University of Nigeria
Author
Research Publications
AKWEKE, Solomon Uchenna
Title
Faculty
Business Administration
Department
Banking and Finance
October, 1995
Signature
Comparative Appraisal of the Banking
Supervisory Role of the Central Bank of
Nigeria and the Nigerian Deposit Insurance
Corporation
Date
PG/MBA/93/17502
Omenuko
Sunday Ogbonna
Digitally signed by Omenuko Sunday
Ogbonna
DN: CN = Omenuko Sunday Ogbonna,
C = NG, O = University of Nigeria, OU
= Innovation Centre
Reason: I have reviewed this document
Date: 2008.11.11 16:01:36 -12'00'
e
COMPARATIVE A P P R A I S A L O F T H E B A N K I N G S U P E R V I S O R Y
ROLE OF THE C E N T R A L BANK O F N I G E R I A AND THE
NIGERTAN D E P O S I T INSURANCE CORPORATION
A P R O J E C T S U B M I T T E D TO T H E
FACUL,TY O F B U S I N E S S A D M I N I S T R A T I O N I N P A R T I A L
FULFI1,MENT OF T H E R E Q U I R E M E N T FOR T H E AWARD OF
MASTER O F H U S I NESS A P M I NISTRATI'ON
IMRA
) IN
RANKING AND F I N A N C E
DEPARTMENT O F RANKING A N D F I N A N C E
I
ADMINISTRATION
PACLISTY O F ~ U SNESS
ENUGU CAMPUS
OCTOBER,
299 5.
.
'
C G M F A R A T I V E A P P R A I S A L O F THE B A R K I N G S U P E R V I S O R Y
ROLE O F THE CENTRAL RANK O F N I G E R I A AND THE
N I G E R 1 A N D E P O S I T TNSlJRANCE CORPORATION
-
BY
AKWEKE, UCHENNA SOLOMON
IIEPARTMENT O F BANKING A N D F I N A N C E
FACULTY O F R U S T N E S S A D M I N I L T R A T I O N
U N I V E R S L T Y O F NIGERIA
ENUGU CAMPUS
OCTOBER,
1% 5 .
CERTIFICATION
*
I
"
AKWEKE,
j
UCHENNA SOLOMON,
2
.
I
Postgraduate student
n t h e D e p a r t m e n t of ~ t ~ n k i nand
q
F i n a n c e and w i t h
R e g i s t r a t i o n Number P G / M B A / ~ ~ / ~ h~aSs Os a~ t i s f a c t o r i l y
c o m p l e t e d t h e r e q u i r e ' m e n t s f o r c o u r s e and r e s e a r c h work
for t h e deqree of M a s t e r rsf R u s i n e : : ~ A d m i n i s t r a t i o n
C M R A ) i i ~R a n k i n g and F i n a n c e .
T h i s research w o r k Is a n e m b o d i m e n t of o r i g i n a l
, i n 1 h a s n o t been submitted i n p a r t
b
or f u l l f o r a n y o t h e r
d i p l o r n , ~o r d e q r e e o f t h i s o r a n y o t h e r U n i v e r s i t y .
DR. J. Em EZEANYAGU
'
SUPEHVI :;OR
.
.
T h i s p r o j e c t is d e d i c d t e d t o my beloved p a r e n t s ,
~ l r l e ra n d Mrs. G. A .
Oji,
whose p r a y e r s ,
love and
~ n r n u r a q e m e n t , h a s m a d e m e w h a t 1 am t o d a y .
My most s i n c e r e g r a t i t u d e g o e s t o God t h e
~ a ' t h e rA l m i g h t y f o r a l l t h e g u i d a n c e , mercies a n d
prot.ecl.ion,
a n d a l l t h o s e who c o n t r i b u t e d i n o n e way
o r t h e o t h e r t o t h e s u c c e s s f u l c o m p l e t i o n of my study.
My ~ i p p r e r i a t i o ngoes t o my p r o j e c t s u p e r v i s o r
-
Dr. J . E . EZemj"agu, who s p e n t h i s valuable t i m e
r ~ a d i n g t h r u i ~ q hmy scripts a n d e l i m i n a t i n q a l l
i m h i q u i t.ies.
b
My t h 3 n k s a l s o g o e s t o my l e c t u r e r s , P r o f . F. 0.
E.
c l ; ~ , ~ f oMsr,.
Dr. H.
U.
Okoro-Okoro,
Mrs. M.
J.
Modebe a n d
E. C h i k e b e z e , who a l s o c o n t r i b u t e d t o my
.My h e a r t f e b t q r a t j t u d e q Q e S t o my d e a r b r o t h e r s
and s i s t e r s ,
Ndubuisi, I r e n e , G l a d y s , David,
Samuel,
Thomas a n d J o y , f o r a l l t h e i r l o v e , c a r e and p a t i e n c e .
My s i n c e r e t h a n k s a l s o q o e s t o
Mhadiwe, M r .
Emeki K.
Oji,
Elder Mrs. E . K. O j i , M r .
Mr.
Mr. a n d Mrs, M.
Ehere K .
Oji,
E p h r a i m Oji, Mr. D.
Mr.
0.
and
.
S. O j i ,
*$f
Mr.
R.
S.
l g w e b u i k e of CRN, a n d all my o t h e r r e l a t i v e s
who 1 c a n n o t now m e n t i o n ,
for their invaluable contribution
I h r o t q h o u t the course of my s t u d y .
F i n a l l y , my a p p r ~ c i a t i o ngoes t o hossom f r i e n d s
Nnann~i, C h i n e d u , Ken, Afarn,
c h a r 1 es, Rol a n d ,
L u w w q a , Ony i a ,
Oboh,
N g o z i , Colds, C h a r l e s , C h i - c h i ,
E b e n e z e r , Hen, O j u k w u and a l l o t h e r o f my friends who
Mr. aassey C. U i l e
, 4 1 1i
~n
-o f
the Dean's Office, Faculty o f
e s s ~ d r n i n i s t r a t i o n , u n i v e r s i t y of Nigeria, Enugu
C ; + ~ ~ L I Sf ,o r the j o b he d i d on my p r o j e c t .
a l l t . h ~m i s t a k e s and errors i n t h e p r o j e c t .
AKWEKE, UCHENNA S .
I accept
b
'
Tllis
s t u d y d e a l s w l t n tr~ec o m p a r a t i v e a p p r a i s a l
o f t h e b a n k i n g s u ~ e r v i s o r yr o l e of t h e C e n t r a l B a n k
of , N i q e r i a a n d t h e N i q e r i a n D e p o s i t Insurance
Interest i n this s t u d y a r o s e as a
Corpor;\tjcm.
r e s u l t of+ d i f f e r e n t v i e w s held b y b a n k i r s o n the
r o l e o f ' k h e s e t w o i n s t b t : ~ t . i o n s (CBN a n d NDIC) i n t h e
N i q e r i a r r f irranrzial. s e c t o r .
T1l.i.s s t ,id y w'rs
d i v i d e d i n to five c h a p t e r s .
Ch,3p t.cr One c o n t a i n e d t h e i n t r o d u c t i o n ,
s 'udy,
p r o b l e m i d e n t i f i c a t i o n , object i v e s
nf
;,r
).IIP
~ t ~ r d yscone
,
nf
.
background
Of
t h e study, o r g a n i z a t i o n o f t h e
s t u d y and r e s e a r c h h y p o k h e s e s .
C h a p t e r t w o i s the l i t e r a t u r e r e v i e w , t h e v i e w s
o f n o t a b l e a u t h o r s i n t h e f i e l d o f f i n a n c e were s o u g h t
and t h i s h e l p e d i n t h e u n d e r s t a n d i n g of
the concept
of h i i n k i n g s u p e r v i s i o n a n d t h e a u t h o r a l s o g a v e h i s
own ' v i e w s .
.
'
Ch i p t e r t h r e e i s t h e r e s e a r c h m e t h o d o l o q y .
11)
i l n ~ r ya n d ? s e c o n d a r y d a t a w e r e rased
research.
Both
i n the c o u r s e of t h e
p r i m a r y d a t a was g e n e r a t e d from s a m p l e s of
bank s u p e r v i s o r s a n d examiners of
C e n t r a l Bank of
Niqdria, N i q e r i a n l ~ e p o sti I n s u r a n c e C o r p o r a t i o n a n d
viii
O p e r a t i o n Managers of commercial banks through t h e u s e
of q u e s t i o n n a i r e s a n d r a n d o m i n t e r v i e w s .
d ~ t awere d r a w n f r o m s t a n d a r d t e x t s ,
r e p o r t s o f CBN,
Secondary
journals,
annual
NDIC a n d t h e decrees o f C B N ; N D I C a n d
B a n k s and Other F i n - n c i a l
I n s t i t u t i o n s decree.
I*
Chapter
f o ~ l ri s
the a n a l y s i s and i n t e r p r e t a t i o n
of t h e d a t a c o l l e c t e d i n t h e course o f t h e r e s e a r c h .
Si mpl e ~ e s c r i ~ ) ' t . i vset a t i s t i c s 1i k e t a b l e s a n d s i m p l e
p e r c e n t a g e s were Used i n t h e a n a l y s i s o f d a t a .
The r e s e a r c h r e v e a l e d t h e following:
b e
( i ) The CBN a n d N D I C a r e a u t h o r i s e d b y Decrees t o
r e q u l a t e banking business i n t h e country with
t h e CBN a s t h e a p e x i n s t i t u t i o n i n t h e c o u n t r y .
( i i ) T h e a c t i v i t i e s o f CBN a n d NDIC a s r r g a r d s t o
b a n k i.ng s u p e r v i s i o n are c o m p l e m e n t a r y .
In the
e v e n t o f b a n k d i s t r e s s o r f a i l u r e t h e CBN
allpoi n t s t h e N D I C as t r u s t e e o r l i q d i d a t o r .
( i i i ) T h a t bank d i s t r e s s o r f a i l u r e s is n o t a s a
r e s u 1t o f i n a d e q u a t e g u i d e l i n e s o r p o o r s u p e r v i s o r y
s k i l l s b y CBN a n d N D I C b a n k s u p e r v i s o r s a n d
e x a m i n e r s but. r a t h e r p o o r m a n a g e m e n t , q r e e d ,
d i s h o n e s t y o r a l l o f t h e above f a c t o r s c o m b i n e d .
(iv) ' l ' h e r ~a r e no i n c l i c a t i o n s t h a t bank s u p e r v i s i o n by
CBN and NDTC have e l i m i n a t e d o r minimized the
i n c i d e n t of bank f a i l u r e s and d i s t r e s s b u t r a t h e r
-
i t p r o v i d e s e a r l y warninq on d i s t r e s s and f a i l u r e s
an? r e v e a l :; the importance of banks keepinq p r o p e r
books of account to g u i d e a g a i n s t insolvency.
I n c h a p t e r f i v e recommendations were made o n t h e
arc,as of b ~ i t ~ k i nsupervi.sion
g
that needs s t r e n g t h e n i n g .
'
w a s seen and recommendation f o r
E ' i n a l l y , t h ~need
3
f u r t h e r r e s e a r c h on t h e su?c.svision o f non-bank
b
f i n m c i a l i n s t i t u t i o r , by the CRN.
-
TABLE OF CONTENTS
Page
..
..
\
Title P a g e
T i t l e Fly
Certification
iii
iv
v
Acknowledgement
vii
Abstract
X
CHAPTER ONE:
----
1. I
1.2
?.3
:.4
.
)
1 .
2.4
2.5
r
Backqround of t h e Study
Problem l d e n t i f ic:ation
O b j e c t i v e s o f the s t u d y
S c u p of t h e S t u d y
O r g ' 3 n i zd t i on o f t h e S t - u d y
Kesear-ch H y p o t h e s e s
*'.'IlAPTER
- --TWO:
2.1
2 .
c.3
INTRODUCTION
---
--.L I T E R A T U R E REVI-EW
Introduction
H a l r k i r ~ qS u p e r v i s i o n
Heasons f o r Banking S u p e r v i s i o n
O b j e c t i v e s of ~ a S ~u p ekr v i s i o n U n d e r a
Derequl~ited Economy.
16
Banking S u p e r v i s i o n and I n s p e c t i o n
20
2.5 - 1
8,lnkinq S u p e r v i s i o n and
Hegula t i o n .
2 -5.2
Banking Regulation.
2.5.2.1
3.5.2.2
.
2 .6
'
7
7
9
Conventional Element
of Banking Hegula t i o n .
Licensed banks Prudent ia1
Returns.
12
23
. The
T y p e s of Bankirrq S u p e r v i s i o n
L e q a l F r , ~ m e w o r - k of B a n k i n q S u p e r v i s i o n
24 .
25
27
34
Page
O b j e c t i v e s a n d I n s t r u m e n t of
M o n e tciry P o l i c y .
An O v e r v i e w o f t h e P r u d e n t i a l G u i d e l i n e s
45
The R o l e 4 0 f t h e CBN i n t h e N i g e r i a n
Ecormmy
I m p a c t of CBN A c t i v i t i e s .
49
51
.
The Role of NDIC i n t h e ~ i & r i . a n E c o n o m y .
R e g u l a t o r y ~ c t i v i t i e sof NDIC
s u m m a r y of L i t - e r a t u r e R e v i e w .
CHAPTER THREE:
RESEARCH METHODOLOGY
3.1
~ntroductivn
3.?
Research Design
3.3
Data C o l l e c t i o n M e t h o d
1.4
Stimpling ~ e t h o d
7.5
Data T I e ' 3 t m e n t
3. h
K e s e ~ r c hC o n s t r a i n t s .
--
CIiAF'TER FO\lR :
54
Techniaue
ANALYSIS A N D DISCUSSION OF DATA
$'I.?I n t r o d u c t i o n
65
65
4.2
Data A n a l y s i s
65
4.3
C o r n p a r a t i v e ~ p p r a i s a lobi CBN Decree 2 4 o f
2991, ROFID Decree N o . 2 5 o f 1 9 9 1 a n d
N I I I C Decree NO. 1 2 of 1 4 8 8 .
66
3.4
1.5
~ n a l y s i sa n d I n t e r p r e t a t i o n o f Data
Based o n Q u e s t i o n n a i r e s
R e s p o n s e from CBN a n d NDIC ank king
Supel visors/Examj.ners.
.
4.6
Response from Commercial Banks
4.7
T e e t of H y p o t h e s e s .
76
xii
Page
CHAPTER FIVE:,
SUMMARY O F F I N D I N G S A N D
KECUMMLNDATIONS
5.1
S~immary o f
5.2
C h a l l e n g e s of
5 .
5.4
,
~d
jor
ank king s u p e r v i s i o n
Recommenaa t i o n s
conclusion
BI B L I O G H A P H Y
QUESTIONNAIRE
ind dings
xiii
r
'
LIST OF TABLES
Page
Table
i.
ii.
iii.
iv.
CBN a n d NDIC Bank s u p e r v i s o r s
76
Commercial Banks ~ e s p o n s e
Symmary o f R e s p o n s e o n C o m p e t e n c e o f
CBN a n d NDIC S u p e r v i s o r s a n d E x a m i n e r s .
Summary o f R e s p o n s e Dn. s c h o o l ~ t t e n d e d
b y CBN a n d NDXC Bank S u p e r v i s o r s /
Examiners.
v.
summary o f R e s p o n s e o n I n a d e q u a t e
G u i d e l i n e ? as t h e c a u s e o f bank f a i l u r e s .
vi.
o f bank f d l u r e s .
vii.
B
summary o f R e s p o n s e o n P o o r . s u p e r v i s o r y
s k i l l o f CBN a n d NDIC
viii.
79
xi.
xii.
80
Summary o f R e s p o n s e o n i f t h e r e a r e
81
Summary o f R e s p o n s e o n i f s u p e r v i s i o n
h e l p c r e a t e s t a b i l i t y and c o n f i d e n c e i n
t h e b a n k i n g sector.
X.
80
S U ~ ~ ~ V ~ S O ~ S .
a r e a s o f c o n f l i c t b e t w e e n CBN a n d NDIC.
ix.
9
Summary o f R e s p o n s e a n d P o s s i b l e c a u s e s
- 82
Summary o f R e s p o n s e o n t h e c o - o p e r a t i o n
l e v e l b e t w e e n CBN a n d NDXC b a n k s u p e r v i s o r s .
82
S u q a r y o f R e s p o n s e on c o m p l i a n c e o f t h e
banking s e c t o r to banking s u p e r v i s i o n .
83
Summary o f R e s p o n s e o n t h e E f f e c t s o f
bank s u p e r v i s i o n o n o p e r a t i o n s o f
84
'
commercial banks.
xiii.
Summary o f r e s p o n s e o n t h e e i f e c t s o f
b a n k i n g s u p e r v i s i o n o n o p e r a t i o n s of
commercial banks.
84
.
xiv
Page
Summary o f R e s p o n s e o n I n a d e q u a t e
G u i d e l i n e s b y CBN a n d NDIC Bank
supervisors.
Summary of R e s p o n s e o n P o o r S u p e r v i s o r y
s k i 1 l of CBN a n d NDIC i s R e s p o n s i b l e
xvi.
xvi. i
xvi.i i
.
.
-
for ~ a n kDistress a n d F a i l u r e s .
S i ~ m m1 :
<,if R e s p o n s e o n ca'uses of b a n k
Failures.
Summary o f R e s p o n s e o n C l a s s i f i c a t i o n
of Operations o f CBN a n d NDIC.
Summary o f i e s p n s e t h a t CBN and NOIC
h e 1 p c r e a t e s t a b i l l t y a n d ~ i s c i p ine
l
i n t h e b a n k i n q sector.
xix.
Summary o f R e s p o n s e on c o m p l i a n c e of
c o m m e r c i a l . S a w s t o rilles a n d l a w s a s
a r e s u l t o f s u p e r v i s i o n b y CBN
and
NDICXX.
Slimmary of R e s p o n s e on G r a n t i n g
a d d i t i o n a l p o w e r s t o CBN a13 NDIC b a n k
supervlsors/examiners.
'
1.1
BACKGROUND
..
A
CHAPTER ONE
----
-
O F THE STUDY
r e s e a r c h on t h i s t o p i c i s necessary,
e s p e c i a l l y now t h a t t h e r e are many cases o f distress
a n d f a i l u r e s amonq b a n k s a n d non-bank
i n s t i t u t i b n s i n Nigeria.
.'
financial
Bank s d p e r v i s i o n i n
N i g e r i a was h i t h e r t o p e r f o r m e d b y t h e C e n t r a l
Bank o f N i q e r i a (CBN).
However w i t h a p p a r e n t
i n c r e a s e i n c a s e s of d i s h r e s s a n d f a i l u r e s among
b
b a n k s a n d non-bank
financial institutions, the
~ i q e r i aD e p o s i t I n s u r a n c e C o r p o r a t i o n w a s s e t u p i n
1988,
T h e p r o m u l g a t i o n o f Decree 22 o f 1988, g a v e
rise t o t h e e s t a b l i s h m e n t of Nigeria Deposit
I n s u r a n c e C o r p o r a t i o n (NDIC).
One of t h e c a r d i n a l
f u n c t i o n s o f NDIC i s i n s u r i n g a l l d e p o s i t s l i a b i l i -
ties of l i c e n s e d banks and s u c h o t h e r f i n a n c i a l
i n s t i t u t i o n s o p e r a t i n g i n N i g e r i a w i t h i n t h e meaning
o f s e c t i o n s 198 a n d 2 6 of this Decree so a s t o e n g e n d e r
confidence i n t h e Nigerian banking system.
Thus t h e
NDIC w a s s e t u p p r i m a r i l y t o e n s u r e d e p o s i t o r ' s
c a n f i d e n c e i n t h e N i g e r i a n f i n a n c i a l system.
t h e e s t a b l i s h m e n t o f t h e NDIC, w e now h a v e t w o
i
With
.
institutions re&lating
banking activities i n t h e
c o u n t r y , t h a t i s , t h e CBN a n d NDIC.
The r e s e a r c h
i s g e a r e d t o w a r d s t h e r e g u l a t o r y a c t i v i t i e s o f the
CBN a n d NDIC v i z - a - v i m
t h e i r s u p e r v i s o r y roles i n t h e
Nigerian f i n a n c i a l system.
The number o f d i s t r e s s e d b a n k s h a s b e e n c r e a t i n g
more r e s p o n s i b i l i t i e s and a n x i e t i e s f o r t h e s u p e r v i s o r y
authorities.
B a n k i n g s u p e r v i s i o n i s a matter o f j u d g e -
ment and p r u d e n t i a l a n a l y s i s ' to e n s u r e t h a t i n d i v i d u a l
b a n k s o b s e r v e , l a i d down l a v s a n d o p e r a t e w i t h i n
*
b
p r e s c r i b e d monetary p o l i c y o b j e c t i v e s .
For example,
s e c t i o n 1 7 ( b ) of t h e Banks and O t h e r F i n a n c i a l
~ n t is t u t i o n s Decree (BOFID) 1 9 9 1 , p r o v i d e s t h a t
l i c e n s e d bank s h a l l pay d i v i d e n d s u n t i l a d e q u a t e
p r o v i s i o n s f o r b a d a n d d o u b t f u l d e b t s h a v e b e e n made.
The i n s t i t u t i o n s l e f t with t h e r e s p o n s i b i l i t y of
e n s u r i n g t h a t b a n k s c o m p l y w i t h t h e law r e g u l a t i n g
b a n k i n g a c t i v i t i e s i n N i q e r i a are CBN a n d NDIC.
-
It
is t h e r e f o r e t h e i n t e n t i o n of t h e r e s e a r c h e r to c a r r y
o u t a n a p p r a i s a l of t h e b a n k i n g s u p e r v i s o r y role o f t h e
CBN a n d t h e NDIC t o i d e n t i f y areas o f c 0 n f l i c k i f a n y
and t o i d e n t i f y a r e a s v h e r e t h e y complement e a c h p t h e r .
B a n k i n q s u p e r v i s i o n i s a m a j o r f u n c t i o n o f b o t h CBN
a n d NDIC, t h e r e f o r e e f f e c t i v e s u p e r v i s i o n h a s become
v i t a l i n t h e now d e r e g u l a t e d e c o n o m i c e n v i r o n m e , n t .
I t i s s t a t e d c a t e g o r i c a l l y t h a t t h e outcome o f
t h i s r e s e a r c h s h o u l d n o t be r e g a r d e d a s f i n a l ,
rather
as a catalyst that w i l l triqger off interesting factors
and c o n c e p t s t h a t w i l l l e a d t o f u r t h e r d i s c u s s i o n s and
d e b a t e s a n d more r e s e a r c h o n t h e t o p i c .
1.2
--PROBLEM
-4
.'
IDEWTIFICATION
S t u d y i n g t h e B a n k i n g s u p e r v i s o r y r o l e of t h e CBN
B
a n d NDIC c a n n o t g o a l o n g s m o o t h l y w i t h o u t h i g h l i g h t i n g
some of t h e . p r o b l e m s b e i n g e n c o u n t e r e d i n c a r r y i n g o u t
this function.
T h e bank f a i l u r e s o f t h e e a r l y f i f t i e s were d u e
m a i n l y t o t h e a b s e n c e o f r e g u l a t o r y and s u p e r v i s o r y
bodies.
T h e r e i s s t i l l t h e p r o b l e m o f d i s t r e s s and
f a i l u r e o f b a n k s s i n c e t h e e s t a b l i s h m e n t of t h e CBN a n d
\
NDIC
O B J E C T I V E S OF THE STUDY
--*","
A, -.u
T h e m a j o r o b j e c t i v e s of t h i s r e s e a r c h ,
following:
include the
,
-
To i d e n t i f y if there a r e a r e a s o f c o n f l i c t b e t w e e n
the CBN a n d NDIC i n t h e i r b a n k i n g s u p e r v i s o r y r o l e .
-
To a p p r a i s e i f t h e CBN a n d NDIC have b e e n l i v i n g u p
to t h e i r r e s p o n s i b i l i t i e s a s s u p e r v i s o r y d u t h o r i t i e s
i n t h e b a n a k i n g sector of t h e N i g e r i a n economy.
-
To i d e n t i f y t h e i m p o r t a n c e of e f f e c t i v e s u p e r v i s i o n
t o t h e b a n k i n g sector i n t h e N i g e r i a n e c o n o m y *
1*4
SCOPE OF THE STUDY,
T h e writer i s a w a r e of t h e f a c t t h a t t h e r e i s a n
i n c r e a s e i n c a s e s o f d i s t r e s s e d and f a i l e d banks i n '
Since t h e CBN a n d NDIC a r e empowered b y laws
Nigeria.
a n d Decrees t o l e g u l a t e b a n k i n g a c t i v i t i e s i n N i g e r i a ,
t h e s t u d y i s narrowed t o a comparative a p p r a i s a l of
the
Bankirrq s u p e r v i s o r y r o l e o f t h e C e n t r a l Bank of N i g e r i a
and t h e N i g e r i a w p o s i t I n s u r a n c e C o r p o r a t i o n .
The p r i m a r y f o c u s of t h i s s t u d y w i l l be l i m i t e d
t o t h e ank king s u p e r v i s o r y r o l e of t h e CRN a n d NDIC and
other related functions.
T h e p e r i o d c o v e r e d i n t h e s t u d y i s f r o m 1988-1994.
.!$
..,. .
T h i s will be d e f i n e d i n t h e c o n t e x t o f t h i s s t u d y .
1.5
---.
ORGANIZATION OF T-HE
.--STUDY
F o r e a s y u n d e r s t a n d i n g and s i m p l i f i c a t i o n o f t h e
n a t u r e and f o c u s o f t h e s t u d y , t h i s r e s e a r c h i s
o r q a n i s e d i n t o f i v e ( 5 ) c h a p t e r s w h i c h w i l l show
p r e c i s e l y and i n s i m p l e u n d e r s t a n d i n g l a n g u a g e w i t h
s t a t i s t i c a l d a t a t o back u p t h e d i s c u s s i o n .
-4b ,
P r e c e d i n g c h a p t e r One, is t h e a b s t r a c t , c h a p t e r
o n e , c o n s i s t s o f i n t r o d u c t i o n a n d c o n t a i n s t h e background of t h e study,.problem
identification,
o f t h e s t u d y and o r g a n i z a t i o n of t h e s t u d y .
the scope
The
c h a p t e r a l s o i n c l u d e s t h e d e f i n i t i o n o f c o n c e p t s useb
i n t h e study.
C h a p t e r t w o w h i c h focuses a t t e n t i o n o n r e v i e w o f
r e l a t e d l i t e r a t u r e w h i c h r e v e a l s how d i f f e r e n t a u t h o r i t i e s
S t w i l l provide insight i n t o
d e f i n e bank s u p e r v i s i o n .
u n d e r s t a n d i n g t h e ' b a n k s u p e r v i s i o n m e t h o d s of t h e C e n t r a l
\
B a n k o f N i g e r i a a n d ~ i g e r i ad e p o s i t I n s u r a n c e C o r p o r a t i o n .
Chapter t h r e e . c o n c e r n s methodology r e s e a r c h , i t
,
i n c l u d e s t h e i m & r o d u c t i o n , r e s e a r c h d e s i g n and s c u r c e s
and m e t h o d o f D a t a c o l l e c t i o n .
,',*
I
c h a p t e r f o u r c o n s i s t s o f A n q l y s i s and ~ S k u s s i o n
.
of Data c o l l a t e d .
.
1
Chapter f i v e i s t h e end o f t h e r e s e a r c h , i t
c o n t a i n s summary o f major f i n d i n g s , p r o s p e c t s o f banking
s u p e r v i s i o n , recommend a t i o n s as w e l l as conclusion.
--RESEARCH HYPOTHESES
1
For t h e purpose of t h i s r e s e a r c h , the f o l l o w i n q
a1 t e r n a t i v e hypotheses are hereby p o s t u l a t e d and are
to be
t :
tested:
I n a d e q u a t e g u i d e l i n e s on bank s u p e r v i s i o n by the
CnN and NDIC i s r e s p o n s i b l e f o r cdntinued c a s e s
b
o f hank f a i l u r e s i n Nigeria.
F!
-
2'
Poor s u p e r v i s o r y s k i 11 o f hanks by CRN and N13IC i s
responsible f o r c o n t i n u e d c a s e s o f bank f a i l u r e s i n
I l i g e r i 3.
CHAPTEH
--..-----
-LITERATURE
- .,
TWO
R E V I E W-
----1__.
2 -1
INTRODUCTION
This chapter is concerned with t h e d e f i n i t i o n given
by v a r i o u s a u t h o r i t i e s o n bank s u p e r v i s i o n ,
d e s c r i b e s t h e d e v e l o p m e n t o f CBN a n d NDIC.
he' c h a p t e r
The c h a p t e r
<
d i s c u s s e s b a n k i n q s u p e r v i s o r y r o l e o f t h e CBN a n d NDIC
and o t h e r related l i t e r a t u r e .
2.2
B A N K I N G SUPERVISION
b
What i s b a n k s u p e r v i s i o n ?
T h e a b o v e q u e s t i o n has
sparked o f f controversies on t h e a c t u a l d e f i n i t i o n of
banking supervision,
Notably a u t h o r i t i e s defined bankinq
s u p e r v i s i o n t o s u i t t h e s i t u a t i o n they are describing.
T h e word " s u p e r v i s i o n a n d e x a m i n a t i o n n are sometimes u s e d
interchangeably.
'
I t is t h e n n e c e s s a r y t o t a k e a look i n t o
t h e d e f i n i t i o n s g i v e n by v a r i o u s a u t h o r i t i e s c o n c e r n i n g
bankinq supervision,
A c c o r d i n g t o C. E.
Aqene,
"Banking
s u p e r v i s i o n i s a m a t t e r o f j u d g e m e n t a n d p r u d e n t i a1
I
a n a l y s i s t o e n s u r e t h a t i n d i v i d u a l b a n k s o b s e r v e l a i d down
I
1
l a w s a n d o p e t a t e w i t h i n p r e s c r i b e d m o n e t a r y o b - j e c t i v e s,
T h i s d e f i n i t i o n above i s w e l l embracing, i t r e c o g n i s e s
t h a t t h e r e a r e l a i d down p r o c e d u r e s t h a t b a n k s a r e
1
-
l e g a l l y r e q u i r e d t o o b s e r v e a n d t h a t t h e r e m u s t 4~
s o m e form of m e t h o d s t o e n s u r e t h a t b a n k s c o m p l y
w i t h t h e l a i d down p r o c e d u r e s .
A c c o r d i n g ' t o E d w a r d P. M.
Gardner,
"Supervision
is c o n c e r n e d f u n d a m e n t a l l y w i t h t h e f i n a n c i a l h e a l t h
and s a f e t y o f i n d i v i d u a r banks, i t
AS
ultimately concerned
w i t h m o n i t o r i n g a n d h e l p i n g t o p r e s e r v e t h e s o u n d n e s s of
b a n k i n g s y s t e m a n d p r o m o t e a c o n t i n u e d h i g h d e g r e e of
p u b l i c confidence i n banksn.
~ n dh e c o n t i n u e s , I t s e e k s
\
t o e n s u r e t h a t b a n k s are r u n i n a p r u d e n t m a n n e r .
From
b
t h e d e f i n i t i o n a b o v e i t can b e i m f e r r e d t h a t b a n k s u p e r v i s i o n i s about t h e h e a l t h o f banks and ensuring t h e
d e p o s i t i n g p u b l i c c o n f i d e n c e i n t h e b a n k i n g sector.
Basically, t h e supervision of banks e n t a i l s assessment
o f t h e h e a l t h p o s i t i o n o f banks to e n s u r e t h a t o p e r a t i o n s
are i n l i n e w i t h e x p e c t a t i o n o f t h e m o n e t a r y a u t h o r i t i e s
arrd t h e l a w s of
t h e country.
B a r ~ k i n g s u p e r v i s i o n are
c a r r i e d o u t b y t h e C e n t r a l Bank of N i g e r i a a n d N i g e r i a
D e p o s i t I n s u r a n c e C o r p o r a t i o n b y a n a l y s i s of b a n k s r e t u r n s
t o them a s i t is s t a t u t o r i l y r e q u i r e d .
Bank e x a m i n a t i o n i n v o l v e p " a n i n s p e c t i o n of t h e
f i n a n c i a l c o n d i t i o n of a b a n k , i n i t i a t e d b y t h e b a n k
itself or conducted by l e g a l l y c o n s t t t u t e d a u t h o r i t i e s
to a s s u r e t h e d e p o s i t o r s ,
s t o c k h o l d e r s and t h e p u b l i c
t h a t t h e a f f a i r s of t h e banks a r e b e i n g c o n s e r v a t i v e l y
and e f f i c i e n t l y managed,"
From t h e d e f i n i t i o n a b o v e i t
i s 'apparent t h a t t h e ' d i s t i n c t i o n between backing
s u p e r v i s i o n a n d b a n k e x a m i n a t i o n is i n t h e m e t h o d
adopted i n checking banks compliance to r e g u l a t i o n s
guiding t h e i r operations,
T h e r e f o r e whi l e b a n k i n g
s u p e r v j s i o n e n t a i l s a n a l y s i n g r e t u r n s t o i t by banks
(off -site s u p e r v i s i o n ) t h e examination of banks e n t a i l s
t h e p h y s i c a l p r e s e n c e of t h e e x a m i n e r s a t t h e , p r e m i s e s
o f b a n k s t o i n m p e c t t h e i r b o o k s t o a s c e r t a i n among o t h e r
t h i n g s t h e a c t u a l s t a t e of t h e bank and c o m p l i a n c e to
existing regulation (on-site-supervision).
b
2.2
STYLES OF S U P E R V I S I O N
T h e styles o f b a n k i n g d i f f e r among c o u n t r i e s .
However t h r e e s t y l e s o f s u p e r v i s i o n a r e common,
They a r e :
(a) Free market supervision
( b ) R e f r e e model s u p e r b i s i o n
( c ) U i s c r etionary supervision
I n t h e f r e e m a r k e t s t y l e of s u p e r v i s i o n , t h e
a u t h o r i t i e s do n o t i n t e r v e n e b u t l e a v e e v e r y t h i n g t o
t h e p l a y of m a t k e t f o r c e s ,
Here t h e i n v i s i b l e h a n d
c o n d u c t s t h e s u p e r v i s i o n o f banks.
However, a s non-
regulated compqtition breeds greater i n s t a b i l i t y
10
rather than higher efficiency.
This style of supervision
is n o t p u t i n t o p r a c t i c e b y a n y c o u n t r y .
Banks would
h a v e t o o much f r e e d o m u n d e r s u c h s t y l e of s u p e r v i s i o n ,
T h i s w i l l allow e x c e s s e x p o s u r e t o r l s k s w h i l e d e p o s i t o r s
w i l l f i n d i t v e r y d i f f i c u l t t o p o l i c e r i s k l e v e l s of b a n k s
a s t h e y w i l l be u n i n f o r m e d a b o u t r i s k l e v e l s of b a n k s .
I n f a c t t h e p o l i t i c a l r e a l i t y i s t h a t n o government would
e v e r . allow i t s b a n k i n g s y s t e m a c o m p l e t e l y free r e i g n to
engage i n all-out
comlj^etition
-
t h e l a w of t h e j u n g l e .
T h e Refree Model of S ~ p e r v i s i 0 n : - ' I n t h i s s u p e r y i s i o n
s t y l e , t h e c e n t r a l sank e x e c u t e s monetary p o l i c y , maximizing
t h e u s e of i m p e r s o n a l t o o l s s u c h as o p e n m a r k e t o p e r a t i o n s
and minimizing r e g u l d t o r y controls,
ri,r:,
1i
T h e C e n t r a l Bank h e r e ,
t tit. d i s i r e t l o n n r y wwer b u t o n r y <as:iures
thrdt
,
the
p l a y e r s f o l l o w t h e r u l e s of t h e g a m e .
Discretionary Supervision:-
T h i s is w h e r e t h e
r e g u l a t o r y t o o l s a r e a c t i v a t e d w i t h more d i s c r e t i o n ,
T h e C e n t r a l Bank of t h e c o u n t r y a d o p t i n g t h i s s t y l e ,
i n e x e r c i s i n g m o n e t a r y , p o l i c y does n o t o n l y a t t e m p t t o
*
m o u l d t h e s u p p l y s i d e of t h e m o n e t a r y base, b u t a l s o
a t t e m p t t o mould t h e s t r u c t . u r e of t h e b a n k i n g s y s t e m a n d .
its $unctioning,
he
aim h e r e i s t o d i r e c t t h e p e r f o r m -
a n c e o f b a n k s i n t h e same way a s a f i l m director d i r e c t s
t h e p e r f o r m a n c e of h i s a c t o r s ,
G a r d n e r (1986) c i t e d i n Nwankwo 1990 i d e n t i f i e d
t h e l a s t two m o d e l s a b o v e ( ~ e f r e ea n d D i s c r e t i o n a r y )
a s government. b y l a w a n d g o v e r n m e n t by men t h e l a t t e r
b e i n q t h e d i s c r e t i o n a r y a p p r o a c h a n d t h e rormer
f a v o u r i n g l e g a l p r e s c r i p t i o n s of m a n d a t o r y l e v e l s o f
r ttqula t
illtl
model F
-
f o r - ,311 banks.
tie c c l l l e d t h e t w o a p p r o p c h e s
d i s c r e t i o n d r y and m o d e l L
-
mandatory or
~ e f r e e . Model I, i s c l e a r i n i t s p r e s c r i p t i o n s a n d t h e r e -
f o r e r e s o l v e s c o n s i d e r a b l e u n c e r t a i n t y a n d i s d e r i v e d from
h i s t o r i c a l experience.
The Bank o f E n g l a n d ( C o o k e 1992)
b
d e s c r i b e s t h i s model a s p e r s o n a l p a r t i c i p a t i v e and
flexible.
T h a t i t s c o r n e r s t o n e i s c l o s e and r e g u l a r
c o n t a c t w i t h m a n a g e m e n t b a s e d on s u b m i s s i o n of q u a r t e r l y
s t a t i s t i c a l r e t u r n . which a r e c l o s e l y a n a l y s e d and
monitored.
This supervisory s t u l e i s based on t h e
p r i n c i p l e o f i n t e r a c t i v e , g i v e and t a k e b e t w e e n t h e
a
s u p e r v i s o r s a n d t h e s u p e r v i s e d and t h e v i e w t h a t t h e
r o l e of s u p e r v i s o r s iS. t o g u i d e a n d n o t t o t a k e o v e r
bank man3gemerrt.
I n ' o r d e r , s u p e r v i s o r s a c t as management
consultants with clout.
T h e d i s c r e t i o n a r y model h a s t h e a d v a n t a g e of b e i n g
more r e s p o n s i v e t o c h a n g e s and i n n o v a k i o n .
It does not
p u t i n d i v i d u a l b a n k s i n t o s t r a i g h t j 3 c k e t of common
m a n d a t o r y r a t i o l e v e l s r a t h e r more r i s k y b a n k s a r e
I
-.",
L
r e q u i r e d to a c q u i r e h i g h e r l e v e l s of p r u d e n t i a l
cushioning.
I t i s more m a r k e t o r i e n t e d and i s f a v o u r e d .
by m a r k e t e c o n o m i s t s .
practice
I n p r a c t i c e however,
t h e above three'
m o d e l s or s t y l e s o f s u p e r v i s i o n a r e e x t r e m e p o s i t i o n .
no c o u n t r y
a n y of them i n i t s e n t i r i e t y .
A
~ h u s
mix
o f t h e t h r e e s t y l e s i s i n p r a c t i c e u s e d b y many c o u n t r i e s .
However,' w i t h d e r e g u l a t i o n o f r e c e n t y e a r s t h e o p e r a t i o n
o f m a r k e t f o r c e s i s a c c o r d e d more e m p h a s i s .
2.3
---
REASONS FOR B A N K I N G SUPERVISION
"A
v i r i l e supervisory system r e q u i r e s a sound
inf r a s t r u c t u r a l base.
b
The s p e c i f i c s t r u c t u r e s and
a d m i n i s t r a t i v e frameworks t h a t a r e n e c e s s a r y , and r e l e v a n t
w i t h i n a banking c o n t e x k i n c l u d e a c o d i f i e d set o f l a w s
r e l a t i n g to business organizations,
t h e d e v e l o p m e n t of
a d e q u a t e and w e l l d e f i n e d a c c o u n t i n g s t a n d a r d s , a s y s t e m
o f i n d e p e n d e n t a u d i t i n g and a r r a n g e m e n t s f o r t h e p u b l i c
d i s c l o s u r e o f f i n a n c i a l accounts8* (Muller, 1990).
A 1 though none of
t h e f o r e g o i n g r e q u i r e m e n t s are t h e
p a r t i c u l a r r e s p o n s i b i l i t i e s of bank s u p e r v i s o r s nevert h e l e s s t h e y a r e o f v i t a l i a p o r t a n c e t o t h e work o f t h e
bank s u p e r v i s o r .
1
b
T h e e x p e r i e n c e o f t h e p a s t h a s shown t h a t t h e
f o r t u n e s or m i s f o r t u n e s o f a n i n d i v i d u a l b a n k c a n h a v e
far reaching i m p l i c a t i o n s f o r t h g whole banking system.
I f any bank f a i l e d ,
the f i n a n c i a l and psychological
t r u m a are t r a n s m i t t e d t h r o u g h o u t t h e w h o l e e c o n o m y .
This, makes d e s i r a b l e f o r t.he g o v e r n m e n t t o r e g u l a t e
t h e operati2ns' o f banks.
**The e d i f i c e o n w h i c h b a n k i n g
i s b u i l t is c o n f i d e n c e , i f t h a t c o n f i d e n c e c o l l a p s e s .
A mere s u s p i c i o n t h a t a b a n k
is i n s e r i o u s d i f f i c u l t y
may g e n e r a t e a r u n w h i c h i f u n c h e c k e d , may e n g u l f t h e
e n t i r e f i n a n c i a l s y s t e m t h r o u g h c o n t a g i o n effect.*
f o s t e r dnd r n , ~ i n t a i n#isouad bank in^ s y s t e m .
b
I t s goal i s
to p r o t e c t t h e s y s t e m a q a i n s t t h e weakness o f i n d i v i d u a l
b a n k s a n d t o a s s i s t t h e w e a k e r or p r o b l e m b a n k s to
become s t r o n g e r f i n a n c i a l i n s t i t u t i o n s .
i not her p o i n t i s t h a t b a n k s a r e s u p e r v i s e d t o
i n v e s t i g a t e t h e e f f e c t i v e n e s s o f management a n d a d e q u a c y
of c a p i t a l r e l a t i v e t o t h e s i z e and t h e volume o f t h e
b a n k s o p e r a t i o n s a n d t h e v a l u e a n d s p r e a d of t h e b a n k s
portfolio.
T h i s i s to e n s u r e t h a t b a n k s are w e l l
m a n a g e d a n d t h e c a p i t a l base of a b a n k is n o t o u t o f
.
p l a c e w i t h t h e volume o f b u s i n e s s and t h u s r i s k exposure.
r
T h e r e f o r e i t i s a p p a r e n t t h a t b a n k s are s u p e r v i s e d
t o e n s u r e t h e i r c o n t i n u e d s u r v i v a l a n d a l s o to ~ r o m o t e
L t is intended
confidence i n t h e financial system,
t h a t l i c e n s e d banks o p e r a t e p r u d e n t l y and i n accordance
t o l a i d down b a n k i n g g i i a e l i n e s ,
Supervision ensures
a competi t i v e and v i b r a n t banking system i n accordance
w i t h a d e r e g u l a t e d economy,
Supervision in t h i s
e n v i r o n m e n t c a l l s f o r t i m e l y i n t e r v e n t i o n b y t h e CBN a n d
NDIC when t h e r e i s a t h r e a t t o t h e f i n a n c i a l s y s t e m b y
a c t i v i t i e s o f some b a n k s a n d are t h e r e f o r e s u p e r v i s e d to
e n s u r e c o m p l i a n c e w i t h laws a n d r e g u l a t i o n a n d r e c e i v i h g
feedback on t h e i m p a c t o f p o l i c i e s on t h e o p e r a t i o n s o f
b a n k s a n d as t h e y a f f e c t b a n k m a n a g e m e n t and p r e v e n t i o n
The e s s e n c e of c o n t r o l is t h e feedback
of f r a u d s ,
process.
W i t h t h e k n o w l e d g e of how r e g u l a t i o n h a s
a f f e c t e d b a n k s , measures f o r c o r r e c t i o n of p o l i c i e s a n d
a c t i o n s c o u l d be p u t i n p l , a c e .
O f f i c i a l c o n c e r n f o r t h e s t a b i l i t y of b a n k s
r e f l e c t i n g the f e a r t h a t m u l t i p l e b a n k f a i l u r e s r a y r e s u l t
i n s e v e r e monetary c o n t r a c t i o n and d i s b c a t i o n of t h e
\
real e c o n o m y t h e r e f o r e g i v e s r i s e t o t w o s u p e r v i s o r y
v a l u e s of p r o t e c t i n g t h e d e p o s i t o r s and s a f e g u a r d i n g
-
t h e h e a l t h a n d s o u ~ d n e s so f t h e f i n a n c i a l s y s t e m .
.
.
..,
-
-
-
7
-
-
--
,
., . .
.
.
:
,
,
,
,...
,, , .*
-
' 'i.
,
.., ..,
.\-.*
*
.+.,. ,
,
I
.
. ,;
., .., ,: .
.
Affirming t h i s view
Rt.
t h e c h a n c e l l o r of t h e e x c h e q u e r
Hon N i g e l L a w s o n e m p h a s i z e d t h a t :
.., , ,<, . . .
-W
-,
7-
-
"An ef f e c t i ' v e s y j - k e r n o f b a n k s u p e r v ? % i o n
i s as important a s t h e b a n k i n g s y s t e m
i t s e l f tor without i t t h e r e w i l l n o t be
the c o n i i . ~ e n c eon w h i c h sound b a n k i n g
depends.
~ r 0 mt h e c o n f i d e n c e of t h e
i n d i v i d u a l d e p o s i t o r t h a t h i s money i s
s a f e , t o t h e c o n f i d e n c e of t h e i n d i v i d u a l
i n ~ r i t a i na s o n e o f t h e f o r e m o s t
f i n a n c i a l centres o f t h e world..
The p r i m a r y role is t o r e d u c e t h e r i s k
o f c a p i t a l i l o s s t o t h e d e p o s i t o r as a
r e s u l t o r th'e b a n k s w i t h w h i c h t h e y
place t h e i r funds being run prudently.
I n t h i s way, s u p e r v i s i o n a l s o f u l f i l s
a wider role i n safeguarding t h e
s t a b i l i t y of t h e i n d i v i d u a l b a n k s a n d
t h u s o f t h e b a n k i n g s y s t e m as a w h o l e . "
-
. ~ , ~ w *-yw,m
:
g?r,sV'@
Q,YTym
.
I
,
A.
E.
b
~ w e n l i m o b o r , "poor s u p e r v i s i o n
as a d e c i s i v e e l e m e n t a l l o w i n g f o r bank f a i l u r e s and
i n s ~ l v e n c y . ~I ~n a d d i t i o n , r e s t r u c t u r i n g of b a n k s
o p e r a t i o n s may be r u n f r o m s u p e r v i s o r y i n s t i t u t i o n s .
T h e r e f o r e Bank s u p e r v i s o r s e x a m i n e l i c e n s e d b a n k s
p e r i o d i c a l l y t o e n s u r e t h a t t h e b a n k s are s o l v e n t a n d
a r e c o n d u c t i n g t h e i r b u s i n e s s a c c o r d i n g t o l a w s and
g u i d e l i n e s l a i d down by t h e a u t h o r i t i e s .
The e x a m i n a t i o n s
t a k e t h e f o r m s o f off s i t e s u r v e i l l a n c e a n d o n - s i t e
inspection.
I n t h e former, t h e off-site, s u p e r v i s o r s
c h e c k a n d a n a l y s e p r u d e n t i a l r e t u r n s from b a n k s w i t h
a view t o a s c e r t = ~ i n i n qt h e b a n k s c o m p l i a n c e w i t h
,
f
.
~ c c o r d i n gt o
<
p r u d e n t i a l r a t i o s / r e q u l a t i o n s and i d e n t i f y i n g p o s s i b l e
p r d b l e m areas i n t h = b a n k s , o p e r a t i o n s .
The p r u d e n t i a l
r a t i o s e x a m i n e d i n c l u d e d t h o s e h a v i n g t o d o w i t h credit
s u c h as l o a n s - t o - d e p d s i t
ratios.
Ideally,
-v
,-.,,.,uw.
the off-site
s u r v e i l l a n c e provides e a r l y warning s i g n a l s (where
adequate and a c c u r a t e r e t u r n s have been r e c e i v e d for
a n a l y s i s ) which e n a b l e t h e o n - s i t e
examiners to
p h y s i c a l 1y v i s i t b a n k s t o a s s e s s . p o t e n t i a l p r o b l e m a r e a s
earlier . i d e n t i f i e d by o f f-site s u r v e i l l a n c e .
The f i e l d
e x a m i n e r s u s u a l l y assess t h e q u a i i t y o f t h e b a n k s assets
b
( p a r t i c u l a r l y l o a n s ) , q u a l i t y of m a n a g e m e n t ,
earnings,
c a p i t a l , f u n d s m a n a g e m e n t a s w e l l as i n t e r n a l c o n t r o l ,'
a u d i t , management i n f o r m a t ' i o n and a c c o u n t i n g s y s t e m s .
T h e s e e x a m i n a t i o n s c o n s t i t u t e t h e major p r e v e n t i v e c h e c k s
by s u p e r v i s o r s t o p r o t e c t d e p o s i t o r s and t h e banking
system.
Thus t h e p r i m a r y and h i s t o r i c r a t i o n a l e for
b a r r k i n q s u p e r v i s i o n i s t h e a v o i d , 3 n c e of m a r k e t f a i l u r e
by c l s s y m e t r i c i n f ormd t i o n .
(:,iused
2.4
OBJECTIVES Of B A N K I N G SUPERVISION U N D E R A DEREGULATED
ECONOMY
~ c c o r d i n gt o P r i c e W a t e r h o u s e , c i t e d b y (Manu B a l l a m
1993) :
T
" c o n f l i c t s o f t e n arise i n a t t e m p t i n g t o
a c h i e v e the b a l a n c e between t h e g o a l s
of market e f f i c i e n c y and f i n a n c i a l
system and monetary s t a b i l i t y .
E f f i c i e n c y demands u n r e g u l a t e d .
p l u r a l is t i c d e c i s . i o n t h a t p e r m i t
' c o m p e t i t i v e r e s p o n s e s t o demdnds o r
c r e d i t f o r f i n a n c i a l s e r v i c e s and
f o r new k i n a n c i a 1 i n s t r u m e n t s .
More e f f i c i e n t f i n a n c i a l i n t e r m e d i a t i o n w 1 l i increase t h e r e t u r n s t o
\ v t . r s , tlecraclse h e ('0st tc:
,
I:
:
I
I
I
: . n, r t d . 1 t 1 y ,
, ! t a r m i t tt\e iwrrn,r i m,.irket pldce t o i c e s
to
J O G. r t e cr-et-l1t a n d ~ n v e s t m e n t s .
I n t h e lortcj r u n , m a r k e t d r i v e n
J
I
L
:
I
L
efficiencies provide f o r a s t a b l e
f i n d n c i a l s y s t e m that a v o i d s
obsolences and s t a g n a t i o n b e c a u s e i t
has t h e a b i l i t y t o m e e t e v e r c h a n g i n g
societdl needs."
To q i v e c r e d e n c e t o t h e s ~p o i n t s ,
Harry Snoek i n 1983
noted that:
b
" d e v e l o p i n g c o u n t r i e s mus t d e v e l o p a s t r o n g
s y s t e m of p r u d e n t i a l r e g u l a t i o n a n d superv i s i o n t o e n s u r e that t h e s a f e t y a n d
s o u n d n e s s of t h e i r f i n a n c i a l s y s t e m s
a r e m a i n t a i n e d a n d that t h e y a r e a b l e t o
enjoy t h e benefit.5 of increased competition
a n d e f f i c i e n c y a t home a n d a b r o a d .
Furthermore, d c h i e v i n g a p p r o p r i a t e b a l a n c e
b e t w e e n a p r o m o t i o n of c o m p e t i t i o n a n d
e f f i c i e n c y on t h e o n e hand a n d t h e
r e g u l a t i o n and s u p e r v i s i o n o f banking
r i s k s on the o t h e r is a c h a l l e n q e f o r
regulatory authorities."
Liberalisation,
bank r e h a b i l i t a t i o n and
,
r e s t r u c t u r i n q p r o g r a m m e s i n many c o u n t r i e s a r e c a r r i e d
o u t simultaneously.
The r e a s o n s i n c l u d e :
.
( i ) B a n k s o f t e n h a v e t o be s t r e n g t h e n e d f i n a n c i a l l y ,
o r g a n i s a t i o n a l l y a n d m a n a g e r i a l l y to. b e a b l e to
e f f e c t i v e l y deal w i t h t h e i n c r e a s e d competition
i n a l i b e r a l i z e d f i n a n c i a l system.
n e c e s s a r i l ~ 13 s l o w p r o c e s s ,
Since the
i t is i m p o r t a n t t o
s t r e n q t h e n ' bank s u p e r v i s i o n - p r u d e n t i a l r e g u l a t i o n s
i n t h e e a r l y s t a g e s o f l i b e r a l i z a t i o n and banking
r e s t r u c t u r i n g programmes, i n o r d e r t o p r e v e n t t h e
c o n t i n u e d weaken ing o f k e y f i n a n c i a l i n s t i t u t i o n s
r
b
which are b e i n q r e s t r u c t u r e d .
( i i ) The same economic c i r c u m s t a n c e s t h a t l e d t o t h e
change i n approach to economic p o l i c y ,
also led to
a c r i s e s i n t h e b a n ~ i n gs y s t e m .
The e f f e c t i v e n e s s o f r e f o r m s t o r e p l a c e d i r e c t
credi t c o n t r o l s b y i n d i r e c t m o n e t w y p o l i c y i n s t r u m e n t s
also r e q u i r e a concomitant s t r e n g t h e n i n g of bank supervi-
sion.
T h r o u g h m a n i p u l a t i o n of b a s i c p o l i c y v a r i a b l e s ,
t h e m o n e t a r y g o a l s c a n be a c h i e v e d i n d i r e c t l y b a s e d o n
t h e competitive respsnse of t h e f i n a n c i a l system to
policy signals.
~ i b e r a l i z a t i o nof m a r k e t s m e a n s i n c r e a s e d
c o m p e t i t i o n a n d a wemk b a n k c a n o n l y c o m p e t e when i t i s
f i n a n c i a l l y sound.
I n order t o a c h i e v e l i b e r a l i s a t i o n
,I
prepared.
AS weak b a n k s w i l l
lose c l i e n t s e a s i l y ,
t h e y w i l l be f o r c e d t o t a k e g r e a t e r r i s k s ,
thus
compounding t h e i r problems.
Deregulation a l s o p u t s g r e a t s t r a i n on bankers,
who a r e r e q u i r e d t o make d e c i s i o n s t h a t h i t h e r t o w e r e
imposed o n the'm by t h e a u t h o r i t i e s ,
Obviously,
f i n a n c i a l l y a n d m a n a g e r i a l l y w e a k b a n k s w i l l be less
a b l e ' t o a d j u s t t o t h e new e n v i r o n m e n t i n c r e a s i n g - t h e i r
financial
~ l s pa n i n e f f i c t e n t o r i l l - p r e p a r e d
risk.
b a n k i n g s y s t e m w i l l be u n a b l e t o a d e q u a t e l y t r a n s l a t e
-
b
market s i g n a l s i n t o banking p o l i c i e s ;
Thus rendering
i n d i r e c t monetary p o l i c y i n s t r u m e n t i n e f f e c t i v e and
c a u s i n g a loss o f monetary c o n t r o l .
Against t h i s backqround,
t h e s u p e r v i s -role
of
promotinq a sound c o m p e t i t i v e and e f f i c i e n t banking
s y s t e m b e c o m e s more e x p l i c i t i n f i n a n c i a l sector reform
proyrammes,
bank s u p e r v i s i o n t h u s h a s an e x p l i c i t
a s s i q n m e n t t o a s s i s t t h e f i n a n c i a l sector t o a d j u s t t o a
new e n v i r o n m e n t ,
D e s p i t e t h e series o f r e f o r m m e a s u r e s
and o t h e r r e g u l a t o r y i n n o v a t i o n s i n t h e p r o c e s s o f
implementation, Nigeria's
policy qoale f o r t h e banking
s y s t e m which i n c l u d e enhancing t h e e f k i c i e n c y and
e f f e c t i v e n e s s of t h e banking system and promoting i t s
s t a b i l i t y among o t h e r t h i n g s , a r e y e t t o be r e a l i s e d -
T h i s is c o m p o u n d e d b y t h e f a c t t h a t s e v e r e macroeconomic d i s t o r t i o n s , p a r t i c u l a r l y t h o s e r e s u l t i n q
f rnm t h e app'irttr~t1y
u n c o n t r u l a b l e f i s c d l d c f icits a r e
e x e r t i n q u n d u e s t r a i n on t h e b a n k i n g i n d u s t r y .
S u p e r v i s i o n o b j e c t i v e i n t h i s c o n t e x t aims a t m a k i n g
good t h e o b j e c t i v e s o f f i n a n c i a l d e r e g u l a t i o n .
2.5
-BANKING
SUPERVISION
. .-
-
A N D INSPECTION
---.-.,
"-
a
T h e p r i m a r y p u t - p g s e lof b a n k i n g s u p e r v i s i o n i s t o
p r o t e c t bank d e p o s i t o r s and t h e payment s y s t e m as w e l l
b
a s p r e s e r v a t i o n of s o u n d f i n a n c i a l p r a c t i c e .
since
a s i d e from t h e i r d e p o s i t t , a k i n g a n d p a y m e n t a c t i v i t i e s
b a n k s s e r v e a s t h e u l tirnate s o u r c e o f l i q u i d i t y ' a n d as '
'
c h a n n e l s t h r o u q h w h i c h m o n e t a r y a n d credit p o l i c i e s
a r e i m p 1 emen t e d t h e r e i s b r o a d e r p u r p o s e of b a n k i n g
supervision.
he broader o b j e c t i v e s i n c l u d e t h e
p r o t e c t i o n of d e p o s i t o r s a n d t h e payment s y s t e m , . a s s u r a n c e
of t h e s t r e n g t h of
t h e *banking system and protection
a g a i n s t t h e d e v e l o p m e n t of s y s t e m j c r i s k s .
The f i r s t
p a r t deals w i t h banking s u p e r v i s i o n and r e g u l a t i o n
while
t h e second p a r t f o c u s e s on t h e i n t e r n a l a u d i t
f u n c t i o n of b a n k s .
- --~ank-pervision
2 5 1
and ~ e g u l a t i o n
The l e s s o n s o f t h e " f r e e b a n k i n g eraw it? N i g e r i a
w h i c h wa!; c h ~ r ~ i c - t ~ r i ! ibry. ji l i s r n j l
b,ink
t
,*llurtss d u r i n g
1
r e c e n t l y , t h e c o l l a p s e of t h e J o h n s o n M a t t h e y B a n k e r s
( J M B ) i n 1 9 8 4 a n d t h e BCCI ( 1 9 9 1 ) h a v e b e e n v e r y
instructive.
T h e s e e v e n t s s t a t e d a b o v e and c o u p l e d w i t h
t h e d e s i r e to ensure t h a t banking business is conducted
r
i n a s a f e and s o u n d m a n n e r i n o r d e r t o m a i n t a i n a h i g h
i n t e r n a t i o n a l value f o r t h e Naira,
promote c o m p e t i t i o n ,
n e u t r a l i t y , etc. p r o v i d e d a good j u s t i f i c a t i o n f o r t h e
b
tiers of b a n k i n g s u p e r v i s i o n and i n s p e c t i o n c u r r e n t l y
.,
i n vogue i n N i g e r i a a s a n a l y s e d hereunder.
The C e n t r a l B a n k o f N i g e r i a (CBN) i s t h e a p e x
bank r e s p o n s i b l e f o r t h e f o r m u l a t i o n o f m o n e t a r y , b a n k i n g
and credit p o l i c i e s i n c l u d i n g t h o s e c o n c e r n e d w i t h
a u t h o r i s a t i o n or l i c e n s i n g of banks,
the conduct of
banking b u s i n e s s b r a n c h e x p a n s i o n and c l o s u r e .
T h e Bank
is s o l e l y charged with t h e day to day monitoring o f the
a c t i v i t i e s o f a l l l i c e n s e d (commerci3l and m e r c h a n t )
Banks.
The N i g e r i a D e p o s i t I n s u r a n c e ' c o r p o r a t i o n (NDIC)
was s e t u p
to d i v e s t t h e government o f i t s d i r e c t
f i n a n c i a l s u p p o r t to banks and o t h e r d e p o s i t t a k i n g
,
22
.
'
a c t a l e v e r a g e t o t h e CBN i n t h e t a s k of e n s u r i n g a
sound banking system.
Thus,
t h e NDIC h a s a n i m p o r t a n t
,,
r o l e t o p l a y i n m o n i t o r i n g and r e s t r u c t u r i n g o f t h e
problem banks.
The d e v e l o p m e n t b a n k s w h i c h w e r e
e s t a b l i s h e d b y l e g i s l a t i o n are s u p e r v i s e d b y t h e
relevant federal ministries.
F o r example, t h e Plinistry
of I n d u s t r i e s e x e r c i s e s c o n t r o l over t w o e x i s t i n g
f e d e r a l g o v e r n m e n t owned d e v e l o p m e n t b a n k s , n a m e l y ,
the
N i g e r i a n I n d u s t r i a l D e v e l o p m e n t Bank (NIDB) a n d t h e
N i g e r i a n Bank f o r C o m m e r c e a n d I n d u s t r i e s are t h e
b
F e d e r \ a l m i n i s t r i e s o t w o r k s and H o u s i n g w h i c h s u p e r v i s e s
t h e F e d e r a l M o r t g a g e Bank o f N i g e r i a (FMBN) a n d t h e
F e d e r a l M i n i s t r y o f A g r i c u l t u r e , Water
Rural Development
wLrich
Resources a n d
overseas t h e N i g e r i a n A g r i c u l t u r a l
a n d C O - o p e r a t i v e b a n k ( NACB) , r e s p e c t i v e l y .
Lastly,
!
the
f
c o m m u n i t y b a n k s i n t r o d u c e d i n 1990 a r e b e i n g s u p e r v i s e d
by t h e N a t i o n a l B o a r d o f c o m m u n i t y B a n k s o n b e h a l f of t h e
CBN..
Also,
t h e m o r t g a g" e b a n k s o r p r i m a r y m o r t g a g e
,
f i n a n c e i n s t i t u t i o n s , t h e most r e c e n t a r r i v a l s i n t h e
f i n a n c i a l s e r v i c e s i n d u s t r y are l i c e n s e d a n d r e g u l a t e d
b y t h e FMBN, w h i c h a s s u m e d t h e r o l e o f a n a p e x f i n s n c i a l
i n s t i t u t i o n i n t h e housing s e c t o r of t h e national
2.5.2
Bankinq
--
Reslation
----A
The uniqueness o f banking i n t h e economic system
s i n g l e s o u t t h e i n d u s t r y , f o r much h e a v i e r r e g u l a t i o n
t h d n any o t h e r a c t i v i t y activities,
d n l i k e many o t h e r e c o n o m i c
bank is r e g u l a t e d f r o m cradle ( s i n c e
r e g u l a t i o n starts w i t h t h e p r o c e s s i n g o f a p p l i c a t i o n
f o r l i c e n c e ) to t h e g r a v e (approval must be o b t a i n e d
conlpany s e e k i n q
d
b m k inq l i c e n c e i s s u b j e c t e d to a
mu1 t i t u d e oi r u l e s a n d r e g u l a t i o n s i m p o s e d b y g o v e r n m e r t
and s u p e r v i s o r y a u t h o r i t i e s ,
F o r example,
t h e permission
o f t h e s u p e r v i s o r y a g e n c i e s must be o b t a i n e d t o
i n c o r p o r a t e a new b a n k n a m e a s w e l l a s f o r t h e o p e n i n g
and c l o s u r e o f branch o f f i c e s ,
Also,
the capital
s t r u c t u r e , c a s h and l i q u i d i t y r e s e r v e s t h a t a bank must,
h o l d to s a f e g u a r d i t s d e p o s i t s a r e s t i p u l a t e d b y
l e g i s l a t i v e e n a c t m e n t s o r by a d m i n i s t r a t i v e p r o v i s i o n s
~
w h i l e c r e d i t a l l o c a t i o n g u i d e l i n e s are i s s u e d r e g u l a r l :
Almost every facet of
requlation,
t h e bank's
a c t i v i t y comes u n d e r
Furthermore, bank examiners o f t h e s u p e r v i s o r y
a u t h o r i t i e s h a v e p o w e r s t o e x a m i n e t h e b o o k s and a f f a i r s
of t h e supervised banks-
?
H i stor i c a l l y , formal r e g u l a t i o n of b a n k i n g w a s
pron:ptecl b y i m m i n e n t a d / o r actual t a i l u r e o f b a n k s
t h e cdse o f N i g e r i a ,
.
In
t h e m a s s i v e b a n k f a i l u r e s of t h e
1943s a n d e a r l y 2 9 5 0 s f o r c e d t h e g o v e r n m e n t t h e n t o
promulgate t h e f i r s t ever banking l e g i s l a t i o n ,
b 3 r 1 k i n g O r d i n a n c e of
w 1s t h e
the
I n t h e U n i t e d Kingdom i t
1952.
f r i n c j e b a n k i n g of 1 9 7 3 / 1 9 7 4 t h a t p r o m p t e d t h e
m a c t r n e n t o f t h e 1 9 7 9 ~ a n k i r l gA c t .
he r a t i o n a l e f o r
b,mkinq r e g u l a t i o n a l s o i n c l u d e t h e prevention of s y s t e m a t i c
t c i s k s , maintenance o f p u b l i c c o n f i d e n c e and bank solvency.
I n ad,!: t i o n ;
b
t h e Campbel- 1 C o m m i s s i o n iri ~ u s t r a l i a( 1 9 8 1 )
opincd t h a t intervention w a s necessary to ensure efficiency,
s y s t e m stabi l i t y ,
-
competitive n e u t r a l i t y , d i v e r s i t y of
c h o i c e a n d m,icro-eccrrromic
2.5.2.2
and s o c i a l s t a b i l i t y .
--
T h e C o n v e n t i o n a l Elem
-. e n t.s . .o f ...R e. g u l. a t .i o n
A-
R o b e r t Bench ( 1 9 9 2 ) b e l i e v e s t h a t h i s t o r i c a l l y ,
the
primary o b j e c t i v e s of .financial r e g u l a t i o n have been to:
rrl
,i n t a i n c o n f i d e n c e a n d s t a b i l i t y , manage m o n e t a r y p o l i c y ;
r~rornotc e f f i c i e n t i n t e r m e d i a t i o n ; a n d p r o t e c t a g a i n s t
:;yr;terllic r i s k \ind c o l l . ~ p c ; c .
lie t h e r e f o r e o p i n e d t h a :
the
romrnorl r e g u l a t o r y p r o c e s s u : j u a l l ~ h a s t h e f o l l a w i n g core
'
Structural regulation dealing with entry, exit,
(i
concentration and mergers.
( i i ) ~ e g u l a t i o nc o v e r i n q p r i c i n g ,
product and
p e r m i s s i b l e a c t i v i t r i e s (or non-permissible
activities);
(
~ r o t e tci o n ' r e g u l a t i o n f o r customees a n d t h e
iii
s y s t e m as a whole, b u t n o t n e c e s s a r i l y m a r k e t
protection;
( i v , P r u d e n t i a l s u r v e i l l a n c e and g u i d a n c e and
(V)
\
C o m p l i a n c e and e n f o r c e m e n t .
LICENSED
----- BANKS' PRUDENTIAL
----
RETURNS
B a n k i n g f i r m s a n d o t h e r financial i n s t i t u t i o n s
-
operat.inq i n Nigeria a r e r e q u i r e d to r e n d e r p e r i o d i c
s t a t i s t i c a l r e t u r n s to t h e monetary a u t h o r i t i e s .
Such
r e k u r n s are s u b m i t t e d a t m o n t h l y , q u 3 r t e r l y , a n n u a l
i n t e r v a l s o r a t s u c h o t h e r i n t e r v a l s a s may f r o m t i m e t o
t i m e be p r e s c r i b e d b y t h e c o n c e r n e d a u t h o r i t i e s .
These
1 . '
hank r e t u r n s i n c l u d e t h e monthly s t a t e m e n t o f A s s e t s and
l i , i b i l i ties, A n a l y s e s o f
l o a n s and a d v a n c e s , Q u a r t e r l y
r e t u r n s o r r i s k Assets a n d A u d i t e d A n n u a l A c c o u n t s .
Aclother i m p o r t a n t bank r e t u r n i s t h e r u r a l b a n k i n g r e t u r n s
017
t h e c r e d i t o p e r a t i o n s o f b a n k s o p e r a t i n g i n t h o s e areas.
>
26
-
( i ) M o n t h l y S t a t e m e n t o f Assets a?d ~ i a h i l i t i e s
~ c c o r d i n qt o S e c t i o n 25(1 )(la) of BOFID 1991 e v e r y
b a ~ ~s hk a l l s u b n ~ i t t o t h e CBN n o t l a t e r t h a n 2 8 d a y s
. ~ f t e tt h e l a s t d a y of
e $ * c hm o n t h o r s u c h o t h e r i n t e f v a l s
a s the Bank may s p e c l l f y ,
CI~II?
s t a t e m e n t S h o w i n g t h e assets
,A
1 i . a b i l i t i e s ( m o n t h l y r e t u r n s 1. o f t h e b a n k .
I t is
p e r t i n e n t t o stress t h a t t h e s t a t e m e n t i s t o e n a b l e t h e
r e g u l ' a t o r y a u t h o r i ' t i e s moni t o t t h e f i n a n c i a l c o n d i t i o n o f
l i c e n s e d bank a s w e l l as t h e i r compliance w i t h monetary
and c r e d i t p o l i c y g u i d e l i n e s .
( i i ) A n a l y s i s of L o a n s a n d A d v a n c e s
-
E v e r y b a n k s h a l l s u b m i t t o t h e CBN n o t l a t e r t h a n
c
L %
(l,iyc;
,ir
t er-
t he
i r ~ t e r v ~ tals t t i e
i n i l y s i s of
l,rst d , l y o f e a c h nor) t h o r s u c h c ~ ht e r
t3,ir~k
m , a y s ~ ; e c i f yd s t a t e m e n t s h o w i n g a n
, i : l v , + n c e s a n d o t h e r a s s e t s , a t i t s head o f f i c e
and b r a n c h e s i n a n d o u t s i d e N i g e r i a i n s u c h form as t h e
CBN may s p e c i f y ,
from t i m e t o t i m e .
The statemenk
total c r e d i t .
contains analysis of a bank's
( i i i ) A n n u a l R e t u r n s t A u d i t--e d ~ i n a n c i a lS t a t e m e n t s
,
S e c t i o n 2 7 o f @OFID 1991 s t a t e s t h a t n o t l a t e r t h a n
4 months a f t e r t h e end o f any f i n a l c i a 1 y e a r ,
a licensed
b a n k s h a l l f o r w a r d t o CBN c o p i e s o f t h e b a n k ' s b a l a n c e ,
s h e e t and p r o f i t and loss a c c o u n t d u l y s i g n e d and c o n t a i n i n g
-- .
,
1
,
*
",.
A"
,,..-,
, & m q m w 9 ' ? a5 2 w r , *
:? " l f l I ? ' 7 T . ~
t h e f u l l a n d correct names o f t h e d i r e c t o r s o f t h e Bank
a n d a f t e r a p p r o v a l b y t h e CBN, p u b l i s h e d same i n a n e w s
printed i n , a n d c i r c u l a t i n g i n N i g e r i a a s w e l l as e x h i b i t
t h e abridged annual accounts i n a conspicuous position
i n e a c h of i t s o f f i c e s a n d b r a n c h e s i n N i g e r i a .
-
2-5
TYPES
-
1.'
O F BANkING SUPERVISION
t
T h e two i m p o r t a n t elements o f b a n k i n g s u p e r v i s i o n
i n N i g e r i a are o n - s i t e
examination o f t h e books and
~ ~ f f d i of
r s banks and o f f - s i t e
supervision which involves
I
B
t h e s c r u t i n y and r e v i e w o f bank s t a t i s t i c a l r e t u r n s .
(a) O f f - s i t e S u p e r v i s i o n
T h e b a s i c e l e m e n t s or i n g r e d i e n t s of o f f - s i t e
supervi-
s i o n i n Niqeria today inclu,Ie t h e following:
(i) P r o c e s s i n g o f a p p 1 i : : a t i o n f o r t h e g r a n t o f a
b a n k i n g l i c e n c e , b r ~ i n c he x p a n s ' i o n w i t h i n N i g e r i a
and abroad as w e l l as t h e c l o s u r e of s u c h o u t p o s t s .
(
ii
v e t t i n g of b a n k ' s
(iii)Enforcement
advertisements.
v
of monetary and c r e d i t policy d i r e c t i v e s ,
a n d e n f o r c e m e n t o f t h e r e q u i r e m e n t o f BOFID, 1991.
( i v ) The r e v i e w and a n a l y s i s o f t h e a u d i t e d a n n u a l a c c o u n t s
of l i c e n s e d b a n k s b e f o r e p u b l i c a t J o n t o p r e v e n t
" w i n d o w d r e s s i n g w o r m i s l e a d i n g members o f t h e
p u b l i c and also to e n s u r e a d e q u a t e p r o v i s i o n f o r
bad a n d d o u b t f u l debts.
(v)
The s c r u t i n y and a n a l y s i s of p e r i o d s p r u d e n t i a l
r e t u r n s o f l i c e n s e d banks to determine t h e i r f i n a n c i a l
c o n d i t i o n s and c o m p l i a n c e w i t h m o n e t a r y p o l i c y
guideiines.
( v i ) Review of b a n k i n g l a w s and r e g u l a t i o n s ( i n c l u d i n g
\
CBN d i r e c t i v e s ) t~ meet t h e c h a n g i n g n e e d s o f t h e
n a t i o n a l economy.
(v
ii)
.
b
1 d e n t i f i'catiorr of p r o b l e m s v l t h a v i e w t o p r e s c r i b i n g
-
r e m e d i a l a c t i o n s t o t h e m i n o r d e r t d stem f u t t h e r
!
d e t e r i o r a t i o n o f t h e i r unsound c o n d i t i o n s .
t
(b) A i m s of On-site
-
supervision
r
O n - s i t e s u p e r v i s i o n w h i c h is b a s e d o n i n s p e c t i o n
v i s i t s to t h e s u p e r v i s e d b a n k s i n c l u d e t h e f o l L o w i n g as
i t.s g e n e r a l aims ( B o i s s e a u 7931).
(a) TO a s c e r t a i n t h a t t h e p e r i o d i c p r u d e n t i a l / s t a t i s t i c a l
r e t u r n s s u b m i t t e d t c ) t h e s u p e r v i s o r y a u t h o r i t i e s are
a c c u r a t e and r e p r e s e n t a t i v e ;
(h) T o e n s u r e t h a t t h e r e i s
70
d e v i i t i o n in compliance with
regula (ions.
( c ) TO g a i n a more c o m p r e h e n s i v e u n d e r s t a n d i n q o f s o u r c e s
.
. ,- . ,
,
,
' f :*Tg,K&*
' y.r~'y3*&-;;-a,.y
, - ..r ' - - - - ,
- " .-
-
,s<r7
.
%.
C
1 '
,inti u s e s of f u n d s ,
i n w h i c h items o f
r e f i n a n c i n q policy a n d c o n d i t i o n s
income o r e x p e n d i t . u r e h a v e c o n t r i b u t e d
t o the b o t t o m l i n e .
( d ) TO assess t h e c o n s i s t e n c y o f
t h e p o l i c i e s a p p l i e d by
t h e management, t h e s t a t e d o b j e c t i v e s o f t h e
i n s t i t u t i o n s a n d t h e r e a l i t i e s o f t h e sector i n w h i c h
','
it operates.
( e l To s u p e r v i s e t h e b a n k i n g s y s t e m a s a w h o l e a n d t o
f o l l o w how w e l l ' b a g k s a r e m a n a g e d .
( f l T o e n s u r e t h a t t h e e x t e r n a l t r a n s a c t i o n s of t h e
l i c e n s e d banks a r e being c a r r i e d o u t i n accordance
,
b
.
.
wi Lh i n t e r n a t i o n a l l y a c c e p t e d s t , - m d a r d s , a n d
( g ! T o g i v e a t t e n t i o n to t h e n e e d f o r t h e i m p r o v e m e n t o f
t h e banks i n t e r n a l c o n ' t r o l system for t h e p r e v e n t i o n
of f r a u d
,
f o r g e r i e s a n d embezzlements p e r p e t r a t e d b y
bank o f f i c i a l s and employees.
B A N K E X A M I N A T I O N TECHNIQUE
.
The u s u a l p r o c e d u r e a d o p t e d b y bank e x a m i n e r s
i n v o l v e s t h e a p p r a i s a l of m a n a g e m e n t c o m p e t e n c e f o l l o w e d
b y t h e e v a l u a t i o n a n d a p p r a i s a l o f b a n k assets a n d
1 i a b i l i t i e S a s w e l l a s a p p r a i s a l o f records, s y s t e m s a n d
internal controls.
'
k
( a ) C , n t a c t w i t h Management
-
To e n s u r e t h a t t h e p o l i c y m a k i n g o r g a n s o f L i c e n s e d
bmks
( b o a r d o f d i r e c t o r s a n d t o p m a n a g e m e n t team) a r , e
i n c o m p r t e r i t h m d s t h e a p p o i n t e e s t o s u c h p o s i t i o n s are
screenpcl by t h e s u p e r v i s o r y a u t h o r i t i e s .
f i n t l i n g o u t how e f f i c i e n t l y a bank
t h e frequency of board meetings,
O n e way o f
is r u n i s b y a p p r a i s i n g
t h e i r c o n t e n t s and i s s u e s
d i s c u s s e d a n d q u . ~ l i t yo f c l e l i b e r . ~ t i o n sa s r e v e a l e d i n t h e
minuter,.
T h e main o b j e c t i v e i s t o e n s u r e t h a t p o l i c i e s
o f t h e b o a r d a r e i n l i n e w i t h p u b l i c p o l i c i e s and t h a t
B
t h e baniL i s L e i n q o p e r a t e d i n t h e i n t e r e s t
l:t.posi t o r s , c r e d i t o r s a n d t h e e c o n o m y .
06
the
Next,
the
i m p l e m e n t a t i o n o f ' b o a r d p o l i c i e s by t o p management
h e , l d c d L ' j t h e c h i e f e x e c u t i v e of a bank i s e x a m i n e d t o
e n s u r e t h a t t h e r e a r e n o v ~ r i a n c e sb e t w e e n t h e t a r g e t s s e t
i n t h e p c ~ l i c i e sa n d a c t u a l p e r f o r m a n c e b y t h e m a n a g e m e n t s .
T h e m a j o r i s s u e s t o e x a m i n e i n c l u d e t h e s i z e of t h e
h o , ~ r d , w h e t h e r i t i s too l a r g e o r t o o s m a l l i n r e l a t i o n
t ~ o , i r d, l n ( l toll rnan,+gemtrnt c-hdnges , number of
m.2n,iqemcnt. c o m m i t t e c r
,
b o a r d and
interlockinq directorship,
etc.
w i t h r e g a r d t o t o p management t h e e x a m i n e r w i l l a p p r a i s e
r n a n , . q e m e n t ' ~ ~c o q p l i a n c e w i t h b a n k i n g laws a n d CRN d i r e c t i v e s ,
s t a f f q u , ~ l i f i c r i ito n ,
staff
t u r n o v e r and i n t e r p e r s o n a l
relations.
For example,
s t a f f t u r n o v e r r a t e c a n be
u s e d as a m e a s u r e o f st ,iff d i s s a t i s f a c t i o n w i t h t h e
m'inagement o f a b a n k b u t i t c o u l d a l s o i n d i c a t e t h e r a t e
of
rctrenchment/refhrements ( v o l u n t a r y o r n o n - v o l u n t a r y )
i n a bank.
Q u a r r e l s among b a n k o r f i c i a l s i s a n
important issue.
I n t e r n a l m a n a g e m e n t . c r i s e s do occdr
f r o m t i m e t o t i m e i f nct d e t e c t e d e a r l y t h e y c o u l d l e a d
t o seriotrs d i s r u p t i o n o f a b a n k ' s
operations.
Management
h a s s u c h d i s c r e t i o n a s - t o be k e y d e t e r m i n a t i o n o f b a n k
p e r f o r m a n c e s r a t h e r t h ~ na n y other f a c t o r ( R e s t
1991)B
A
s l i g h t h i n t of i n a d e q u a c y i n management,
b<id j u d q e m e n t ,
bad l u c k - o r
i s c ~ ~ f f i c i e nt ot w i p e o u t t h e b a n k .
1
(h) R,ink's P e r f o r m a n c e
-
M ~ s ot f e x a m i n e r s '
t h e appraisal' cf risk
%+
t i m e a n d e n e r g y are d e v o t e d t o
assets, s p e c i a l l y ,
the credit
,
f
portfolio.
Loans and a d v a n c e s are a p p r a i s e d o f r i s k
assets, e s p e c i a l l y ,
t h e credit p o r t f o l i o .
.
Loans and
a d v a n c e s are a p p r a i s e d on t h e b a s i s o f i n f o r m a t i o n on
e a c h b o r ~ o w e r ' sa c c o u n t ,
h i s c r e d i t f i l e s , ir,formation
from t h e bank o r from any o t h e r s o u r c e s .
The loan
r t b c p; i c ? n t ' c 1 1 ~ sl to ~ nr e p a y m e n t r e c o r d i s i m ~ o r t a n t .
~ t r ee x a m i n e r d p p l i e s s u c h i n f o r m a t ' i o n o b t a i n e d w i t h h i s
own
nowl ledge a n d r e q u i r e m e n t s o f p r u d e n t i a l q u i d e l i n es
dnd c u r r e n t
T h e r n ( 1 t u r i t y o f bank a s s e t s must m a t c h t h e n a t u r e o f
bank's
liabilities,
I
1
On
.
t h e 1i a b i l l t y s i d e t h e i m p o r t a n t s i n g l e item
to w a t c h is d e p o s i t s
growth trend,
etc..
-
t h e i r str'uctwre,
maturity profile,
S p e c u l a t i v e tendencies, l a c k o f good
P
c r e d i t jlrdqemen t , i n a b i 1 i t . y
t o correct errors o r
a d v e r s e t r e n d i n a c t i v i t i e s p o r t r a y management as
i n ~ n r n p e t e n a~n d i n e f f i c i e n t
.
( ( : I ~ p p r , l i . c , a l of R e c o r d s ~ i n d S y s t e m s
Thcre m u s t be
j :
;
-
i n p l d c e an dc.countinq s y s t e m whi&h
f 1l.x i t ) l ~l r l clesiqn, t h e s e q r e g c l t i o n of d u t i e s from
.
its i n i t i ( 4 t i o n t o f i n , + l i s n t i o n t h r o u g h t h e u s e o f d u a l
c o n t r o l systems and control accounts
.
I n c o n c l u s i o n Banking r e g u l a t i o n and s u p e r v i s i o n
h a v e foe-used m a i n l y o n m i r l i m i s i n q c r e d i t a n d l i q u i d i t y
r i s k s which were t h e major r i s k s found i n the banking
b u s i n e s s u n t i l t h e 1980s,
However, m a r k e t r i s k i s r a p i d l y
uc,corninc~ t h e f o c u s , o f a t t e n t i o n .
I\-
Y
The b r e a d t h t a k i n g
.
d e v e l o p m e n t o f new f i e l d s o f b a n k i n g h a s p r o d u c e d a
v a r i e t y o f i n n o v a t i v e f i n a n c i a l i n s t r u m e n t s w h i c h are
esseiltial o f f b a l a n c e s h e e t a c t i v i t i e s -
In addition,
d e v e l o p m e n t . o f f i n a n c i a 1 conglomerate o n t h e N i g e r i a n
s c e n e h,ls o p e n e d u p a d d i t i o n a l o p p o r t u n i t i e s f o r t h e
the
,a
l i c e n s e d b a n k s b u t c r e a t e d new p r ~ b l e m sf o r t h e
s u p e r v i s o r y i n t h e a r e a o f p r o p e r r i s k management.
Supervisory response to r e c e n t developments i n
b a n k i n g is as f o l l o w s :
t h e e n t r y of n e w comers i n t o
t h e b a n k i n g i n d u s k y had been c a r e f u l l y r e g u l a t e d
through l i c e n s i n g which included s e c u r i t y s c r e e n i n g o f
s h a r e h o l d e r s a n d m e e t i n g o f a minimum e q u i t y c a p i t a l
subscription.
Nexl b a n k s are r e q u i r e d to s u b m i t
(idequate p e r i o d i c and d e t a i l e d i n f o r m a t i o n on t h e i r
i J p ~ r a t i . o n st o t h e s u p e r v i s o r y a u t h o r i t y .
The a n a l y s i s
8
of such information has permitted t h e supervisor t o
i d e n t - i f y t h e t r e n d s and problems and t a k e r e m e d i a l
,
r
a c t i o n a t a n e a r l y s t a g e , when e v e r n e c e s s a r y .
e x t e r n a l a u d i t o r s whose r e m o v a l m u s t be s a n c t i o n e d b y
t.he s u p e r v i s o r y a u t h o r i t i e s ,
Banking l e g i s l a t i o n
~ s t & l i : , h e t l r u l e s t h i l t 1i m i t c r e d i t e x p o s u r e and l o a n
,IS
c o n n e c t e d l ~ n d i n qwhic:h
are c o n ' s t a n t l y v e r i f i e d b y
t h c Stlpet-visor ( i n s p e c t o r i n t h e c a s e of l i c e n s e d banks)
t o ' ~ v e r tr i s k o f i n s o l v e n c y ,
Lastly, the issuance of
prudenti,31 g u i d e 1 i n e s f o r t h e c l a s s i f i c a t i o n o f bank
I [):in , ~ s s e t s ,p r o v i s i o n i n q a n d i n c o m e r e c o g n i t i o n w a s t o
e n x b l e t h e s u p e r v i s o r y a u t h o r i t i e s monitor t h e state o i
.
h e a l t h of e a c h bank a s w e l l as t h e e n t i r e b a n k i n g s y s t e m .
I n c o n c l u s i o n , s u p e r v i s i o n a n d i n s p e c t i o n s are
n o t pw.icea f o r preventinq a l l ills i n banking b u t they
are n e c e s s a r y p i l l a r s f o r a s t r o n q f i n a n c i a l s y s t e m ,
desiyned t c j 1 i m i t
t h e d ' ~ m , ~ g ecsa u s e d b y r n i s m ~ n a g e m e n t
d n d e n h < r n c e t h e e f f e c t i v e w o r k i n g o f 'macro-economic
policies.
r
The c o s t o f i n a d e q u a t e o r bad s u p e r v i s i o n a n d
i n s p e c t i o n i n a m a r k e t economy i s e x t r e m e l y h i g h ; i t i s
t h e r e f o r e , w o r t h w h i l e .to d e v o t e c o n s i d e r a b l e r e s o u r c e s
t o t h e e s t a b l i s h m e n t of e f f e c t i v e s u p e r v i s i o n a n d
b
inspection,
?, 7
L C G A G ---------------F R A M E W O R K OF BANKING
------- SUPERVISION
T h e 2 9 5 2 ~ a n k i n qO r d i n a n c e w a s t h e f i r s t o f f i c i a l
\ I t c b r t [t
t
:I(:
t o r c q u l ~ + t ft <~,nk. i n 4 bu.rine:;s
I n N i q e r ; ,+.
dntier
.
o r 0 l n i n { - ( . , i m l w r t ~nt r .:gul , i t i o n : ; were i n t r o d u c e d
w h i c h were d e s i q n e d t o p r o m o t e o r d e r l y b a n k i n g e n v i r o n m e n t
i n t h e country,
S a l i e n t a m o n g s t t h e p r o v i ~ i o n so f t h i s
Ordinance were t h e holding of a - v a l i d l i c e n c e before t h e
e s t a b l i s h m e n t o f a bank,
p ~ r e s c r i b ni g s p e c i f i c p r o c e d u r e s
v
m d s k m d a r d s f o r c o n d u c t i n g b a n k i n g b u s i n e s s and
minimum c a p i t a l a n d r e s e r v e s t r u c t u r e f o r b a n k s .
Many
more b a n k s c o l l a p s e d a t t h e i n t r o d u c t i o n o f t h e 1952
o r d i n a n c e b e c a u s e t h e y cou.ld n o t a t t a i n t h e c a p i t a l a n d
i,
t.hcr r c q \ r i r e m e n t s o f
t h e new l a w *
Amendments h a v e s u b s e q u e n t l y b e e n e f f e c t e d i n t h e
p~'.,visions of
t h i s o r d i n a n c e , s u c h a s t h e CBN A c t o f
1958, B a n k i n g O r d i n a n c e o f 1953 a n d B a n k i n g Decree o f
I t is w o r t h y t o n o t e t h a t of a l l t h e a m e n d m e n t s
13GCf.
w < , ; c h were i n t r o d u c e d ,
t h o s e o f t h e B a n k i n q decree o f
1969 c o n s o l i d a t ed a1 1 t h e o t h e r l e g i s l a t i o n s s i n c e 1 9 5 2
i n t r o 4 u c e d new o n e s d e s i g n e d t o s t r e n g t h e n t h e
lrid
f i ; ~i r ) c i c i l s y s t e m .
t
:,
I
.Cree
dnfortunately,
t h e provisions of
s u b j e c t e d t h e CBN t o t h e F e d e r a l M i n i s t r y
b
,f ~ i n , l n c ei n t h e e x e c d t i o n o f i t s s u p e r v i s o r y f u n c t i o n s
,
the A p e x i3dnic o f t h e b l \ n l c i n q i n d u s t r y .
this constituted the g-eltest
t!l?
In practice,
t h e decree as
d e f e c t of
CBN :;oo!r d i s c o v e r e d t h a t i t c o u l d o n l y p r o c e s s
t p j l l j it i o n s f o r b a n k l i c e n c e w h i l e t h e a c t u a l a p p r o v a l
of
w c : ~l i c e n c e w a s
done by t h e Federal Minister/
1
Co~rimi:;sioner o f F i n a n c e .
powers o i
I n t h e same v e i n ,
supervisory
t h e CBN o v e r b a n k s w e r e s e v e r e l y l i m i t e d t o
merely m.ik i n g r e c o n ~ m e n d n t i o n so n b a n k s
o p e r a t i o n s and
r > l o n ' l i n qe x a r n i n a L i o n r e p o r t s i s s u e d o n s u c h t o t h e
recAer<ll M i n i s t r y of
Finance which alone,
~ c c e p to r r e j e c t the r e c o m m t : n d a t i o n s
r
r3 n
.
Unfortunately,
h3d t h e power to
or s a n c t i o n t h e
it turned out,
the Federal
~ . ; ; n i : ; t . r y of F i n a n c e , d i d n o t . h a v e t h e t e c h n i c a l knowi~
e x p e r t i s e t o s u p e r v i s e bank:;.
Hence,
t.here were
i n s t a n c e s w h e r e l i c e n c e s w e r e s p u r i o u s l y g r a n t e d to
u n f i t p d r t i e s t o e s t a b l i s h or manage b a n k s .
The
s u b s e q u e n t f a i l u r e s of b a n k s w h i c h were e s t a b l i s h e d o r
o p e r a t i n g under sgch a d e f e c t i v e l e g a l framework a s
l a t e r e x p e r i e n c e d , was t h e r e f o r e n o t u n e x p e c t e d .
!
T h e F e d e r a l G o v e r n m e n t b a n k i r ~ g p o l i c i e s from t h e
i
i n d e p e n d e n c e h a d h o w e v e r made i t p o s s i b l e f o r s u c h f a i l e d
b a n k s to c o n t i n u e t o e x i s t a n d o p e r a t e as t h e b a n k s owned
r
l a r g e l y b y t h e ~ e d e r a 4a n d S t a t e G o v e r n m e n t s were u s e d
p u r e l y as d e v e l o p m e n t a n d i n v e s t m e n t a v e n u e s , i n w h i c h
B
p r u d e n t i a l r e q u i r e m e n t s were j e t t i s o n e d .
I t m u s t a l s o be acknow1,:dged
t h a t t h e promulgation
o f BOFID 2 5 o f 1 9 9 1 a n d CBN Decree 2 4 o f t h e same y e a r ,
e n d e a v o u r e d t o r e m o v e m o s t of
the observed defects.
U n d e r t h e BOFlD 2 5 o f 13'31, t h e . s u , p e r v i s o r y p o w e r s o f
I
CBN,
a 5 a R e g u l a t o r y ~ u t h o r i t y ,were g r e a t l y e n h a n c e d
and i t s autonomy r e a s o n a b l y a s s u r e d .
I
T h e CBN Decree 2 4 a n d
1
BOFID 25, b o t h o f 1991, t o o k care o f many d e f e c t s o f t h e
P
former l a w s ,
i n c l u d i n , g t h ~ ed e f e c t o f i n a d e q u a t e e n f o r c e -
ment powers.
I n p a r t i c u l ' a r , t h e CBN Decree v e s t e d t h e
Bank w i t h t h e p o w e r to c o n d u c t m o n e t a r y p o l i c y w h i l e
BOFID made a d e q u a t e p r o v i s i o n s f o r p r u d e n t i a l s u p e r v i s i o n
of b a n i s a n d o t h e r f i n a n c i a l i n s t i t u t i o n s , t h u s r e d u c i n g
.
t h e r e g u l a t o r y a r b i t r a g e w h i c h Non-nank
financial
I n s t i t u t i o n s (NBFIs) had e n j o y e d over t h e y e a r s .
F o r e x a m p l e , e v e n t h o u g h NBFIs w e r e g r a n t i n g c r e d i t s ,
t h e i m p a c t o f s u c h o p e r a t i o n c o u l d n o t be e f f e c t i v e l y
monitored or f a c t o r e d i n t o monetary and c r e d i t p o l i c y
t a r g e t s i n t h e absence of l e g a l a u t h o r i t y to s u p e r v i s e
such i n s t i t u t i o n s *
2.
I
According to Oloyede (1994), I n o r d e r to s t r e n g t h e n
t h e NDIC was s e t u p i n
t h e s u p e r v i s o r y r o l e of t h e CBN,
1988 . a n d c h a r g e d w i t h t h e r e s p o n s i b i l i t y of i n s u r i n g
t
B
bank d e p o s i t s a g a i n s t f a i l u i r e w h i l e promoting s a f e and s o u n d
b a n k i n g services t h r o u g h m o n i t o r i n g a n d s u p e r v i s i o n o f
t h e b a n k s ' i n c o l l d b o r a t i o n w i t h t h e CBN.
T h e NDIC d e r i v e s
much o f i t p o w e r s from Decree 22 o f 1 9 8 8 s e t t i n g i t u p .
According to Ebhodaghe (19891,
t h e NDIC h a s c o n e a t a
m o s t d e s i r a b l e t i m e when l i q u i d i t y m a n a g e m e n t i n many o f
o u r h a n k s l e a v e s much t o b e d e s i r e d *
The s t a t u t o r y
r e s p o n s i b i l i t y o f NDIC i n e n s u r i n g a d e q u a t e l i q u i d i t y i n
b a n k i n g s y s t e m c a n be f o u n d i n s e c t i o n
NO.
2 2 of 1 9 8 8 ,
AS
5 o f NDIC Decree
a r e s u l t o f t h e monetary a u t h o r i t i e s
concern about banks1 liquld:Lty,
t h e CBN sets t a r g e t
' 7
a n n u a l l y f o r b a n k s t cash r e s e r v e ,
d e [ ) o s i t rati.c r e q u i r e m e n t s .
l i q u i d i t y and loan to
I t i s p a r t o f NDICts
r e s p o ' n s i b i l i t i e s t o a s s i s t t h e CBN t o e n f o r c e t h e
. 4 1 h e r e n c e t o t . h ~ A el i q u i d i t y r a t i o s .
NDIC a l s o a s s i s t s
CBN i n f o r m u l a t i n g b a n k i n g p o l i c i e s t o e n s u r e s a f e a n d
sound banking p r a c t i c e s i n t h e country a s p e r s e c t i o n
,
5 ( d ) o f NDIC d e c r e e .
The
o t h e r r e s p o n s i b i l . l t i u s o f NDIC i n e n s u r i n g
~ d e q u a t el i q u i d i t y i n o u r b a n k i n g s y s t e m h a v e b e e n
d e c c . r i b e d as p r e v e n t i v e and c u r a t i v e m e a s u r e s t o p r e v e n t
i l l i q u i d i t y i n t h e banking system.
T h e s e are s t a t u t o r y
f u n c t ; o n z i m p o s e d or, NDJC as p e r s e c t i o n 5 ( b )
9f
NDIC d e c r e e .
MC'NETARY PGLICY G U I D E i L I N E S
6
,
I n c o n d u c t i n g b a n k i n q s u p e r v i s i o n b o t h t h e CBN a n d
NDIC rn<ike u s e o f t h e m o n e t a r y p o l i c y g u i d e l i n e s i s s u e d b y
the CBN,
-.
arid b a n k i n g s u p e r v i s i o n e n t a i l s c o m p l i a n c e w i t h
It is there,
fore n e c e s s a r y to h i g h l i g h t t h e monetary p o l i c y g u i d e l i n e s
t h e p r e v a i l i n g m o n e t < ~ r yp o l i c y g u i d e l i n e s .
i n this s t u d y .
I n r e g u l a t i n g t h e l i q u i d i t y i n t h e banking system t h e
CDN m a k e s u s e o f m o n e t a r y t o o l s .
There are t w o 'types of
'
rnonetrlry i n s t r u m e n t s t h a t c o u l d b e u s e d , d e p e n d i n g o n t h e
C
s o p h i s t i c a t i o n of t h e f i n a n c i a l s y s t e m of t h e c o u n t r y i n
question.
T h e s e a r e direct and i n d i r e c t c o n t r o l tools.
The d i r e c t monetary c o n t r o l i n s t r u m e n t s i n p o s e
r e s t r i c t i o n s on banks'by limiting t h e i r a b i l i t y to acquire
assets and l i a b i l i t i e s .
Where t h e f i n a n c i a l s y s t e m i s
.
underdeveloped,
b e c a u s e of a b s e n c e o f s o u n d f i n a n c i a l
i n f r a s t r u c t u r e i n c l u d i n g information and market
,
.-u
i n s t r u m e n t s , m o n e t a r y a u t h o r i t i e s t e n d t o r e l y more o n
t h e u s e o f d i r e c t monet,+ry c o n t r o l tools.
T h e main
d i r e c t monetary c o n t r o l t o o l s i n c l u d e s e l e c t i v e or
,
d i r e c t e d c r e d i t programme, q u a l i t a t i v e c e i l i n g on bank
c r e d i t programme, q u a l i t a t ; i v e c e i l i n g o n bank credit,
s p e c i < i1 i l e p o s i t s , i n t e r e s t . r a t e s c e i l i n g s , a n d f i x i n g
of t h e e x c h a n g e rate.
Other instruments include t h e use
of m a n d a t o r y s t a b i l i z a t i o n s e c u r i ties a n d d i r e c t i v e s ,
b .
f o r t h e w i t h d r a w a l .of p u b l i c sector d e p o s i t s f r o m t h e
b ' l r ~ k s i n t o t h e CBN.
P r i o r t o t h e a d o p t i o n o f SAP i n 1986 t h e CBN
*
.'
r e l i e d heavily on t h e use of cash reserve requirements,
liquidity ratio,
the call u p special deposits, t h e use
of m a n d a t o r y s t a b i l i z a t i o n s e c u r i t i e s ,
as w e l l as direct
regulat,i.on o f i n t e r e s t r a t e s and sectoral a l l o c a t i o n o f
b,ink c r e d i t
.
2 -8 OBJECTIVES A N D INSTRUMENTS
-- . - - . O F MONETARY
-- POLICY
&
Objectivsz:
*
----a
I n broad terms, t h e o b j e c t i v e s o f m o n e t a r y
p o l i c y dre t h e same a s t h o s e o f e c o n o m i c p o l i c y i n
general.
~l t h o u g h t h e e m p h a s i s of m o n e t a r y p o l i c y c o u l d
v a r y \ f r o m tinre t o t i m e ,
i t s m a j o r objectiwes h a v e r e m a i n e d
q e n e r c l l ly the s'ame o v e l - the y e a r s .
These include:
r
,.I<
(i) t h e m o d e r a t i o n o f i n f l a t i o n p r e s s u r e ;
(ii) t h e p r o m o t i o n o f a n a c c e l e r a t e d rate o f e c o n o m i c
growth through i n c r e a s e d s a v i n g s and investment;
(iii) t h e maintenance of a h e a l t h y b a l a n c e o f payment
p (3;:. i t i o n
.
These o b j e c t i v e s though i n t e r - r e l a t e d ,
achieved without conflict.
are h a r d l y
An e x p a n s i o n a r y m o n e t a r y
p o l i c y may h e l p b r i n q down t h e l e v e l of u n e m p l o y m e n t ,
-..
b u t c o u l d s e r v e t o a g g r a v a t e t h e p r o b l e m of i n f l a t i o n , .
R e s t r i c t i v e m o n e t a r y p o l i c y o n t h e o t h e r h a n d , may h e l p
3
r e s t o r e p r i c e s t a b i l i t y b u t c o u l d b r i n g a b o u t a rise i n unemployment a n d a f a l l i n o u t p u t .
similarly,
it has
b e e n o b s e r v e d t h a t t h e desire t o e v o l v e a r e a l i s t i c
a
exch;\ny e r a t e t h r o u g h reli.-ince o n m a r k e t f o r c e s ,
'
conflicts with the objective of restraining inflationary
p r e s s u r e , e s p e c i a l l y i n t h e less d e v e l o p e d c o u n t r i e s .
T h e r e f o r e , i n order t o a c h i e v e a set o f g o a l s , a c h o i c e
h a s to b e made o n d e s i r a b l e c o m b i n a t i o n o f o b j e c t . i v e s
i n t h e l i g h t of p r e v a i l i n g economic circumstances.
E s s e n t i a l l y , when e c o n o m i c c o n d i t i o n s s h i f t , e m p h a s i s o n
p a r t i c u l a r o b j e c t i v e ( s ) on monetary p o l i c y a l s o s h i f t .
I n Nigeria t h e p o s t u r e o f monetary p o l i c y o v e r t h e last t h r e e
decades has been e i t h e r expansionary or r e s t r i c t i v e .
For
iristance w h i l e t h e monetary p o l i c y pursued i n t h e e a r l y
1 3 7 0 s w a s e x p a n s i o n a r y t h e s t a n c e s i n c e ~ u q u s t1988.
hds remained largrrly r e s t r i c t i v e i n o r d e r to s t e m t h e
i n 1 l , t ~i o n a r y p r e s s u r e i n a d e r e g u l a t e d r e g i m e .
INSTRUMENT O F M O N E T A R Y P C L I C Y
I-----I-W _
- II --
The following i n s t r u m e n t s a r e a v a i l a b l e to t h e
f
r n o n e t < ~ r ya u t . h o r i t i e s f o r t h e a a h i e v e m e n t o f t h e o b j r t c t i v e s
o f r n o n e t ~ r yp o l i c y d e p e n d i n g o f
pursued
'12
well a s t h q c o u n t r y ' s s t a g e o f development:
( i ) Open m a r k e t o p e r a t i o n s
(
course on t h e goals being .
;
b
i i i ) Mor,3l s u a s i o n ;
( i v ) ~ ; - l r i a b l el i q u i d i t y r a t i o ;
( V)
,
c;1sh r e s e r v e r e q u i r e m e n t ;
(vi ) S e l e c t i v e c r e d i t c o n t r o l ;
( v i i i ) I s s u i n g o f s t a b i l i z a t i o n s e c u r i t i e s ; and
(ix) D i r e c t r e g u l a t i o n o f i n t e r e s t rates.
The t r a d i t i o n a l . t o o l of o p e n m a r k e t . o p e r a t i o n s h a s
n o t been very u s e f u l i n economies of w i t h under-developed
'lnIl p o o r 1 y i n t e q r , + t e d f i n a n c i a 1 m a r k e t s .
Thus,
in Nigeria
the p o l i c y h,~:; not b e e n e f f e c t i v e l y a d o p t e d , L u t i t i s
q r a r l u a l l y b e i n g i n t r o d u c t ~ ds i n c e 1993, e s p e c i .+I l y w i t h t h e
'
s e t t i n g up of discount houses,
I n t e r e s t rate which w a s
-
h i t h e r t o r e g u l a t e d was d e r e g u l a t e d and l e f t t o be
t l c t c r m i n e d by r n ' t r k e t from 1 9 9 0 a n d p r e s e n t l y ,
s i n c e 1994
i t has been r e g u l a t e d .
By t h e d e v i c e o f t h e V a r i a b l e L i q u i d i t y R a t i o , t h e
CBN i s c h a r g e d w i t h t h e r e s p o n s i b i l i t y o f l o w e r i n g o r
incre:lsing
a s required:
t h e s p e c i f i e d minimum a m o u n t o f
l i , l u i d a s s e t s e x p r e s s e d as
l i'ibilities,
~
I
J
d
r a t i o of
total deposit
w h i c h t h e commcrcial a n d m e r c h a n t b a n k s are
m ~ i n t ~ 1 i . n .I n t r o d u c e c l i n N i g e r i a i n 1 9 7 6 / 7 7 f i s c a l
b
y e ~ l r , the c a s h r e s e r v e r a t . i o h a s b e e n f o u n d v e r y u s e f u l
in
i-nf l u e n c i n q t h e l i q l ~ i t ii t y o f b a n k s ,
to g r , i n t c r e d i t .
hence t h e i r a b i l i t y
l'hi s is , I ( - h i e v e c l b y p r e s c r i b i n g
p r o p o r t i o n o f t h e i r drzposit l i a b i l i t i e s .
the
.
T h e CBN i s e m p o w e r e d t o c a l l f o r s p e c i a l d e p o s i t s
C
from h h n k s i n o r d e r t o b r i n g t h e l i q u i d i t y o f b a n k s
w i t h i n acceptable l i m i t s .
d t ? j ) o ~ i t si s t h e i s s u a n c e o f
C l o s e l y r e l a t e d to s p e c i a l
stabiljz a t i o n s e c u r i t i e s which
was f i r s t i n t r o d u c e d i n 1 9 7 6 b u t w a s a b o l i s h e d i n 1 9 7 9 .
I t was h o w e v e r r e i n t r o d u c e d
i n ~ u g u s t1 9 9 0 f o r m o p p i n g u p
excess l i q u i d i t y b u t was a b o l i s h e d i n 1979.
It was
h o w c v c r r e i n t r o d u c e d i n Auc$u';t 1 9 9 0 f o r m o p p i n g u p e x c e s s
1iq.idity
in t h e s y s t e m .
.
@
I
43
I n order t o e n s u r e s t r i c t c o m p l i a n c e
credit operations,
i n banks
t h e CRN t h r o u g h t h e u s e o f . s e l e c t i v e
c r e d i t c o n t r o l i m p o s e s linVdtso n b a n k s c r e d i t g r o w t h ' a s
w e l l as on sectoral a l l o c a t i o n .
T h i s measure has been
m!.:ld.ified o v e r t h e y e a r s i n l i n e w i t h p r e v a i l i n g
circllrs t a n c e s .
I n 1 9 9 3 , t h e CBN M o n i t o r i n g p o l i c y c i r c u l a r No.
.'
2 7 o u t l i n e d some e l e m e n t s o f t h e m o n k t o r y p o l i c y f r a m e w o r k
e r n p h . i s i z i n g among o t h e r s ,
t h e conduct o f t h e open market
o p e r L 3 t i o n s (OMO) a n d u s e o f o t h e r c o m p l e m e n t a r y i n s t r u b
m e n t s ; t h e p r o m o t i o n a n d d e v e l o p m e n t o f t h e money m a r k e t as
w e l l as t h e e n h a n c e d r o l e o f s u c h k e y m a c k o - e c o n o m i c
i n i l i c ; l t o r s a s i n t e r e s L a n d e x c h , ~ n q erdtes.
tfir<.ct m o n e t a r y c o n t r o l
unlike the
t o o l s , OM0 r e l i e s o n t h e u s e o f
t h e d i s c r e t i o n a r y power o f
t h e CBN t o p u r c h a s e o r s a l e
s e c u r i t i e s i n t h e financial markets i n order to influence
t h e volume o f
l i q u i d i t y i n t h e system.
, The ,monetary and credit p o l i c y 25 o f
1991 w a s a n
i n i t i a l s t e p t o w a r d s i m p l e m e n t i n g t h e new i n d i r e c t
techniques.
w i t h e x c e p t i o n o f OMO, o t h e r l i q u i d i t y .
c o n t r o l t o o l s havc:
b e e n u s e d e x t e n s i v e l y b y CBN t o r e g u l a t e
t h e banking system b u t w i t h r a t h e r limited success.
I n s u m m a r y , t h e m o n e t a r y p o l i c y m e a s u r e s from
1950-1985
were q e d r e d t o w a r d s i n t e n s i v e r e g u l a t i o n of t h e
~ i q f r i a r r econom'y,
b u t when t h e ecnnomy b u b b l e b u r s t ,
q
t h e r e was t h e n e e d to d e r e g u l a t e t h e economy.
t h e f i r s t phase
-
1958-1985
d i rcc t c o n t r o l i n s t r u m e h t ;
-
During
monetary po)icy r e l i e d on
including reserve requirements,
d i r e c t c r e d i t programmes, i n t e r e s t r a t e c e i l i n g s and o t h e r s .
Deregulation of
t h e e c o n o m y c o m m e n c e d f r o m 1986-
1 9 9 3 w h i c h r e s u l t e d i n t h e p r o l i f e r a t i o n of f i n a n c i a l
institutions,
including banks.
his h a s c o m p o u n d e d t h e
problem of i n s t a b i l i t y i n t h e banking system,
r n < ~ k i n gt h e c o n d u c t more d i f f i c u l t .
as w e l l as .
A 1 though t h e r e was
f r e e e n t r y i n t o t h e banking system a t least u n t i l 1991,
b
i t has, however,
n o t been p o s s i b l e to permit f r e e e x i t
l a r g e l y b e c a u s e o f t h e f e ' l r of
r u n s o n banks.
the systemic effect of
T h i s , i n t u r n , p a r a d o x i c a l l y , . t e n d s to
perpetuate i n e f f i c i e n c y i n t h e banking system.
t h e macro-economic
policy,
Moreover,
i n p a r t i c d l ar, f i s c a l p o l i c y ,
has n o t been i n r e c e n t years conducive to t h e soundness
01 t h e b a n k i n g s y s t e m w h i c h i s b e i n g i n c r e a s i n g l y
threatened with insolvency and d i s t r e s s .
' ~ e r e g ' u l a t i o nas
A
m ' i t t e r o f monetary p o l i c y was
s t o p p e d i n 1994 w i t h monetary p o l i c y c i r c u l a r 28, which
-
f i x e d t h e e x c h a n g e r a t e a t W22 t o t h e D o l l a r a n d p e g g e d
t h o i n t e r e s t r a t e t o 15%.
In
ttle
c u r r e n t year 1995, t h e monetary a u t h o r i t i e s '
w h a t i s o f f i c i a l l y known a s g u i d e d d e r e g u l a t i o n i n t h e
,
m o n e t a r y c i r c u l a r 2 9 , t h e e x c h a n g e r a t e was t h r o w n t o
t h e i n t e r p l a y o f m a r k e t f o r c e s b u t t h e i n t e r e s t was
f i x e d a t 21%.
I n a s i t u a t i o n c h a r a c t e r i z e d w i t h h i g h and u n s t a b l e
i n f l a t i o n r a t e s , r a p i d o r c e m p l e t e d e r e g u l a t i o n of
i n t e r e s t rates is u n l i k e l y t o r e s u l t i n p a s i t i v e real
\
i n t e r e s t rates.
U n d e r such a s c e n e r i o , i t w i l l be
d i f f i c u l t f o r t h e a u t h o r i t i e s t o p r e v e n t t h e real e x c h a n g e
r a t e f r o m a p p r e c i q ~ i n gw i t h i t s c o m m i t a n t e f f e c t s o n the
country's external competitiveness.
The removal o f
b
c a p i t a l c o n t r o l s as p a r t o f t h e d e r e g u l a t i o n e x e r c i s e
could, i n d e e d r e s u l t i n v o l a t i l i t y i n c a p i t a l f l o w s
T h i s is an
w h i c h may, i n t u r n , w e a k e n m o n e t a r y c o n t r o l .
r
a r g u m e n t i n f a v o u r of p o l i c y s e q u e n c i n g a n d c a l i b e r a t i o n s .
2.9
-
AN OVERVIEW OF
- _--THE PRUDENTIAL GUIDELINES
-.LL-.--WL--.-.-*
--I-.
I
-
Prudential regulation generally establishes t h e
o u t s i d e l i m i t s and c o n s t r a . l n t s o n b a n k s t o e r r s u r e t h e
s a f e t y and soundness of t h e banking system.
Prudential
r e g u l a t i o n i n N i g e r i a o v e r t h e y e a r s h a v e covered s u c h
areas as. b a n k l i c e n s i n g , b m k e x p a n s i o n , c a p i t a l a d e q u a c y , . '
l i q u i d i t y r e q u i r e m e n t s , and l e n d i n g l i m i t s ,
fer e x h p l s .
T h e 1 9 9 0 p r u d e n t i a a g u i d e 1 i n a s c e v e r e d assets c l a s s i f icat i o n , p r o v i s i o n s f o r n ~ n - p e t r f e r m i n g a s s e t s , c r e d i t pertf o l i o d i s c l o s u r e , i n t e r e s t ' a c c r u a l and ~ f f - b a l a n c e s h e e t
engagements.
The g u i d e l i n e s w a s aided b y - t h e f a i l u r e
'
o f t h e m a r k e t m e c h a n i s m not. o n l y t o r e f l e c t a b a n k ' s
f i n a n c i a l m a r k e t s , t h e m a r k e t m e c h a n i s m h a s been known t o
f a i l t o perform t h e s e f u n c t i o n s t i m e l y a n d p r o p e r l y ,
h e n c e t h e need f o r t h e g u i d e l i n e s to protect t h e i n t e r e s t
of d e p o s i t o r s and t h e n a t i o n u s f i n a n c i a l system.
T h e a c c e p t a n c e o f t h e r e c o m m e n d a t i o n s of t h e basla
"7
C o m m i t t e e o n t h e n e e d for commen and a f f e c t i v e a c c o u n k i n g
s t a n d a r d f o r b a n k i n g g l o b a l l y , mage t h e p r u d e n t i a l g u i d e l i n e s
i m p e r a t i v e f o r b a n k i n g systems.
The i n t e r n a t i o n a l n a t u r e
internationally acceptable ,prudential standards.
?
b
of b a h k i n g r e i n f o r c e s t h e need t o s t r i v e to a t t a i n
The
p r u d e n t i a l g u i d e l i n e s i n t r o d u c e d a r e t h e r e f e r e based o n
p r a c t i c e s e n d o r s e d by many s t h e r n a t i o n s .
-
-
,
MAJOR PROVISIONS OF THE PRUDENTIAL
GUIDELINES
*
-IUC---
.
a
^
-
c----
E
.
-
"
U
P
-
T h e p r u d e n t i a l g u i d c 1 , l n s s i n t r o d u c e d t w o t y p e s of
p r o v i s i o n s f o r p e r c e i v e d losses.
.
S p e c i f i c a l l y , banks
wer.e r e q u i r e d to c l a s s i f y t h e i r c r e d i t p o r t f o l i o i n t o :
(a) P e r f o r m i n g C r e d i t F a c i l i t i e s :
T h a t i s t h o s e credits o n
w h i c h p a y m e n t o f b o t h p r i n c t p a l a n d i n t e r e s t rate a r e
made t o d a t e .
(b) p on-performing C r e d i t F a c i l i t i e s :
That i s , f a c i l i t i e s
( i ) i n t e r e s t o r p r i n c i p a l i s due a n d u n p a i d f o r 90 days
I
o r wore; er
( i i ) i n t e r e s t r a t e up t o 90 d a y s er mere h a s b e e n c a p i t a -
l i s e d , r e s c h e d u l e d o r r o l l e d a v e r i n t o a new l o a n .
The non-performing
c r e d i t f a c i l i t i e s a r e t o be
further categorised i n t o three.
The c a t e g o r i e s and t h e
p r o v i s i o n s t o be made f o r p e r c e i v e d losses i n p r i n c i p a l
r e p a y w n t n o t y e t d u e o f s u c h c r e d i t s were s t i p u l a t e d as
( i )Sub-standard:
T h i s i s w h e r e t h e p r i n c i p a l and/&
i n t e r e s t r e m a i n e d u n p a i d f o r more t h a n 90 days b u t
less t h a n 180 d a y s .
The p r o v i s i o n for t h i s c a t e g o r y
of c r e d i t i s 10 p e r c e n t .
( i i )D o u b t f u l c r e d i t :
his i s w h e r e t h e p r i n c i p a l a n d /
o r i n t e r e s t had r e m a i n e d u n p a i d f o r a t l e a s t 80 d a y s
b u t less t h a n 360 d a y s and n o t secured by l e g a l k i t h
t o l e a s e d a s s e t s . or p e r f e c t e d r e a l i s a b l e collateral
i n t h e p r o c e s s df c o l l e c t i o n or r e a l i z a t i o n .
A
p r o v i s i o n of 50% is t o be made f o r t h i s c a t e g o r y .
( i i i )L o s s c r e d i t F a c i l i t i e s :
t h e p r i n c i p a l and/or
T h i s is a s i t u a t i o n where
i n t e r e s t had r e m a i n e d u n p a i d
f o r 360 days o r more and n o t s e c u r e d as i n ( i i )
above.
A 100
p e r c e n t p r o v i s i o n i s recommended f o r
t h i s t y p e of c r e d i t .
I
Also,
p r i n c i p a l r e p a s y m e n t s t h a t a r e due o n non,
p e r f o r m i n g c r e d i t f a c i l i t i e s s h o u l d be f u l l y p r o v i d e d f o r
a n d r e c o g n i s c d on c a s h basis o n l y , w h i l e i n t e r e s t d u e on
them s h o u l d be s u s p e n d e d a n d r e c o g n i s e d o n c a s h basis a l s o .
A g e n e r a l p r o v i s i o n of a t l e a s t one p e r c e n t (1%) , 7 , g h o u l d
be made a g a i n s t r i s k a s s e t s
for.
mot s p e c i f i c a 4 l y p r o v i d e d
T h a t i s , r i s k a s s e t s c o n s i d e r e d as p e r f o r m i n g .
AS s t a t e d
i n the guidelines, floating, equitable
and u n p e r f e c t e d c h a r g e s a r e c o m p l e t e l y d i s c o u n t e n a n c e d .
F o r c r e d i t - e x p o s u r e w h e r e t h e p r i f i c i p a l i s k n arrears
more t h a n s i x m o n t h s b u t n o t more t h a n o n e y e a r ,
py
the
outstanding p r i n c i p a l unprovided f o r should n o t exceed
50 p e r c e n t of t h e e s t i m a t e d n e t r e a l i z a b l e v a l u e of t h e
collataral'security.
F i n a l l y , t h e g u i d e l i n e s r e q u i r e banks t o undertake
-
* p r o p e r a p p r a i s a l n of off- b a l a n c e - s h e e t
( O B S ) engagements
w i t h a v i e w t o d e t e r m i n i n g t h e e x t e n t ' of loss t h e b a n k s
are l i k e l y t o s u s t a i n i n t h e i r OBS e n g a g e m e n t s .
g u i d e l i n e s r e q u i t e t h a t c e r t a i n f a c t o r s o u c h as:
The
the
d a t e a l i a b i l i t y was i n c u r r e d , e x p i r y d a t e , s e c u r i t y
pledtjed,
p e r f o r m a n c e of o t h e r f a c i l i t i e s b a i n g e n j o y e d
by t h e customer ( e . g .
l o a n s a n d advances) as w e l l as
p e r c e i v e d r i s k m u s t be t a k e n i n c o n s i d e r a t i o n i n r e c o g n i z i n g
l o s s e s o n banks
OBS engagements.
T h e p r w d e n t i a l guide-
l i n e s requite banks t o f u l l l n y p r o v i d e f o r a n y l o s s t h a t
I
may a r i s e f r o m OBS t r a n s a c t i o n s .
T h e s e are some o f t h e issues * t h a t CBN a n d NDIC
Y
examiners have t o i n v e s t i g a t e and e n s u r e t h a t banks
h
c o m p l y w i t h t h e v a r i o u s m o n e t a r y ~ o l i c yc i r c u l a r s t o
.i
e n s u r e h e a l t h y banking p r a c t i c e s i n t h e ~ i g e t i a n
banking environment.
2.10
-The Role
-
o f t h e CBN f n t h e N i g e r i a n EcO=
--n,
A c c o r d i n g t o t h e G o v e r n o r of t h e CBM, a c e n t r a l
-
bank h a s t w o m a j o r o b j e c t i v e s :
b
( a ) I t p e r f o r m s some t r a d i t i o n a l f u n c t i o n s s u c h a s t h e
i s s u e of c u r r e n c y , p r o v i s i o n o f b a n k i n g s e r v i c e s t o
t h e g o v e r n m e n t , c e n t r o l o f c r e d i t , a c t i n g as a l e n d e r
of l a s t resort a n d s u p e r v i s i ~ no f b a n k s .
,
These
f u n c t i o n s come u n d e r i t s " o t a b i l i z a t i e ~ * r o l e and
(b) I t p r o m o t e s g e n e r a l . e c o n o m i c d e v e l o p m e n t by i m p l e m e n t i n g
I
f i n a n c i a l p o l i c y m e a s u r e s aimed a t a c h i e v i n g s p e c i f i c
n a t i o n a l development o h ) s c t i v e s .
T h e s e come u n d e r i t s
T h e s e two b r o a d g o a l s r e i n f o r c e each a t h e r .
C o n s e q u e n t l y , c e n t r a l banks, I n b o t h d e v e l o p e d a n d d e v e l o p i n g c o u n t r i e s always e n d e a v o u r t o s t a k e a b a l a r c e b e t w e e n
t h e fundamental goals.
7
50
).
v
S i n c e i t s e s t a b l i s h m e n t i n 1958, t h e o b j e c t i v e s
of t h e CBN h a v e r e m a i n e d broadly t h e same,
.
but the
s t r a t e g i e s f o r a c h i e v i n g these o b j e c t i v e s have c h a n g e d
i n consonance w i t h t h e varying l e g a l , i n s t i t v t i d n a l and
macro-economic
e n v i s o n m e n ts :
(a) T h e v a r i o u s amendments t o t h e CBN A c t
cpf
1958 and t h e
an king Decree of 1969 t e n d e d t o e r o d e t h e a u t h o r i t y
of t h e CBN w i t h regard t o t h e e x e c u t i o n of i t s
primary mandate.
+lowever, the CBN Decree No. 2 4 of
1991 and t h e B a n k s a n d O t h e r f i n a n c i a l
institutionsb
Decree (BOPID) Nor 2 5 o f 19941 w h i c h r e p l a c e d t h e
p r e v i o u s CRN a n d B a n k i n g l e g i s l a t i o n s made an a t t e m p t
t o s t r e n g t h e n t h e b a n k r s s u p e r v i s o r y r o l e i n response
t o t h e w i d e n e d s c o p e of i t s a c t i v i t i e s a n d f i n a n c i a l
sector reforms i n i t i a t e d s i n c e 1986.
It is note-
*
w o r t h y t h a t t h e CBN Decree
Of
1991 g a v e t h e ~ a n k
d i r e c t access t o t h e p r e s i d e n c y i n c o n t r a s t to t h e
p r a c t i c e o f i t s r e p o r t i n g t h r o u g h t h e M i n i s t e r of
Finance
,
.
:
( b ) Owing t o t h e r a p i d n t t u ~ t w r a lg r o w t h of t h e f i n a n c i a l
sector i n t h e last three d e c a d e s ,
t h e Bank has m o d i f i e d
the n a t u r e and s t y l e of i t s s u r v r i l l a n c e .
I t has
s y s t e m a t i c a l l y d e v e l o p e d p o l i c y i n s t r u m e n t s nore
r e l e v a n t f o r a m a r k e t based f i n a n c i a l s e c t o r .
51
T h e B a n k ' s s i z e and s t ~ r u c t u r eh a v e a l s o w i t n e s s e d
a c o r r e s p o n d i n g g r o w t h ; and
( c ) The N:tgerian economy h a s r e c e r d e d v a s t s t r u c t u r a l
c h a n g e s , r e s u l k i n g i n v a r y i n g a p p r o a c h e s to e c o n o m i c
management.
~ c o n o m l cmanagement moved frm r e l i a n c e
I
o n c o n t r o l mechanismo .Ln t h e 1960s a n d u p t o 1985 ta
a s y s t e m of d e r e g u l a t i o n b e t w e e n 1386 and 1993 and back
t o t h e u s e of c o n t r a 1 :in 2994.
The B a n k ' s r e s p o n s e
has i n € l u e n c e d i t s . o p e r a t i o n s a p p r o p r i a t e l y t h r s u Q h
t h e e s t a b l i s h m e n t of the r e l e v a n t b r r e a u c r a t i c
r
b
s t r u c t u r e and t t c h n o l o g h e s .
.
2 011 IMPACT OF CBM'S ACTIVITIES
--.I----..---
I n a p p r a i s i n g the p a ~ : f o r n t a n c e @f t h e CBN, i t s h o v l l d
be s t r e s s e d t h a t w h a t matters most i s t h e i m p a c t of t h e
a c t i v i t i e s of t h e ban^ o n t h e ~ i g e r i a neconomy.
r e g a r d , I wish to examine t w o a s p e c t s
-
In this
t h e effects of
i t s a c t i o n s on t h e o v e r a l l t a r g e t s o f e c o n o m i c policy
and t h e i n t e m e d i a t e t a r g e t v a r i a b l e s r
( a ) With r e g a r d t o t h e o v e r a l l t a r g e t s
clear t h a t macro-economic
of p o l i c y , i t i s
s t a b i l i t y and s u s t a i n a b l e
g r o w t h h a v e so f a r r e m a i n e d e l u s i v e .
W h i l e i m f latiom,
GDP g r o w t h r a t e and d a v e l e p m e n t s i n t h e b a l a n c e o f
i
r
p a y m e n t s h a v e behaved eon t r n r y t o e x p e c t a t i a n i n
r e c e n t years, 1 wowAd w a n t t o c a u t i o n t h a t the
e x a c t i m p a c t of CRN'S paelicies on ~ v e r a l lt a r g e t s
of e c o n o m i c p o l i c y i s g e n e r a l l y d i f f i c u l t . t o
establish, owing to thtr c o m g A e r r e n t a r l t y of m o ~ o t a r y
a n d b a n k i n g policies w i t h fiscal a n d o t h e r sectoral
p o l i c i e s w h i c h are o u t s i d e the! c o n t r o l of t h e CBR;
( b ) w i t h t h e i n c r e a s i n g i n ~ c i d s l c aof distress i n the
f i n a n c i a l s e c t o r , t h e regvl a t o r y c a p a c i t y of the CBN
nas been c a l l e d t o q u e s t i o n ,
I w i s h to state t h a t
f
b
c o n c e r t e d a c t i o n s b y a 1 1 p a r t i e s are n e e d e d t o resolve
t h e u n d e r l y i a g causes of distress, such as macroeconomic and p o l i c y i n s t a b i l i t y , uneoudd b a n k i n g
p r a c t i c e s by o p e r a t o r s , i n s i d e r d e a l i n g and a b u s e s
and t h e n e g l i g e n c e
of directors a n d s h a r e h o l d e r s , among
other factors,
CONSTRAINTS
ON Ch#*s PERFORHANCE
-----_-._--_-
I
-
-
_
Ulllh.LI
Fne Bank h a s n e e d l e s s l y aperated u n d e r some s e r i o u s
c o n s t r a i n t s w h i c h s h o u l d be m i n i m i z e d se as t o enhance i t s
performance,
constraints.
Let u s b r i e f l y h i g h l i g h t some of these
T
( a ) The m a n d d t o r y f i n a n c i n q of t h e huge f i s c a l d e f i c i t s
of t h e g o v e r n m e n t h a s made monetary c o n t r o l ,
price,
. e x c h a n g e a n d i n t e r e s t rates s t a b i l i t y d i f f i c u l t t o
achieve;
( b ) The p r e v a l e n c e of p o l i c y i n c a n s i s t e n c y a n d i n s t a b i l i t y
has made m o n e t a r y p o l i c y o u t c o m e s t o d i v e r g e from t a r g d t s ;
( c ) The l a p s e s i n p o l i c y clo-ordination
and i m p l e m e n t a t i o n
h a v e i m p a c t e d n e g a t i v e l y o n the p r o d a c t i v e sector.
( d ) T h e p e t v a s i v e i - n t e r v e r lt i o n b y q o v e r n m e n t s i n t h e
f i n a n c i a l sector h a s o f t e n s e n t c o n f l i c t i n g s i g n a l s t o
b
t h e p u b 1 l c , e s p c c i a 1 . 1 ~when t h e r e was n o c o - o r d i n a t i n g
a r r a n g e m e n t t o q u i d e aclrtions o t t h e r e g u l a t o r y
a u t h o r i ties ;
(e) W h i l e the Bank h a s o p e r a t e d more f r e e l y in i t s
p r e s e n t r e l a t i o n s h i p w i t h t h e g o v e r n m e n t , i t is
c o n s t r a i ~ e db y c e r t a i n l e g a l p r o v i s i o n s w h i c h r e q u i r e
i t t o s e e k a p p r o v a l on lisswres, s u c h a s t h e l i q u i d a t i o n
of banks, t h a t requite p r o m p t r e s p o n s e s ;
( f ) h he Bank h a s b e e n l a r g e l y o v e r w h e l m e d b y t h e l a r g e
,
s c a l e m i s m a n a g e m e n t i n f i n a n c i a l i l s t i t u t i o n s , as w e l l
a s d i s h o n e s t y a n d h a c k of t r a n s p a r e n c y b y both
f i n a n c i a l l n d u s t r y o p e r a t o r s a n d d i r e c t o r s w h i c h are
s y m p t o m a t i c of t h e general i n d i s c i p l i n e i n t h e s o c i e t y
as a whole; and
I
(q) T h e r e a r e g e n e r a l l i m i t a t i o n s by i n adequate statistics
and i n f r a s t r u c & u r e .
!
I f e e l c o n v i n c e d t h a t t h e CBN's c o n t r i b u t i o n s
4
to t h e N i g e r i a n e c o n o m y c a n be e n h a a c e d i f
I
these constraints
a r e e l i m i n a t e d t o t h e b a r e s t minimum.
isc cuss ion o n
t h i s
r e s e a r c h c a n n o t be c o m p l e t e
w i t h o u t h i a h l i q h t i n q some s f t h e e x p e c t e d r o l e s of t h e
NDIC vis-a-vis
t h e Nigerian economy.
B e f o r e procedlnq i t i s necessary t o h i g h l i g h t the!
h i s t o r y of Rank d e p o s i t insurance s c h e m e i n $ h e global
f i n a n c l a1 m a r k e t .
Czechoslovakia ' w a s t h e first country
t o estah! i s h a n a t i o n w i d e d e p o s i t i n s u r a n c e s c h e m e
i n 1924,
p r i n c i p a l l y as a m e a s u r e t o r e v i t a l i s e t h e b a n k i n g s y s t e m
a f t e r t h e r a v a g e s * o f W o r l d War I.
T h e s c h e m e was m e a n t t o
f u r t h e r s t i m u l a t e s a v i n g s , b y i n c r e a s i n g t h e s a f e t y of
d e p o s i ts a n d e n s u r i n g t h e ' b e s t p o s s i b l e d e v e l o p m e n t of
banking p r a c t i c e i n t h a t country.
T h e U n i t e d Statest F e d e r a l D e p o s i t ~hswrance
C o r p o r a t i o n ( F D I C ) , w h i c h was e s t a b l i s h e d i n 1933 i n
r e s p o n s e to t h e b a n k i n g c o l . l a p s e a n d p a n i c of t h a t y e a r ,
p r o v i d e s t h e ablldinq l e s s o n s and model f a r m o s t c o u n t r i e s
w h i c h s u b s e q u e n t l y i n t r o d u c e d formal d e p o s i t i n s u r a n c e
B
schemes.
B e t w e e n 1930 and 1933, o v e r o n e - t h i r d
commercial b a n k s i n t h e U,S,
of
the
T h e r e s p o n s e was
failed.
d e p o s i t i n s u r a n c e and e x t e n s i v e f o r m a l r e g u l a t i o n of
banks,
~ e s p i t e tt h e d e r e g u l a k i o n o f
system,
the FDICfs .rnissic.m h a s rernai.med t h e same:
maintain s t a b i l i t y i n the nation's
t h e U,S.
'
financial
to
f i n a n c i a l system, by
.
i n s u r i n g d e p o s i t s and reducing t h e economic d i s r u p t i o n s
a t k e n d a n t upon hank failures,
O t h e r c o u n t r i e s t h a t have
s i m i l a r b a n k d e p o s i t insurance s c h e m e s are B r i t a i n ,
F r a n c e , I t a l y , C a n a d a , P h i l i p i a n s etc.
b
T h e NDXC i n N i q e r i a i s n o t a new d e v e l o p m e n t i n
t h e g l o b a l f i n a n c i a l market.
I n 1986, t h e F e d e r a l
G o v e r n m e n t o f N i g e r i a i n t r o d u c e d t h e S t r u c t v r a l ~d j u s t m e n t
Programme ( S A P ) w h i c h was aimed a t d e r e g u l a t i n g t h e
economy i n the direction of m a r k e t d e t e r m i n e d p r i c i n g .
T h e reforms h a v e f o r t h e m o s t p a r t ,
been c a r r i e d o u t
t h r o u q h t h e f i n a n c i a l s y s k e e , w h i c h i n N i g e r i a i s almost
synoqtlmous w i t h t h e b a n k i n g s e c t o r , i n v i e w of t h e
p r e p o n d e r a n c e of the s e c t o r i n t h e f i n a n c i a l S y s t e m -
The u p s u r g e i n t h e n u m b e r o f b a n k s i n t h e c o u n t r y
a n d w i t h i t s atterrt7,int risks a n d p o s s i b l e f a i l u r e s
i n f o r m e d t h e n e e d f o r t h e e s t a b l i s h m e n t o f Bank d e p o s i t .
I n s u r a n c e Scheme a n d i n 1 9 8 8 a decree s e t t i n g u p t h e NDIC
was p r o m u l g a t e d .
I t i s known as Decree
NO.
2 2 of 1 9 8 8 ,
S e c t i o n 5 of t h i 1988 N D I C Decree s t a t e s t h e f u n c t i o n s
o f t h e c o r p o r a t i o n t o include i n s u r i n g t h e d e p o s i t
l i a b i l i t i e s o f l i c e n s e d b a n k s a n d such o t h e r f i n a n c i a l
i n s t i tukions o p c r a t i n q i n ~ b g e r i a ;g i v i n g a s s i s t a n c e i n
t h e i n t e r e s t o f depasi t o r s t o f i n a n c i a l l y distressed
banks; q u a r a n t e e i n q payments to d e p o s i t o r s up t o a
\
maximum a m o u n t o f W S 0 , O C l O p e r depositor i n case o f
i m m i n e n t o r a c t u a l . s u s p e n s i o n of payment of i n s u r e d
b a n k s ; and a s s l s t 4 n q m o n e t a r y a u t h o r i t i e s i n t h e
!
f o r m u l a t i o n a n d Lmglemen t n t i o n o f b a n k i n g p o l icies t o
e n s u r e s o u n d b a n k i n q p r a c t i c e a n d iair c o m p e t i t i o n
among banks i n t h e country.
B
These f u n c t i o n s form t h e
core of t h e e x p e c t e d r o l e of t h e c o r p o r a t i o n i n t h e b a n k i n g .
NDIC i s c a r r i e d o u t m a i n l y t h r o u g h bank e x a m i n a t i o n
r o u t i n e a n d s p e c i a l o f i n s u r e d b a n k s by Bank ~ x a m i n e r s .
The corporat-lon
i.n
the p n s t f e w y e a r s has c ~ n d u c t e d
series of i n t e n s i v e o n - s i t e b a n k ' e x a m i n a t i o n of l i c e n s e d
banks In t h e system.
t h e appraisal of:
main f u n c t i o n ,
(i) Assets
NDIC Bank E x a m i n e r s h a v e a s t h e i r
-
w i t h e m p h a s i s on a s s e t q u a l i t y ;
Liabilities
- 'with e m p h a s i s
on c a p i t a l a 6 e q u a c y ,
.
( i i i ) Management
-
competence;
(iv) Internal control
-
t o s p o t l i g h t w e a k n e s s e s and
recommend a p p r o p r i a t e measures t o p r e v e m t t h e
weaknesses.
( v ) u n i f o r m Bank P e r f o r m a n c e R e p o r t o f C a p i t a l , ~ s s ' c t ,
Management,
~ a r n i n qa n d L i q u i d i t y (CAMEL)
- to
i n d i c a t e t h e ' p o s i t i o n o f a p a r t i c u l a r bank i n
r e l a t i o n t o t h e above v a r i a b l e s .
. '
( v i ) Level of f r a u d u l e n t p r a c t i c e s w i t h i n a n d b e t w e e n
b a n k s ; etc.
~ l s oas p a r k of i t s r e g u l a t o r y a c t i v i t i e s w i t h i n
the industry,
t h e NDIC c a r r i e s o u t e f f - s i t e
b
supervision
of l i c e n s e d h a n k s w i t h m o n t h l y r e t u r n s a n d o t h e r manaqement r e p o r t s from b a n k s .
The o f f - s i t e
e x a m i n a t i o n is a n
e a r l y warning system to i d e n t i f y p o t e n t i a l f i n a n c i a l
distress i n i n s u r e d b a n k s .
(Ebhodaghe,
J. U.
1993).
SUMMARY O F LITERATURE
REVIEW
--.-.-.--
I Y - - - r Y l r I - L - - . - - - .
T h e r e i s w i d e spread b e l i e f among n o t a b l e a u t h o r i t i e s
c o n s u l t e d i n t h e c o u r s e of t h i s r e s e a r c h t h a t banking
s u p e r v i s i o n Is v e r y v i t a l t o e n s u r e t h e s u r v i v a l of b a n k s
,
and also t h a t i t e n s u r e s c o n f i d e n c e i n t h e f i n a n c i a l system
of
-
a c o u n t r y , s i n c e i m p r o p e r s u p e s v i 9 i o n may lead t o
s h a r p practices amonq b a n k s i n t h e f i n a n c i a l s y s t e m
!
;
w h i c h w i l l i n v a r i a b l y resvl t i n t h e c o l l a p s e o f t h e
f i n a n c i a l system.
The
a11
thor of t h i s r e s e a r c h agrees,.
w i t h t h i s b e l i e f t h a t s u p c r r i s i o n Is v i t a l I n t h e
f i n a n c i a l system of a c o u n t r y .
Some a u t h o r s are of the v i e w t h a t t h e f i n a n c i a l
s y s t e m i s o v e r r e g u l a t e d w h i l e o t h e r s are of the v i e w
t h a t the system i s under r c q w l a t e d a n d t h a t t h e r e s h o u l d
be more s t r i n g e n t r e g u l a t i o n .
T h e s h a r p c o n t r a s t i s on the e x p e c t e d
f i n a n c i a l r e g u l a t o r s , t h e CRN and NDIC.
role o f t h e
This area is
n e g l e c t e d b y t h e a u t h o r s and t h i s h a s n e s e s s i t a t e d t h e
r e s e a r c h on t h i s t o p i c .
\
'
3.1
INTRODUCTION
---Research i s s i m p l y t h e p r o c e s s of a r r i v i n g a t
d e p e n d a b l e s o l u t i o n s t o p r o b l e m s t h r o u g h p l a n n e d and
s y s t e m a t i c c o l l e c t i o n , a n a l y s e s a n d i n t e r p r e t a t i o n of
d a t a ( O s u a l a , E l C.
B.
I.).
Research involves t h e
d i s c o v e r y of i d e a s o as t o know t h e c a u s e a n d affect
r e l i m t i o n s h i p or t o i m p r o v e upon t h e method o f p e r f o r m a n c e .
T h e r e f o r e i t c a n be s a i d t h a t r e s e a r c h i s d i s c o v e r y
b
o r i e n t e d towards t h e rcl a t i o n s h i p t h a t e x i s t among t h e
phenomena o f t h e w o r l d w e l i v e i n .
T h e r e s e a r c h i n t e n d s t o a d d r e s s some o f t h e i s s u e s
-
r a i s e d i n c h a p t e r oriel t h a t i s t h e t o p i c ,
t h e problems,
!
t h e h y p o t h e s e s and t h e o b j e c t i v e s o f t h e r e s e a r c h -
,
1
T h e r e s e a r c h w o r k was c o n c l u s i v e a n d d e s c r i p t i v e .
A
q o o d d e a l o f i n f o r m a t i o n u s e d f o r t h e s t u d y was s o u g h t a n d
obtained f r o m the C e n t r a l Hank o f ~ i q e r i aa n d ~ d g e r i a r i
D e p o s i t I n s u r a n c e C o r p o r a t .ion.
However, t o f u r t h e r c o n f i r m o u r a n a l y s i s q u e s t i o n n a i r e s wdre adninist.eredl
appraisal o f
a n d NDIIC.
T h e s t u d y is o n t h e c o m p a r a t i v e
t h e Bank ; n q s \ l p t r v i s a r y Roles o f t h e CBN
.
,
I
-
3
1..
l.4
.. .'.
"V.I.m,
urpmwl'
I n o r d e r t o o b t a i n further i n f o r m a t i o n f o r
a n a l y s i s , q u e s t i o n n a i r e s were a d m i n i s t e r e d t o a r a n d o m l y
selected commercial Ranks i n N i g e r i a ,
this w a s d o n e t o
-
e n a b l e come t o a n u n b i a s e d c o n c l u s i o n .
I t i s for t h i s
r e a s o n t h a t q u e s t i o n n a i r e s were a d m i n i s t e r e d .
The work
1
was d e s i g n e d i n s u c h a way t h a t s t a t i s t i c a l a p p l i c a t i o n
I
<
of data w a s possible.
Two s o u r c e s of
i a t a c o l l e c t ion t e c h n i q u e w e r e u s e d
i n the course of the s t u d y .
I.
Secondary data
2.
P r i m a r y data
T h e s e are:
b
I
I
Sources of secondary d a t a used f o r the s t u d y were
from p u b l l s h e c l a n d un[)uhi ished m a t e r i a l s , n e w s p a p e r s ,
maqazi n e p u b l i c a t i o n ,
j o u r n a l s a n d a n n u a l r e p o r t s of CBN
a n d N D I C a n d Decrees.
Primary s o u r c e s d a t a , used w e r e q u e s t i o n n a i r e s a n d
i n teirviews.
~ u e s t i . o n n " a ei rs w e r e a d m i n i s t e r e d t o b o t h
CRN and N D I C b a n k s u p e r v i s o r s a n d examiners, q u e s t i o n n a i r e s
were a l s o a d m i n i s t e r e d t o r a n d o m l y selected commercfal
banks.
I n t e r v i e w s w i t h t h e h e a d s of bank ,supervision of
NBN m d N D I C ard othtrr individuals whose i d e a s were
relevant in the course o f t h e r e s e a r c h .
?
3.4
-
SAMPLING METHOD
-.----c" _
_We
Simp 1
w e r e used.
t a n d o m i z a t i o n method
of p r o b a b i L i t y s a m p l i n g
T h e r e a s o n s f o r using ' t h i s m e t h o d are:
c o n s t r a i n ts .and t i m e c o n t r i b u t e d t o t h e
1.
Financial
2.
T h e r e i s n e e d t o a l l o w all members of t h e s a m p l i n g
p o p u l a t i o n e q u a l c'hancles o f b e i n g s e l e c t e d f o r t h e s t u d y .
T h e members of t h e sample p o p u l a t i o n can be e a s i l y
identified and c o u l d b@ l i , s t e d .
-*--.
SAMPLE S I Z E
----..
F o r t h e p u r p o s e of
t h i s
s t u d y a s a m p l e s i z e of
f i f t e e n ( 1 5 ) cornrncrcjal b d q k s w e r e s e l e c t e d .
r e p r e s e n t s a b o u t 28.6
This
p e r c e n t of t h e p o p u l a t i o n
Of
c o m m e r c i d l banks i n t h e c o u n t r y as a t t h e time O f t h e
study.
The r e a s o n f o r t h e s a m p l e s i z e o f (15) is for
easier a n a l y s i s a n d t o ensure a d e q u a t e representation
t h e s a m p l e p o p u l a t i d n st:, t h a t a t h o r o w q h r e s e a r c h
carried.
The s a m p l e s i z e i n c l u d e :
Access Bank (Nig. ) L t d .
~ f r i h a n kN i g .
Plc.
Allied B a n k o f Nig. Plc.
~ l Sl t a t e s T r u s t Rank L t d ,
, - .
-.*
. n r J
P
A f r i c a n I n t e r n a t i o n a l Bank P l c .
B r o a d Bank L t d .
C i t i z e n s l n t e r n a t i o n a L Bank L t d .
C o m m e r c i a l Bank for ~ f r i c a~ t d .'
Commerce Rank Lad.
U n i t e d Bank for A f r i c a Blc.
'
F i r s t Rank o f Niq.
P11z.
U n i o n Rank o f N i q .
P1c.
C r y s t a l . Bank L t d .
~ c o k a n k ~ i g .P ~ C .
O c e a n i c Bank I n t e r n a t i o n a l L t d .
PROCEDURE FOR
-- SELECT
- . . , . . ION
.- .
-*-u----r----.-
-a
r
simple random sarnplinq a d o p t e d i n t h i s s t u d y i n v o l v e s :
(a) I d e n t i f i c a t i o n a n d l i s t i n q of a l l t h e members o f
commercial b a n k p o p u l a t i o n .
( b ) Codinq them by a s s i g n i n g n u m e r i c a l values, e x a m p l e
204 f o r U n i o n Bank 'of
Nigeria.
( c ) P u t t i n g a l l c o d e d n u m b e r s i n a bowl.
(dl Picking without replacement,
f i f t e e n (15) o f t h e
f i f t y e i g h t ( 5 8 j c o d e d numbers.
-
DATA TREATMENT
. -----.--TECHNI-
3.5
---a
T h e aim o f t h e r e s e a r c h i s t o c a r r y o u t c o m p a r a t i v e
a p p r a i s a l o f t h e B a n k i n g S u p e r v i s o r y R o l e o f t h e CBN a n d
NDIC.
Data g e n e r a t e d from s e c o n d a r y sources w i l l be
analysed throuqh comparative a p p r a i s a l of t h e functions
o f t h e r e g u l a t o r y i n s t i t u t i o n s CBN 2 n d NDIC c h i e f l y
t h r o u g h t h e d e c r e e s s e t t i n g u p t h e CBN a n d NDIC.
P r i m a r y d a t a as noted a b v e w i l l be g e n e r a t e d t o
s u p p l e m e n t a n d v a 1 i d a t ; e t h e r e s u l t s f r o m t h e a n a l y s i s of
secon'dary d a t a .
Responses from q u e s t i o n n a i r c s a d m i n i s t e r e d w i l l
4
be
tabulated.
-
A f t . e r tabulation o f t h e r e s p o n s e s , t h e f r e q u e n c y o f
o c c u r e n c e i n s u p p o r t or a g a i n s t e a c h c a t e g o r y as a f u n c t i o n
of
t h e q r o u p p e r f o r m a n c e w<+s c o l l e c t e d .
Then t h e c o u n t i n g
s y s t e m a d o p t e d was o n e b y w h i c h t h e f r e q u e n c y of t h e t h e m e
i s d o u n t e d o n l y o n c e 'in t h e v e r b a l s a m p l e o f e a c h p a r t i c i -
pant.
T h i s r e p r e s e n t s more a c c u r a t e l y g r o u p o p i n i o n s
b a s e d o n t h e r e f e r e n c e of t h e t o t a l f r e q u e n c y .
resp0n:;es
The
w e r e t r a n s l a t e d i n t o p e r c e n t a g e s and t h i s
d i s p o s i t i o n r e n d e r e d i t easy t o p r e s e n t r e s u l t s .
T h e a n a l y s i s by f r e q u e n c y i s b a s e d o n v i e w p o i n t
b y w h i c h t h e f r e q u e n c y of
it has f o r the subject.
(1
theme r e v e a l s t h e i m p o r t a n c e
T h e r e f o r e , i f t h e f r e q u e n c y of
o c c u r e n c e i s g r e a t e r t o t h a ~ to f a n o t h e r , . t h e d e d u c t i o n
i s t h a t one h a s mare i m p o r t t h a n a n o t h e r .
A r e s e a r c h on
easy t o u n d e r t a k e ,
this t o p i s c a n n o t b e r e l a t i v e l y
;
t h i s i s a s a r e s u l t of t h e p r o b l e m s
e n c o u n t e r e d i n t h e course o f t h e r e s e a r c h .
The
r e s e a r c h e r w a s encouhteted w i t h t h e problem o f l a c k o f
a d e q u a t e d a t a , v e r y f e w l i t e r a t u r e e x i s t e d and t h e r e
was d i f f i c u l t y i n f i n d i n g s u i t t h e t o p i c , u p t i l t h e
t i m e of writing the research,
t h e r e are n o p u b l i s h e d
l i t e r a t u r e on bankinq s u p e r v i s i o n vis-a-vis
CBN.
NDIC and
If not f o r papers p r e s e n t e d a t seminars,
arid a n n u a l
'
journals
r e p " r t s o f CRN nnd NDIC t h i s r e s e a r c h w o u l d
h a v e been f r u s t r a t e d .
The c o s t a n d t i m e used i n c o v e r i n g t h e sample size
w a s much i n v i e w of
t h e location
a n d 'the d i s t a n c e o f t h e b a n k s f r o m each o t h e r .
'
The
I
season when t h e r e s e a r c h was c a r r i e d w a s t h e r a i n y season
a n d i t a l s o c o n t r i b u t e d i n Its own s m a l l way t o f r u s t r a t e
the research,
research.
I
of t h e s e commercial b a n k s
b u t f o r the i n i t i a l l o v e t o , c a r r y o u t t h e
P
ANALYSIS
--"-.4.1
--
A N.-D------.--D I S C U S S I O N O F DATA
INTRODUCTION
-A.
This chapter concern i t s e l f with t h e analysis o f
d a t a c o l l e c t e d i n t h e c o u r s e of
the research.
In analysing
t h e d a t . a a n d d i s c u s s i o n o b t a i n e d from r e s p o n s e s f r o m
questionnaires administered, an a n a l y s i s of t h e various
decrees s e t t i n g u p t h e NDIC:, CBN a n d B O F I D was c a r r i e d
out.
' ~ h e s ea r e N D I C Decree 2 2 of 1 9 8 8 , t h e c u r r e n t CBN
Decree N o .
2 4 o f 1 9 9 1 and Blanking and O t h e r F i n a n c i a l
-
institutions Decree No. 2 5 of 1 9 9 1 .
a n a l y s i s can be c a r r i e d o u t ,
,
Before any neaningfal
t h e d e c r e e s m u s t be a n a l y s e d ,
e s p e c i a l l y a r e a s r e l a t i n q to b a n k i n g s u p e r v i s i o n ,
because
t h e s e a r e w h e r e t h e CRH, NDIC a n d Banks d e r i v e t h e i r
p o w e r s to o p e r a t e .
4.2
DATAANALYSIS
.---..--
Decree No. 2 4 o f . 5 9 9 1 , known a s t h e C e n t r a l Bank
of N i g e r i a Decree 1992 i s t h e most r e c e n t Decree a f t e r
v a r i o u s A c t s a n d Decrees h a v e b e e n p r o m u l g a t e d s i n c e t h e
CBN w a s e s t a b l i s h e d
i n 1958.
An a n a l y s i s o f t h e s e c t i o n s
r e l e v a n t t o b a n k ing s u p e r v i ? ; i o n w a s , C ~ L - r L eodu t .
No.
Decree
2 2 of 1991, known a s t h e N i g e r i a ~ @ ~ o sI nis tu r a n c e
C o r p o r a t i o n Bcctce 1988, 1s the l a w s e t t i n g u p t h e NDIC
a n d t h e r e h a v e braen n o
mencirnent ti1 l date.
A n anaAysi.6
,
.
v,r?"s-pr~
m,-
of
ttle
sections relevant
carrled out.
Decree
and O t h e r F i n a n c i a l
NO.
t o banklnq s u p e r v i s i o n was
v
;I5 of 1991, known as ~ a n k s
I n s t i t u t l o n s ( R O F L D ) Decree 1991-
An a n a l y 6 ; s was c a r r i e d t o know the b a n k i n q supervisory
r o l e s o f t h e CRN a n d N D X S ,
since f i n a n c i a l i n s t i t u t i o n s
ate e x p e c t e r ! to o p e r a t c under t h e w a t c h f u l e y o s of
the
CBN a n d NDIC-
4.3
.-..
COYRARATTVE
--- - - . ----*.- A-P I ' R- A l S A-L.---,-T,..-r
O F G B N.--- DECREE
--- ..- NO.
.---.-.-----'
2 4 OF 1991
!)l'C!
I .
E ENO. 3 1
.I! .-i. , ., fl-.*.
.-- - I -:k
-... - - - -- I- )- '-A- S.' , ~~ "-3 r . C : ~ E C P---.-(.!I'
.--.-- - .+-
1
h&
-.-
--.+
I,
c ,
I
I
-a-. . .--
-
*,-"
Section 4(1) o f t h e l f R N Decree of 2992 s t a t e s as
follows
-
The a u t h o r i s ~ dc 3 p i t a l
of t h e B a n k s h a l l be
what t h i s means i s t h a t '
t h r e e hundred m i h l i o n n a i r , + .
tlie a u t h a r i s e d c a p i t a l of
b
t h e C e n t r a l ~ a n kof
~igeria
is t h r e e h u n d r e d m l l l i o n n , , b r a (F4700,000,000).
T h e F e d e r a l G o v e r n m e n t of N i g e r i a h o l d s a l l t h e
c a p i t a l of R m k .
In essence therefore,
t h e bank i s one
*
I
h u n d r d d p e r c e n t ( ? Q O I 1 awned by t h e F e d e r a l G o v e r n m e n t
of Nigeria.
T h e p a i d u p c a p i t a l ma! r h e i n c r e a s e d b y such amount
cis
t h e Roard m a y ,
f l . m
Blme
d p p r o v a l of t h e P r e s i d e n t ,
F e d e r c l l G o v e r n m e n t and p a i d
to t i m e ,
resolve w i t h the
and s h a l l b e
up
at p a r .
subscribed by t h e
I n essence, i t
i t means t h a t a n y i n c r e a s e i n p a i d u p c a p i t a l by t h e
b o a r d m u s t be b y t h e a p p r c w a ' l o f t h e P r e s i d e n t and t h e
F e d e r a l Government s h a l l s o l e l y s w b s c r i b e .
I t is
i m p o r t a n t t o know t h e p a i d u p c a p i t a l o f t h e CBN a n d
fully.
i t i s c l e a r t h a t t h e ' F e d e r a 1 G o v e r n m e n t o w n s t h e CBN
P a r t VII of t h e CBN Decree 1991, d e s c r i b e s i t s
r e l a t i o n s w i t h o t h e r banks,, w h i c h I w i l l a n a l y s e
briefly.
S e c t i o n 3 7 of
t h ~ ed e c r e e g i v e s
i t t h e power
t o a c t as b a n k e r t o o t h e r banks i n N i g e r i a and o u t s i d e
Nigeria.
T h a t i s , i t y i v e s i t p o w e r t o a c t o n b e h a l f of
b
banks i n N i g e r i a ,
CBN.
Section
Ranks a r e mandated t o d e p o s i t w i t h t h e
3 9 ( I )(a) g i v e s i t p o w e r s . t o i s s u e d i r e c t i v e s
by c i r c u l a r s requiring each bank-to maintain cash reserves
w i t h t h e CBN a t
i t s o f f i c e , a sum e q u a l t o p r e s c r i b e d
9
r a t i o of t h e b a n k ' s d e p o s i t l i a b i l i t i e s ;
( b ) h o l d a minimum a m o u n t 'of
s p e c i f i e d l i q u i d assets
w h i c p s h a l l b e e x p r e s s e d a s a r a t i o of d e p o s i t
l i a b i l i t i e s o f t h e a bank;
a t its
( c ) m a i n t a i n a s s p e c i a l d e p o s i t s w i t h t h e Bank
h e a d office, a p e r c e n t a g e o f
t h e bank's
deposit
l i a b i l l t l e s or a p e r c e n t a g e of a n i n c r e a s e or t h e
a b s o l u t e increase i n s u c h d e p o s i t l i a b i l i t i e s o v e r a n
amount o u t s t a n d i n g on a d a t a ,
a n d f o r a p e r i o d as s h a l l
be s p e c i f i e d by t h e b a n k .
. ."'.,
,
,,
"
.,
,b,.
,I
,T'i
..,w,m.y,-n
68
What a l l t h e s e m e a n s i s t h a t t h e c e n t r a l Bank
i s t h e sole d e t e r m i n a n t s o f t h e m o n e t a r y p o l i c y f o r m u l a
of t h e Government o f N i g e r i a ,
thorough monetary p o l i c y
c i r c u l a r w h i c h i t issues t o o t h e r b a n k s a n d b a n k s are
e x p e c t e d t o c o m p l y w i t h a l l t h e d i r e c t i v e s i s s u e d b y the
CBN, s i n c e i t z a s r u ' n e d t h a t t h e y are w o r k i n g iq t h e
public interests.
ACf
compliance such,if
T h e r e are-
a1sm p e n a l t i e s f o r n o n
.
a bank F u r n i s h e s f a l s e i n f o r m a t i o n t o
t h e CBN i n r e q a r d s t o a bank i s s u i n g l o a n s e x c e e d i n g
a m o u n t s p e c i f i e d b y t h e CRlY w i t h o u t a p p r o v a l Of t h e CBM.
For non-compliance
a b a n k p a y s a f i n e of ~100,000:00@
f o r t h e first o f f e n c e a n d a f i n e o f H200,000
offence.
'
f o r second
T h e CBN h a s p o w e r s t o f o r c e a c e i l i n g on
volumes of l o a n s ,
advances and d d s c o u n t o u t s t a n d i n g a t
e a c h b a n k a n d i t may f i x d f . f f e r e n t c e i l i n g s f o r d i f f e r e n t
c a t e g o r i e s of each o f s u c h l o a n s ,
a d v a n c e s and d i s c o u n t s .
~ l th
l e s e are c o n t a i n e d i n s e c t i o n 3 9 1 (5) of t h e CBN
decree of 1991.
T h e N D I C d e r i v e s i t s p o w e r s f r o m t h e NDIC Decree
No.
2.2 o f 1988.
S e c t i o n 2 gives t h e c o m p o s i t i o n of t h e
b o a r d of d i r e c t o r s o f t h e c o r p o r a t i o n .
states:
Section 2(2)
T h e B o a r d s h a l l c o n s i s t o f t h e f o l l o w i n g members
who s h a l l ' be a p p o i n t e d by t h e P r e s i d e n t , C o m m a n d e r - i n C h i e f o f t h e Armed F o r c e s t h a t i s :
2
(aj
t h e c a v e r n o r of t h e ( - e n t r < ~I { lmk o f N i g e r i a who s h a l l be the
?hiiimnapi o r hi s r e p r e r , m t ,>ti
vp;
( 5 ) a r e p r e : ' c n t n t i v e o f t h r . l . ' c ~ ~ c r - 1 1 M i n i s t r y o f F i n a n c e and Economic
Developmrnt;
The a h v e ~ : ~ ~ l t j 3o rshows
j
I'Jf)IC and Ci3N.
US
t h e r e l a t i o n s h i p between t h e
Decree
The chairman of thl- h o a r d as s t a t e d by t h e
should always b e t h e Governor of t h e (7111.
This proves
i s i n t e r - r e l a t ' l n r x h i p h ~ t w ~ . etA h ('13N
~
and t h e NDIC.
t k h a t
there
Their
f u n c t i o n s are i n t e r - r ~ l a t e t l and tlie need t o make the& work
@
f h q r t h e r towards a c h i e v h r t h o ,;<meo b j e c t i v e s n e c e s s i t a t e d t h e
,~ppointrnrm+_
o f t h e ''qr:
qovrrnor-
I t i s then n e c w s n r y
c o n c e r n i n q bank s u p e r v i s i o n
t i 1
tn
always be the chairman o f t h e
l w : a t the relrvnnt secticns
( 3 1 id
examination.
S e c t i o n 30 and
s i ~ b s ctci o n s ( 1-81 s p e c i f k - l lly d r . 1 1 ~
w i t h bank s u p e r v i s i o n .
;PC
t ' o n 30 q i v ~ st i
P
CrVJ Governor powers tu a p p o i n t a D i r e c t o r
of ilankinq s u p e r v i s i o n and t h e Director s h a l l have power
to
carry o u t s u p e r v i s o r y duties i n r e s p e c t of banks and under
cc::di
t i o n s of conf i ( i e n t i ? l i t y cxanine t h e hooks and a f f a i r s
o f cml
bl~rlk;ad h- s h a l l have kt.,= r i q h t o c access a t all times to the
' ~ , ~ - kofs accounts 3nd vouchrlr.; of hanks and h e h a s powers t o
re;l:csf f o r any tnfnmmat70n !IF
tlw-ins
neces.;ary
in the
c o u r s e of h i s a s s i g n m e n t a n d t h e G o v e r n o r o f t h e CBN s h a l l
a p p o i n t o t h e r o f f i c e r s of t h e CBN t o assist t h e ~ i r e c t o r
o f Bankinq s u p e r v i s i o n .
I n carrying out their duties
bank e x a m i n e r s are t o e n s u r e t h a t i t l d o e s h i n d e r t h e
4
d a i l y o p e r a t i o n s o f t h e bnnk.
S e c t i o n 30(8) aka0
s p e c i f i e s t h e punishment f o r banks i n r e s p e c t o f f a i l u r e
t o f w n i s h bank s u p e r v i s o r s r e q u i r e d i n f o r m a t i o n or
f a l s e information,
he b a n k
is l i a b l e o n c o n v i c t i o n t o
a f i n e o f W50,000 a n d i n a d d i t m i o n , t o a f i n e 9 f W1,000
f o r each' day d u r i n g which t h e o f f e n c e c o n t i n u e s .
Section
3 0 ( 1 ) g i v e s p o w e r s t o t h e CBN G o v e r n o r t o o r d e r s p e c i a l
e x a m i n a t i o n or i n v e s t i q a t i o n o f t h e b o o k s a n d a f f a i r s o f
a bank if h e i s s a t i s f i e d ; i t is i n t h e i n t e r e s t o f t h e
public;
t h e bank h a s been c a r r y i n g o u t its b u s i n e s s i n
a manner dctstaartal t o t h e i n t e r e s t o f i t s d e p o s i t o r s and
c r e d i t o r s ; t h e b a n k has ' * i n s u f f i c i e n t w a s s e t s t o c o v e r i t s
l i a b i l i t i e s to t h e p u b l i c ; or t h e bank h a s b e e n c o n t r a v e n i n g
t h e p r o v i s i o n s of t h i s .Ue.c!ree; o r t h a t a n a p p l i c a t i o n i s
I
made b y t h e s h a r e h o l d e r o r d i r e c t o r o f
d e p o s i t o r o r c r e d i t o r o f the b a n k .
t h e bank or a
X t means t h a t t h e
CBN 'is a v e r y i m p o r t a n t r e g u l a t o r i n t h e f i n a n c i a l
market i n Nigeria.#
S e c t i o n 38( 1-5
o f a bank.
.
.
I n f a c t it i s t h e u m p i r e i n t h e m a r k e t .
deals exclusively o n r e v o c a t i o n o f l i c e ~ c e
.h
If t h e Governor makes a n o r d e r r e v o k i n g t h e
l i c e n c e of bank,
t h e Rank s h a l l w i t h i n 1 4 d a y s o f t h e
7 ,
..
7 i-
,,
"*
-
d(
#''
,$?"
,
yp,!LC.
w 7 m'I
date bf
t h e arder a p p l y t o t h e F e d e r a l H i g h c o u r t f o r
a n order w i n d i n g - u p
a f f a i r s of t h e bank.
And w h e r e t h e
b a n k s f a i l s t o a p p l y t o the F e d e r a l High c o u r t w i t h i n
the period specified,
t h e G o v e r n o r can a p p l y t o t h e
F e d e r a l H i g h c o u r t f o r t h e w i n d i n q - u p of t h e b a n k .
I t states
s e c t - i o n 3 8 ( 3 ) gives a n i n s i g h t o n t h e NDIC.
as follows:
If
the
over nor
is s a t i s f i e d t h a t i t is
i n t h e p u b l i c interest t o d o so, h e may, w i t h o u t w a i t i n g
.
f o r t h e b e r i o d m e n t i o n e d i n s u b s e c t i o n (1) of t h i s
s e c t i o n to e l a p s e ,
a p p o i n t the NDIC o r a n y o t h e r p e r s o n
b
as t h e o f f i c i a l r e c e i v e r or as a p r o v i s i o n a l l i q u i d a t o r
a n d t h e c o r p o r a t i o n or s u c h o t h e r p e r s o n s h a l l . h a v e t h e
power c o n f e r r e d b y or u n d e r t h e c o m p a n i e s and ~ l l i e d
Ma.tters Decree 1990 a n d s h a l l b e d e e m e d t o have b e e n
a f ~ p o i n t e da p r o v i s i o n a l l i q u i d a t o r b y t h e ~ e d e r a l~ i g h
c o u r t f o e t h e p u r p o s e o f t h a t Decree.
S e c t i o n 38(3) i s
c l e a r o n the r o l e o f NDIC when i t comes t o f a i l e d b a n k s ,
I
t h e y a r c n o r m a l l y appointed a s l i q u i d a t o r s .
S e c t i o n 35 o f t h e N D I C a n d i t s s u b s e q u e n t s u b s e c t i o n s
t h r o w s more l i g h t on t h e a p p o i n t m e n t o f b a n k e x a m i n e r s .
T h e s e c t i o n g i v e s t h e board t h e p o w e r t o a p p o i n t o n
r e c o m m e n d a t i o n of t h e M a n a g i n g Director of t h e NDIC
such
n u m b e r o f e x a m i n e r s and t h e y s h a l l be o f f i c e r s o f the
I"
NDIC,
w i t h p o w e r s t o examime p e r i o d i c a l l y , a n d u n d e r
'
4
"'y.""7
*'
'
' f,
.
,",)k "
^cml"nmyrXi"#.~fl
s " n n ~ C
,,\)7~r%Y
I
.
c o n d i t i o n s o f s e c r e c y , t h e books, a n d a f f a i r s o f every
l n s u r e d bank.
T h e s e c t i o n a l s o gives NDIC examiners
t h e r i g h t o f access a t a l l kimes t o the boo~s,
a c c o u n t s a n d v o u c h e r s of the i n s u r e d b a n k s a n d p o w e r
t o r e q u e s t for information and
e x p l a n a t i o n from
officers of i n s u r e d b a n k a n d also h a v e access t o a n y
accoljnts, ' r e t u r n s a n d i n f o r m a t i o n w i t h r e s p e c t t o any
i n s u r e d b a n k u n d e r p r o v i s i o n s of t h i s Decree w h i c h are
i n p o s s e s s i o n of t h e C B N .
S e c t i o n 17(1) expects
examiners t o t a k e i a r e a n d not be a h i n d a r a n c e t o t h e day-tob
d a y a c t i v i t i e s of an i n s r a r e d ' b a n k a n d c o n f i n e t h e i r i n v e s t i -
g a t i o n t o matters of fact a n d data d e e m e d necessary f o r
the e x a m i n a t i o n .
S e c t i o n 17(5) An e x a m i n e r s h a l l f o r w a r d
a r e p o r t of h i s f i n d k n g s t o t h e M a n a g i n g G i r z s t o r o f
NDIC, who s h a l l t h e r e o n f o l r w a r d a c o p y t o t h e B o a r d and
inform t h e B o a r d of any circumstances i n w h i c h t h e B o a r d
may e x e r c i s e a n y o f i t s powers.
~ c c o r d i n gt o s e c t i o n (1)
s u b j e c t t o t h e approval of t h e M i n i s t e r o f Finance, t h e
b o a r d may a t a n y t i m e d i r e c t t h e M a n a g i n g Director t o
a p p o i n t t w o o r more q u a l i f j e d p e r s o n s t o make s p e c i a l
e x a m i n a t i o n of t h e b o o k s a n d a f f a i r s o f a n i n s u r e d b a n k
w h e r e t h e h o a r d i s of t h e o p i n i o n , t h a t a n i n s u r e d bank
-
!
,'
( a ) C a r r y i n g b u s i n e s s i n a m a n n e r d e t ~ i m e n t a lt o the
i n t e r e s t o f i t s d e p o s i t o r s and creditors; h a v e
i n s u f f i c i e n t assets t o c o v e r i t s l i a b i l i t i e s t o t h e
p u b l i c ; o r c o n t r a v e n i n g t h e p r o v i s i o n s of t h i s
Decree.
S e c t i o n 18(3! a l s o g o e s on t o s t a t e t h a t
w h e r e an i n s u r e d bank deems t h a t
( a ) I t i s l i k e l y t o become u n a b l e t o meet i t s
obligation; or
( b ) i t i s a b o u t to.. s u s p e n d p a y m e n t s ,
the insured
bank s h o u l d i n f o r m t h e N D I C a c c o r d i n g l y o f i t s
b
intention.
S e c t i o n 18(3) s p e c i f i e s p u n i s h m e n t f o r
c o n t r a v e n i n g s u . b s e c t i o l n ( 2 ) above w h i c h i s N10,OOO.
S e c t i o n 20 o f NDIC d e c r e e s t a t e s t h a t all d e p o s i t s o f
a l i c e n s e d bank or a n y i n s t i t u t i o n s h a l l be i n s u r h d
.
w i t h the NDIC w i t h e x c e p t i o n o f
t h e following, t h a t is
( a ) i n s i d e r d e p o s i t s o f s t a f f i n c l u d i n g directors of
t h e l i c e n s e d Bank o r f i n a n c i a l i n s t i t u t i o n ;
(b) c o u n t e r - c l a i m s
f r o m a p e r s o n who m a i n t a i n s b o t h a
d e p o s i t a n d loan a c c o u n t s , t h e f o r m e r s e r v i n g as
c o l l a t e r a l for t h e l o a n .
( c ) s u c h o t h e r d e p o s i t s a s m a y be s p e c i f i e d from t i n e
,to time b y the Board.
'
s e c t i o n 2141) s t a t e s t h a t e v e r y l i c e n s e b a n k o r
o t h e r f i n a n c i a l i n s t i t u t i o n t o w h i c h t h e Decree relates,
s h a l l be o b l i g e d t o p a y t h e NDIC, a p r e m i u m w h i c h s h a l l
be f i f t e e n s i x t e e n t h ( l S / l 6
o f o n e p e r c e n t p e r annum of
t.he t o t a l d e p o s i t l i a b i l i t l t e s s t a n d i n g i n its books as a t
3 1 s t December o f t h e p r e c e e d i n g y e a r .
A f t e r going through t h e various decrees t h a t
is
BOFID 2 5 , CBN 2 4 a n d NDIC 2 2 , I come t o t h e f o l l o w i n g
observations:
1.
T h a t b o t h t h e NDIC s u p e r r v i s e s a n d , e x a m i n e s t h e
'*
b
a c t i v i t i e s of b a n k s t o e n s u r e t h a t b a n k s c o m p l y t o
regulations of t h e f i n a n c i a l market i n Nigeria,
2,
T h a t t h e CBN a n d NDIC e n s u r e s t a b i l i t y a n d c o n f i d e n c e
3.
T h a t CBN a n d N D I e are i n t e r - r e l a t e d
i n t h e i r banking
s u p e r v i s i o n f u n c t i o n s s i n c e t h e y are b o t h e m p o w e r e d
t o e x a m i n e a l l t h e W o k s of a c c o u n t s and r e c o r d s of
banks i n t h e Nigeri.a f i n a n c i a l m a r k e t .
4.
T h a t t h e CBN a n d NDIC are t h e r e q v l a t o r S of t h e b a n k
i n d u s t r y i n t h e Nigeria f i n a n c i a l market.
T h e D i f f e r e n c e s b e t w e e n t h e N D A C a n d CBN can b e
s u m m a r i s e d as f o l l o w s :
,
1.
T h e CRN i s c o n c e r n e d i s b o u t t h e s t a b i l i t y i n t h e
. e ntire N i g e r i a fi n a n c i a 1 m a r k e t .
T h e NDIC c o n c e r n
i s l i m i t e d t o o n l y i n s u r e d bank i n t h e N i g e r i a
financial m a r k e t .
2.
T h a f a l l b a n k s m a i n t a i n d e p o s i t w i t h t h e CBN as d e t e r m i n e d b y t h e CBN.
A l l i n s u r e d b a n k s are r e q u i r e d
to
p a y 15/16 o f o n e p e r c e n t of t h e t o t a l d e p o s i t a s
i n s u r a n c e p r e m i u m t o t h e NDIC.
3.
T h e G o v e r n o r of t h e CBN is t h e c h a i r m a n o f t h e board
o f Directors of t h e NDIC.
T h e NDIC M a n a g i n g ~ i r e q t o r
i s n o t o n t h e b o a r d o f t h e CBN.
4.
T h e CBN c a n a p p o i n t t h e NDIC as l i q u i d a t o r o f a
failed b a n k i n N i g e r i a .
T h e NDIC can n o t a p p o i n t t h d
C
CBN as a l i q u i d a t o r a failed b a n k . i n N i g e r i a .
5.
T h e CRN t a k e s its e n t i r e a c t i o n s o n t h e macroe c o n o m y of ~ i g e k i asuch as c o m m u n i t y b a n k s ,
NACB,
F i n a n c e Houses,
D ~ S C @ UH
~ o~u s e s ,
NIDB,
NACB.
The NDIC a c t i o n s .are l i m i t e d t o only t h e n u m b e r o f
i n s u r e d banks i n t h e N i g e r i a e c o n o m y .
6.
T h e CBN d o n o t engage i n i n s u r i n g t h e o p e r a t i o n
of
banks.
T h e NDIC i s e x p e c t e d to i n s u r e t h e
o p e r a t i o n s of
banks i n t h e N i g e r i a economy.
'
%
--
4.4
ANALYSIS A N D INTERPRETATION OF DATA BASED ON
QUESTlONNAIRES
a-------
,
T h e . q u e s t i o n n a i r e s were a d m i n i s t e r e d t o b o t h cBN
b a n k i n g s u p e r v i s o r s a c d NDIC b a n k i n g s u p e r v i s o r s a n d
examiners.
I n a l l , f i f t y q u e s t i o n n a i r e s were i s s u e d t o
CBN b a n k i n g s u p e r < i s o r s a n d t h i r t y - t w o
response was
!
r e t u r n e d w h i c h r e p r e s e n t a b o u t 64% o f t h e s a m p l e .
t
A n o t h e r f i f t y w a s a d m i n i s t e r e d t o NDIC e x a m i n e r s and
fhirty-eight
was r e t u r n e d r e p r e s e n t i n g a b e u t 76% o f t h e
sample size.
t
c o m m e r c i a l b a n k s i n L a g o s m e t r o p o l i s a n d a l l was r e t u r n e d
r e p r e s e n t i n g 100% of t h e s , a m p l e s i z e .
'
T h i s was a g o o d
and encouraging result.
T h e r e s p o n d e n t s were n o t c a t e g o r i s e d i n t o sex o r
R a t h e r t h e y were c l a s s i f i e d by
any o t h e r c l a s s i f i c a t i o n .
i n s t i t u t i o n s t h e y r e p r e s e n t a n d t h e s e a r e CBN, NDIC a n d
i
commercial B a n k s .
CBN AND NDIC BANKTNG SUPERVISORS
-I---II*IWWI-.-.-~___-".-C"W
DESCRIPTION
.
~ ~ E C O = ~ P P = = X
Respondent
= n = 7 0
Percentaqe
= 100%
SOUHCE:
C
IN
PIIZ
NDIC
Dan=
32
38
46
54'
F i e l d S u r v e y by t h e a u t h o r ; ~ u q u s t ,
1')9!i
.
DESCRIPTION
X D ~ ~ D E S Z = P I Z
COMMERCIAL
BANK
PDPPPaSPPI=I=PP
Respondent
15
15
Percentage
n
e
-*
100%
SOURCE:
100
~ i e l ds u r v e y b y t h e a u t h o r ,
A U ~ U S ~ 1995.
,
T h e q u e s t i o n n a i r e s were c a t e g o r i s e d i n t o
-
O n e f o r CBN
a n d NDIC b a n k s u p e r v i s o r s a n d e x a m i n e r s and t h e o t h e r
for commercial bank,
h i s was d o n e to e n a b l e t h e r e s e a r c h e r
@
come t o a l o g i c a l c o m c b w s i o n .
4.5
---
-
R E S P O N S E FROM C B N A N D N D l C B A N K I N-G- SUPERVISORS/
.-
E X A M 1 MERS
llr-
T h e r e w a s a 100% r e s p o n s e f r o m b o t h the HDIC e x a m i n e r s
a n d CBN e x a m i n e r s a n d t h e y all agreed that s u p e r v i s i o n a n d
e x a m i n a t i o n p r o v i d e s e a r l y w a r n i n g o n d i s t r e s s e d bank.
The r e s p o n s e i n d i c 2 t e s t h a t t h e HCIC a n d CBN r e l y o n
s u p e r v i s i o n t o p r o v i d e t h e n e c e s s a r y weapon to c e r t i f y
t h e h e a l t h o f b a n k s operating i n t h e c o u n t r y .
T h e r e s e a r c h e r sought t o f i n d o u t f r o m the r e s p o n d e n t s
if
t h e CBM a n d NDIC bank s u p e r v i s o r s a n d examiners a r e
I
c o m p e t e n t and e x p e r i e n c e d .
T h e o p i n i o n o f r e s p o n d e n t s on the c o m p e t e n c e a n d
e x p e r i e n c e of t h e CRNrand NDIC s u p e r v i s o r s j e x a m i n e r s a r e
t a b u l a t e d below.
SUMMARY O F R E S P O N S E S ON COMPETENCE A N D EXPERIENCE
ECBN
A N D NDK
-----,.SUPE=SOHS/EXAMINERS
% Response
of Yes
zx5mL=r.=x=e
No
Yes
CBN
NDIC-
0
32
38
0
'461
-
54
O u t of t h e 70 q u e s t i o n n a i r e r e c e i v e d i t was o b s e r v e d from
t h e t a b l e a b o v e t h a t 100% of r e s p o n s e was Yes.
This confirms
t h a t t h e CBN a n d N D I C b a n k s u p e r v i s o r s a r e c o m p e t e n t .
T h e r e s e a r c h e r s o u g h t t o d e t e r m i n e i f t h e CBN a n d
NDIC ~ a n ks u p e r v i s o r s a t t e n d t h e same s c h o o i f o r t r a i n i n g .
Table I V s h o w s t h e v i e w s o f t h e r e s p o n d e n t s .
X Response
Yes
of
-mSXl:Jf
Yes
CBN
32
NDIC
38
Total
-
70
No
0
0 .
0
46
54
100
U
L
-
P
X
l
Y
From t h e t a b l e a b o v e i t w a s o b s e r v e d t h a t 100% o f t h e
r e s p o n s e ,was Yes, w h i c h c o r l f i r m s t h a t t h e CBh a n d NDIC
s u p e r v i s o r s a t t e n d t h e same t r a i n i n g s c h o o l .
The r e s e a r c h e r s o u g h t , t o f i n d o u t from t h e r e s p o n d e n t s .
i f i n a d e q u a t e g u i d e l i n e s on b a n < s u p e r v i s i o n by CBN a n d
;JDIC i s " r e s p o n s i b l e f o r t h e c o n t i n u e d c a s e s o f b a n k f a i l u r ' e s
i n Nigeria.
The r e s p o n s e i s t a b u l a t e d i n t h e t a b l e below:
Table V
--
SUFIMARY O F RESPONSE ON INADEQUATC GU'IDELINES
A S THE
C A U S E O F BANK ---..
FAlLUHZS
-----
% Response
o f N Zo z P P E
IPS--=.
CBN
:J D IC
Total
Yes
No
0
0
0
32
3t3
70
-
46
54
100
From t h e t a b l e a b o v e i t w a s o b s e r v e d t h a t 100%
( p e r c e n t ) o f t h e r e s p o n s e f r o m t h e r e s p o n d e n t s was NO.
hi:-, t n e r e f o r e n u l l i f i e s h y p o t h e s i s I .
The r e s e a r c h e r w e n t f u r t h e r t o a s k t h e r e s p o n d e n t
t h e p o s s i b l e f a c t o r s c a u s i n g bank f a i l u r e s .
t a h u l a i e d below.
'
T h i s 'is
Table
-----OF' R E S P O N S E
-------------------
SUMMARY
--.--
Roor
Mand getm e nt
m m - ,c .$=a
V I
---------
ON P O S S---..
I B L E CAUSES
~ 1 . 1of t h e
Dis-
Greed
honesty
D=E==
= . L ~ I B = J
---
OF RANK PAILURDS
% Response
o f A ~ I .o f .
t h e above
rhmxIwmIml8I
above
~~D~IOPLIII
From t h e t a b l e a b o v e i t was o b s e r v e d t h a t 71% ( p e r c e n t )
of
the r e s p o n s e was a t t s t b u t e d
t o a l l o f t h e a b o v e , 10%
w ~ , sa t t r i b u t e d t o p o o r m a n a g e m e n t , a n o t h e r 10% was a t t r i b u t e d
b
t o G r cd ' d n d f i n a l l y 9'X, w a s a t t r i b u t e d D i s r ~ o n e s t y . T h i s
c c ; n ~ i r n ~t sh a t o n e o r a l l o f
t h e f a c t o r s c a u s e s bank
f a i l u r e s and d i s t r e s s .
T h e r e s e a r c h e r souqht f u r t h e r b y a s k i n g t h e r e s p a n dents i f i t was a s a r e s u l t o f t h e p o o r s u p e r v i s o r y s k i l l s
o
:
the Lori a n d N D l C b a n k s u p e r v i s o r s t h a t c a u s e s b a n k
f a i l x e s and d i s t r e s s .
T h e r e s p o n s e i s t a b u l a t e d below.
-
Si'MMARY OF RESPONSE O N 1'0..----011S U P-_-E R V I S O R Y S K I L L OF
-I-----------
l-dk
-----
A h 0 I\IU.IC L U t - IJI(VI!JOHS
--.*
% R e s p o n s e of
I\ 0
I I I P I P P P P I I = I
Yes
No
'
From t h e t a b l e a b o v e ,
of
i t was n o t e d t h a t 1 0 0 % ( p e r c e n t )
t h e r e s p o n s e was N o . w h i c h a l s o n u l l i f i e s h y p o t h e s i s 2.
T h i s c o n f i r m s t h a t bank f a i l u r e s a r e n o t a s a r e s u l t
bf
',
t h e p o o r supervisory s k i ! !.s o f CRN a n d NDIC b a n k s u p e r v i s o r s .
Thp researcher a s k e d t h e r e s p o n d e n t s i f t h e f t a r e a s of
c o n f ! i c t b e t w e e n t h e s u ~ e r r i s o r yr o l e o f , t h e CBN a n d MDIC.
T h e i r r e s p o n s e s are t a b u l a t e d below.
.
'
T a b l e VIIL: SUMMARY O F RESPONSE ON I F THERE A R E A R E A S OP
CONFLICT BETWEEN CHN AND N I I l C .
From t h e t a b l e above i t was o b s e r v e d t h a t 33% ( p e r c e n t )
of
t h e response was complem~entary.
47% ( p e r c e n t ) of t h e
r e s p o n s e was No a n d O X ( p e r c e n t ) was Y e s .
This confirms t h a t
t - h e r e are n o a r e a s o f c o n f l i c t b e t w e e n CRN and NDIC r a t h e r
t h e i r a c t i v l ties a r e complernen t . a r y
.
The r e s e a r c h e r also asked t h e respondents whether t h e
CBN a n d MDIC s h o u ! ~ ~ - h q+F v e n more p o w e r s t o e n f o r c e b a n k i n g
1
supervision.
T h e r e s p o n s e s.hoved t h a t 100% ( p e r c e n t ) o f t h e r e s p o n s e
was Yes,
t h a t i s i n favour o f g r a n t i n g more p o w e r s t o t h e
CBN and NDIC.
I
,
The research f u r t h e r asked t h e r e s p o n d e n t s
-
is
banking supervision h e l p c r e a t e s t a b i l i t y and c o n f i d e n c e i n
t h e banking s e c t o r .
The
response i s t a b u l a t e d below.
The t a b l e a b o v e shows t h a t ZOO% of the r e s p o n s e
w a s Yes,
whlch c o n f i r m s the CRN and NCIC s u p e r v i s i o n h e l p
c r e a t e confidence i n t h e bankinq s e c t o r .
T h e r e s e a r c h e r asked the r e s p o n d e n t s to indicate t h e
l e v e l of c o - o p e r a t i o n
supervisors.
between t h e NDIC and CRN b a n k i n g
T h e r e s p o n s e i s t a b u l a t e d bclew.
R E S P O N . C i E
CBN
N Dl C
Total
Fairly
N o t Encour- of Good
From t h e t a b l e a b o v e the r e s p o n s e s h o w e d t h a t 55%
( p e r c e n t ) was Goad,
3 7 % w a s E n c o u r a g i n g , 18%was f a i r l y
~ o o d . T h i s c o n f i r m s t h a t t;he c o - o p e r a t i o n
l e v e l between
t h e C R N a n d NDXC s u p e r v i s o r s i s q a o d .
4
,
T h e R e s e a r c h f u r t h e r a s k e d t h e r e s p o n d e n t s how
t h e y assess t h e compliance o f the b a n k i n g sector t o
r u l e s governing banking s u p e r v i s i o n .
The r e s p o n s e is
t . a b u l a t e d below.
Table
..--. -.-.- X I
From the tab1.e r e s p o n s e s h o w e d t h a t 43% of t h e
r e s p o n s e was Good, 3 7 % was e x c e l l e n t , 19% w a s v e r y q o o d
-
a n d 11% w a s a v e r a q c . .
This confirms t h a t
t h e l e v e l of
c o m p l i a n c e is qood.
4.6
C
RESPONSE FROM COMMERCIAL BANKS
I
-.14,1----11-".."--~
T h e r e s p o n s e f r o m the commercial b a n k s when t h e
r e s e a r c h e r asked i f t h e s u o e r v i s i o n a n d e x a m i n a t i o n of cBN
and MQIC a f f e c t t h e i r o p e r a t i o n s .
t a b u l a t e d below.
!
The R e s p o n s e i s
R E ; S P O N S E
Coprnersi a].
YES
P5L
N
O
=1
NOT
QUITE
Y P P - = P v ~~~~7~
%
Response
of
Yes
um=Eim===
Banks
Total
The t a b l e s h o w s t h a t 67% of t h e r e s p o n s e was y e s ,
20% w a s Not q u i t e a n d t h e r e m a i n i n q 13% ( p e r c e n t ) was No.
T h i s c o n j i r n s t h a t h a n k i n q s u p e r v i s i o n h a v e a n impact on
t h e o p e r a t i o n s o f commercial banks.
T h e r e s e a r c h e r asked the r e s p o n d e n t how b a n k s u p e r v i b
s i o n of CRN and MDSC a f f e c t s t h e o p e r a t i o n s of commerciai
banks.
T h i s i s tabulated below.
commercial R a n k s
6
53% of r e s p o n s e w a s b o t h ,
40%' of t h e r e s p o n s e was
p o s i t i v e , w h i l e 7% ( p e r c e n t ) w a s n e g a t i v e .
his conf f r m s
t h a t s u p e r v i s i o n of banks b y CRN and NDIC h a s b o t h p o s A t i v e
a n d n e q a t i v e i m p a c t o n o p e r a t i o n s o f commercial b a n k s ;
.
T h e r e s e a r c h a s k e d t-he r e s p o n d e n t s a g a i n w h e t h e r
b a n k f a i l u r e s a n d d i s t r e s s were a s a' r e s u l t of i n a d e q u a t e
g u i d e l i n e s on t h e p a r t of C R N a n d MDIC s u p e r v i s o r s and
examiners.
This i s t a b u l a t e d below.
f
Table X I V
--.
-
-
SUMMARY OF RESPONSE
GUIDELINES BY
. ..-_--..-. ON'INADEQUATE
-*
BY
L
M
N
A
N
U
N
D
I
C
S
U
P
E
R
V
I
S
O
R
S
.- - - - * .---
UUI-.--.----
-YI---
-----&--I---
R E S P O N S E
Y e:;
KYZz
N
O
S D
% ~esponse
of
NO
tlPlLnImmPPDD
Commercial
7
Banks
8
53
T h e r e s p o n s e showed t h a t 53% w a s Yes a n d 47% was No.
I
'This
f u r t h e r n u l l if i e s H y p o t h e s i s (1). T h a t i n a d e q u a t e
g u i d e l i n e s by CBN a n d N D L C bank s u p e r v i s o r s is the c a u s e
o f bank f a i l u r e s .
T h e r e f o r e inadeq'uate g u i d e l i n e s by CBN
and NDIC is n o t t h e c a u s e of bank f a i l u r e s .
' I
T h e r e s e a r c h e r asked t h e r e s p o n d e n t s i f p o o r s u p e r v i s o r y s k i l l s of b a n k s by CBN a n d NDIC s u p e r v i s o r s i s
r e s p o n s i b l e f o r t h e c o n t i n u e d cases o f d i s t r e s s a n d
failure.
The r e s p o n s @ i s t a b u l a t e d below.
.
'
&
X Response
of NO
II1,St D f I==
R E S P O N S E
-
T h e t a b l e .slrt,wr?d
and 33% was Y e s .
that
67% of the r e s p o n s e was No
This nullifies h y p o t h e s i s ( 2 ) that
!
4
poor s k i l l supervisory skill by CRN a n d NDIC s u p e r v i s o r s
i s r e s p o n s i b l e f o r bank d i . ~ t r e s sa n d f a i l u r e s .
Therefore
poor.supesv.isory skill is not t h e cause o f bank f a i l u r e s .
T h e r e s e a r c h e r f u r t h e r a s k e d t h e r e s p o n d e n t s o n the
p o s s i b l e c a u s e s o f bank f a i l u r e s .
he r e s p o n s e i s
tabulated b e l o w .
Table X V I
----.---..-.-
% R e s p o n s e of
R E S P O N S E
Commercial
Hanks.
3
2
3
7
47
he above showed that 9%o f t h e r e s p o n s e was ~ l ofl
t h e a,bove, 20% was P o o r management,
13% w a s G r e 2 d and 20%
,J
was ~ i s h o n c s t y .
b his s h o w s t h a t the c a u s e o f bank
,
f a i l u r e s i s a t t r i b u t e d t o all o f t h e a b o v e t h a t i s p o o r
*
m , > n a g e m e n t , g r e e d , d i s h o n e s t y , a l l combined.
'
The r e s e a r c h e r asked t h e r e s p o n d e n t s how t h e y
.
c l a s s i f y t h e o p e r a t i o n s o f t h e CRN a n d NDIC.
The response
i.s t a b u l a t e d bebow.
T a b l e-..-XVII
.-.-a
s
R E
The
.
Commercial
aarlk s
P-o N s E
if ierComple-
% ~esponse
of c o m p l e m e n t
2
he r e s p o n s e s h o w e d t h a t 60% v i e w e d t h e o p e r a t i o n s
o f t h e CRN a n d NDJC a s c o m p l e m e n t a r y ,
37% ( p e r c e n t ) viewed
t h ~ ma s D i f f e r e n t l y , ' 13% vicwcd t h e m as t h e same.
T h e R e s e a r c h e r n L s o asked t h e r e s p o n d e n t s , i f t h e
supervision b y the CBN a n d NDIC h e l p
create d i s c i p l i n e
a n d s t a b i i i t y i n t h e b a n k i n q sectar.
The r e s p o n s e is
t a b u l a t e d below.
' Table X V I I X
I
_
_
_
I
_
_
SUMMARY
--.
- C
L
OF RESPON!;E
.- .-
Ia
N-D I C HELP CREATE
--T H AAN!)
-I ' T--HL IE SCIPL.
-CBN- AI-hNIDL- J.N
THE B A N K I N G
_..I
S'l'At3
J LITY
-..-_--I-
I
-
*-.
I
I
--------.---l-..*-LIL
L; I..C:'-I'C -68
---,.
R E S P O N S E
Ye
s
NO
7 :
n .r
i
- - _ L _ O -
.--1.111
% Response
o f Yes
The t a b l e a b o v e ~ n d i k a t e st h a t 100% o f t h e r e s p m s e w a s
Y e s wtiich
c o n f i r m s that t h e CBN a n d NDIC h e l p create
s t a b i l i t y and d i s c i p l i n e i n t h e banking s e c t o r .
The r e s e a r c h e r also a s k e d i f c o m p l i a n c e b y commerc i a l b a n k s t o r u l e s and lalws a r e more e f f e c t i v e t h r o u g h
s u p e r v i s i o n o f CRN a n d MDIC.
--
-T
-- a b l e X I X
-
SUMMARY O F R E S P O N S E ON COMPLIANCE .O F COMM-ERCIAL ,
t3AVKS TO R U L
. $ $.).ES'JL'T O F SUPEHVISliOhl
.- E S RNLl
- ..---.-LAWS A-.-BY
C1.i'
9
:
t, N l ) b . ~
----.--
.
l
*
.-.L---_----^----r-*--r---WI
I
_
_C.l..._O--Yd-
--I
--a
A
of 33%
The r e s p o n s e
Yes c o n f i r m s t h a t banks c o a p t i a n c e
1
f
t o rules a n d l a w i n t h e f i n a n c i a l s e c t o r i s as a r e s u l t o f
the s u p e r v i s i o n o f CRN a n d NDIC.
.
The R e s e a r c h e r a s k e d t h e r e s p o n d e n t s i f t h e C B N
and N R Z C b a n k s u p e r v i s o r s / e x a m i n e r s s h o u l d b e granted
more powers t o enhance t h e i r o p e r a t i o n s .
-The r e s p o n s e
i s t a b u l a t e d below.
SUMMARY O F RESPONSE ON G R A N T I N G A D D I T I O N A L POWERS
TO C I I N A-IN
U N Y (I
~ '~.:AIY
K
"-----..--,-..^...--..-.--..-
.
_
: . L ! ~ ~ ~ : ~ ~ ~
----
Y
II-U.-.IaW_-"-.--.-..--.I.-..
A
-
.*I
-I__.-.-.
Cornrnerci a1
Banks
.
I
.
.
.
.
-
---"-.I-
8
The r e s p o n s e showed t h a t 53% w a s Yes, w h i l e 47% was No.
This implies t h a t
more powers s h o u l d be g r a n t e d t o CBN and
N D I C Ramk s u p e r v i s o r s .
4.7
- --
H Y P O-T-H E----SES
-.I n a d e q u a t e g u i d e l i n e s o n bank super-
Hypothesis X (H?):
vision by the
CRN a n d N O I C
is responsible f o r
continued c a s e s i n N i g e r i a .
This was t ~ t csd t h r o u q h q v e s t i o n n a i r e s a d m i n i s t e r e d
to CBN and MDIC bank su[7ervis0rs and e x a m i n e r s a n d
commercial bi1nk.s.
The .rec;ponse i s r e p r o d u c e d f o r f u r t h e r
clarification.
- -
-
-
S U M M A R Y OF RESPONSE ON
.. 1-NAUEQUATE
- - .. -.-- . G U I D E L I N..-.-E S A S
T 8 ? C C h._--V S C uJ6'
kVk
NK
h'A
!LLlHt.:!;
.-.
--*.L
CRN
O
NDTC
s)
Total
-
7
A
1I
_
.
I--.
-" .
a
.
a
-
LA-
37
46
38
54
H
53
~ 1 L l t ~ D D P P D P : . 5 L P P I r ~ r = P = P I ~ ' L I r . z ~ a ~ I x
.From the t w o t a b l e s a b o v e ,
the above h y p o t h e s i s I
s t a n d s n u l - l i f l e d , s i n r e the r e s p o n s e from CBN and NDIC
i . n v . ~ l : - d a t e dh y p o t h r n i s 1 b v 900% 02 t h o response being No.
T h i s t h e r e f o r e means t h a t bank f a i l u r e i s n o t a s a r e s u l t
o f i n n d e q u a t e q u i de! i n ~ c b
. y CRN and H B I C s u p e r v i s o r s ,
T h i s was f u r t h e r ccjrr?lsmed f r o m t h e r e s p o n s e f r o m
c o m m e r c i a l w h i c h f i n a l l y invalidabed hypothesis By 53%
of r e s p o n s e b e i n q No,
H Y k ~ o ~ h e s i r2, ( H ? ) :
Poor s u p e r v i s o r y skill o f b a n k s by
CRN and N D T C !-s r e s p o n s i b l ~for cases of b a n k f a i l u r e s
*
r h i s wr+.r, tested t h r c . t ~ n qq~u e s t i o n n a i r s s a d m i n i s t e r c d to cRN
nr1d NDlC hank s u p e r v i s o r s and a l s o t o c o m m e r c i a l b a n k s . ,
The response i s reproduced f o r f u r t h e r c h a t i f i c a t i o n .
R E S P O N S E
% R e s p o n s e of
SUMMARY OF RESPONSE O N POOR SUPERVISORY SKILL OF
Ci3N AND ND1C
I M N K S 1 1 .-(..,.
P E R V I S G ) R S AND EXAMINb:R,S
--------.-..-
U
-
C
.
-
.
I
W
I
I
I
I
.
-
-
I
-
-
.
I
.
.
.
.
a
-
. ~ - - - - ~ L . . - - l - _ - - ~ . " . . - U ' I I I m L . , , U
.
R E S P O N S E
commercia!. Ranks 5
10
X Response of
;
101
From the two t a b l e s above, Hypothesis 2, (HZ)
s t a n d s null i f Led
-
, d.tbro thrs r e s p s n . s e
invalidates hyrlot ht*q.is 3
(
from CRM and NDYC
W2 1 b y 180% response B e i n q No.
This was f u r t h ~ rbnva1id3tr4 b y the response from
commerc'al
banks, 5 7 % o f the response was No.
t h ~ r e f o r em e a n s t h a t . bank f a i - \ u t e s ic, not,
ri:;
his
a result of
Th! s s t u d y w a s s p e c i f - k , a l l y c o n c e r n e d w i t h t h e compa-
a n d the NDIC.
T h e f l r s t four c h a p t e r s p r o v i d e d A n d e p t
a n a l y s i s of the harrk.i.nq s u p e r v i s o r y r o l e o f CRN and NDIC
i n Niqeria.
,f
rorn t w o s v u r c e s :
P r i m a r y ,xnd Secondary d a t a .
T h e d a t a k r e a t m c n t . t c r c h n i q u e used was:
f
~'Sirnpde
.
,< . ..-.~ i ~ 1 : i stcati5.t
. v ~
!cc, 'I. . . i . k ~ tables and S i m p l e p e r c e n t : . a g e s
.#i
After
c a r e f u l a n a l y s ! s o f t h e d a t a collected i n the
h y p o t h c s e , r , f o r m u l a t e d f o r t h e purpose o f t h e study.
The fol?pwinq a r e some o f t . h c f i n d i n q s d i s c o v e r e r ' \ n the
coursc of' t h e r e s e a r c h .
Firstly,
a n a r y s i s have indicated t h a t the CRN a n d
3
N D T C are r7llt.hnri.s~j.dby D e c r e e s t o r e g u l a t e banking b u s i n e s s
~ ~ - r - i r d l yt h, a t b a n k d i s t r e s s or f a i l u r e s ate n o t a s a
r e s u l t of :inac?ctq.~i\
te q r ~ i d p il n e s or p o o r s u p e r v i s o r y s k i l l
poor m i + n ; l \ y P m t ~ ~ g
~ tr,e e d ,
dtshonesty
or a c o m b i n a t i o n o f the
b y (_'FAN and NDIC' h a v e e l i m i n a t e d or m i n i m i z e d
. ~ l l p ~ r v
i oi n~ ,
t h e i n c i d e n t s of b a n k faillures and d i s t r e s s b ~ t
rather i t
p r o v i d e . 5 e a r l y warninq on cL,tst.ress a n d bank f a i l u r e s and
reveals t h e Importance o f b a n k s k e e p i n g p r o p e r books of
accounts.
Fifthly,
t h a t the CRhl a n d NDIC h a v e c o m p e t e n t ,
h i - q h l y t r a i n e d and q u a l i f i e d p e r s o n n e l t o c o n d u c t banking
s u ~ r . r v i : - ; i o n in a e c o r d m c e w i - th the prevail i n q q u i d e l i n e s .
S i x t ! l l y , the , ~ c t i v ~ . l - d . eof
s CRN and NDIC a s r e g a = d s
t o bank s u p e r v i s ? . o n and exdminatPiorl h a v e he lped create
d i s c i p l i n e , s a n b t y , *s t a b i l l t y a n d c o n f i d e n c e t h e N i g e r i a n
f i n a n c i a l sector.
T h e C R N and NDIC b a n k s u p e r v i s o r s and e x a m i n e r s
complained a b o u t
-
Y
t.
h a v i n q anouah l e g a l powers to
e n f o r c e b a n k i n a s u r w k v ! ? i n n mare e f f e c t i v e l y .
~ 1 . 1 . t h e research f i n r l i n q s p o i n t to one f a c t ,
hr3nl:
that
i n q s u n e . vi. c , i ~ ni c , a means o f ensuring h e a l t h i n e s s
, a n f l . s n u n ~ l n e s s n f htn.rlikc;
-
i n t h e b a n k i,nq e n v i r o n m c ~ ~ . ~ t
i-no wdve of d i s t r e s s i n k t s g .b a n k i n g s e c t o r ,
t h e CBN and
Y n I C s h o u l d s t r i v e to l i v e up to t h e i r r e s p o n s i b i l i t i e s ,
w i t h t h e r e c o r d e d f a i l u r e o f CBN. i n 1 9 6 0 , t h e i n d u s t c t y .
h a s r e m a i n e d f r e e of distress i n t h e b a n k i n g s y s t e m
u n t i l e a r l y 1990s.
T h e r e i s a d e q u a t e e v i d e n c e t o shou
t h a t t h e perceived s t a b i l i t y i n t h e i n d u s t r y has been
the result of
protection.
Since the protective 8 y ~ t s m
h a s been r e l a x e d , t h e r e h a s been crisis i n t h e SyStell.
Many o b s e r v e r s b e l i e v e t h a t w h e r e t h e i n d u s t r y is
a d e q u a t e l y d e r e g u l a t e d a n d t h e f o r e x b u s i n e s s becomes
less m o n o p o l i s t i c , many b a n k s i n t h e s y s t e m w i l l n o t be
able t o w i t h s t a n d t h e r e s u l t i n g c o m p e t i t i o n A l s o i n 1992,
b
t h e f a c t of d i s t r e s s e d banks became
a mLijor i s s u e i n t h e i n d u s t r y ,
category of banks-
-
a n d t h i s phenomenon t o a n y
Thus a f t e r t h i r t y f o u r y e a r s of t h e
l a s t r e c o r d e d bank f a i l d r e s i n N i q e r i a ,
t h e C e n t r a l Bank
hdd t o w i e l d t h e b i g a x e by c l o s i n g t w o b a n k s i n t h e
c o u n t r y i n J a n u a r y 1994.
T h e u p s u r g e i n t h e number o f b a n k s a n d t h e
a n t i c i p a t e d f a i l u r e s i n s y s t e m as a r e s u l t o f c o m p e t i t i o n
<ir:~onqb a n k s i n t h e s y s t e m s a w t h e e s t a b l i s h m e n t o f t h e *
'
N D I C i n 1988.
Thus,
t h i s r e c e n t phenomenon o f i n s t a b i l i t y i n h e
b a n k i n g s y s t e m i s n o t d u e t o a b s e n c e of a d e q u a t e r e g u l a t o r y
f r a m e w o r k a s was i n t h e case i n t h e 1 9 3 0 s a n d 195.0s b u t
more t o a s t r u c t u r a l . a n d e n v i r o n m e n t a l p h e n o m e n o n o n t h e
one
hand and g l a r i n g l a c k o f prudency o n t h e p a r t o f
some of
t h e b a n k s on t h e o t h e r h a n d .
I n o r d e r t o stem t h e p r e s e n t i n s t a b i l i t y i n t h e
s y s t e m t h e s u p e r v i s o r y f r a m e work o f t h e 'CBM a n d NDIC
need to be s t r e n q h e n e d ,
Rased on t h e resedrc:h
f indings t h e following
recornmendat i o n s a r e made:
I
T h e p o w e r s o f t h e s u p e r v i s o r y a u t h o r i t i e s , CBN a n d
@
NDIC s h o u l d be s t r e n g t h e n e d i n a way t h a t t h e CBN
and NDlC c a n e n f o r c e t h e i r r e c o m m e n d a t i o n s
e f f e c t i v e l y and e f f i c . . i e n t l y
.
F o r now t h e major
c o m p l a i n t s among s u p e r v i s o r y a u t h o r ' i t f e s i s l a c k o f
a d e q u a t e power to e n f o r c e t h e i r d e c i s i o n s ,
T h e CBN a n d NDIC s h o u l d e n s u r e t h a t b a n k s u p e r v i s o r s /
e x a m i n e r s u p d a t e t h e i L- k n o w l e d g e , e x p e r t i s e and
t e c h n i q u e i n o r d e r t o be a b l e t o f a c e t h e c h a l l e n g e s '
of m o d e r n b a n k i n q s u p e r v i s i o n .
T h e CBN a n d NDlC s h o u l d f o l l o w u p b a n k s u p e r v i s i o n /
examination r e p o r t s .
The t i m e - l a g
between r o u t i n e
b a n k e x a m i n a t i o n s .may b e t o o l o n g f o r a d e q u a t e f o l l o w
up.
1 recommend t h a t s y s t e m t o m o n i t o r i m p l e m e n t a t i o n
*
*
of r e c o m m e n d a t i o n s d u r i n g b a n k e x a m i n a t i o n s b e
instituted.
'
5
his w i l l g o a l o n g way i n e n s u r i n g t h a t
b a n k e x a m i n e r s meet i m p r o v e d p o s i t i o n when t h e y v i s i t n e x t .
4.
T h e CBN a n d N D I C s h o u l d e n f o r c e s a n c t i o n s a g a i n s t
e r r i n g bank.
w h e r e e n f o r c e m e n t i s l a x , t h e r e 'is u s u a l l y ,
l i t t l e adherence to r u l e s .
Also,
t h e e a s i e s t way t o
e n s u r e t h a t t h e g e n e r a l i t y o f people and b n s t i t u t i o n s
o b e y l a i d down r e g u l a t i o n s i s t o d e m o n s t r a t e t h a t t h e
c o n s e q u e n c e s o f v i o l a t i o n i s h i g h and t h i s i s d o n e
most e f f e c t i v e l y b y i m p o s i n g a n d e n f o r c i n g s a n c t i o n s
#
whenever t h e need a r i s e s .
5.
Finally,
t h e NDIC a n d CBN s h o u l d p r o v i d e a d e q u a t e
r e s o u r c e s t o s u p e r v i s o r y p e r s o n n e l t o c o p e w i t h the
-
i n c r e a s i n g corn6,lt:xity
g r o w i n g s e c t o r of
of banking s'upervision i n a fast
t h e economy.
These i n c l u d e space,
e q u i p m e n t a n d m o d e r n t e c h n o l o g y , m a t e r i a l s a n d most
i m p o r t a n t l y adequate and w e l l t r a i n e d r e s o u r c e s .
The
s y s t e m h a s i t s e l f to blame i f t h e s u p e r v i s o r y u n i t s
itre n o t a d e q u a t e l y e n d o w e d i n t h e f a c e o f t h e r a p i d
q r o w t h i n t h e sector t h e y are t o s u p e r v i s e .
.
.1
t
5.4
CONCLUSION
CBN a n d NDIC n a v e p l a y e d a n d st111 have c r u c i a l
r o l e to p l a y i n banking s u p e r v i s i o n .
T h e X B N a n d NDIC
have to c o n t i n u a l l y s u p e r v i s e banks to e n s u r e s t a b i l i t y ,
s a f e t y o f d e p o s i t s a n d c o n f i d e n c e i n t h e b a n k i n g sector
of
t h e N i g e r i a n economy.
I t is t h e f i r m b e l i e f of t h e author t h a t i f t h e
I
ma.jor f i n d i n g s a n d r e c o m m e r ~ d a t i o n sd i s c o v e r e d i n t h e
c o u r g e of t h i s r e s e a r c h a r e i m p l e m e n t e d , i t w i l l g o a
lorig way i n e n s u r i n g s t a b i l i t y i n t h e b a n k i n g sector a n d
s u r v i v a l of
banks i n t h e settor.
The e x t e n t of s u r v i y a ) and
d i s t r e s s i n t h e b a n k i n g sector d e p e n d s o n s t r i c t s u p e r v i s i o n and c o m p l i a n c e a c c o r d i n g t o major recommendations
i n t h i s s t u d y a n d t h i s w i l l g o a l o n g way i n a t t r a c t i n g
the
much n e e d e d f o r e i g n i n v e s t m e n t i n t o t h e c o u n t r y , f o r
w h e r e t h e f i n a n c i a l sector o f
a c o u n t r y i s s i c k i t tend;
t o d r i v e away p r o s p e c t i v e i n v e s t o r s .
Therefore adequate
p r e p a r a t i o n s s h o u l d be made t o e n s u r e t h e c o n t i n u a l
s u s t e n a n c e a n d s u r v i v a l o f t h e b a n k i n g sector of t h e
~ i q e r i d neconomy,
Recommended . a r e a f o r f u r t h e r r e s e a r c h i s o n t h e
s u p e r v i s i o n o f non-bank
I
f i n a n c i a l i n s t i t u t i o n s by
h e C e n t r a l Bank of N i g e r i a ,
.
.
,
( 1985)
25 Y e a r s of: Merchant Banking i n N
-i g e r i a ,
Lagos: U n i v e r s i t y o f Lagos p r e s s , 1985.
'.deww,i, 1.1.
,
I,. ( 1969) T l ~ e~ c o n o m i e sof: Money and Banking,
New York: ~ G e R r Row, 1969.
(:handler, V.
,
LIE ( 1985) -3anking Supervision: Evolution,
,:-?+ner, i. P. !-;.
F r a c t i c---e and----I s s u e s , ed. London: A l l e n & Unwin, 1986.
'
! 1973) , t 3 c y c l q ~ a e dai 2f: 3anki.ng and Finance
7tl Ed. Revised a:ld ':r.larged by G a r d a , F, L, USA:
' h n k e r s P u b l i s h i n g Company, 1973.
--
unn, ';. '3.
.
(1991) , Bank Managanent P r i n c i p l e s and P r a c t i c e ,
Lagos: h a l t h u s P r e s s , 1991.
I.Wanh~o,G.
(
b
*
---
'!wankwo, G, 0, (1990) , P r u d e Z t -.--i a l :?crgulation o f N i g e r i a M n k i n q ,
Lagos : I!niversi t y of 1.aqos P r e s s , 1990,
7'1
3l3,
>.
':. (lq9O; , -----T n t r o d ~ i c t i o r .to Research Ivlethodo7,0gy,
, n i t s h a : A f r i c a ) i'ep P ~ i b l i s h e r s , 1990.
..: p.2 i d ~ , T.
(1990) , Major Developments and I n n o v a t i o n s i n t h e
Fligerian F i n m c e Environment S i n c e 1960, i n p a p e r s and
i ) i r e c t o r s Seminar 1990: Y I K
r r o c e e d i n g s of: Bank.
Laqo s, 1990.
A.
I
azi n e s
--:3.:rn;ils/lia~j
---. ~ l e ts~i!, r .
,~I-I;P,
( 1994) , "rjankinq R ~ ~ J aI t Ii o~ n i n h i q e r i a : An A n a l y t i c a l
k , e r s p ~ t i v e " ,T 3:; ~ ; c o : p n i c and F i n a n c i a l Review.
Vo?. 3 2 , 'a. 3 , lQ94.
::. ,;.(1992) , i3a:;kj .ig ;.!pr?r\irision and Tnspection, CBN
Pullion.
7
-
..wen;irnobor,
Vol.
1 5 , I'o.
3, 1992.
-
A. E. ( 1 9 9 2 ) , Restructxriug I n s o l v e n t Banks: Role of
Regulatory ~ u t h o k i t i e s , P J D K ' l c a r t e r l y , Vol, 2, No. 2,
1992.
,'.timed,
. Fi.n and
, ~ l a s h u , 5.
Nigeria.
I
NDIC
*
,
(1992) Rank P r u d e n t i a l R e g u l a t i o n
: ! ~ a r t e r l y : Vol. 2, No. 3, 1992.
0.
Cooke, F.
(1993) , Banking S u p e r v i s i o n : Ti:e F i n e L i n e Between
C o e r s i o n and P e r s u a s i o n , The Ranker: Jlagazine London,
1993.
.:bhoc!aqhe,
J . U. (1993) Regulatory A c t i v i t i e s Within the N i g e r i a n
F i n a n c i a l S e r v i c e s I n d u s t r y : The Expected Role o f NDIC
vis-a-vis 0 t h e r Hegul a t o r y Dodi es. NDIC Q u a r t e r l y ,
Vol. 3, N o . 3, 1993.
,
::bhodaghe, J. 11. (1991) , Some O p e r a t i o n a l I s s u e s o f NDIC and the
Banks, PJDIC Q u a r t e r l y . V o 1 . I , No. 2, 1991.
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:kundnyo,
,
0. (1994) The !Tuture o f t h e Banking I n d u s t r y i n
(Ci3'1 3conomic and F i n a n c i a l Review. Vol. 32,
<*,
- - a _ - . - -
Niger
>.
,o. 3 ,
!
arlu,
3.
(
\
1934.
19931, 1iedefini:lq t h e Role of Hanks i n a D e r e g u l a t e d
~ ) ~ b e l o p i nk2onomy.
q
NT)IC Q u a r t e r l y : Vol. 3, NO. 1,
1993.
' ptim, 3,
.
( 1994) , The I i o l e o f t h e C e n t r a l Bank in t h e
I l i g e r i a n conomy. CBlf B u l l i o n Vol. 18, No. 4 ,
1994.
:- ,I.
,an.sst , $ 7 .
----
( 1994)
, ~ u p e r vsi i o n
o f Banking I n d u s t r y i n N i g e r i a :
in O p e r a t o r ' s V i m p r > i n t : C3N ~ c o n o m i cand F i n a n c i a l
.<eview: Vol. 32, No. 3, 1994.
, < s o
c
.'kponj
, r . ,7.
,
:
,
( ed. ) ( 1993) l3anking S u p e r v i s i o n and Examination
i n r ; i q e r i a, CWI t j r i e f s: S e r i e s No. 95/07, 1993.
.
. (1994), ;in
Assessrne!;t of t h e Impact o f t h e
i ! r u d e n t i a l G u i d e l i n e s o n Danks' F i n a n c i a l Risk
Kanagentnt: C'Wi t:conomic
. -.- and F i n a n c i a l Revitd:
Vol. 32, No. 3 , 1994.
,
rrrnoh, I , Pi. (7994) ~equ?iitory/':upervisory Framework f o r A s s e t
:,i,+i 1i t y l . . c t n q m e n t I n t e r n s t i o n a l 3vervim: N D I C
. u a r t r t r l y Vo!. 4 , ;!o. 2, 1 9 9 4 , .
b
'
6
o t h e r Pub1 ished M a t e r i a l
C e n t r d l Bank o f N i g e r i a M o n e t a r y P o l i c y G u i d e l i n e s
Various Issues.
'
--
C e n t r a l Bank o f ~ i g e r i a( 1 9 9 4 1 , S t a t i s t- i c a l ~ u l l e t i n .
V 0 l . 3 NO, I., / ' ? ? + I
?
c e n t - r a l aank o f N i g e r i a , Annual R e p o r t s ( 1 9 9 0
-
,
r n '
1994).
: l i g e r i a n ~ e p o sti I n s u r a n c e C o r p o r a t i o n , A n n u a l R e p o r t s ,
(1990 - 1994)- .
Decrees
Banks and O t h e r Finarlcicll
I n s t i t u t i o n s Decree
~ i q e r i aDecree No.
C e n t r a l B a n k of
1 \ ~ i 7 e r i , i nD e p o s i t
2 4 of
I R s u r a n c e Decree NO.
NO.
25 o f 1991.
1991,
22 of 1988.
@
~ J n r j u r j il s h e d M a t e r i a l s
r?nhammerl,
\
S. ( l 9 9 3 ) , Rendering o f R e t u r n s t o ~ e g u l a t o r y
~ u t h o r i t i e s , ( P a p e r p r e s e ~ t e da t t h e N a t i o n a l
Seminar on A c c o u n t i n g i n t h e kiankinq a n d F i n a n c e
I n d u s t r y ) O g u a t /9/)3.
O d u y e m i , S. 0. (1978), B a n k i n g S u p e r v i s i o n a n d t h e Decree,
( P a p e r r e a d a t CHN T r a i n i n g S c h o o l ) L a g o s , . / 9 7 8 .
Snoek, H.
( l 9 8 8 ) , l f r oblerns o f Bank S u p e r v i s i o n i n
Developing C o u n t r i e s ( C e n t r a l Banking Seminar,
I n t e r r r a t i o n d l M o n e t a r y F u n d , W a s h i n g t o n D m C.1,
-
I?k,!!
!
5
QUESTIONNAIRE
- --
--CBN
AND
---
I
NDIC B A N K SUPERVISORS/EXAMINERS
Department of Banking and F i n a n c e
~ a c u l t yo f B u s i n e s s A d m i n i s t r a t i o n
University of Nigeria
EnUqU Campus
J u n e , 1995.
I am a ~ o s t ~ ~ T i L i i l sa t ue d e n t o f ' ~ a n k i n qa n d F i n a n c e
of
t h e named U n i v e r s i t y , c u r r e n t l y c a r r y i n g out a r e s e a r c h
o n t h e "Cornparat i v e - A p p r a i s a l o f t h e B a n k i n g S u p e r v i s o r y
Role of
,
t'he CBN dnd NDIC.n
I t w o u l d be h i g h l y a p p r e c i a t e d i f y o u c o u l d h o n e s t l y
corrl; 1 p t e t h e f o l lowi nq q u e s t i o n n a i r e .
\.he q u e s t i o n s
L:)P
Honest answers to
b
will e n d b l e t h e r e s e a r c h e r assess t h e Role of
CBN ~ n dNDIC o n t h e b a n k i n g i n d u s t r y .
your
responses to these questions w i l l be treated
contidentidlly.
T h e r e i s n o n e e d f o r identification ( i . e -
r),lrne o r d d d r e s s ) , i t becomes c l e a r t h a t t h e i n f o r m a t i o n
s o u g h t f r o m you i s n o t g o i n q to i n v o l v e y o u , s i n c e t h e
research i s a n academic e x e r c i s e i n p a r t i a l f u l f i l m e n t
ot t h e r e q u i r e m e n t s f o r t h e a w a r d o f a n MHA d e g r e e i n
B,in-. i n g a n d F i n a n c e ,
UCHENNA S. AKWEKE
(Researcher)
Instruction:
-----
1,
Please t i c k ( /)
appropriate.
or g i v e e x p l d n a t i o n as
T h e name o f t h e i n s t i t g t i o n i s
-
-
2, ' T h e p o s t o f t h e o f f i c e r i s
I n y o u r own v i e w d o e s s u p e r v i s i o n a n d e x a m i n a t i o n
banks h e l p s p r o v i d e e a r l y warning on d i s t r e s s e d bank?
of
/
7 /
7
a n d NDIC a t t e n d t h e same
( a ) Yes /
( b ) No /T
wou I d you s a y t h a t b a n k s u p e r v i s o r s o f CBN a n d NDIC
are c o m p e t e n t a n d e x p e r i e n c e d ? ( a ) Yes
( b ) No
DO s u p e r v i s o r s o f
CBN
school f o r training?
I n y o u r o w n o b s e r v a t i o n would you s u b s c r i b e t h a t
i n a d e q u a t e g u i d e 1 i n e s o n b a n k s u p e r v i s i o n b y CBN
a n d NDIC i s f o r c o n t i n u e d c a s e s o f Bank f a i l u r e s
( b ) No
i n Nigeria?
(a) Yes 1 7
-
b'
a
If N o to q u e s t i o n ( 6 ) a b o v e w h a t are t h e c a u s e s o f
bank d i s t r e s s a n d f a i l u r e ?
/
7
( a ) Poor M a n a g e m e n t
(b) Greed
17,
( d ) A l l of
t h e dbove.
(c) D i s h o n e s t y
1 7
I n y o u r own v i e w d o y o u f e e l t h a t t h e p o o r s u p e r v i s o r y
b a n k s b y CBN a n d NDIC i s a l s o r e s p o n s i b l e
f o r t h e c o n t i n u e d cdses o f d i s t r e s s a n d Bank
( a ) Yes
( b ) No /
7
f a i l u r e s in Nigeria?
s k i 11 o f
/7,
A r e t h e r e a r e a s of c o n f l i c t i n t h e banking s u p e r v i s i o n
7,
( b ) No /
7
o f CBN a n d NUIC? ( a ) Yes ( c ) c o m p l e m e n t a r y -/-7
' A f t e r , c a r r y i n g o u t b a n k i n g r s u p e r v i s i o n d o t h e CBN
a n d NDIC b a n k s u p e r v i s o r s e x c h a n g e r e p o r t s ?
From y o u r b a n k s u p e r v i s i o n e x p e r i e n c e , do t h e CBN
a n d NDIC n e e d -more p o w e r s t o e n f o r c e S u p e r v i s i o n ?
'
-.-I n s t r u c t i o n :
Please t i c k
appropriate.
(
/)
or g i v e e x p l d n a t i o n a s
-
T h e name o f t h e i n s t i t u t i o n i s
1.
-
2.
The p o s t of
3.
I n y o u r own v i e w does s u p e r v i s i . o n a n d e x a m i n a t i o n
of banks h e l p s p r o v i d e e a r l y warning on d i s t r e s s e d bank?
4.
Would y o u s a y t h a t b a n k s u p e r v i s o r s o f CBN a n d NDIC
dre c o m p e t e n t a n d e x p e r i e n c e d ?
( a ) Yes /
7
(b) NO
5.
DO s u p e r v i s o r s o f CUN a n d NDIC a t t e n d t h e s a m e
school f o r training?
(a) Yes /
7( b ) N o / 7
6.
I n y o u r own o b s e r v a t i o n w o u l d y o u s u b s c r i b e t h a t
i n a d e q u a t e g u i d e l i n e s o n ban^ s u p e r v i s i o n b y CBN
a n d N D I C i s - f o r c o n t i n u e d cases o f Bank f a i l u r e s
i n Nigeria?
( a ) Yes -1. 7
(-b N o
-
the officer is
-
/
7
-
'
a
I f No t o q u e s t i o n ( 6 ) a b o v e w h a t a r e t h e c a u s e s of
bank distress and f a i l u r e ?
7.
(
1 7
-
a ) Poor Management
\(b) G r e e d
(dl ~
7,
(c) Dishonesty
7
l o fl t h e a b o v e .
I n y o u r own v i e w d o y o u f e e l t h a t t h e p o o r s u p e r v i s o r y
s k i 11 o f b a n k s b y CBN a n d NDZC i s a l s o r e s p o n s i b l e
f o r t h e c o n t i i ~ u e dcases o f d i s t r e s s a n d Bank
f a i l u r e s i n Nigeria?
( a ) Yes /7
(,
b ) No ~7
80
-
-
10.
'11.
-
A r e t.here a r e a s of c o n f l i c t i n t h e b a n k i n g s u p e r v i s i o n
o f CBN a n d NoLC? ( a ) Yes 7
, ( b ) No
( c ) Complementary
/-7
9.
.
/
7
A f t e r c a r r y i n g o u t b a n k i n g s u p e r v i s i o n do t h e CBN
a n d NDIC b a n k s w p e r v i s o r s e x c h a n g e r e p o r t s ?
From y o u r b a n k s u p e r v i s i o n e x p e r i e n c e , do t h e CBN
a n d N D I C n e e d more p o w e r s t o e n f o r c e s u p e r v i s i o n ?
1
\.
12.
Do b a n k i n g s u p e r v i s i o n h e l p create s t a b i l i t y a n d
c o n f i d e n c e i n b a n k i n g sector i n t h e N i g e r i a e c o n o m y ?
'13.
! l o w would you r a t e t h e l e v e l o f c o - o p e r a t i o n
CBN a n d N D I C b a n k i n g s u p e r v i s o r s ?
- (b) Good D,
encouraginq / /
(a) ~ncouragin~//,
( d ) Not
14.
-
,
.
between
( c ) F a i r l y good
/
7
How do you a s s e s s t h e c o m p l i a n c e l e v e l o f t h e b a n k i n g
s e c t o r t o the R u l e s g o v e r n i n g b a n k i n g s u p e r v i s i o n ?
D o you h a v e a n y o t h e r i n f o r m a t i o n y o u t h i n k w o u l d be
beneficial to 'the Researcher?
.
QUESTIONNAIRE I1
FOR COMMERCLAL B A N K S
,
Department o f Banking and F i n a n c e
Faculty of Business ~ d m i n i s t r a t i o n
University of Nigeria
Enuqu Campus
v
J u n e , 1995
Dear S i r / M a d a m ,
I am a p o s t g r a d u a t e s t u d e n t o f B a n k i n g a n d F i n a n c e
o f t h e a b o v e named U n i v e r s i t y , c u r r e n t l y c a r r y i n g o u t a
r e s e a r c h o n t h e " C o m p a r a t i v e ~ p p r a i s a lo f t h e B a n k i n g
s u p e r v i s o r y Role o f t h e CBN a n d NDIC?
I t w o u l d be h i g h l y a p p r e c i a t e d i f y o u c o u l d h o n e s u y
c:ornpl ~ t teh e f o l l o w i n g q u e s t i o n m a i r e .
Honest a n s w e r t o
t h e q u e s t i o n w i l l e n a b l e t n e r e s e a r c h e r a s s e s s t h e role .
o f t h e CBN a n d NDIC on t h e b a n k i n g i n d u s t r y .
Your r e s p o n s e s t o t h e s e q u e s t i o n s w i l l b e t r e a t e d
confidentially.
There i s no need f o r i d e n t i f i c a t i o n
(e.q.
name o r a d d r e s s ) , i t b e c o m e s c l e a r t h a t t h e
i n f o r m a t i o n s o u g h t f r o m you i s n o t g o i n g t o i n v o l v e y o u ,
s i n c e t h e r e s e a r c h i s an a c a d e m i c e x e r c i s e i n p a c t i a l
f u l f i l m e n t of t h e r e q u i r e m e n t f o r t h e a w a r d o f a n
MBA d e g r e e i n B a n k i n g dnd F i n a n c e .
AKWEKE
(Researches)
UCHENNA S.
.
!nst.ruction:
---
Please t i c k (
appropriate.
.
-
/)
o r g i v e e x p l a n d t i o n as
T h e name o f t h e b a n k o r i n s t i t u t i o n i s
c
:v
How l o n g h a s y o u r b a n k b e e n i n o p e r a t i o n ?
(a) Less than 15 y e a r s
/
7
( b ) More t h a n 1 5 y e a r s
~7
Does t h e s u p e r v i s i o n a n d e x a m i n a t i o n e x e r c i s e o f
CBN a n d N D I C a f f e c t o p e r a t i o n s o f y o u r b a n k ?
( a ) Yes
/ /, ( b ) No / / (c) Not q u i t e / /
-
-
--
how d o e s i t a i f e c t y o u r o p e r a t i o n ?
If Yes,
/
7
,
( b j Negatively /T,( c )
(a) ~ o s i t i v e l y
-
~ o t h ' / 7
I n y o u r own v i e w d o you s u b s c r i b e t h a t i n a d e q u a t e
g u i a e l i n e s on bank s u p e r v i , i o n i s r e s p o n s i b l e f o r
c o n t i n u e d cases o f b a n k f a i l u r e i n N i g e r i a ?
(a) yes
/ /,
(b)
NO
//,
-
(c)
~ o qt u i t e
,
~7
'
I.; p o o r s u p e r v i s o r y s ~ i l of
l b a n k s b y cBN a n d NDIC
r e s p o n s i b l e f o r c o n t i n u e d c a s e s o f bank f a i l u r e s i n
N i g e r i a 7 Yes (a) Y e s //,
( b ) No /
7
-
-
I f N O t o q u e s t i o n s 5 a n d 6 a b o v e , w h a t are the f a c t o r s
r e s p o n s i b l e f o r t h e c o n t i n u e d cases o f d i s t r e s s a n d
f a i l u r e s on any banks?
fa) Poor
honesty
management
/ /,
-
(d) ~
--/
-
( b ) Greed /
l o lf t h e a b o v e
/
7
-
(c) Dis-
I n y o u r v i e w o f CBN a n d NDIC,' how do y o u c l a s s i f y
t.he o p e r a t i o n s of t h e t w o i n s t i t u t i o n s ?
D o e s t h e s u p e r v i s i o n o f b a n k s b y t h e CBN a n d NDIC
i n t h e banking
. h e l p c r e a t e d i s c i p l i n ~ ba n d
s e c t o r ? ( a ) Yes
(b) NO L
a,
!
10.
Is i t a p p r o p r i a t e t o c o n c l u d e t h a t commercial bank
c o m p l i a n c e t o r u l e s a n d l a w s are more e f f e c t i v e
t h r o u g h b a n k i n g s u p e r v i s i o n o f CBN a n d NDIC?
11.
DO you h d v e a n y c o m p l a i n a b 0 u . t t h e s u p e r v i s i o n a n d
e x a m i n a t i o n s t y l e o f t h e CBN a h d , NDIC?
(a).Yes
(bl No
=,
a
.".
-&
_
-
.
--
13.
I n y o u r v i e w , d o e s t h e CBN a n d NDIC h a v e h i g h l y
'
t r a i n e d and q u a l i f i e d competent personnel t o undertake
bank s u p e r v i s i o n a n d e x a m i n a t i o n e x e r c i s e ?
14.
I n y o u r o p i n i o n , d o you t h i n k . t h a t i t , i s n e c e s s a r y ,
t h a t more p o w e r s s h o u l d b e g r a n t e d t o CBN a n d NDIC
. .'
examiners t o enhance t h e i r o p e r a t i o n s ?
5.
D o you h a v e a n y o t h e r i n f o r m a t i o n you t h i n k t h a t w o u l d
be beneficial to t h e researcher?
---