EFFECT OF THE INFLUENCE IN THE PRICE OF BANK PRODUCT BY THE REGULATORY BODIES ON THE CUSTOMERS OF THE BANKS
CHAPTER ONE
INTRODUCTION
Background of the Study
The banking sector in any economy serves as a catalyst for growth and development Banks are able to perform this role through their crucial functions of financial intermediation provision of an efficient payment system and facilitating the implementation of monetary policies. It is not surprising therefore, that governments the world over attempt to evolve an efficient banking system not only for the promotion but also for the protection of depositors maintenance of public confidence in the system, stability of the system and protection against systemic risk and collapse. Worldwide the banking business is highly regulated. This is because of the pivotal position the financial industry occupies in most economies. An efficient system, it is widely accepted and is a sine qua non efficient functioning of a nation’s economy. Thus for the industry to be efficient, it must be regulated and supervised in view of the failure of the failure of the market system to recognize social rationality and the tendency for market participants to take undue risks which could impair the stability and solvency of their institutions.
Regulation and supervision of banks remains an integral part of the mechanism for ensuring safe and sound banking practice at the apex of the regulatory and supervisory framework for the banking industry is the Central Bank of Nigeria (CBN). The Nigerian Deposit Insurance Corporation (NDIC) however, exercises shared responsibility with the Central Bank of Nigeria for the supervision of insured banks. Active cooperation exists between these two agencies or both the focus and modality for regulating and supervising insured banks. This is exemplified in the coordinated formulation of supervisory strategies and surveillance on the activities of the insured banks elimination of supervisory overlap, establishment of a credible data management and information sharing system. In the main bank supervision entails on site examination of the institutions and off-site analysis of periodically rendered prudential returns, a process called off site surveillance. The two activities are mutually reinforcing and are designed to timely identify and diagnose emerging problems individual banks with a view to prescribing the most efficient resolution options.
In line with prevailing international standards, these agencies (CBN & NDIC) have continued to emphasize risk. Focused banks supervision as enunciated by the Basle Committee on banking supervision as the pivot of the framework for bank supervision. It is worthy to note that what is currently happening in Nigeria does not differ widely from what happened in other nations over the years, and specifically since 1952 when the first banking ordinance was promulgated, several other statutes have also been put in place to serve as legal backbone for the actions of the monetary authorities in regulating the banking industry presently, the major relevant statues, include Central Bank of Nigeria Decree No. 24 of 1991, the banks and other financial Decree No. 25 of 1991, the company and Allied Matters Decree No. 1 of 1990, the Nigeria Deposit Insurance Corporation Decree No. 18 of 1994. These enabling laws and other relevant legislation have largely provided for sufficient and comprehensive supervisory power and operational autonomy in bank supervision, which may restore public confidence in Banks.
Furthermore, as part of efforts to ensure the stability of the banking industry and in response to the lingering problem of distress in the sub-sector, the regulatory/supervision authorities have been applying various failures measures since the late 1990’s.
Hence depending on the severity and peculiarity of the distress
Statement of the Research Problem
Bank regulation/supervision is implemented to ensure a sound and safe financial system in the economy. The measures are mainly concerned with the quality of risk assets in banks. Compliance with key ratios such as liquidity ratio, cash reserve ratio capital adequacy ratio amongst others, the quality of management and other corporate governance issues.
However, inadequate supervisory framework and lack of an effective risk asset database and information sharing system have contributed in no small measure in disrupting the activities of banking distress and liquidation by the regulators in line with this problem, various banking legislation/acts have been promulgated as well as the introduction of different strategies all aimed at increasing the efficiency of banking regulatory supervision. Among them are on-site, off-site banking examination, routine examination, special examination culled at the instance of the regulators as well as other method of surveillance to be discussed in subsequent chapters.
These measures are mutually reinforcing and are designed to timely identify and diagnose emerging problems in individuals banks with a view to presenting most efficient resolution towards ensuring continued public confidence in the banking sector.
Research Questions
The research work is conducted to answer certain questions associated with the generated controversy among bankers and the general public which are:
Why is it necessary for the supervisory bodies to curtail distress in the Nigerian commercial bank?
How can the confidence of depositors be boosted by the supervisory bodies?
Can the supervisory bodies influence the price of bank product in favour of the bank customers?
Why is it mandatory for the supervisory bodies to stem the incidence of widespread bad loan portfolios in the Nigerian banking sector?
Objectives of the Study
The aim of this research work is conducted to ascertain certain objectives, which are:
To determine the extent in which the supervisory bodies [CBN and NDIC] have curtail distress in the Nigerian commercial banks;
To know how far the confidence of depositors have been boosted by the activities of the regulatory and supervisory bodies;
To determine the effect of the influence in the price of bank product by the regulatory bodies on the customers of the banks.
To know the extent in which the regulatory and supervisory bodies have stem the incidence of widespread bad loan portfolios.
Scope of the Study
This study covers the supervision of Central Bank on commercial bank. However, some fact and information use for this study facts and information used are gathered from banks within.
Also operation of the regulatory authorities as it relates to the banking industry from the consolidation era and limited to the period of 2004 – 2012.
Furthermore, the study assumes that the banking system remained deregulated during the period covered in our study as most banks, practice universal banking, while the CBN/NDIC act as the regulatory authorities and supervisors of banks in the banking sectors.
Limitation of the Study
In view of technicalities involved, it would be unrealistic to assume them all necessary facts have been gathered in the process of the study information gathered is limited to those accesses and made available by the respondent and also those gathered with the aid of local newspapers, magazines, journals and annual reports of the Central Bank of Nigeria [CBN] Nigeria Deposit Insurance Corporation (NDIC), Chattered Institute of Bankers of Nigeria (CBN) basically the internet on Agusto industry report, however, the effect of this limitation will be reduced to the barest minimum.
Significance of Study
The study is significant in that it will help depositors of funds in financial institutions to fully understand the mechanism of banking supervision and the provisions of law as it relates to the deposit insurance scheme. It also provides a platform for the regulatory authorities to appreciate the impact of their activities on the banking industry, and underscores areas for improvement. It is also imperative to state that a study of this nature provides an independent platform via which the regulators can appraise fundamental tools of supervision in a bid to make reasonable adjustment where necessary.
The findings of this study will be of immense benefit not only to the Nigerian banking industry and its related institutions but also to those interested in understanding the inter-relationship between the actions of the regulators on one hand and the banking institutions on the other as well as providing a platform for promoting an efficient and effective banking practice.
The significance becomes more prominent when the effect of regulation and supervision is examined against the background of the consolidated exercise of the present policies of the Central Bank of Nigeria it is worth mentioning that the present state of the nation’s financial industry precipitated out of the supervisory framework of the Central Bank, hence this study would attempt to examine what impact the present consolidation exercise would have on the regulatory framework
Research Hypothesis
The supervisory and regulatory authorities plays a significant role in the financial system of any economy through the promulgation of policies aimed at ensuring the prudent management of banks assets and liabilities and thereby guarantee the safety of depositors funds. They also promote compliance to safe and sound banking practices, encourage the institution of an efficient internal control system in individual money deposit banks in order to prevent the incidence of frauds forgeries and other financial malpractices as well as ensure the stability and engendering of public confidence in the system.
The study tests the following hypothesis:
Ho1:The supervisory and regulatory functions of the Central Bank (CBN)
and the NDIC have been effective in curtailing distress in the Nigeria commercial banks.
HA1:The supervisory and regulatory functions of the CBN and the NDIC
have not been effective in curtailing distress in the Nigerian commercial banks.
Ho2:The regulatory and supervisory activities of the CBN and to NDIC,
have boosted depositors confidence in the Nigerian commercial banks.
HA2:The regulatory and supervisory activities of the CBN and the NDIC
have not boosted depositors confidence in the banking system.
Ho3:The supervisory and regulatory activities of the CBN and the NDIC
have impacted positively on the pricing of bank products to their external customers.
HA3:The supervisory and regulatory activities of the CBN and the NDIC]
have not impacted positively on the pricing of banks products to their external customers.
Ho4:The regulatory and supervisory functions of the CBN and the NDIC
have stemmed the incidence of widespread bad loan portfolio in the Nigerian banking system.
HA4:The regulatory and supervisory functions of the CBN and the NDIC
have not stemmed the incidence of widespread bad loan portfolio in the Nigerian commercial banks.
Definition of Terms
Financial Intermediation: This is the mobilization of funds from the surplus spending units at accost or lending of such funds to the deficit spending units at a price both within and outside the shore of a country.
Bank Regulation: This includes a body of specific rules or agreed behavior either imposed by explicit or implicit agreement within the industry that limits the activities and business operations of financial institution e.g. CBN/NDIC.
Bank Supervision: This is the process of monitoring banks to ensure that they are carrying out their activities in accordance with laws, rules and regulations and in a safe and sound manner.
Stable Banking System: This is a means that banks have the ability and capacity to meet maturing obligations as they fall due and are making adequate profit from authorized banking business to justify their investment while at the same time keeping banking failures at a minimum within the country.
Prudential Guidelines: this is a body of specific rules imposed by government through the Central Bank aimed at ensuring prudent management and administration of bank’s funds so that financial institution are correct and reflective of their true portfolio.
Deposit Insurance Scheme: This primarily intended to promote stability of the financial system and to protect the less financially sophisticated depositor by minimizing the risk that depositors will suffer lender of last resort, effective bank regulation and supervisor and efficient payment system needs to be supported by strong prudential regulation and supervision, sound accounting and the enforcement of effective law.
NDIC in collaboration with the CBN has over the years successfully adopted such measures as provision of liquidity support through accommodation bill, imposition of prompt corrective actions assumption control and management restructuring and sale of some distressed banks as well as liquidation of the terminally distressed banks as a last but unavoidable option.
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