THE CENTRAL BANK OF NIGERIA AND DISTRESS MANAGEMENT IN NIGERIA BANKING SECTOR
1.1 BACKGROUND OF THE STUDY
Banks play important roles in the economic development of any country. As an important component of the financial system, they channel scare resources from surplus economic units to deficit units. In Nigeria, the banking sector has passed through various evolutions starting from the advent of banking dated back to 1892 to the present day of consolidation. Distress in the history of the Nigerian banking industry is not an entirely new phenomenon and this has had far reaching consequences on the economy. Among which includes loss of confidence by depositors in the industry with corresponding retardation in the tempo of capital formation for investment (Oforegbeunam, 2011).
Bank distress is not an accident and does not occur in a day. It is rather organic as well as systemic. It can therefore be predicted ahead of time bases on the identification of the early warning signals; thereby providing a sustainable framework for bank management and regulatory authorities to take decisive actions to nip the problem of nonperforming loans, sustained drop in earning per asset, high turnover of staff, consistent sourcing of funds from the interbank market, turnover of depositors, growing incidence of fraud, inability to meet statutory requirements, instability in corporate management (Kostyuk, 2011).
1.2 STATEMENT OF THE RESEARCH PROBLEM
The incessant banks’ distress in Nigeria suggests that there is something wrong with the economic and monetary policies of the government that have created rooms for the banks not to comply with them. It is an indication that the policies of government have not been properly evaluated to create value for the banking system and the economy. For instance, the banking failures of late 1940 and early 1950s and that of 1994 – 2000, had led to the erosion of confidence in the banking system. Between 1994 and 2000, a total of 33 terminally distressed banks were liquidated (CBN, 2001). Also, the number of banks was reduced from 89 banks in 2004 to 24 groups of banks at the end of 2005. With 9 banks now adjudged to be in grave situations in October, 2009, the number of banks will likely reduce progressively in future. The consequences of the scenario above are that: first, many people are hostile to the banking business, and large amount of money will be kept outside the banking industry. This implies that the ability of the banks to operationalize the monetary policy of the government will be seriously constrained.Second the banker-customer relationship will be threatened as people have lost confidence in the industry. Third, the distress in the financial sector will have a contagious effect on other sectors of the economy, with the tendency of reducing the rate of economic growth.
Against this backdrop, the following questions are raised:
1. Does Nigerian banks complied with the prudential guidelines of Central Bank of Nigeria?
2. Does Central Bank of Nigeria regulatory policies adequate and effective in distress management of the banking sector?
3. Is there significant improvement of commercial banks activities as a result of Central Bank of Nigeria regulatory policies?
1.3 OBJECTIVES OF THE STUDY
The main objective of this study is to examine the central bank of Nigeria and distress management in the Nigeria banking sector.
The specific objectives are:
1. To investigate if Nigerian banks complied with the prudential guidelines of Central Bank of Nigeria.
2. To determine if Central Bank of Nigeria regulatory policies is adequate and effective in distress management of the banking sector.
3. To find out if there is significant improvement of commercial banks activities as a result of Central Bank of Nigeria regulatory policies.
1.4 RESEARCH HYPOTHESIS
The hypotheses for this study are;
1. Nigerian banks comply with the prudential guidelines of Central Bank of Nigeria
2. Central Bank of Nigeria regulatory policies is adequate and effective in distress management of the banking sector.
3. There is significant improvement of commercial banks activities as a result of Central Bank of Nigeria regulatory policies
1.5 SCOPE OF THE STUDY
This research work focuses on central bank of Nigeria and distress management in the Nigeria banking sector.
The population of the study is the entire quoted banks in the Nigeria stock exchange, while the sample size is restricted to five (5) banks quoted in the Nigeria stock exchange.
The length of period covered by the study was five years (2006 – 2010).
Geographically, the study will be conducted in Benin City, Edo State.
1.6 SIGNIFICANCE OF THE STUDY
The banking sector is the major player in the entire body of an economy. Many people and institutions are affected by the operations of banks. Thus the issue of bank distress which has octopus nature in the banking sector of the economy needs the total commitment from all the stakeholders in the corporate business world to tackle, including the financial experts in their various fields to map out strategies to prevent it in tis entirely.
This study therefore would be useful to bankers, managers, policy makers, accountant’s ad researchers and all interested in the management and control of bank distress in Nigeria.
1.7 LIMITATIONS OF THE STUDY
In the course of carryout this study, the researcher encountered some constraints such as finance and time.
1. Financial constraints: finance is largely needed to tour wider regions or location just to gather data for processing. But this was not adequately available to sufficiently meet the purpose of this study.
2. Time constraints: this study coincided with the first and second semester academic demands which made it enormously tasking more time would have been devoted to critically evaluate the impact of the capital market on Nigerian economy using some basic market indicators.