The Role Of Nigerian Monetary Authorities In Bank Distress Prevention

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The Role Of Nigerian Monetary Authorities In Bank Distress Prevention


Abstract


This study is on the role of Nigeria monetary authorities in bank distress prevention. The total population for the study is 200 staff of CBN, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, accountants, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


Chapter One


Introduction

1.1 Background of the Study

The deteriorating condition of financial institutions particularly banks has remained a problem of great concern to policy makers. It is now a well know fact that there is wide spread distress in the banking system and despite the measures recently taken by the government as well as bank regulators and supervisors, there remain fear that the problem is not over yet and is being suppressed and not being suppressed and not being dealt with decisively.

Banking crisis is not limited in Nigeria, it is also present in other parts of African, latin America, Asia, Europe and North America. Infact, it is a development that has come to be associated in particular with economic in which financial liberalization is being or has been implemented.

There is wide spread belief that banks occupy unique positions in most economics, both developed and developing countries, as creators of money, the principal depository of savings, major allocators of credit, and the manager of the country’s payment mechanism. Consequently, the government often deem it necessary to formulate policies, for the soundness, efficiency and safety of the bank industry. The monetary authority has the responsibility for the supervisor of the banking system. This responsibility is discharged by undertaking both of site and on-set examination of the books of the banks. The provisions among other things cover minimum capital requirements, returns to be submitted to the CBN Central Bank of Nigeria by banks, power of the CBN to conduct routine and special examination and power of the CBN to revoke a bank’s license.


1.2 Statement of the Problem

This work seeks to determine the role of Nigerian Monetary Authorities in Bank Distress prevention from 1990 to 2005.

Distress in the Nigerian banking system is a phenomenon that must be tackled with every amount of vigour by CBN/NDIC in order to minimize its occurrence in the economy in this light, some possible corrective measures that could be adopted to ameliorate the consequences of distress in the economy will be suggested.


1.3 Objectives of the Study

The specific objectives to the study includes:-

  1. To identify the monetary authorities involved in bank distress prevention between 1990 and 2005.
  2. To find out and describe the role of NDIC in bank distress prevention since 1990 to 2005.
  3. To identify the guidelines CBN provided to banks inorder to prevent distress in the banking system 1990-2005.
  4. To identify the role of federal ministry of finance in prevention of distress in the banking system from 1990-2005.
  5. To find out the effectiveness of distress prevention measures “CAMEL” set up by monetary authorities between 1990-2005.

1.4 Research Hypotheses

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

  1. H0: Monetary authorities do not emphasis on the employment of qualified and honest professionals by banks as a way of preventing bank distress in Nigeria.
    H1: Monetary authorities do emphasis on the employment of qualified and honest professionals by banks as a way of preventing bank distress in Nigeria.
  2. H02: Increasing minimum capital base requirement of banks every decade by the monetary authorities will not prevent distress in the banking system.
    H2: Increasing minimum capital base requirement of banks every decade by the monetary authorities will prevent distress in the banking system.

1.5 Significance of the Study

The significance of the study is its importance to the following.

1. Government:

This research will be of tremendous use to the government and monetary authorities in handling the issues of bank distress and to prevent its occurrence. It will also give the government advice on strategies to embark on to improve CBN/NDIC’s roles in financing distress in the banking sector.

2. Financial Institutions:

It will be of great relevance to financial institution particularly banks in checking their performance based on their ability to meet the following five bank examination rating system “CAMEL”.

3. Academic:

This study will provide data for future researchers on the subject matter.


1.6 Scope and Limitation of the Study

The scope of the study covers the role of Nigeria monetary authorities in bank distress prevention. The researcher encounters some constrain which limited the scope of the study;

a) Availability of Research Material:

The research material available to the researcher is insufficient, thereby limiting the study

b) Time:

The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.

c) Organizational Privacy:

Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.


1.7 Definition of Terms

1. Bank:

This simply an institution, which accepts, deposits from the public and in turn advances loans by creating credit.

2. Central Bank:

This is a government owned bank which is set up to help handle its transactions to coordinate and central other banks. This is the Apex Bank.

3. Role:

The part played by somebody or something in the process of attaining a particular goal.

4. Deposit Insurance Scheme:

This is a financial guarantee to depositors particularly the small ones in the event of bank failure.

5. Distress:

This is the suffering caused by the wart of money and other necessary things.

6. Financial Institutions:

These are places meant for financial assistance for the survival of young businesses such as commercial banks, trustee companies, savings and loan association.


1.8 Organization of the Study

This research work is organized in five chapters, for easy understanding, as follows

  • Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study.
  • Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature.
  • Chapter three deals on the research design and methodology adopted in the study.
  • Chapter four concentrate on the data collection and analysis and presentation of finding.
  • Chapter five gives summary, conclusion, and recommendations made of the study

Chapter Five


Summary, Conclusion and Recommendation

5.1 Introduction

It is important to ascertain that the objective of this study was to ascertain the role of Nigeria monetary authorities in bank distress prevention. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of the role of Nigeria monetary authorities in bank distress prevention


5.3 Summary

This study was on the role of Nigeria monetary authorities in bank distress prevention. Fiveobjectives were raised which included:To identify the monetary authorities involved in bank distress prevention between 1990 and 2005, to find out and describe the role of NDIC in bank distress prevention since 1990 to 2005, to identify the guidelines CBN provided to banks inorder to prevent distress in the banking system 1990-2005, to identify the role of federal ministry of finance in prevention of distress in the banking system from 1990-2005, to find out the effectiveness of distress prevention measures “CAMEL” set up by monetary authorities between 1990-2005. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made human resource managers, accountants, senior staff and junior staff were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies


5.3 Conclusion

The research has shown that poor management of assets and liabilities has been a major factor for financial distress and institutions liquidation in the banking industry. High percentage of loans and advances are not performing which has led to liquidity crisis and inability to compete effectively. They grow loans and advance more than what their deposits could accommodate thereby borrowing from Central Bank of Nigeria to accommodate the excess. They operate very weak investment policies and do not comply with Central Bank of Nigeria monetary policy. Purchasing of fixed assets is not targeted towards obtaining tax credits/benefits in order to retain funds in the system. This has made many investors and depositors to lose their money in the distressed and liquidated banks. From the theoretical analysis, it was discovered that economic performance in Nigeria over the years has been abysmal. The economic performance indices of inflation, unemployment, growth and exchange rate have been on the negative. The government has not been able to provide enabling environment to sustain economic growth. These factors have affected the banking industry to continue to be the bedrock of the nation. Nigeria has turned to a consuming economy from productive economy of 1960s (Onoh, 2002


5.4 Recommendation

The following recommendations are pertinent to resolving this problem

  1. The industry and regulators should institute a good and sound investment policy for batter management of assets and liabilities in the banking industry
  2. The government should invest in infrastructural and human capital development that would help to boost economic growth, development and productivity which will in effect strengthened the operations of the financial sector.
  3. The banks need to institute effective risk asset management in their operations and incorporate Central Bank Prudential guidelines for quality assets and earnings.
  4. There should be quality training for the credit analyst to avoid non-performing advances and loss of income.
  5. Good surveillance of the operations and knowledge of the operations of each bank by the regulatory authorities will help to determine when to shore up their capital base.
  6. The members of the parliament i.e. Senate and Federal House of Representatives should pass a law which will give automatic powers to the financial institutions to foreclose securities pledged for any facility without recourse to the customers after demand for payment has lapsed. This will give the borrowing customers commitment to the serving and repayment of money borrowed

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