banking sector plays a major role in economic development in any country. These
they do, through financial intermediation and other banking functions to
encourage real sector or innovate productive activities. However, distress in
banking sector cannot be totally erased because like other forms of businesses,
risks are involved. In combating this, the central bank of Nigeria served as the apex in the
banking sector and performs regulatory and supervisory activities to create and
sustain confidence in the banking sector, in the public, government, owners and
For proper supervision and monitoring
regulatory activities due to various reforms in the banking sector, the Nigeria
deposit insurance corporation was established to provide complimentary
functions with the central bank in sanitizing the banking sector. However,
their major function was to insure all deposit liabilities of banks so that
confidence can be installed in the banking sector.
1.0 Introduction 1
Background of the study 1
of the study 11
of the study 12
of the study 14
of the study 15
of the study 16
of Terms 17
of the study 19
role of banks in economic development 22
Financial distress 27
insurance scheme in Nigeria
2.4 The Nigerian
insurance cooperation 53
sub- committees of financial
in Nigerian banking
Type of data used
Method of data collection
Methods of data analysis
DATA PRESENTATION AND ANALYSIS
The period before the operation of NDIC
Analysis of Regression Technique
Computation of correlation co-efficient
of positive or negative relationship
SUMMARY, CONCLUSION AND RECOMMENDATIONS
1.1 BACKGROUND TO THE STUDY
practice of modern banking in Nigeria
dates back to 1892. The pioneer banks were understandably expatriate
institutions set up to facilitate the colonial administration as well as trade
The first bank was set up in 1892 and it
was called the African Banking Corporation which opened the first branch in Lagos and this was championed by Elder Dempster and co; a
shipping firm based in Liverpool but had it branches in Lagos
in 1894 another bank called the British Bank for British
West Africa. The bank acted as an agent of the bank received,
stored and issued the west Africa silver coins in exchange for sterling coins
drafts. This bank later changed its name to standard bank.
In 1899, the Anglo-African bank was
established in compete with the British bank of West
Africa. The bank was established in old Calabar but because of the
monopoly enjoyed by the British Bank of West Africa for the importation of
silver from the royal mint in Britain,
the Anglo African bank sold after it, changed its name to bank of Nigeria
to BBWA. Another bank opened in 1917 called the Barclays bank DCO (Dominion
Colonial and Overseas). Between 1894-1933, the British bank of West African and
Barclays bank DCO dominated the banking scene. Another bank joined the banking
scene in 1949.
bank was called the British and French bank. The bank became the third
expatriate bank to dominate early Nigerian banking scene.
banks at this period were principally these expatriate banks, which were
principally to render services in connection with international trade. So their
relation at that time was chiefly with expatriate trading companies and with
the government. These banks also controlled 90% of aggregate bank deposits.
They largely ignored the development of local African entrepreneurship.
It should be noted that these various
expatriate banks changed their names. The British bank of West African changed
its name to standard bank and its presently called 1st bank of Nigeria plc. The
Barclays bank DCO changed its name to union bank plc. The British and French
bank also changed its name to united bank for Africa Ltd (UBA). However,
Nigerians did not take active part in banking ownership until 1930s.
In an attempt to create a competitive
environment with the expatriate banks, the first indigenous bank was
established in 1929. The bank was the industrial and commercial bank. This bank
was setup by patriotic Nigerians, but failed in 1930, in 1931; another
indigenous bank was established and was called the Nigerian mercantile bank but
liquidated in 1936 due to the same reasons like the industrial and commercial
bank. The first indigenous bank to survive was established in 1933, called the
national bank of Nigeria ltd. Other banks established include: the Agbonmagbe
bank; a private indigenous bank founded by chief Okupe in 1945. However, the
bank was taken over by the western government in 1969 and its name later
changed to WEMA bank plc till date. Also established was the Nigerian penny
bank in early 1940s but failed in 1946; the Nigerian farmers and commercial
bank in 1947 but failed in 1953 and the merchants banks in 1952 but failed
Despite the fact that up to 185 banks
were established between 1947 and 1952, only four (4) banks survived. These
banks include: the National bank of Nigeria established in 1933;
Agbonmagbe bank established in 1945 now WEMA bank; the African continental bank
established in 1947; an expatriate bank. The British and French bank now united
bank for Africa established in 1949 ( Nwankwo,
1980). However, this period of banking can be termed free for all because
banking activities were unregulated. A committee called the patrons committee
was constituted to look into the causes of bank failures. The report of this
committee revealed the following; most banks were faced with under
capitalization, poor and inexperienced management and competitive pressures
from the well established foreign banks.
In 1952, the 1st indigenous ordinance
was made. This ushered in the era of formal banking practice in Nigeria.
it established standards before license is granted to operated banks. This was
applicable immediately on new banks and a period of three years was given to
all existing banks survived, they include; Agbonmagbe bank, African continental
banks, national bank and mercantile bank. The ordinance was later replaced with
1st indigenous banking act of 1959, and has undergone series of amendments in
1972, 1975, 1979 and was fully consolidated by 1990 company and allied matters
decree and currently called banks and other financial institution decree of
At this period, a motion was sponsored
in the federal legislature for the establishment of a central bank but a
complain was made that there was no developed capital market. However, there
were persistent call for the establishment of a central bank. MR. J.L fisher
was appointed to examine the desirability and practicability of establishing a
central bank. Although Fisher recognized the contribution of a central bank
towards improvement and performance of indigenous banks he however, did not see
the need for a central bank. He recommended only a more use of the financial
secretary’s power (finance minister). The international bank for reconstruction
and development (World Bank) in 1953 also raised a motion in favour of the
establishment of central bank was finally raised by MR. J.B LOYNES, the formal
adviser to the bank of England.
The report of Loynes committee, favoured the establishment of central bank.
On March, 17th, 1958, the central bank
ordinance was made. However, the central bank did not start full operation
until 1st July 1959. The ordinance of 1958 has gone through series of
amendments in 1962, 1967, 1968, 1969, 1970, 1972, 1976 and 1987 law later
repealed and replaced with the 1991 central bank decree. Since it’s
establishment, the central bank has laid the foundation for sound financial
system. It also stands ad the apex bank in the financial system and helps in
the implementation of monetary control. It also acts as the apex regulatory
authority in the banking industry, for the supervision and control of banks,
sections 1 of BOFID 1991 states the function of central bank.
In 1972, the establishment of the
banking enterprises promotion decree affected for all sensitive sectors of the
Nigerian economy was restructured to 60:40 indigenes and foreigners
respectively. This is a view to taking active control of the economy from the
lands of foreigners. The banking sector being one of the sensitive sectors of
the economy was also affected. This gave rise to the establishment of more
banks by indigenes entrepreneur.
Another factor that encouraged the
establishment of more banks at this period was the oil boom, which sustained an
increase in capital flow in the macro economy hence, enhanced the profitability
of bank ownership by Nigerian entrepreneur. Therefore, at this period more
banks were licensed and established.
In 1986, followed the implementation of
an economic structural adjustment programme. This led to the deregulation of
the financial system in 1987. Entry into banking institutions increased such
that the number of a total of 42 banks in 1986, the number of licensed banks
increased to 120 at the end of 1992, giving an annual average growth rate of
about 31 percent with the removal of control of interest rates, bank deposit
jumped from about N20.5 billion in 1986 to N58 billion at the end of 1992, an
annual growth rate of 55 percent.
Similarly, total assets of banks
increased from N68 billion in 1986 to about N232 billion at the end of the
year. safe and sound banking practice be restored in the banking system. Can
the competitive and creative ability of banks lead to greater efficiency
instead of distress?
is no need for promote bank ethics and conduct despite various reforms and new
improved banking practices.
confidence be restored in the banking sector.
the adoption of the deposit insurance scheme have any justification in fair
compensation of depositors of banks during bank failure and liquidation?
need for this study is also borned out of the fact that there is the need to
make further research on the role of Nigeria deposit insurance
corporation (NDIC) to increase knowledge on previous researcher made.
1.2 JUSTIFICATION OF THE STUDY
The significance of this study is to
draw attention of the regulatory authority (Central bank) and NDIC to the
effect of continued failure and distress in banking industry.
Further research is needed to this study
to know the causes, effects, implication of failed banks on Nigerian economy as
well as appraisal of the impact of NDIC on banking sector and its efficiency
since inception till date in the management of distressed and failed banks.
1.3 OBJECTIVES OF THE STUDY
study is carried out for the following 1992; an annual average growth rate of
In spite of these gains, continued to
deteriorate in 1989, 7 banks were adjudged technically insolvent. In 1990, the
number increased to 9 and in 1991, eights had become distressed while fifteen
(15) were in various terms of distress.
Another idea of the structural
adjustment programme was the introduction of deposit protection scheme. The
need of this was to avoid less of confidence on banks and adverse effect on
macro economic resultant in bank failures. The deposit insurance scheme was
established by the Nigerian deposit insurance corporation (NDIC) Decree no 22
of 1988. The institution was principally meant to insure all deposits fund so
that adequate compensation will be given to depositors on account of bank
failures, more so, the reason why the deposit insurance scheme was established,
was due to the experience of prior bank failures, economic reforms and
increased competitions among banks, reduction in the risk of systematic crisis
involving failed and unsound bank practices that are capable of causing
breakdown in payment system, the need to ensure safe competition and creativity
as well as fair play amongst financial institutions..
1.4 PROBLEMS OF THE STUDY
Some of the problems that led to the
study of the role of the Nigerian deposit insurance corporation (NDIC) in the
regulation of Nigeria
banking system include;
know what role the Nigerian deposit insurance corporation has played till date
on the Nigerian banking industry.
know what positive impact the Nigerian deposit insurance corporation has made
in sanitation and reformation of the Nigerian banking system.
what extent has the NDIC met liquidation and pay off of insured banks during
know the extent to which NDIC has helped to reduced bank distress through their
know the justification and reaction of banks to the deposit insurance scheme.
1.5 HYPOTHESIS OF THE STUDY
In an attempt to achieve a through
analysis of this study, hypothesis are needed to give focus and direction to
A hypothesis is a specific declarative
statement of a tentative nature whose validity is to be established by recourse
to empirical findings.
For proper analysis of the study, the
following hypothesis have been formulated to assist in giving focus and
direction to the research work.
represents the null hypothesis
represents the alternative hypothesis
the Nigerian deposit insurance corporation does not have any impact in the regulation
the Nigerian deposit insurance corporation has a positive impact in the
regulation of Nigeria
1.6 SCOPE OF THE STUDY
research work is aimed at increasing knowledge on previous research works done
by researchers in the past on this topic. However, in-depth analysis will be
carried out in the role of NDIC in the regulation of the banking sector in Nigeria.
Considering various reforms that have occurred in the system.
This study is intended to deal with
critical analysis such as; reasons for the adoption of the scheme,
justification for its adoption, its impact so far and to what extent has it
restored confidence in the banking sector and its impact on the economy.
However, the study is limited to the
operations of the Nigerian deposit insurance corporation since its
establishment in 1988 till 2011; also, the limitation of this study will
constraint to make adequate findings
of funds to collect extensive data.
of relevant and more recent data due to the constraints mentioned in (i) and
(ii) above (iii) Reluctant attitude of institutions to reveal and release
information necessary for the study.
DEFINITION OF TERMS
DISTRESS: This is when a fairly reason able proportions of banks in the system
are unable to meet their obligations to their customers,
When there is an obstacle to prompt action by banks in performing their
this is situation where banks operate with very little capital.
This involves the payment of insured deposit up to the insurable limit to the
depositors of liquidated banks.
The wilful misappropriation of funds or eve manipulation of figures done to
obtain an unjust or illegal financial advantage through dubious means.
: This is the winding up of a
business by converting its assets into cash
to pay off its creditors
in order of preference and its
owners as well.
is when a bank has enough assets which are in cash and other convertible
assets which can be easily converted to cash. They are called near cash or
Amount lodged in the bank by a person or business which withdrawal is on demand
by cheque or without cheque and provides a base or ability to create money
through loans and advances by banks.
FAILURES: banks closed temporarily or permanently on account of financial
difficulties and including banks whose deposit liabilities were consumed by
other banks of the time of closing, with the aid of loans of purchase of
removal of regulations, regulatory authorities and or interference’s of market
forces to allow for free autonomy.
1.8 ORGANIZATION OF THE STUDY
Chapter one of this project focuses on
how modern banking were practiced in Nigeria dates back to 1892. It also
studies the problems that led to the study of the role of the Nigerian deposit
insurance corporation (NDIC) in the regulation of Nigeria banking system.
Chapter two of this project centres on
the role of banks in economic system. It also studies the causes of financial
distress in Nigerian banking system. It also studies the reason for the establishment
of the deposit insurance scheme in Nigeria and their benefits.
Chapter three is aims at giving a
description of tools, instruments and method that are caused in presenting and
analyzing data and information. In this project work, secondary data has been
employed. It also studies method of data analysis in which historical and
descriptive method is used and also simple regression method of statistical
analysis were used to explained the impact of the NDIC in the regulation of the
Chapter four focuses on the data
presentation and analysis. It studies the period before the operation of NDIC.
It also shows the computation of correlation coefficient showing the degree of
positive and negative relationship.
Chapter five focuses on the summary,
conclusion and recommendations of this project work.