BANKING IN A DEREGULATED ECONOMY: THE NEED FOR DEPOSITORS’ PROTECTION (A CASE STUDY OF NIGERIA DEPOSIT INSURANCE CORPORATION (NDIC)

ABSTRACT

This study examines the banking sector in a deregulated economy and the need for depositors’ protection.

This research project has been divided into five chapters as follows:

Chapter one provide information on the study and included under this are general introduction, statement of problem of the study, purpose of the study, significance of the study, among others.

Chapter two deal with review of relevant literature by highlighting current information on the area of study.

Chapter three deal with the design and methodology of the research project while analysis and interpretation of data was presented in chapter four.

Finally, chapter five provides summary of the study, conclusion and necessary recommendations.

TABLE OF CONTENTS

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TITLE PAGE                                                                                      i

CERTIFICATION

DEDICATION

ACKWOLEDGEMENT

ABSTRACT

TABLE OF CONTENTS

CHAPTER ONE: GENERAL INTRODUCTION

1.1              BACKGROUND OF THE STUDY

1.2              STATEMENT OF PROBLEM

1.3     OBJECTIVE OF THE STUDY

1.4     RESEARCH QUESTIONS

1.5     RESEARCH HYPOTHESIS

1.6     SIGNIFICANCE OF THE STUDY

1.7     SCOPE AND LIMITATION OF THE STUDY

1.8     DEFINITION OF TERMS

CHAPTER TWO:  LITERATURE REVIEW

2.1         INTRODUCTION

2.2         THE RATIONALE FOR BANK REGULATION

2.3         INHERENT RISK IN BANKING INDUSTRY

2.4         TYPES OF BANK REGULATION

2.5        THE NIGERIAN BANKING ENVIRONMENT (BEFORE        DEREGULATION)

2.6         RATIONALE FOR DEREGULATION

2.7        THE NIGERIAN BANKING ENVIRONMENT DURING SAP   (DEREGULATION ERA)

CHAPTER THREE: RESEARCH METHODOLOGY

3.1          INTRODUCTION

3.2          RESEARCH DESIGN

3.3          POPULATION OF THE STUDY

3.4          SAMPLING TECHNIQUE

3.5          SOURCES/METHODS OF DATA COLLECTION

3.6          METHOD OF DATA ANALYSIS

CHAPTER FOUR: PRESENTATION AND ANALYSIS OF DATA

4.1          INTRODUCTION

4.2          ANALYSIS OF RESPONDENTS’ BIO DATA

4.3          ANALYSIS OF RESPONSES OF THE RESEARCH QUESTIONS

4.4          TEST OF HYPOTHESIS

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION

5.1          INTRODUCTION

5.2          SUMMARY OF MAJOR FINDINGS

5.3          CONCLUSION

5.4          RECOMMENDATION

BIBLIOGRAPHY/REFERENCES

APPENDIX

CHAPTER ONE

GENERAL INTRODUCTION

1.1    BACKGROUND OF THE STUDY

There are many banks operating in the Nigeria economy of which can be categorized into commercial, merchant and other specialized banks which include microfinance banks and mortgage institutions.

There is increasing apprehension that some of these banks may fail unless some drastic measures are introduced and put in place to stem the tide, hence the adoption of several other regulatory measures by the Central Bank of Nigeria (CBN) and the Federal Ministry of Finance (FMF).

These measures are necessary because the stability of the Nigeria banking system is a major pre-requisite for economic development coupled with the sensitive nature of the banking sector.

It becomes imperative for the Government to instill confidence in the system to allay fear being expressed in some quarters so that the occurrence of mass bank failure of the 1940s and 1950s do not repeat itself.

The Nigeria Deposit Insurance Corporation (NDIC) was established in 1988 as a regulatory body to protect customers’ deposits and the banking system against what is termed “A Bank Run” and to ensure fair play amongst competing banks. These considerations were derived from the lessons of history (as stated above) and the realities of present climate in the country.

The introduction of NDIC generated a lot of controversies especially in the area of premium payable and the maximum claims by depositors in the event of bank failure. Some believe that the maximum amount claimable is too small and that the premium payable should be of differential rating.

The introduction of Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act 1994 to prosecute the bank debtors and the recovery of debts from their various debtors even in absential is another commendable step towards checking bank failure.

Bank failure, if not properly handled and controlled, its multiplier effect on the depositors and the general public could be disastrous.

1.2       STATEMENT OF PROBLEMS

The deregulation of the banking sector in 1986 transformed the banking industry into more vibrant and active one but it also led to proliferation of banks with the attendant problem of the banks virtually chasing the same customers. Thus the prevailing structure of the industry simply encourages foreign exchange scammers to take advantage of weakness in government policies to plunder the economy. Deposit Insurance was also established to reduce the risk of bank failures

In other to address the major issues underlining the research, an attempt will be made to provide answers to the following questions:

Does deregulation of the banking system lead to financial stability in the economy?

Is the establishment of the Deposit Insurance Scheme able to boost depositors’ confidence that results into sound banking practice?

1.3       OBJECTIVE OF THE STUDY

Since its inception in 1988, Nigeria Deposit Insurance Corporation (NDIC) has been the main focus of banks, their customers and the general public. All these sectors have different opinion regarding the roles played by NDIC and its ultimate effects on the overall banking industry.

The purpose of this project therefore is to examine the role of NDIC in the banking environment and the extent to which it has been able to achieve its statutory objectives.

1.4       RESEARCH QUESTIONS

• Is deregulation of the banking system a good development in Nigeria?
• Has deregulation of the banking sector contributed to the growth of the financial system in Nigeria?
• Is the establishment of Deposit Insurance Scheme timely in Nigeria?

1.5       RESEARCH HYPOTHESIS

In order to draw a reliable inference about the population based on samples to be collected, the following hypotheses are formulated:

Hypothesis 1

H_O : Deregulation of the banking system has not contributed to the growth of the banking system in Nigeria.

H₁ : Deregulation of the banking system has contributed to the growth of the banking system in Nigeria.

Hypothesis 2

H_O :The establishment of the Deposit Insurance Scheme is not timely and has not assisted in the stability of the banking system in Nigeria.

H₁ :The establishment of the Deposit Insurance Scheme is timely and has assisted in the stability of the banking system in Nigeria.

1.6    SIGNIFICANCE OF THE STUDY

The project is to highlight and educate the members of the public about the need for a Deposit Insurance Scheme, how the scheme is being operated and to equally determine the role of financial institutions in the economic development of the nation.  

1.7       SCOPE AND LIMITATION OF THE STUDY

Banking in a deregulated economy: the need for depositors’ protection is a very broad one but for the purpose of this project work, the study will be restricted to the Nigeria Deposit Insurance Corporation.

1.8       DEFINITION OF TERMS

A BANK RUN - A situation where bank depositors are demanding for their deposits at the same time which will affect the liquidity of the banking system in an economy.

CBN  -        Central Bank of Nigeria

DEPOSIT INSURANCE: Deposit Insurance is a system precipitated by fear on the part of the public that a bank may fail and depositors may suffer losses.

FINANCIAL SAFETY NET: A financial stability mechanism that usually comprises the deposit insurance function, prudential regulation and supervision, and the lender of last resort function.

FMF  -        Federal Ministry of Finance

LIQUIDATION: The winding up of the business affairs and operations of a failed insured depository institution through the orderly disposition of its assets.

MANDATE: A mandate is a set of official instructions or statement of purpose of a firm or an organization.

NDIC -        Nigeria Deposit Insurance Corporation

SAP- Structural Adjustment Programme

SYSTEMIC RISK: A risk that has implications for the general health of the financial system and can have serious adverse implications for financial stability and overall economic conditions.

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