulatory authority and to establish that the component structures of the bank are guided on the right part in implementing the management policies at all levels.
  3. To identify areas of bank weakness in order to prevent or minimize loses and to ensure that proper control mechanism regarding operational procedures are put in place as well as strict adherence to every transaction in the bank.
  4. To proper solution which will prevent the reoccurrence of frauds irregularities, policy violations and exploitation as a result of internal control weaknesses in the existing inspection division of the various banks.

1.3 Research Questions

  1. Why should sound inspection be carried out on banks?
  2. Do banks comply with the conditions of the regulatory authorities?
  3. What are the weakness areas of banks’ Operations?
  4. How can reoccurrence of frauds and other irregularities be prevented in banks?

1.4 Significance of the Study

As much as it will be a great importance and necessity in ensuring continuous research in undertaken to provide new and unique concept of bank inspection that would make certain banks gain access to such information in achieving a significant leverage over its pears in the industry this study is expected to serve as a secondary data for future researchers, scholars, students as well as the management of first bank of Nigeria Plc (FBN) and other banks in the industry.

Past studies and experiences have showed that no bank or any financial organization has maintained a steady trend of its business plans without an effective and efficient inspection or internal control system mechanism hence the need for a bank or any financial institution with a weak.

On 31st March 1894 the head office was located in Liverpool in London, under the cooperative company in Lagos and was incorporated as a limited liability company in London 31st March 1984 with name of the bank of British west Africa with a paid up capital of 12,00 pounds sterling, it had absorbed its predecessor, African banking started business in 1892 and in 1896 a branch in Nigeria was opened in Africa gold coast (Ghana) whole another branch was established in serial eon in 1898. The second branch in Nigeria was open in the old caliber in 1900 and two years later, its northern regional branch at Kaduna was also opened. Which is the main concern as far as this research work is concern.

The branch has experienced phenomenal growth over the years with a share capital of 55.6 million naira (including a bonus reserve of (55.8 million naira) in 1995 at N500 million in 1998. The bank total assets current stand at 60 billion naira. At the commencement of operational in 1894 it has a staff of six(6) comprising of three (3) European and (3) three African. But in 2006, the bank virtually materialized. In its march toward national development, the bank has led to continually adjust its organization structure and corporate entity started with west African countries the bank was incorporated locally in 1969 to become standard bank of Nigeria limited (SBN). This was in response to the dictate of company decrees of 1986 and thereafter the bank became a cooperate entity. Further changes in the name of the bank were made in 1979 and 1992 to first bank of Nigeria limited also to first bank of Nigeria Plc respectively.

First bank of Nigeria Plc (FBN) has diversified into a wide range of banking activities and subsidiaries including merchant and inter-na-tional banking.

Inspection policies, system and pattern to put in place a dynamic inspection division in place.


1.5 Scope of the Study

In the study, the effect of banking inspection and regulatory body (CBN) in enhancing quality and effective services delivering to the entire financial institutions and that nation at large.

It therefore, call for an intensive research work into the inspection division with a view of know more about how it enfore, due to some constraining authorities.

However, due to some constraining factor such as time, lack of accessibility to confidential records financial unco-operative staffs reluctant to answer questions and problem, mobility are regarded as some of the limiting factors of this research work. Time factor as stated above his great relevance to any research work but due to research normal academic program, little time is devoted to this research work. Time factor as satted above great relevance to any research work but due to research normal academic program, little time is devoted to this research work. “confidentiality of records is the order of the days. Banking business. People are usually afraid of being devoted for fear of victimization by their employer. While finance as the name implies constitute a major setback in any human endevours especially when it involves research work.


1.6 Historical Background of First Bank of Nigeria Plc Kaduna Branch Yakubu Gowon Way Kaduna

The history of first bank of Nigeria Plc (FBN) dated back to 1894 when the bank of British west African (First bank of Nigeria Plc) opened its branch office in financial institution in Nigeria plc is one of the leading financial institution in Nigeria with over hundred years of banking experience in the industry. It was founded by a shipping magnate from Liverpool by the name sir Afred Jones. It commenced operation as a small bank in the offices of Elder and it was a limited liability company.

Today the bank boost of manificient office in Lagos with a branch networks of 291 with a large number of staffs and a diversified loan portfolios to various sectors of the economy.


1.7 Definition of the Terms

Internal and External Inspectors:

It is worth to note that the relationship of inspection audit to the statutory audit. Inspection audit of define as a review of operation and records sometime undertaking within a bank by specially assigned staff. The use of the word “audit” that may be misleading as it encourages the idea the inspection and starter (eternal) audit is made on behalf of purpose and only differ in personnel.

Originally, the work carried out by the two brands of auditors was much the same. However the story audit is made on behalf of the shareholder and its report is addressed to them.

The external auditor is not bound to commences or whether or not business is being run efficiently while this consideration is becoming more and more immediate control authority of management as compare with the shareholders result in the function of the inspection audit as being both dynamic and constructor.

Unfortunately, some banks still cling to the older concepts. This results in a restriction by statutory auditor most progressive banks have increasingly continuous on it function an an instrument of management while still allowing the annual account to be verified before they are accepted by the stability auditor.

As regard to this research work the need to define the following terms as it has being used in this research.

Banking industry:

Banking industry comprised both whole sole banking as well as specialized banks like discount. Houses, acceptance house (merchant bank) finance house. Central bank, saving bank, development bank, insurance companies, hire purchases companies. This stock is change, building society.

Commercial Bank:

Commercial bank may be defined as a financial institution which deal in money and credit and which relieved deposits from the public and from organizations, some of which are repayable on demand by eloquent commercial bank are public limited company owned by shareholders, they operate on a commercial basic i.e., they are out to maximize profit by shareholder.

Deposit Money Bank:

This simply mean the ability of the bank to create money in order words, the bank leading increase the qualities of money in circulation it increase the total purchasing power. This is because the bank credit the humored, thereby creating new bank deposit.

Developing Bank:

This is a generic tem employed to discuss a financial institution established to provide capital and other financial assistance to aid development to aid development in particularly sector of economy or international economy. Development bank can be classified into two categories namely.

  1. Pure Development Bank: This perform the function of provision of a capital to a selected group of clients.
  2. Development cooperation: This rendered various kinds of services lie technical, managerial, financial and business adversary services to their clients.
Portfolio Management:

This can defined as an investment handle by merchant banks in order to manage the portfolio of its customer, this includes the purchase and sales of securities and offering advices on when and what to buy or sell and on when and how to buy or sell them.

Central Bank Define:

This is a government owned bank which helps to control, the supervises the centered monetary and financial system of a country being financial operations of the government it regulates, direct assist and coordinate the operation of other financial institution so as to make them comply with monetary and economy policies of the government.

Bank Regulation:

This is defined as those laws and principles guiding the operation in banking business in nigeria. There are also laws made by national assembly to guide and regulate banking operation in Nigeria. They include regulations made from time to time by the executives arms of government directly of through central bank of Nigeria (CBN).

Bank Industry:

Banking industry can be defines as the made financial institution which deals in monotony sector of the economy. This complies of both regulator board which is central bank of Nigeria and commercial bank.

Bank Regulation:

Bank regulations are rules which governed the activities of banking industry as a whole. This rule are made and regulatory body called central bank of Nigeria.

Regulatory Body:

Regulatory body can be defined as an organs or those set of body that control the activities of banking business these body are specialized in the specific sector of the economy for example (CBN) that is central bank of Nigeria control of activity of banking business and NICON. Which is national insurance cooperation of Nigeria control the activities of insurance business while security and exchange commission (NSEC) central the activities of stock exchanges business in Nigeria thus three body.

SEC are all regulatory body of the above business activities.

Internal Control:

An internal control exist in addition to the inspection division in most bank. They are mostly attached to the inspection division but it not necessarily a branch inspection from banking point of views in order word internal control are the worked personnel manager to see the activity of the organization.

Inspection Department:

Inspection department are an area set aid by bank for guiding for a proper and checkmate the activity of all various section of the bank.

Banking Operation:

Banking operation refers to the totaling of the activities, products, resources and regulation that enable bankers to create value by satisfying different types of customer.

Wholesale Banking:

Wholesale banking can be defined as any bank that is involved in large sum of money like CBN and other specialized bank such as bank of industries (BOT)


Chapter Five


Summary and Recommendation

5.0 Introduction

This chapter entails the summary of objectives, problems, methodology, finding and my recommendation.


5.1 Summary

The objectives of this study is to findout the need for fostering and maintaining a sound inspection system. In the banking industry, to determine whether banks comply with the condition of the regulatory authorities and to establish that the component structures of the bank are guided on the right part in implementing the management policies at all levels, to identify areas of bank weakness in order to prevent or minimize losses and to ensure that proper control mechanism regarding operational procedures are put in place as well as strict adherence to every transaction in the bank and finally to proffer solution which will prevent the reoccurrence of frauds, irregularities, policy violation and exploitation as a result of internal control weakness in the existing inspection division of the various banks.

The statement of the problem is that, there are some banks that performs better than the other and it is said that those performing bank are those with a sound in section division. The bank inspection as a banking career has over the years been regarded as the most volatile aspect of responsibilities despite certain contradictory view of inspection.

This research is carried out to debone those fears consumption and wrongly held views and in particular to reveal the truth of the subject to other researchers, scholars bankers and bank as a whole.

The research method is used to find solution to any existing problems via it techniques application which have not be covered by previous researchers.

Therefore, the techniques used for this project is to provide solution of the role of bank inspection in enforcing banking regulations which previous researchers could not be able to covered.

It is therefore, the researcher’s belief that this project will contributes to the cradication of policy violation in the banking or industry.

The findings are the analysis and interpretation of data collected from the questionnaires administered to the respondents the data are tabulated in percentage analysis. The questionnaire were not only distributed to the members of first bank of Nigeria Plc but to the entire membership of various financial institutions found in the state.

Research question were set and answer questions such as, why should sound inspection be carried out on banks, do banks comply with the conditions of the regulatory authorities, the weakness areas of banks’ operation and how reoccurrence of frauds and other irregulation be prevented in banks and they were all answered through the aid of table A to g in chapter 4.


5.2 Recommendation

The role of bank inspection in enforcing banking regulation is of great research as their comments in this respect is the most important of all the report of inspection which communicates the major finding of the inspector regarding the soundness of operation policy compliance and financial conditions of a bank to its board of directors and management. It also contains inspected observation, commend and recommendations which the board and management should implement in order to avoid a regulatory body and if related agencies furniture measure and also to safeguard the assets of the bank.

Therefore, the need to ensure that’s financial statement are uniformly presented and that their content are reliable, factorial and comparable so as to assist the users in evaluating banks performance. Uniform presentation will also assist regulatory agencies to properly classify bank and it better regulatory agencies to properly classify bank and to better regulates their operation.

i. Accounting Policies:

Accounting policies provide well articulated basis for the preparation of financial statement of which they form on original part.

Most part bank, however, do not disclose all their accounting policies under one caption and on a separate people and still present some as part of the notes to individual items in the financials statements.

The accounting policies most commonly disclosed but only in general terms it includes.

  1. Determination of provisions for loan losses
  2. Accruals of interest on non-performing and doubtful loans
  3. Translation and conversion of foreign currency
  4. Valuation of investments
  5. Deferred taxes
  6. Depreciation of fixed assets and leased property.

At, present, most banks do not present accounting policies in specific term with respect.

  1. Off balance sheet engagement which give liase to contingencies and commitment.
  2. Specific and general loan provision
  3. Uncollected debts
  4. Income, recognition especially of interest on non-performing and doubtful loan.
2. Income Recognition:

Bank generally derived revenue from interest income on loans and advances, commission and turnover, transfers fees, and engagement fees syndication fees, lease rentals, income from the sales of commercial paper foreign exchange, bank acceptances and trust services to their customers.

Banks generally recognize the revenue when they are earned or realized. However, many banks recognize credit fee income is significant in relation to interest earned, when the credit facilities are granted rather than deferring such income recognition over the life of the related credit risk as adjustment of the yield on the credit.

Some banks take account of the size of the credit – related fee when negotiating the interest rate on the related facility thereby front ending income which would otherwise be recognized over the tenor of the credit risk.

This is not regarded as good practice. Income of loan and advances, income is usually earned over the period of the outstanding credit at contracted yield in proportion to the period of the outstanding business to the extent that collection is not in doubt.

The timing of classificated of loans and advance as non performing so as to put the related interest income in suspense is a controversial issue. While some banks have such interest income thereby over stating profits.

3. Loss Recognition:

In the ordinary course of business banks normally suffer some losses on loans advances and credits as a result of their becoming party of wholly uncollected. Such loans are usually recorded in the period they are first recognized.

Bank usually make specific provision for loan losses that have been identified as non-performing. In addition to specified provision some bank also make general provision for loans losses.

It is the responsibility of bank management to assess its credit portfolio and make provision for non-performing and doubtful credit risks. It is comparatively easy to identify fixed facilities which are non-performing but revolving facilities and complex. Normally the first indication that a revolving facilities may be non performing is where the ties power of the account is considerable less than anticipated or when interest is charged, which takes the balance above the credit limit.

The standard of credit analysis and the detailed credit documentation available on customer’s lies very widely in the industry.

Further loan losses are generally net assessed regularly and the criteria for the assessment are not usually clearly defined and consistently applied from period to period. This inadequacy of credit documentation analysis and assessment of loans losses is not regarded as good practices.


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