THE ROLE OF NIGERIAN MONETARY AUTHORITIES IN BANK DISTRESS PREVENTION

ABSTRACT

A research project was carried out as an opinion survey to determine the role of Nigerian Monetary Authorities in Bank Distress prevention from 1990 to 2005. A sample size of ‘68’ was arrived at using ‘204 randomly selected staff from CBN.  NDIC and First Bank of Nigeria Plc Uwani branch as the population size. The research works consist of five chapters, which will be discoursed one by one. Chapter one includes the introduction, statement of the problem, objectives of the study, the research questions, statement of hypothesis, the significance of the study, limitations of the study and definition of operational terms. Chapter two is the review of related literature.  This chapter discussed the nature of Nigerian deposit insurance company, and also discussed the causes and implications of distress on the economy the chapter also discussed the roles which the monetary authorities play to prevent bank distress and its effectiveness. Chapter three which is the research methodology includes the research design, the area of study, the population, sampling technique, the instrument of data collection and the method of data analysis. Chapter four of the study includes the presentation, analysis, and interpretation of data.  The sixty-eight (68) questionnaires that were distributed were analyzed through the use of the table.  The statistical method, which is used in analyzing the result of the information, is the simple percentage and chi-square (X2). Chapter five of the study consists of the summary of findings, conclusion, and recommendation.

CHAPTER ONE

INTRODUCTION

1.1  BACKGROUND OF THE STUDY

The deteriorating condition of financial institutions particularly banks has remained a problem of great concern to policymakers.  It is now a well-known fact that there is widespread distress in the banking system and despite the measures recently taken by the government as well as bank regulators and supervisors, there remains fear that the problem is not over yet and is being suppressed and not being suppressed and not being dealt with decisively. The banking crisis is not limited in Nigeria, it is also present in other parts of African, Latin America, Asia, Europe, and North America.  In fact, it is a development that has come to be associated in particular with economic in which financial liberalization is being or has been implemented. There is a widespread belief that banks occupy unique positions in most economies, both developed and developing countries, as creators of money, the principal depository of savings, major allocators of credit, and the manager of the country’s payment mechanism.  Consequently, the government often deems it necessary to formulate policies, for the soundness, efficiency, and safety of the bank industry.  The monetary authority has the responsibility for the supervisor of the banking system.  This responsibility is discharged by undertaking the both off-site and on-set examination of the books of the banks.  The provisions among other things cover minimum capital requirements, returns to be submitted to the CBN Central Bank of Nigeria by banks, power of the CBN to conduct routine and special examination and power of the CBN to revoke a bank’s license.

1.2   STATEMENT OF THE PROBLEM

This work seeks to determine the role of Nigerian Monetary Authorities in Bank Distress prevention from 1990 to 2005.

Distress in the Nigerian banking system is a phenomenon that must be tackled with every amount of vigor by CBN/NDIC in order to minimize its occurrence in the economy in this light, some possible corrective measures that could be adopted to ameliorate the consequences of distress in the economy will be suggested.

1.3   OBJECTIVES OF THE STUDY

The specific objectives of the study include:-

1. To identify the monetary authorities involved in bank distress prevention between 1990 and 2005.

2. To find out and describe the role of NDIC in bank distress prevention from 1990 to 2005.

3. To identify the guidelines CBN provided to banks in order to prevent distress in the banking system 1990-2005.

4.   To identify the role of the federal ministry of finance in the prevention of distress in the banking system from 1990-2005.

5. To find out the effectiveness of distress prevention measures “CAMEL” set up by monetary authorities between 1990-2005.

1.4   RESEARCH QUESTIONS

1.  Do the monetary authorities have any involvement in bank distress prevention between 1990 and 2005?

2.  Do the NDIC play any role in bank distress prevention since 1990-2005.

3. Do the CBN provide guidelines to banks in order to prevent distress in the banking system?

4. Do the federal ministry of finance plays any role in the prevention of distress in the banking industry.

5.  Has the distress prevention measure “CAMEL” set up by monetary authorities effective in distress prevention between 1990-2005.

1.5  STATEMENT OF HYPOTHESIS

For the purpose of this study, the following hypothesis is formulated;

Ho: Monetary authorities emphasis on the employment of qualified and honest professionals by banks as a way of preventing bank distress in Nigeria.

Hi: Monetary authorities do not emphasize the employment of qualified and honest professionals by banks as a way of preventing bank distress in Nigeria.

Ho: Increasing the minimum capital base requirement of banks every decade by the monetary authorities will prevent distress in the banking system.

Hi: Increasing the minimum capital base requirement of banks every decade by the monetary authorities will not prevent distress in the banking system.

1.6 SIGNIFICANCE OF THE STUDY

The significance of the study is its importance to the following.

1. Government: This research will be of tremendous use to the government and monetary authorities in handling the issues of bank distress and to prevent its occurrence.  It will also give the government advice on strategies to embark on to improve CBN/NDIC’s roles in financing distress in the banking sector.

2. Financial Institutions: It will be of great relevance to financial institution particularly banks in checking their performance based on their ability to meet the following five bank examination rating systems “CAMEL”.

3.  Academic:  This study will provide data for future researchers on the subject matter.

1.7  DEFINITION OF TERMS

1.   Bank:  This simply an institution, which accepts, deposits from the public and in turn advances loans by creating credit.

2.  Central Bank: This is a government-owned bank that is set up to help handle its transactions to coordinate and central other banks.  This is the Apex Bank.

3. Role:   The part played by somebody or something in the process of attaining a particular goal.

4.  Deposit Insurance Scheme:  This is a financial guarantee to depositors particularly the small ones in the event of bank failure.

5.  Distress: This is the suffering caused by the wart of money and other necessary things.

6.  Financial Institutions:  These are places meant for financial assistance for the survival of young businesses such as commercial banks, trustee companies, savings and loan association.

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