THE IMPACT OF NIGERIA DEPOSIT INSURANCE COOPERATION (NDIC) ON NIGERIA BANKING INDUSTRY

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Prior to 2006,distress in the Nigerian banking industry had become more great source of concern to the entire financial system, the scale was generally induced until 2008, when the body called Nigerian deposit insurance corporation[NDIC] begun its operation on the safety and soundness of the depositors and  system basically in Nigeria.

Consequently, the introduction of the structural adjustment programmed [S.A.P] had not given room for competition in banking industry but rather it had also complicated the financial structural structure of the country. Apart from allocating funds purely on commercial basis, banks also accommodate the handicap of numerous borrowers who have been crippled by the structural adjustment programme [S.A.P].In the provision of bad and doubtful debt of banks, convention is over rift that in major banking cycle that a financial system with an increasing provision. Bad and doubtful calls for caution from the management because this may serve as disincentive to new entrants into the banking industry.

Proliferations of the new banks have gained ground for speculation of Nigeria maybe heading towards having failure. The reason behind proliferations centered on the fact that Nigeria is under banking service and therefore needs as many banks as possible. This position was perhaps encouraged by an international monetary fund [IMF] report on the healthy numbers of persons per bank branch in Nigeria.

The federal military government formulated decree No. 22 which shortly established the N.D.I.C [Nigeria deposit insurance corporation] is an autonomous regulating body with  power among other to examine the books and affairs of the insured bank and other deposit-taking financial institution operating in Nigeria to ensure total deposit liabilities with NDIC with the exception of  insider deposits i.e. deposits belonging to the board members and staff of the insured banks e.g. deposits used as collateral. As a matter of fact a depositor in an NDIC insured bank will not pay through annual assessment of its volume of such deposits. It is the premium paid by the insured banks and the investment income that makeup fund of the corporation.

In general, deposit fund in current or fixed time savings and other deposit account are insured in each commercial or merchant bank or other deposit account –taking financial institutions. Not too far, the management of Nigeria deposit insurance corporation (NDIC) proposed to extend their operations which was later granted under the community bank (N.A.C.B) but shortly after the corporation was under to go ahead with the task of the activities of regulating community bank, this is because of the previous activities were carried out on the risk of commercial bank, merchant banks were not adequately fulfilled by the corporation banks under the establishment of failed bank [recovery of debts] and financial malpractices in bank had come into existence as past operation of the s contributed directly or indirectly to the failure of the bank or any financial institutions experiencing  distress.

In most recent years even before the establishment of failed bank decree some provisions in the decree establishment N.D.I.C eroded the statutory powers in the corporation to perform its function effectively it requires adequate enforcement powers so that the whole country can believe that the safety and soundness of the banking system is assured.

1.2   STATEMENT OF RESEARCH PROBLEM

How does Nigeria deposit insurance corporation [NDIC] protect the bank depositor against loss?

Does the Nigeria deposit insurance corporation [NDIC] protect the interest of the creditors or shareholders of a failed bank?

• Are financial institution insured by the Nigeria deposit insurance corporation
• Can an insured status in Nigeria deposit Insurance Corporation be terminated?
• Does an account held by a company or partnership be insured separately from individuals account?

1.3   OBJECTIVES OF THE STUDY

• To check on how to give assistance in the interest of the depositors in the case of financial difficulties of bank especially when suspensions of payment are threatened.
• To examine the effectiveness of the Nigeria deposit insurance corporation and how it protect the interest of shareholders and creditors of a failed bank.
• To examine how Nigeria deposit insurance corporation [NDIC] insures financial institutions most especially banks.
• To find out whether an insured status in Nigeria deposit insurance corporation can be terminated and if yes, how
• To find out whether an account held by a company or partnership is insured separately from the individuals account.

1.4   SCOPE AND LIMITATION OF THE STUDY