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THE ROLES OF NIGERIAN MONETARY AUTHORITIES IN BANK DISTRESS PREVENTION (1990 - 2005)

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 policy makers.  It is now a well know fact that there is wide spread distress in the banking system and despite the measures recently taken by the government as well as bank regulators and supervisors, there remain fear that the problem is not over yet and is being suppressed and not being suppressed and not being dealt with decisively. Banking crisis is not limited in Nigeria, it is also present in other parts of African, latin America, Asia, Europe and North America.  Infact, 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 wide spread belief that banks occupy unique positions in most economics, 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 deem 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 both of 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 vigour 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 to the study includes:-

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 since 1990 to 2005.

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

4.         To identify the role of federal ministry of finance in 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 play 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 are 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 emphasis on the employment of qualified and honest professionals by banks as a way of preventing bank distress in Nigeria.

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

Hi:       Increasing 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 system “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 which 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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