1.0 Introduction
1.1 Background of the Study
The efficient financial system is admittedly a necessity though not a sufficient condition for a well functioning economy. For the financial system of an economy to be efficient, it must be adequately regulated, supervised and coordinated.
In every financial institution, regulations and supervisions are necessary to protect depositions especially the small and ignorant ones, with neither the required knowledge nor acess to sufficient information needed to evaluate the safety and soundness of the financial institutions.
The background to the establishment of the central bank of Nigeria (CBN) lies in the characteristics and deficiencies of monetary system which proceeded it. This was the currewncy board system.
The west African currency Board (WACB) was established in November 1912 followign the recommendation of the Emith committee and because of this/ these deficiency (ies) and demerits of the board, there was na urgent need for the establishment of an institution in the nature of the central bank of Nigeria.
The nationalist mounted pressure on the colonial government and as a result, the patron commission was set up by the colonial government in '1952. And upon the report of the commission, the first banking legislation in Nigeria was passed in 1952 known as the banking ordinance of 1952. However, in 1957, Nigeria gained an internal autonomy backed by the report of the world bank mission on the subject, the federation government, appointed commission headed by Mr. J. B loyness, again by the bank of England in 1957, to make recommendations in the establishment of the central bank of Nigeria (CBN) , the introduction of Nigerian currency and other associated matters.
This recommendations resulted in the establishment of the CBN on MARCH , 17TH 1958 by the central bank of Nigeria (CBN) ordinance of tat year. The CBN came into existence and started operation fully in 1959, thus anticipating the date of October, 1st 1960. Today, Nigeria has a central bank with about seven (7) Branches and seven (7) currency centres.
The Structure of the Central Bank of Nigeria
The central bank is an institution which is charged with the responsibility (ies) of managing the expansion and contraction of volume, cost and availability of money in the interest of public welfare. It is called central bank because it occupies a central position in the banking system in any country in which it operates . it is mainly established to carry out financial transaction of the government.
The board of directors is of the apex of the central bank , the actual operations are the responsibilities of the executive directors and through them, the department directors, the board consists of a governor, a deputy and nine other directors, three of who mare executive directors. The governor and deputy governor are appointed by the head of the federal government while in office. These two officials of the bank cannot engage in other services except those specified by the federal government.
Financial Sector
A financial sector is a composition of various institutions market, instrument and operators that interact within an economy to provide financial services. It can also be seen in the content as a set of rives and regulation and heap of financial arrangements within the financial sector.
In Nigeria, the financial sector has undergone remarkable changes in terms of ownership , structure , the dept and breath of instruments employed, the number of institutions established, the economic environment and the regulation framework within which these factors operate. The Nigerian finanancial sector has also witnessed remarkable evolution over the past two decades.
Regulation is undertaken to ensure monetary stability by protecting the payments system from busines down to other economic strikes in addition , financial markets are regulated because of the failure of the market system to recognize social rationality of the financial industry.
The adequacy of a regulation framework must be accessed not only iin terms of the effectiveness of the regulation measure(s) . The measures which are usually rules of good behavior or either imposed by government within the industry have the effect of limiting the business activities of banking institutions . it is for the fast of noticfing the roles of the regulating bodies that the Nigeria deposit insurance corporation ( NDIC) was established in 2005 as an additional supervisory institutions in the nations financial industry to see to the functions of ; issuing. Bank deposits, contributing to banking policies, and ensuring a safe and sound financial industry in the country.
Also the roles of the central bank of Nigeria (CBN) are examined. The CBN Brief , (1995) has noted that one of the principal objectives of its central bank of Nigeria is to promote monetary stability and soundness of the financial industry. To achieve this / there, the CBN conducts regulations, supervisions and examinations of banks as a means of maintaining surveillance in 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 the onsite scrutinizing of banks.
It is well known that an efficient financial industry is necessary though not a sufficient condition for a stable economy, for a financial industry tobe efficient, it requires adequate supervision and regulations.
1.2 Statement of the Problem
The government in an attempt to reverse growing distress of banks in the banking sector came up with ideas of regulating and supervisory institutions in the commercial banks activities.
These roles and its activities were given to bodies, the NDIC and the CBN. Although a proposed help but still , since their inceptin, banks are today still distressed and frauds are still going on. Therefore, with the presence of the regulation and supervisory institutions in the financial industry, the financial industry is still not stable , why ? this is where we have take a look at the problems of the regulations and supervisory bodies which are the following according to NDIC.
- Continuous dissolution of boards which gives rise to instability of supervisory operations, as each board that comes in tends to go after their own 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 foresight or if they have, it is not improved in adequate supervisory oversight which allows banks to gorw and increase in size without being monitored. This way, they neglect the regulations and directives and when they are fully examined by the examination bodies, they are distressed and liquidate.
- Another reason why banks today are still being distressed is the fact that the regulation and supervisory environment has found it had to be able to detect the banks that come up iilegally.
- The inability of the researchers department to effectively take control of off site monitory on a continous basis of the activities and performance of the insured banks and also inability to asses the premium liabilities payable by insured banks.
There are others which are not here presently complied are the problems of the supervisory and regulatory institutions that affect the banks and their system in the country.
1.3 Objective of the Study
This project aims of appraising and accessing the regulation and supervisory agency(ies) for the resuscitation of the Nigerian financial industry , identifying their role towards the rules and regulations which are reviewed from time to time to reflect the chaning economic environment. This project also aims at;
- Country awareness on the regulation and supervisory imperatives in globalized financial system.
- Creating awareness ofn the relevant available number of information sources such as newspapers, articles, journals and magazines relating to the banking regulation and supervisory.
- It can also serve as an instrument of bibliographical control especially in the field of relevance to researchers and students.
1.4 Research Questions
The researcher will like to ask some questions which eventually leads to the regulation and supervisions of the central bank of Nigeria and aids the objectives of the study some of these questions are as follows;
- Is it necessary for central banks of nigeria to participate in efficient supervision and regulations?
- To what extent ist he government ready to help central banks to achieve banking operations in commercial banks?
- How can central banks of Nigeria cope with others financial institution by engaging in supervisory and regulation with customers demand for international services?
- Do the central banks of Nigeria have the technical Know how to conduct a property supervisory and regulatory evaluation?
1.5 Statement of Hypothesis
Hypothesis means, “Some testable belief or opinion” theories to be proved or disapproved by reference to the fact a provision explanation of anything. Test of hypothesis is the process by which the belief is tested by statistical means, based on the result obtained from the sample.
The hypothesis would either be accepted or rejected.
Based on these problems/ statements, the researchers proceeds to formulate the following hypothesis which will be tested in the cause of the study.
Hi: Dissolution of the boards of directors give rise to instability of supervisory operations of banks in Nigeria.
H2: Lack of adequate supervision and examination of banks operation leads to banks distress and liquidation.
1.6 Significance of the Study
Considering the nature of banking itself, the need for diversifying the countrys resource of foreign exchange earning cannot be over emphasized because the banking sector being one of the potential sources has in time past contributed over 40% of our total foreign exchange icome.
But to inexcessive faults of our past leaders, who had make the sectors contribution to now fall below 5% of the nations total foregoing exchange earning. The adoption of the sturcutural adjustment program (SAP) was aimed at many things, one of which was to establish banks in the rural dwellers , and correcting sturcutral imbalances.
- Firstly, the significance of this study is to seek improvement, efficient promotion and financial incentives to the regulation and supervisory institutions.
- Secondly, to diversify the foreign exchange earning sector to enable it contribute more than 40% of the foreign income.
- Thirdly, to achieve awareness in the rural areas in terms of banking sector and improving the financial industry as a whole. This will enable them cope with the demands of the public and the internal bodies.
- Finally, to improve the stability of the financial industry in their hands
Aparts from these, the following people or classess are also the beneficiaries of the role of the central bank in efficient supervision and regulation of financial industry.
1. The bank
2. The student
1. The Bank
The finding(s) of this study will be of great significance or benefit to the bank as it assits to reveal the role and impact of central banks contribute to the growth of financial industry.
2. The Student
Supervision and regulation will also be of great benefit to students especially banking and finance because it willhelp them to understand the importance of regulation in every business organization most especially bank as there is much competition in this sector.
1.7 Scope of the Study
The scope of the study includes the Off —site and the on-site scrutiny of the banks which was carried out by the central bank of Nigeria (CBN) and the Federal ministry of finance (EMF) respectively. It also includes the fact that the CBN started supersiory and examination activities which can be dated back to January 1966 but this work shall focuss on the CBN Supervisory and Regulatory role from 2000-2015. 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 continues to cover the problems of the regulation and supervisory body that affect its adequacy and financial indstury as well.
This will be only achieved by addressing the inhibiting factors identified in the cause of the research.
1.8 Limitations of the Study
There are some constraints which the researchers as a student encountered in the course of carrying out this study. These constraints are as follows;
- Time, lack of finance, distance and burden of cobining the research work which tried to hinder the successful execution of this study.
- Respondents attitude; the degree and conduct of this study was limited by the attitude of respondents to handle ignorance of financial industry (ies) in efficient supervisory and regulation by customers in Nigerian financial industry.
- The researcher as a student faced constraints in transportionation fee to the various banks in search of information that will assist the work to be done to its logical conclusion.
1.9 Definition of Terms
Role:
A carefully considerable opinion or judgement or the action of assessing somebody / something and banker as well.
Regulations:
Lead down rules or principles guiding the conducts of banks, which if they do not obey, they would attract sanctions or closure.
Supervision:
The act of supervising and regulating the acts of banks to see that banks do not compromise and make sure they observe to do thedos and stop them from doing the donts.
Regulation body:
This is the organ or the body in charge of regulating the deeds of banks and punishes offendeing banks.
Authorities:
This means the organ or body empowerd also to give orders and make orders to make banks obey.
Central bank of Nigeria(CBN):
this institution is the apex financial institution in Nigeria, which controls all other banks in Nigeria. It is central monetary authority.
Bank:
A bank is an installation either corporate , recognized by a country's highest monetary authority for the purpose of carrying on banking business determined by the monetary authority or government.
Banking:
This is defined as the performance of any of the banking business.
Commercial / banking:
This is the oldest of all the banking institutions in Nigeria. It is the most poular and most important and is unique in its functiosn as it holds the nations money and is profit oriented.
Off site supervision:
This involves the analysis of bank returns to the central bank of Nigeria as staturoligy required. To ensure that banks operations and activities are reported as accurately as possible.
On site examination:
This means the appraising of banks on continous basis and then suggesting improvement in performance standard.
Structure:
This is the way in which somebody or something is organized, built or put together or state of being well organized or planned. Imperatively, the way in which banks are organized, built and put together as to achieve the goals of such banking business.
Deposit:
this is money individuals, groups or institutions , keep with banks for safe keeping which attracts interest depending on the type of account being operated.
Bank balance sheet:
this is a bank document stating the financial position of a bank at a give period of time, say one year or above. Or it is a book stating the assets position, liability position and equity position of a bank.
NDIC:
This means Nigerian Deposit Insurance corporation and it is a regulatory and supervisory organ that was set up to insure the deposit liabilities of licensed bansk and other depost taking financial institutions operating in Nigeria.
FMF:
This means the Federal Ministry of Finance, an organ that formulates and implements the fiscal policy of the government.
Nigerian Banking:
this is the mode and manner in which banking business is carried out in Nigeria.
Framework:
A structure giving shape and support to something i.e a set of principles or ideas used as basis for ones decision, judgment etc.
Industry:
This refers to manufacturing or production of goods and services for maris benefit(s).
Financial institution:
A financial institution is an establishment that conducts financial transactions such as investments, loans and deposits.
