Effects of Government Regulations on Banks Operations

Effects of Government Regulations on Banks Operations

Project / Seminar Material
Reference ID: PS-14572-TM

DEDICATION

This research material titled “Effects of Government Regulations on Banks Operations” is dedicated to God for his enabling grace, and to all computer enthusiasts who contributed to make life a pleasant experience during my research documentation.

ACKNOWLEDGEMENT

I extend my sincere gratitude to all those who contributed to the completion of this project. Special thanks to my Supervisor (Name of your Supervisor), the Head of Department (Name of your HOD), the Lecturers in the department of Business Administration and Management (BAM), Book Authors and Profound Scholars of existing or related project material on “Effects of Government Regulations on Banks Operations” for their invaluable guidance, support, and expertise throughout the journey.

I am also grateful to your study area (mention any funding organizations, if applicable) for their financial assistance. This research would not have been possible without the encouragement and assistance of some stakeholders (mention any mentors, teachers, or colleagues). Additionally, I would like to acknowledge the understanding and patience of my family and friends during this endeavor. Your unwavering support has been a constant source of motivation. Thank you all for being part of this meaningful endeavor.

Effects of Government Regulations on Banks Operations

TABLE OF CONTENTS

PRELIMINARY PAGES

CHAPTER ONE

1.0 Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of the Problem
  • 1.3 Objectives of the study
  • 1.4 Significance of the Study
  • 1.5 Research Questions
  • 1.7 Scope of the study
  • 1.8 Limitations of the Study
  • 1.8 Definition of Terms

CHAPTER TWO

2.0 Review Of Related Literature

  • 2.1 Review of Some Banking Regulators
  • 2.2 Recent Banking Reforms Regulations
  • 2.3 Regulatory Policies
  • 2.4 Role of Banks In The Nigeria economy
  • 2.5 The Evolution Of Commercial Banks Regulation In
  • 2.6 The CBN VS. Commercial Banks Performance In Nigeria
  • 2.7 The Public And The Performance Of Commercial Banks In Nigeria

CHAPTER THREE

3.0 Research Design And Methodology

  • 3.1 Research Method Used
  • 3.2 Sources Of Data Collection
  • 3.3 Validity And Reliability Of Measuring Instrument
  • 3.4 Population And Sample Of The Study determining Sample Size
  • 3.4 Method Of Data Analysis

CHAPTER FOUR

4.0 Data Presentation And Analysis

  • 4.1 Introduction
  • 4.2 Presentation And Analysis Of Data

CHAPTER FIVE

5.0 Summary Of Findings, Conclusion And Recommendations

  • 5.1 Summary Of Findings
  • 5.2 Conclusion
  • 5.3 Recommendations
  • BIBLIOGRAPHY
  • APPENDIX
  • Questionnaire

ABSTRACT

Regulatory policy has a lot of effects on the operation of banks in Nigeria. This study is very important especially in today economic transformation of a nation. Against the backdrop of success of the central banks, which is the apex bank, banks have a tremendous role to play. It is in the light of this that we discuss the effects of regulatory policy on the operation of commercial banks.

This study sets out to find the effects of these policies on the operation of commercial banks. Attempts were made at receiving the concept of regulation, the need for regulations and some banking regulations.

The findings show that in most cases, government policies enhances the performance of the banks while in other cases, it served as a set back on the activities of banks in areas like sectional allocation, interest rate (both lending and deposited) seemed to have restricted the activities of the banks.

I also discover that, issues like registration of banks, paid up capital, C.B.N supervisor’s role, banking laws like BOFID 1991 etc are imperative in the discussion.

From the foregoing, therefore, I recommend that the C.B.N should insist on some basic requirements before commercial banks could start operation to avoid bank failure more so, the federal government should implement the provision of the relevant banking laws in order to avoid the incidence of bankrupt.

Very important is the fact that bank executives should ensure to review regulatory policy vis-visa new realities.

Effects of Government Regulations on Banks Operations

CHAPTER ONE

1.0 Introduction

1.1 Background Of The Study

The importance of banking sector on the economy has led to considerable increase on regulatory policies by the federal government and the central bank of Nigeria.

Many scholars have different views on the concept of regulation of commercial banks. Nwikina (1997) and Gbosi (1993) agreed that “the numerous incidence of bank failure necessitate banking regulations and government policy to bring order into the system.

However, since monetary and banking activities as well as else where are intervene in several ways and have influence on the performance of each other and both controlled the same ways and as a result of the distress tat has be fallen the banking sector and the numerous failures. The government has to take some necessary steps to return sanity into the system.

The aim of government so far in controlling the financial sector is to control the money stock in order to influence domestic economic growth, the government also through the central bank of Nigeria control the activities of the banking sector by issuing license to banks, setting up the minimum unpaid up capital and supervision and examination of banks.

From 1991, when the BOFID, banks and other financial institutions decree was promulgated, there have been improvement in banking sector with the amendment made in the 2001 budget speech which requires that in the next two years, the minimum paid up capital of banks with the #1,000,000. Hopes are rising that the regulations will bring change in the banking sector. Banking is a business vested with a public interest. Successful operation of our commercial banks is therefore necessary for the orderly functioning of the nations business since all the banking sector. It is not merely the concern of those who have invested their money in the banking business, nor those who have entrusted their deposits to the bank. It is also a matter of public concern. Distress in the financial sector which has been an issue of national concern have also succeed in running the commercial banks, the customers have lost confidence they previously had in the banks due to the activities of many distress banks management, but the intervention of government and many regulatory policies which were some what late the distress would have passed the line.

Today, a lot of regulatory politics are made by the government concerning the operations of the commercial banks. In this study, the researcher will try to analyze how these policies affect the operations of the banks.

Finally, when laws are made they result in changes in the existing system over years several legislation concerning the operations of the banks has been made. In this work, the researcher shall examine various governed regulatory policies and their effects on the operations of commercial banks.

1.2 Statement Of The Problem

Commercial banks are financial intermediaries helping to channel funds from surplus economic limits to deficit ones to facilitate business transactions, deposits and undertake commercial lending for the development of the banking system yet, due to their activities adequate profitability declaration were not made in every fiscal year because of the following reasons:

  1. The problem of credit portfolio arising from default in making payment and non-performing one.
  2. Problems arising from fraud and defalcation
  3. Liquidity risk arising from maturity mismatches, faulty balance sheet structure and change in interest rate, as set prices and foreign exchange rates, fluctuations operating errors and inefficiencies of internal control system and inexperience staff.

The study therefore undertake to study the impact of the apex banks, central bank of Nigeria regulation and policies as it affects the profitability level of commercial banks.

1.3 Objectives Of The Study

The purpose of this study is to establish how government regulatory policies affect the operations of the commercial bank in Nigeria and to determine that effect, (positive or negative) these policies have on the operations of commercial banks in the economy.

1.4 Significance Of The Study

The focus of this study is to evaluate the effect of the existing government regulatory policies, so as to proffer ideas, which will bring about necessary modifications in the system to aid greater effectiveness and efficiency in the banking industry.

The research work will be of benefit to the following groups:

  1. The central bank of Nigeria in designing new regulatory measures to promote the banking sector.
  2. Management of commercial bank will find it useful as it will inform and educate them on the need, for regulatory policies.
  3. Researchers will also find the work useful; as it will form the basis of further research in the area dos study.

1.5 Research Questions

  1. Can government policies and regulations pose problems in the activities of the commercial banks on their profitability?
  2. To what extent do policies and regulations affect the operation of commercial banks?
  3. Do the adherence of commercial banks to the enforcement of policies and regulation employed by the CBN enhance their efficiency?
  4. Does central bank of Nigeria regulations and policies on commercial banks have some negative impact on the profitability of the bank?
  5. Is regulation one of the causes of bank fraud?
  6. How does the federal government through the apex bank regulate the operations of commercial banks in Nigeria?

1.6 Scope Of The Study

This study will cover various commercial banks to test for the impact of government regulation and policies on the profitability. Selected commercial banks will under preferably ten (10) commercial bank situated in Port-Harcourt as follows:

  1. All state Trust Bank
  2. Union bank
  3. United bank of Africa
  4. First bank of Nigeria
  5. Afri- Bank
  6. Standard Trust Bank
  7. United bank (U.T.C)
  8.  Citizen bank.

1.7 Limitation Of The Study

It is not gain saying that every road leading to success is littered with obstacles and thorns. It is acknowledged that these barriers, which limited the work, cannot be over emphasized.

Limitation of course are general constraint when carrying out a research work like this, one of the constraint faced by the researcher is the time allocated to the research topic was limited due to the brevity of the time in the session. As a result of this, virtually the research work was done in a haste to catch up with the time and to this effect the research work was limited to some extent. Other constraint being the availability of materials.

Financial constraints also posed a major factor that militate against a smooth work of this nature, due to financial constraint on my part to take care of logistic, such as transportation and other requirements.

1.8 Definition Of Terms

Effects:

Result produced

Government:

means the rule, regulation and control of central bank over commercial banks.

Regulatory:

Is the principles or act by which central bank rules commercial banks.

Policies:

Is the act of plan by central bank on commercial banks.

Operation:

The way central bank works on commercial banks have a wide spread branch as they handle most of the ordinary banking business in Nigeria. They are concerned with a short term borrowing and lending and they also transfer funds.

Deregulation:

Not according to rule

Legislation:

Law making

Constraints:

Act of forcing

Profitability:

Banks are business established to make profit

Liquidity:

Is the relative amount of assets in cash, available to meet short term liabilities.

Portfolio:

Is the arranging purchases and sales of securities as well as attending to registration rights.

Paid Up Capital:

Is the paid money on share issued

Promulgated:

To bring into force

Reserved Capital:

Keep back money for future

Ordinance:

The rule that governs the banks

Liquid Assets:

Money inform of property

Nominal Interest Rate

Named share

Real Interest Rate:

Actual share

…

CHAPTER TWO

2.0 Literature Review

2.1 Introduction

This chapter focuses on the review of related literature. A literature review includes the current knowledge as well as theoretical and methodological contributions to a particular topic. It documents the state of the art with respect to the topic you are writing. It surveys the literature in the topic selected. In this research work the literature review includes the …

CHAPTER FIVE

Summary Of Findings, Conclusion And Recommendations

5.1 Summary Of Findings

In the recent times, there has been considerable fall in the number of banking institutions in Nigeria. There is also an impeding fear that bank failures will continue unabated. It is therefore against this background that this work emanated.

In the course of this study, it was discovered that government regulatory policies have gone a long way in curbing the excesses in banking institution and with regulatory mechanism, the failed bank tribunal in place, banks failure will be a thing of the past.

In addition, political policies of the country also affected the banking industry, for instance most commercial banks had their foreign investors fund withdrawn when the June 12 election of 1993 was annulated, the effect are still suffered by bank due to distress sign caused by this negative policies, some commercial bank were closed down while others lost a reasonable number of customers. The need for transparency in the system led to the establishment of the failed bank tribunal, which has been able to put some sanity into the system. Also, the deregulation of interest rate is an added advantage to the bank as the forces of demand and supply will be allowed to play its role of determining the rate of 9interest for funds in the financial markets. Further study on this area is suggested to find out the effect of this policy will have on the banking industry and economy as a whole. Currently, the system has been put under the charge of a committee headed by the minister of finance while central bank of Nigeria is just a member and the issue of distressed bank has been taken over by the Nigeria Deposit Insurance Corporation (NDIC). This will adversely affect the banking industry as the central bank of Nigeria will no longer be able to have all the say in the affairs of the banks while the committee is in better position to decide for the industry.

The shortcomings in the system have reduced their effects on the economy with improved economic environment and create appreciation of government directives. With more regulations, commercial banks will contribute more to country’s economic development.

The study is not entries in its findings as daily government industry at large. There is currently policy on the paid up capital which is being raised from 50 million, and nit expires the year ending 1998. This has raised a lot of questions in the industry as to who cannot pay. Can existing commercial banks mist up? Can new banks even measure up?

There is speculation as to sure mergers, emulation and outright buying over of so many small banks by the bigger ones.

The purpose for banks regulation is:

1. Ensuring Monetary Stability:

By implication, lit altogether proved that the regulation has affected the banks. In addition, the government regulatory policies has affected the profitability of banks to a large extent

2. Protection Of Depositor:

Is making sure that money deposited by customers are protected because in the past, experience has shown where banks are liquidated by the government as a result of bad management.

5.2 Conclusion

Based on the foregoing we can rightly assert that with regulatory mechanism, Nigeria decree no. 24 of 1991 and the provision in the 1997 and 1998 budgets respectively, there is hope that commercial banks activities will in the very near future be advance.

The study went further to find out to what extent regulatory polices have affected the performance of commercial banks and public banking services generally. It was discovered from the periodical that there was a positive friendly communication of central bank of Nigeria regulations to commercial banks profitability. Also, despite CBN’s numerous regulations, there is a friendly banking service.

Unless stricter measures are taken, the alarming rate of non-strict conformity of government policies would completely erode the stability of the banking industry. Though it cannot be completely adhered to, but could be reduced considerably.

5.3 Recommendations

The federal government should implement the provision in the relevant banking law so as to avoid incidence of bank failure.

Also, some policies like the interest rate sectional allocation and foreign exchange transactions should be left to the forces of demand and supply to determine. It is also important that the central bank of Nigeria officials should be constant to avoid corruption. Also, banks executive should regularly try to review regulatory policies so as to keep it in tune with realistic.

Furthermore, the central bank of Nigeria should insist on banks having full basic requirement before starting operations. More so, commercial banks in Nigeria should endeavor to operate within the limits given by the central bank.

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