1.0 Introduction
1.1 General Overview of the Study
An efficient financial system is admittedly a necessity though not a sufficient condition for a well functioning economy. For the financial system of every economy to be efficient, it must be adequately regulated, supervised and coordinated. Regulations and supervisions is necessary to protect depositors especially the small and ignorant ones, with neither the required knowledge nor access to sufficient information needed to evaluate the safety and soundness of the financial institutions.
Regulation is undertaken to ensure monetary stability by protecting the payments system from business down to other micro economic shocks. In addiction, financial markets are regulated because of the failure of the market system to recognize social rationality of the banking system.
The adequacy of a regulatory framework must be assessed not only in terms of the sufficiency of the regulatory structure, but also in terms of the effectiveness of the regulatory measure. The measures which are usually rules of agreed behaviour either imposed by government within the industry have the effect of limiting the business activities of banking institutions.
It is for the fact of noticing the roles of the regulatory bodies that Nigeria Deposit Insurance Corporation (NDIC) was established in 1998 as an additional supervisory institution in the nations banking system to see to the following functions, issue bank deposits, contribute to banking policies and ensure a safe and sound banking system in the country.Ebhodaghe,1997.
Also the role Central Bank of Nigeria (CBN) has played in the failure resolution are examined. The CBN brief, (1995) has noted that one of the principal objectives of Central Bank of Nigeria is to promote monetary stability and soundness of banking system. To achieve this, the CBN conducts regulations, supervisions and examinations of banks as a means of maintaining surveillance on banking laws and other directives stipulated by the monetary authorities. This helps to promote high level and quality banking services. The functions of the CBN are Off- Site supervision while the examination division of the Federal ministry of finance handles On-site Scrutinizing of banks.
This arrangement lasted till the end of 1965, the CBN supervision and examination in 1966, base on the awareness that adequate and proper supervision would be better accomplished by a specialized institution which would bring together an experienced team of banks and other related professionals to facilitate the exercise of banks supervision. This gave rise to the establishment of NDIC.
It is a well-known dictum, that an efficient banking system is necessary, though not a sufficient condition for a stable economy. For a banking system to be efficient, it requires adequate supervision and regulation.
1.2 Statement of Problem
The government in an attempt to reverse the growing distress of banks in the banking sector came up with idea of regulating and supervising the activities of the banking system. These roles and its activities were given to the bodies, the NDIC and the CBN. But since their inception, banks are today still distressed and frauds are still going on. Therefore with the presence of the regulatory and the supervisory institutions in the banking system, the banking system is still not stable, why? This is where we have to take a look at the problems of the regulatory and supervisory bodies, which are the following according to NDIC (1997), annual report:
- Continuous dissolution of boards which gives rise to instability of supervisory operations, as each board that comes in, tends to alter the system regulation. This therefore pushes a bank to be distressed giving banks an opportunity to operate the way they want.
- The examination bodies have not embarked on supervisory over sight or if they have, it is not improved inadequate supervisory oversight allows banks to grow and increase in size necessarily without being monitored. This way, they neglect the regulatory instructions and directives, and when they are finally examined by the examination bodies, they get distressed and liquidate.
- Another reason why banks today are still being distressed is the fact that the regulatory and supervisory environment has found it hard to be able to detect the banks that come up illegally.
- The inability of the researchers' Department to effectively take control of off-site monitoring on a continuous basis of the activities and performance of the insured banks. And also inability to assess the premium liabilities payable by insured banks. Another reason for this department's deficiency is the fact that it has only 20 employees.
These and others which could not be reached are the problems of the supervisory and regulatory institutions that affect the banks and their systems in the country as a whole.
1.3 Objectives of the Study
This project aims at appraising and assessing the regulatory and supervisory frame work of the Nigerian Banking system, identifying their role towards the rules and regulations which are reviewed from time to time to reflect the changing economic environment. This project also aims at:
- Creating awareness on the regulatory and supervisory imperatives in a globalized financial system.
- Creating awareness on the relevant available number of newspapers, articles, journal and magazines relating to the banking regulation and supervision.
- It can also serve as an instrument of bibliographical control especially in the field of relevance to researchers and students.
1.4 Statement of Hypothesis
Hypothesis means ‘some testable belief or opinion'. Theories to be proved or disproved by reference to the facts a provisional explanation of anything. Test of hypothesis is the process by which the belief is tested by statically means, based on the result obtained from the sample. The hypothesis would either be accepted or rejected.
Based on these problems statement the researcher proceeds to formulate the following hypothesis which will be tested in the course of the study.
- H1: Banking regulation has helped in increasing banks deposits and profits.
- H2: Banking regulation and supervision has helped in increasing the banks capital structure.
1.5 Significance of the Research
The need for diversifying the countries resources of foreign exchange earning cannot be over emphasized, and the banking sector being one of the potential sources has in time past contributed over 40% of our total foreign exchange income. But to inexcusable faults of our past leaders, who had made the sectors contribution to now fall below 5% of the nations total forging exchange earnings. The adoption of Structural Adjustment Program (SAP) was aimed at many things, one of which was to establish banks in the rural dwellers, and correcting structural imbalance.
The significance of this research therefore is to seek improvement, efficient promotion and financial incentives to the regulatory and supervisory institutions, to diversify the foreign exchange earning sector to enable it contribute more than 40% of the foreign exchange income and to achieve awareness in the rural areas in terms of banking sector and improving of the banking system as a whole. This will enable them cope with the demands of the public and the internal bodies, and also improve the stability of the banking system is in their hands.
1.6 Scope of the Study
The scope of the study includes the Off-Site and On-Site scrutiny of the banks which was carried out by the Central Bank of Nigeria CBN and the federal ministry of finance (FMF) respectively up till the end of 1965. It also includes the fact that CBN started Supervision and examination activities in January 1966, based on the awareness that adequate and proper supervision would be better accomplished by a specialized institution. This gave rise to the establishment of the NDIC in 1988.
The scope continued to cover the problems of the regulatory and supervisory bodies that effect its adequacy and banking system as a whole. This will only be achieved by proper addressing of the inhibiting factors identified in the cause of the research.
1.7 Definition of Terms
Asses:
To estimate the nature, quality or values of some body, or something, but in our case of study “Banks”.
Assessment:
A carefully considerable opinion or judgment or the action of assessing somebody/ something and banks as well.
Regulations: Laid down rules or principles guiding the conducts of banks, which if they do not do or when they do such attracts sanction or closure.
Supervision:
The act of supervising a regulating the acts of banks to see that banks do not compromise to the don'ts and to make sure that they observe the do's.
Regulatory Body:
This is the organ or the body in charge of regulating the deeds of banks and punishes offending banks.
Authorities:
This means the organ or body empowered also to give orders and make others obey i.e. To make banks obey. To make decision or take action.
Bank:
A bank is an institution — corporate or unincorporated, recognized by a country's highest monetary authority or government for the purpose of caring on banking business determined by the monetary authority or government. Source: Kanu (2003:9).
Banker:
Any person or group of persons licensed to carry on the business f banking as specified in the banking laws.
Banking:
This is defined as the performance of any of the banking business.
Nigerian Banking:
This is the mode and how banking business is been carried out in Nigeria.
Central Bank of Nigeria (CBN):
This institution is the apex financial institution in Nigeria, which controls all other banks in Nigeria. It is the central monetary authority, it is not profit oriented.
Commercial Banking:
This is the oldest of all the banking institutions in Nigeria. It is the most popular and most important unique in its performances, it holds the nations money, and it is profit oriented.
Structure:
This is the way in which somebody is organized, built or put together or state of being well organized or planned. Imperatively, the way which banks are organized, built and put together as to achieve the goal of such banking business.
Framework:
A structure giving shape and support to something a set of principles or ideas used as a basis for ones judgments, decisions etc.
On-Site Examination:
This means the appraising of banks on continues basis and the suggesting improvement in performance standard.
Off-Site Supervision:
This involves the analysis of banks returns to the CBN as statutorily required. To ensure that banks operations and activities are reported accurately as possible.
Deposit:
This is money, individuals, groups or institutions keep with banks for safety purposes. Which attracts interest depending on the type of account been operated.
Bank Balance Sheet:
This is a book or document stating financial position of a bank at any given period of time, say one year or above. Or books stating the assets position, liability position and equity position of a bank.
NDIC:
This means Nigerian Deposit Insurance Corporation, this regulatory or supervisory organ was set up to insure the deposit liabilities of licensed banks and other deposit taking financial institutions operating in Nigeria.
FMF:
This means Federal Ministry of Finance, this organ that formulates and implements the fiscal policies of the government.
