THE EFFECTIVESS OF CENTRAL BANK SUPERVISORY ROLE ON COMMERCIAL BANKING IN NIGERIA


Content

 

 

 

 

 

ABSTRACT

 

An empirical survey and study carried out in this research work attempted to probe into the effects of Central Bank of Nigeria’s controls on Commercial banking in Nigeria. In pursuance of this, various types of commercial banks transactions were considered with various types of Central Bank Control on them and its effects.

 

The objective of the study was clearly stated, statement of research problem discussed and relevant hypothesis developed from this problem. The scope of the study was between 1990-2005. In order to see that the objectives of this research work are rightly achieved, the researcher reviewed several literatures relating to this research, with emphasis on banking supervision as a function of Central Bank of Nigeria.

 

Also, the research methodology was also mapped out which showed the research design, method of data analysis, identification of population and determination of sample size; questionnaires was designed and administered among the staffs of the banking supervision department of the Central Bank of Nigeria. The information supplied on the questionnaire were then analyzed and the results interpreted thus:

 

  1. That Central Bank of Nigeria’s control on Commercial banks has no adverse effects on the banking operation.
  2. That Central Bank has been effective in promoting monetary stability and sound financial system.
  3. That the legal instrument of Banks and other financial institutions Decree 25 of 1991 makes the supervisory role of Central Bank of Nigeria more effective.

 

More so, summary of findings based on data collected and analyzed was made, conclusions based on summary were drawn and recommendations on the conclusion were thereafter provided.

 

 

 

TABLE   OF CONTENTS

 

 

Title                                                                                                                 Page                                                                                                              

Certification                                                                                                               

Dedication                                                                                                                 

Acknowledgement                                                                                                     

Table of Content                                                                                                        

List of Content                                                                                                          

Abstract                                                                                                         

 

CHAPTER ONE

 

INTRODUTION

 

1.1      Introduction

1.2       Statement of Problem

1.3      Objective of The Study

1.4      Significance of The Study

1.5      Scope And Limitation Of The Study

1.6      Research Question And Statement Of Hypothesis

1.7      Definition Of Terms

 

 

CHAPTER TWO

 

LITERATURE REVIEW

 

2.1       The Nigerian financial System: History And Meaning  

2.2  Banking And Its Supervision in Nigeria

2.3  Control of Commercial banks By Central Bank of Nigeria

2.4  The Operations of The Nigerian Commercial; Banks

2.5  Practical Problems of Banks in Nigeria

2.6  Supervision As A Function of Central Bank of Nigeria

2.7  The Impact of Bank Supervision on Commercial Bank

References

 

CHAPTER THREE

 

RESEARCH METHODOLOGY

3.1              Introduction

3.2              Identification Of Population and Determination Of Sample Size

3.2.1        Determination of Sample Size

3.3              Selection of Sample Size

3.4              Research Design

3.5              Questionnaire Assumptions

3.6              Questionnaire Administration

3.7              Validity

3.8              Reliability

3.9              Method of Date Analysis

References

 

CHAPTER FOUR

 

PRESENTATION AND ANALYSIS OF DATA

4.1 Introduction

4.2              Analysis of Questionnaire

4.2.1        Analysis of Questionnaires And Interview Responses

4.3              Testing of Hypothesis

4.3.1    Symbols to be used

4.4              Hypothesis I

4.5              Hypothesis II

4.6              Hypothesis III

4.7              Research Findings

Reference

 

CHAPTER FIVE

 

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1              Summary of Findings

5.2              Conclusion

5.3              Recommendations

5.4              Suggestion for further Studies

 

Bibliography

Questionnaire

 

 

 

 

 

 

 

 

 

 

 

 

CHAPTER ONE

 

INTRODUCTION

 

1.1              Introduction

 

Central Bank of Nigeria (CBN) is an institution engaged in the business of Central Banking. It differs from other banking institutions in terms of functions, roles and operations, and generally regarded as the hub of the monetary and banking system in Nigeria. The Central Bank of Nigeria was established in 1985 under the Act of parliament known as the Central Bank’s Act. The Bank commenced business on 1st July 1959 with an initial capital of N3.0 million. Before the establishment of the bank, a rudimentary monetary system had already being the process of transforming the Nigeria economy from a barter economy to a monetary one. The media of exchange then were however, multi-famous and therefore not very conducive to the operations of a modern monetary system.

(Adewumi, 1989).

 

Furthermore, one could not regard Nigeria as having a monetary system, at least in terms of orderliness until the establishment of the West African Currency Board (WACB) and the introduction of a single currency system for West Africa in 1912. The establishment of the West African Currency Board essentially prepared the way for the emergence of modern financial system in Nigeria. More so, the WACB could not engage in monetary management, neither was Nigerians trained in the art and in order to eliminate this deficiency and promote the growth of the domestic money and capital markets, especially as the country marched towards political independence in 1960, the CBN was established by the Central Bank of Nigeria Act of 1958. (Olufemi, 2001).

 

The Central Bank of Nigeria is a privileged banking institution whose effective supervisory function, among arrays of functions endears it to the state. In most countries, Central Banks are responsible for the issuing of legal tender currencies, acting as banker to the Central government, keeping of cash reserves for the commercial banks, acting as sole custodian of a country’s reserves of foreign exchange assets and a host of other functions.

 

 Due to the shift in policy towards liberalization of financial markets and the fact that in many developing countries, banking system are in a state of crisis repairing rehabilitation, restructuring, increasing emphasis has been given to improved and strengthen the supervision of banks in developing countries.(Ugoji, 1997).

 

The Banking Decree of 1969, as amended in 1970 and Banks and other financial institutions Decree 25 of June 1991, as amended in 1992 has armed the CBN with the supervisory powers over the major operators in the financial sector of the economy.

 

The Banking Decree of 1969 therefore provides in clear terms guidelines for effective supervision of the banks to ensure monetary stability and a sound financial structure in Nigeria.(Longe, 1984).

 

The Banking Supervision department is responsible for carrying out this role of the Central Bank of Nigeria. It is therefore the duties of this department to ensure that all licensed banks operate in accordance with the provisions of the banking decree 1969 and various monetary policy circulars.

 

However, this research work is interested a knowing and finding out how far this supervisory role of the CBN has been effective towards the promotion of safe, stable and efficient financial system in the growth of Nigerian economy.(Isimoya, 1988).

 

 

 

1.2              STATEMENT OF PROBLEM

 

According to (Ugoji, 1997). Banking is basically a service industry operated by human beings, as such it is natural.

The supervisory department of central bank of Nigeria is one of the executive arms that oversee the operations of banks in Nigeria. It’s inadequate control measures by the apex supervisory department of Central bank of Nigeria on the large expansion of banking operations among the commercial banks in Nigeria as resulted to many banking difficulties; such banking problem that arises are distress among commercial banks, Complexity of nature of banking laws and operations, Lack of capital formation, Monetary instability, mis management of funds etc.

 

The supervisory department of central bank of Nigeria has made several efforts to reconcile these problems, therefore; this research work should be able to discover how effective is Central bank of Nigeria Supervisory role on commercial baking in Nigeria.

 

 

1.3              OBJECTIOVE OF THE STUDY

 

The objectives therefore of undertaking this research are:

 

a.                   To analyses the impacts of central bank of Nigeria supervisory role on the large expansion of commercial banking operations in Nigeria.

 

b.                  To examine the issues of distress among commercial banks in Nigeria.

 

 

c.                   To examine the legal instrument of banks and other financial institution by Central bank of Nigeria.

 

d.                  To identify the monetary instability among commercial banking in Nigeria.

 

 

e.                   To examine the effective control of the supervisory department of CBN over commercial banks in Nigeria.

 

 

1.4              SIGNIFCANCE OF THE STUDY

 

The importance of this study is to bring to the knowledge of those who may be privilege to lay their hands on this project work, the vital role the Central Bank of Nigeria has been playing in the banking sector since it was established in Nigeria.

 

The CBN supervisory role of examining the books of the banks on a periodic base both on-site and off-sites monitoring. It’s effectiveness in managing the distress that had rear its ugly head in the banking industry over the years before the CBN was established.

 

 The goal of bank supervision is to promote a safe, stable and efficient financial system.

 

 

1.5                 SCOPE AND LIMITATION OF THE STUDY

 

This study will bring to light the supervision function of the banking supervision department of CBN between 1960-2005 and the response of the commercial bank to this supervision as well as cover the functions of all the divisions of the banking supervision department.

 

 Also, the study is highly limited by time coverage and data constraints. Time to sufficiently administer interview of a wider cross section of the staffs of the bank (CBN) was found difficult, and the geographical regions of the central banks and the commercial banks in Nigeria.

 

 The research was limited to only central bank at Lagos and also some cross section of commercial banks here in Lagos.

 

 

1.6              STATEMENT OF HYPOTHESIS

 

1.        It is evidence to show that CBN policies should be effective not only on the banks but also on all other financial institutions.

2.        It is evidence to show that the impact of supervisory role on the large expansion of commercial banking operations is regulated by the central bank of Nigeria supervision department.

3.        It is evidence to show that the isses of distress among commercial banks in Nigeria is controlled and regulated by Central bank of Nigeria.

4.        It is evidence to show that the monetary policies, credit guidelines, and the interests of the depositors are protected by the central bank of Nigeria

5.        It is evidence to show that the legal instrument of banks and other financial institutions decree 25 of 1991 makes central bank of Nigeria effective.

 

 

 

1.7              DEFINITION OF TERMS

 

1.                  On site monitoring – on site examination provides the means for appraising banks on a continuous basis and for suggesting improvement in performance standard.

2.                  Off site monitoring – It involves the analysis of banks’ returns to the CBN as statutorily required.

3.                  Licensing – Express permission from the Governor of the CBN in order to undertake banking business in Nigeria.

4.                  BOFD – Banks and Other Financial Institution Decree of 1991

5.                  Capital requirement – it’s the adequate capital required to cushion capital erosion or any losses that may arise from lending activities.

6.                  barter Economy – It is an economy where goods are exchanged for goods.

7.                  Service industry – It is an industry that doesn’t produces tangible goods but only render services.

8.                  Cash reserve requirement – this are reserves kept by banks to meet maturing obligations as they fall due.

9.                  Liquidity ratio – This ratio is defined as the ratio of total specified liquid assets to total current liabilities and reflects the liquidity position of a bank.

10.              Capital Adequacy ratio – This ratio is defined as the total qualified capital to total risk – weighted assets.

 

Internal Control Systems – Are instituted in the financial system and they help to ensure that assets are safeguard and those commitments and payments are duly authorized.

11.              PCD – Public Complaints Desk: It’s a complaint desk maintains by the CBN. It’s where the public may lodge any complains they may have against their banks.

12.              Provisioning – Provisions are made on the basis of perceived risk of default on specific credit facilities.

13.              Exchange rate – This is the price of one currency in terms of another.

14.              Interest Rate – Is the price of money. It is the opportunity cost of holding money and the return for parting with liquidity.

15.              Distressed Banks – These are banks with problems relating to liquidity, poor earnings and non-performing assets.

16.              Prudential Guidelines – These are guidelines and practices which all licensed banks are required to adhere to in reviewing and reporting their performance.

 

 

 

 

 

 

 

 

 

Reference

 

 

 

Adewumi .w (1989)                “Introduction to finance “,Lagos, University  Press,pp.36

 

 

 

Ismoya  D.C (1988)                “Business finance, Lagos, Msp publisher ltd, pp112

 

 

 

 

Olufemi F.I (2001)                 “Basic elements of banking”, Niger State, Zumade publishing

                                                and media concept, pp41.

 

 

 

Longe A.O (1984)                  “Essential economics”, Lagos, Damolu print production, PP.85.

 

 

 

 

 

Ugoji .J (1997)                           “A comprehensive approach to economics< Lagos, Hfl publisher ltd, pp25-27.

 

 

 

 

 

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