THE EFFECT OF GOVERNMENT INTERFERENCE IN MANAGEMENT OF FINANCIAL INSTITUTIONS (A CASE STUDY OF ACCESS BANK PLC)

Financial institution world-wide is the most regulated, even in Nigeria, however many customers loss hope in the Nigeria financial institutions due to uncoordinated previous regulations and management of financial institution that led to the banks’ undercapitalization, illiquidity, huge bad debts, and poor assets quality challenges negating bank performance. This study examines effect of government interference in management of financial institution in Nigeria with focus on access bank plc. The aim of this study, is to appraise how government interference impact financial institution, it investigates how regulation ensures safety of customers’ deposits and confident, reduce systemic distress and promote sound financial stability for economic development. The study used existing empirical and theoretical perspectives. The imperative of regulation and management of financial institution has now helped to restore the depositors’ confident in bank. The study employed quantitative descript research design.  Data were sourced through primary means with the aid of a well-structured questionnaire. A sample of 100 was drawn from the target population and staff were sampled based on simple random sampling techniques. Formulated hypotheses were tested using Chi square analysis.  The findings of this study revealed that government intervention in Nigeria has a significant impact on the financial stability of financial institutions. It was recommended among other recommendations that the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC) should prioritize the re-establishment of financial soundness within the banking sector. This is crucial for promoting economic development and restoring customers' confidence in the banking system.

Key words: Government interference, financial regulation, depositor’s confident, financial stability.

Background to the Study

Statement of Problem

Objective of the Study 

Research Questions 

Statement of Hypotheses

Scope of the Study

CONCEPTUAL REVIEW 

Government interference

Financial System

Concept of Regulation

Financial Regulation

Regulatory Bodies Functions

Financial Sector Reforms in Nigeria 

THEORETICAL REVIEW

Agency theory 

Risk management theory 

The regulatory dialectic theory 

Capture Theory

EMPIRICAL REVIEW

Test of Hypothesis One

Test of Hypothesis Two

Test of Hypothesis Three

CONCLUSION

RECOMMENDATIONS

References

The Nigerian financial sector holds great significance within the country's economy, playing a pivotal role in fostering economic growth and development. The financial system encompasses a comprehensive structure comprising interconnected institutions, such as banks, financial markets, and insurance companies, along with their associated debt instruments (Mishkin and Eakins, 2015). It also encompasses a framework of laws and regulations, domestic practices, and work ethics that collectively govern the management and control of financial resources within the economy. Financial institutions within this system are responsible for efficiently allocating and mobilizing funds towards various investment opportunities and consumption needs. They play a crucial role in enhancing national investment through the multiplier effect of correct asset allocation, influencing factors such as employment levels, national income, and overall economic growth. Recognizing the importance of these functions, the government maintains a close watch on how financial resources are utilized. Its primary concern lies in ensuring the safety of depositors' funds and maintaining stability within the financial system, as these factors are vital for fostering sustained economic growth (Akinbobola and Ukaegbu, 2020).    

Governments worldwide have come to recognize the crucial roles played by financial institutions in driving economic growth and generating employment opportunities. As a result, they have developed a keen interest in ensuring the efficiency and effectiveness of banks' operations, particularly in credit formation processes. This recognition of the importance of financial institutions leads governments to intervene by establishing laws and regulations and appointing regulatory bodies. These interventions are aimed at ensuring that banks operate efficiently and effectively in accordance with financial regulations, ultimately benefiting the economy and all stakeholders involved. Prior to the bank consolidation in 2004, the regulatory oversight of financial institutions in Nigeria was inadequate, and government intervention was insufficient. The industry faced persistent distress, with supervisory structures that were inadequate to address the challenges. Instances of official recklessness among managers and directors were prevalent, and the industry was marred by ethical abuses. Bank failures occurred without adequate security for depositors' funds. Poor regulations emerged as a prominent factor in the various cases of bank distress witnessed in the country. The weaknesses in regulation and monetary policy were reflected in the form of inadequate internal control systems, excessive risk-taking, overriding of internal control measures, non-compliance with limits of authority, disregard for prudent lending principles, absence of risk management processes, insider abuses, and fraudulent practices. These issues remained alarming features of the banking system (Soludo, 2004b).

To regulate Nigeria's financial system, the federal government has implemented various guidelines and regulations over time. These interventions were introduced to address existing weaknesses in governance practices observed in the post-consolidation period. One notable regulation is the corporate governance code for banks, which was developed by the Central Bank of Nigeria (CBN). This code aims to enhance governance practices adopted by banks. In addition, the Bank and Other Financial Institutions Act (BOFIA) was introduced as a legislative framework to govern financial institutions. It provides a comprehensive set of rules and regulations to guide the operations of banks and other financial entities in Nigeria. Furthermore, specific codes were implemented to regulate different sectors within the financial system. The Pension Commission (PENCOM) code of 2008 applies to all licensed pension operators, ensuring proper governance practices in the pension industry. Similarly, the National Insurance Commission (NAICOM) code of 2009 is directed at insurance, reinsurance, broking, and loss adjusting companies, aiming to establish effective governance standards within the insurance sector. The Central Bank of Nigeria code of 2014 and the National Corporate Governance Code 2016 issued by the Financial Reporting Council of Nigeria are additional examples of codes that focus on corporate governance. These codes were introduced by the federal government to promote transparency, accountability, and ethical conduct within financial institutions.

Government interference in financial institutions are germane for various reasons, including maintaining financial stability, enforcing prudential regulations, protecting depositors, promoting public interest, and enhancing corporate governance. Each of these motivations influences the nature and extent of government intervention (Akinbobola and Ukaegbu, 2020). The central bank of Nigeria serves as the government regulatory body for the regulations of the activities of banks and other financial institutions in the country

In spite of the existence of both self-regulation and formal regulation, the banking sector in Nigeria experienced crises that had adverse effects on depositors, consumers, and the overall economy (Alawode and Akande, 2020). These crises were caused by a combination of internal factors within the financial system and external factors originating from the broader economic environment. As a result, financial institutions became vulnerable to issues such as technical insolvency, inadequate capital, poor asset quality, and ineffective management. The economic recession of 2008 exacerbated the situation as loan defaults increased, eroding bank capital and leading to a wave of bank failures. The liquidation of these banks resulted in significant losses for investors in the capital market, further diminishing public confidence in the banking sector. The global economic meltdown of 2008 added to the challenges, intensifying the need for effective regulation and management of financial institutions. The global economic crises exposed numerous inefficiencies in economic management structures across jurisdictions worldwide. These weaknesses were particularly evident in the financial services industry, which acted as a catalyst for the widespread impact of the crises. The challenges originating from the subprime sector spread to other sectors such as insurance, credit markets (including deposit money banks), and capital markets. This highlighted the failures and inadequacies of institutional structures responsible for regulating different segments of the financial market.  Consequently, there emerged a debate among Nigerians on the necessity of implementing effective regulation to prevent future regulatory failures in Nigeria's financial sector. The aim was to establish robust regulatory mechanisms that could address the weaknesses exposed by the crises and ensure the stability and resilience of the financial system (Mukhtar, 2010).

Financial regulation and supervision play a crucial role in establishing a stable and secure financial system within an economy. However, the effectiveness of these measures has been hindered by inadequate supervisory frameworks, the absence of a robust risk asset database and information sharing system, and instances of non-compliance and abuse of responsibilities by financial institutions. These factors have contributed significantly to the disruption of operations in banks, insurance companies, and securities firms, leading to distress and liquidation under the supervision of regulatory bodies. In response to these challenges, various financial guidelines and strategies have been introduced to enhance the effectiveness of financial regulation and supervision. These measures work together synergistically to promptly identify and address emerging issues within the sector. The ultimate goal is to implement efficient resolutions that restore public confidence and maintain stability in Nigeria's financial system. The present study aims to examine the impact of government interference in the management of financial institutions. By analyzing the effects of government interventions, this research seeks to shed light on the consequences of regulatory actions on the overall functioning of financial institutions. 

The primary aim of this study is to conduct a critical analysis of the impact of government interference in the management of financial institutions in Nigeria with focus on Access bank Plc. The study also aims to achieve the following specific objectives:

This study focused on the following significant concerns that were growing within the study's domain:

The following hypotheses were examined in order to provide relevant answers to the research questions and achieve the study's objectives:

The scope of this study is premised on the impact of government interference in the management of financial institutions in Nigeria with focus on Access bank Plc. The study area covers Access bank branches in Lagos, Nigeria.