CHAPTER ONE
INTRODUCTION
- BACKGROUND TO THE STUDY
Various reforms had been instituted in the Nigerian banking industry to ensure efficiency and stability in the system. One of such reforms was the establishment of the Nigeria Deposit Insurance Corporation (NDIC), to manage and operate Deposit Insurance Scheme (DIS) in 1989. The role of the banking industry in development process cannot be over-emphasized as they play so many functions. Donli (2004) added that, the nature of banking business (being highly geared and conducted with greater secrecy when compared with other real sector businesses) provides added reason for strict supervision. This is to constantly beam a search-light on the sector’s activities with a view to ensuring that operators play by the rules of the game and imbibe sound and safe banking practices. Furthermore, such an oversight is intended to assist supervisory authorities in timely identification of deterioration in bank financial conditions before it degenerates to threaten the stability of the banking system or even the economy.
It is not surprising therefore, that governments the world over attempt to evolve an efficient banking system, not only for the promotion of efficient intermediation, but also for the protection of depositors, encouragement of efficient, competition, maintenance of public confidence in the system stability of the system and protection against systemic risk and collapse. 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 co-operation exists between these two agencies on 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 over lap, establishment of a credible data management and information sharing system (Donli, 2004).
Among the functions of NDIC in the Nigerian banking industry includes to
- Provide insurance cover for the depositors of licensed deposit taking financial institutions;
- Supervise insured deposit taking financial institutions through on-site examination and off-site surveillance techniques;
- Ensure orderly resolution for both troubled and failing insured deposit taking financial institutions;
- Provide technical and financial assistance to deserving deposit taking insured financial institutions;
- Ensure orderly closure of failed insured financial institutions and prompt payment of insured deposits;
- Ensure orderly liquidation – realisation of Risk Assets and Physical Assets of closed insured deposit taking institutions;
- Payment of dividend to uninsured depositors and creditors of failed insured financial institutions on realisation of risk and physical assets;
- Contribute to the formulation and implementation of banking policies;
- Research on issues relating to deposit insurance, banking and the economy; and
- Provide financial information and analysis of insured banks to the public to promote public understanding of banking policies.
In line with prevailing international standards, these agencies NDIC have continued to emphasize risk-focused bank supervision in Nigeria. Similarly, they have developed twenty-five (25) core principles for effective banking supervision as enunciated by the Basle committee on banking supervision as the pivot of the framework for bank supervision. 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 in individual banks in Nigeria with a view to prescribing the most efficient resolution options.
- STATEMENT OF THE PROBLEM
Despite the past various guidelines, the banking industry has continued to witness various form of distress and liquidity problem which has been caused by inadequate supervisory framework high investment in speculative businesses, mismanagement, high toxic assets, poor loan repayment supervision, fraud and corruption among bank staffs etc. This therefore raises the question of how effective NDIC has been in its policy guidelines, supervision and monitoring of the Nigerian banking industry. Hence based on the above identified problems, this study will take more Indepth look at the NDIC and its true role in the Nigerian banking industry.
- OBJECTIVES OF THE STUDY
The main aim of this study is to assess the role of Nigerian Deposit Insurance Corporation in the banking industry. Other specific objectives are stated as follows:
- To examine thoroughly how supervisory and regulatory functions of the NDIC impacts on Nigerian banks.
- To determine if effective banking supervision has reduced the incidence of bad loan portfolio in the Nigerian banking industry.
- To determine if NDIC Regulatory and Supervisory activities have boosted depositors’ confidence on the Banking System.
- To determine if NDIC have been effective in improving corporate governance issues in the Banking Industry.
- To determine if the Insurance premium of N50, 000 payable by the NDIC to bank customers in the light of distress is sufficient to boost customers’ confidence in the banking system.
- RESEARCH QUESTIONS
The study will attempt to find answers to the following relevant questions:
- How have the supervisory and regulatory functions of the NDIC impacted on Nigerian banks?
- To what extent have effective banking supervision by the NDIC reduced incidence of bad loan portfolio in the Nigerian banking industry.
- Has the NDIC Regulatory and Supervisory activities boosted depositors’ confidence on the Banking System?
- What is the performance of NDIC in improving corporate governance issues in the Banking Industry?
- Is the Insurance premium of ₦50, 000 payable by the NDIC to bank customers in the light of distress sufficient to boost customers’ confidence in the banking system?
- RESEARCH HYPOTHESES
This study will therefore test the following hypotheses.
- Ho: The supervisory and regulatory functions of the NDIC have not been effective in curtailing distress in the Nigeria banking system.
H1: The supervisory and regulatory functions of the NDIC have been effective in curtailing distress in the Nigerian banking system.
- HO: The Regulatory and Supervisory activities of the NDIC have not boosted depositors’ confidence in the Banking System.
H1: The Regulatory and Supervisory activities of the NDIC have boosted depositors’ confidence in the Banking System.
- SIGNIFICANCE OF THE STUDY
The nature of banking business, which is highly geared and conducted with great secrecy when compared with other real sector business, has raised some eyebrow from the authorities and the public of late, which thus makes this study of great importance.
This study will also enlighten the public on the reform programmes and policies of the NDIC to ensure the safety of the banking industry. 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 the law as it relates to the deposit insurance scheme. It also provides a platform for the NDIC to appreciate the impact of their activities on the banking industry, and underscores areas for improvement.
It is worth mentioning that the present state of the nation’s financial industry precipitated out of the supervisory framework of both the Central Bank and the NDIC, hence this study would attempt to examine what impact the present consolidation exercise would have on the regulatory framework.
- SCOPE AND LIMITATIONS OF THE STUDY
The study will cover the operation of the NDIC as it relates to the banking industry in Nigeria.
In view of the technicalities involved, it would be unrealistic to assume that all necessary facts have been gathered in the process of the study. Information gathered is limited to those accesses and made available by the respondents 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), Chartered Institute of Bankers of Nigeria (CIBN), Agusto Industry report and basically the internet. However, the effect of this limitation will be reduced to the barest minimum.
- ORGANIZATION OF THE STUDY
The study was done in chapter and consists of five chapters.
Chapter one introduces the study showing the background to the study, statement of the problem, research objectives, question, hypothesis, significance and scope. Chapter two take a look at the literature works of others on the subject matter of the study. Chapter three deals with the methodology used in carrying out the study. Chapter four provides the presentation, analysis and interpretation of data. Chapter five concluded the study with summary of findings and recommendations.
