ABSTRACT
The study is an empirical
analysis of the impact of The Nigerian Deposit Insurance Corporation of the
Nigerian Banking Industry. The broad objective of this study is to determine
how the NDIC has aided the operations of banks. Extensive field survey and
library research was carried out and data collected were subjected to thorough
analysis. Questionnaires were distributed to respective respondents so as to
get their views. The percentage method of data analysis was however used to
analyze the data. The findings show that the supervisory function of the
Nigerian Deposit Insurance Corporation is not sufficient to guarantee effective
banking practices in Nigeria. The need to increase the maximum insurance
coverage due to the effect of the inflation and persistent fall in the value of
the Naira, the need to disclose transactions continuously to ensure financial
prudence through regular supervision and monitoring of the financial health of
local banks etc. The conclusion/recommendations are as follows; banking laws,
rules and regulations should be harmonized by the CBSA for the adoption and
execution by all licensed banking institutions. The CBSA, which should have an
administrative secretariat should meet quarterly, if not more frequently etc.
TABLE OF CONTENT
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 STAMENT OF THE PROBLEM
1.3 AIMS/OBJECTIVES
OF THE STUDY
1.4 RESEARCH QUESTIONS
1.5 SIGNIFICANCE OF
THE STUDY
1.6 SCOPE OF THE STUDY
1.7 DEFINITION OF TERMS
CHAPTER TWO
LITERATURE REVIEW
2.0 INTRODUCTION
2.1 BRIEF OVERVIEW
2.2 MODEL AND THEORIES RELEVANT TO THE RESEARCH QUESTION
2.2.1 INTRODUCTION
TO BANKING SUPERVISION AND REGULATION
2.3 CURRENT LITERATURE RELEVANT TO
THE RESEARCH QUESTION
2.3.1 WAYS AD METHODS BY WHICH REGULATORY AUTHORITIES
(CBN/NDIC) CARRY OUT SUPERVISORY FUNCTIONS IN BANKS
2.3.2. REASONS FOR ESTABLISHING THE
DEPOSIT INSURANCE SCHEME IN NIGERIA
2.4 SUMMARY OF THE LITERATURE REVIEW
CHAPTER THREE
RESEARCH
METHODOLOGY
INTRODUCTION
3.1 RESEARCH DESIGN
3.2 AREA OF THE STUDY
3.3 POPULATION OF THE STUDY
3.4 SAMPLE SIZE
3.5 SOURCE OF DATA COLLECTION
3.6 INSTRUMENT FOR DATA COLLECTION
3.7 RELIABILITY AND VALIDITY OF THE
INSTRUMENT
3.8 DISTRIBUTION AND RETRIEVAL OF
THE INSTRUMENT FOR DATA COLLECTION
3.9 METHOD OF DATA ANALYSIS
CHAPTER FOUR
DATA
PRESENTATION AND ANALYSIS
SECTION A
RESPONDENTS BIO DATA
SEX DISTRIBUTION
AGE DISTRIBUTION
MARITAL STATUS
EDUCATIONAL QUALIFICATION
SECTION B
4.1 DATA PRESENTATION AND ANALYSIS
4.2 DATA INTERPRETATION
4.3 DISCUSSION OF FINDINGS
CHAPTER
FIVE
SUMMARY, CONCLUSIONS AND
RECOMMENDATIONS
5.1 SUMMARY OF FINDINGS
5.2 RESEARCH CONCLUSSIONS
5.3 RECOMMENDATIONS
5.4 LIMITATIONS OF THE STUDY
5.5 SUGGESTIONS FOR FURTHER RESEARCH
REFERENCES
APPENDIX A
APPENDIX B
QUESTIONNAIRE
SECTION B
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The banking sector in an economy serves as a catalyst for
growth and for development. Banks are able to perform this role through their
crucial functions of financial intermediation, provision of an efficient
payments system and facilitating the implementation of monetary policies. It is
not surprising therefore, that governments the world over attempt to evolve an
efficient banking system, not only for the promotion of efficient
intermediation, but also for the protection of depositors, encouragement of
efficient, competition, maintenance of public confidence in the system
stability and protection against systemic risks and collapse.
Worldwide,
the banking business is highly regulated. This is because of the pivotal
position the financial industry occupies in most economies. An efficient
system, it is widely accepted, and is a sine qua non for efficient functioning
of a nation’s economy. Thus, for the industry to be efficient, it must be regulated
and supervised in view of the failure of the market system to recognize social
rationality and the tendency for market participants to take undue risks which
could impair the stability and solvency of their institutions.
According to
Iwuchukwu (2013), Regulation and supervision of banks remain an integral part
of the mechanism for ensuring safe and sound banking practice. At the apex of
the regulatory and supervisory framework for the banking industry is the
Central Bank of Nigeria (CBN). The Nigerian Deposit Insurance Corporation
(NDIC) however, exercises shared responsibility with the Central Bank of
Nigeria for the supervision of insured banks. Active co-operation exists
between these two agencies on both the focus and modality for regulating and
supervising insured banks. This is exemplified in the coordinated formulation
of supervisory strategies and surveillance on the activities of the insured
banks, elimination of supervisory overlap, establishment of a credible data
management and information sharing system.
However, bank
supervision entails on-site examination of the institutions and off-site
analysis of periodically rendered prudential returns, a process called off-site
surveillance. The two activities are mutually reinforcing and designed to
timely identify and diagnose emerging problems in individual banks with a view
to prescribing the most efficient resolution options.
In line with
prevailing international standards, this agency (NDIC) has continued to
emphasize risk focused bank supervision in Nigeria. Similarly, it has developed
twenty-five (25) core principles for effective banking supervision as
enunciated by the Basle committee on banking supervision as the pivot of the
framework for bank supervision. Okafor (2011) noted that it is worthy to note
that, what is currently happening in Nigeria does not differ widely from what
happened in other nations. Over the years, and specifically since when the
first banking ordinance was promulgated, several other statutes have also been
put in place to serve as legal backbone for the actions of the monetary
authorities in regulating the banking industry.
Furthermore,
as part of efforts to ensure the stability of the banking industry and in
response to the lingering problems of distress in the sub-sector, the
regulatory/supervision authorities have been applying various failure measures
since the early 2010. Hence, depending on the severity and peculiarity of the
distress, NDIC In collaboration with the CBN, has over the years, successfully
adopted with measures as provision of liquidity support through accommodation
bill, imposition of prompt corrective actions, assumption control and
management, restructuring and sale of some distressed banks as well as
liquidation of the terminally distressed banks as a last but unavoidable
option.
1.2 STAMENT OF THE PROBLEM
Bank regulation/supervision is implemented to ensure a
sound and safe financial system in the economy. The measures are mainly
concerned with the quality of risk assets in banks, compliance with key ratios
such as liquidity ratio, cash reserve ratio, capital adequacy ratio amongst
others, the quality of management and other corporate governance issues. The
problems of the study are:
·
Inadequate
supervisory frame-work
·
Lack of
an effective risk asset data base
·
Inadequate
information sharing
·
Poor
management of consolidation policy
·
Inadequate
governmental support
1.3 AIMS/OBJECTIVES
OF THE STUDY
The general aim of this research work is
to determine the impact of the Nigerian Deposit Insurance operation of Nigerian
banks.
The main objective
is;
·
To
examine thoroughly how inadequate supervisory framework of the regulators
(NDIC) impacts on Nigerian banks
·
To
determine how lack of effective risk asset data affects the impacts of NDIC in
banking supervision
·
To
determine the level to which inadequate information has affected the NDIC in
banking supervision
·
To test
the effectiveness of managements on consolidation issues as it affects NDIC in
banking supervision
·
To
determine how inadequate governmental support has impacted on NDIC in banking
supervision
1.4 RESEARCH QUESTIONS
1. Does inadequate supervisory framework have effect on
the NDIC?
2. Does lack of an effective risk asset have any impact
on the NDIC?
3. Does inadequate information sharing affect the NDIC in
banking supervision?
4. How does poor management of consolidation policy
affect the NDIC?
5. Does inadequate governmental support have any effect
on the NDIC?
1.5 SIGNIFICANCE OF
THE STUDY
The study is significant in that it will help depositors
of funds in financial institutions to fully understand the mechanism of banking
supervision and the provisions of the law as it relates to the deposit
insurance scheme. It also provides a platform for the regulatory authorities to
appreciate the impact of their activities on the banking industry, and
underscore areas for improvement.
It is also
imperative to state that a study of this nature provides an independent
platform via which the regulators can appraise fundamental tools of supervision
in a bid to make reasonable adjustments where necessary.
The findings of this study will be of immense benefit not
only to the Nigerian banking industry and its related institutions, but also to
those interested in understanding the inter-relationship between the actions of
the regulators on one had and the banking institutions on the other as well as
providing a platform for promoting an efficient banking practice.
The
significance becomes more prominent when the effect of regulation and
supervision is examined against the background of the consolidation exercise of
the present policies of the Central Bank of Nigeria. It is worth mentioning
that the present state of the nation’s financial industry precipitated out of
the supervisory framework of the NDIC, hence this study would attempt to
examine what impact the present consolidation exercise would have on the
regulatory framework.
1.6 SCOPE OF THE STUDY
The study
will cover the operation of the regulatory authorities as it relates to the
banking industry in the past four years prior to the E-banking era and thus,
would be limited to the period of 2010-2015.
Secondly, the study assumes that the banking system has
remained deregulated during the period covered in this study, as most banks
practice universal banking, while the NDIC act as the regulatory authority and
supervisor of banks in the banking sector.
1.7 DEFINITION OF TERMS
FINANCIAL INTERMEDIATION: Financial intermediation is the mobilization of funds
from the surplus spending units at a cost or lending of such funds to the
deficit spending units at a price both within and outside the shores of the
country.
BANK REGULATION: A body of specific rules or agreed behavior either
imposed by some governmental or other external agency, or self imposed by
explicit or implicit agreement within the industry that limits the activities
and business operations of financial institutions e.g. the CBN and NDIC.
BANK SUPERVISION: Is the process of monitoring banks to ensure that they
are carrying out their activities in accordance with laws, rules and
regulations, and in a safe and sound manner.
STABLE BANKING SYSTEM: A stable banking system means that banks have the ability
and capacity to meet maturing obligations as they fall due, and are making
adequate profits from authorized banking business to justify their investments
while at the same time keeping banking failures at a minimum within the
country.
PRUDENTIAL GUIDELINES: Is a body of specific rules imposed by government through
the central bank, aimed at ensuring prudent management and administration of
banks’ funds so that reports of financial institutions are correct and
reflective of their true portfolio.
DEPOSIT INSURANCE SCHEME: Is primarily intended to promote stability of the
financial system and to protect the less financially sophisticated depositor by
minimizing the risks that depositors will suffer, lender of last resort,
effective bank regulation and supervision and efficient payment system.
FINANCIAL STABILITY FORM (FSF): This states that a deposit insurance system needs to be
supported by strong prudential regulations and supervision, sound accounting
and the enforcement of effective laws.
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