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THE ROLE AND IMPORTANCE OF CENTRAL BANK OF NIGERIA IN THE PREVENTION OF BANK FAILURE IN NIGERIA.

(Accounting)

THE ROLE AND IMPORTANCE OF CENTRAL BANK OF NIGERIA IN THE PREVENTION OF BANK FAILURE IN NIGERIA.

ABSTRACT

This study, which is, captioned the Role and Importance of the Central Bank in the Prevention of Bank Failure in Nigeria has revealed the types, causes effects recognition and prevention of bank failure in Nigeria.Some of the findings indicated that banking failure was mainly as a result of poor portfolio management and inadequate capital basis, a majority of the population interviewed acknowledge the fact that bank failure an be prevented.  The study also pointed that the Central Bank of Nigeria has not relented in it effort in this light against distress within the Nigeria financial system, illustrating the role banks have to play in the growth of the economy for the well being of the country.Some other causes were identified which were discussed in details encompassing all other causes not mentioned as separate causes of bank failure.These major causes include, macro-economic instability, poor portfolio management, fraudulent activities by directors, the competent and unqualified staff, last but not the least, inadequate capital base.     The study concludes its findings by commending the that the Central bank of Nigeria should ensure that banks adhere strictly to the prudential guidelines.The tribunals that have been set-up for the purpose of debt recovery should not relevant in their effort.  Workshop should be conducted from time to time to discuss changing economic issues that affect the banking industry either positively or negatively so the bank failure will be cu-tailed to a large extent without causing havoc to the nations economy.

                             TABLE OF CONTENT

CHAPTER ONE

Introduction

1.1         Background of the study

1.2         Statement of problem

1.3         Objective of the study

1.4         Hypothesis

1.5         Scope and limitation of the study

1.6         Significance of the study

1.7         Definition of terms

CHAPTER TWO

2.1         What is bank failure

2.2         Types of bank failure

2.3         Causes of bank failure

2.4         Effects of bank failure

2.5         How to recognise a distressed bank

2.6         Prevention of bank failure

2.7         The role and importance of the central bank of nigeria in the prevention of bank failure

CHAPTER THREE

Research methodology

3.1         Introduction

3.2         Population of the study

3.3         Sample  technique

3.4         Research instrument

3.5         Validity and reliability of data

3.6         Method of data analysis

CHAPTER FOUR

Presentation and analysis of data

4.1         Introduction

4.2         Presentation of data

4.3         Testing of hypotheses

CHAPTER FIVE

Findings, Conclusion and Recommendations

5.1         Findings

5.2         Conclusion

5.3         Recommendation

Bibliography

                                      CHAPTER ONE

INTRODUCTION

1.1         BACKGROUND OF THE STUDY

          The history of bank failure in Nigeria can be traced back to the early thirty’s when the industrial and Commercial Bank Limited which was established in 1929 and went into liquidation within a year it stored operation as a result of its generosity and liberty I extension of credit facilities especially to “managing directors” Ugwuanyi Willy (1977) pg. 33.
          A series of failure followed after the first in degree bank failed in 1930.  These failure were attributed tot he poor banking habit of both customers and bank staff who operated in an environment that was not guided by any appropriate authority at the time. With the advent of the Central Bank of Nigeria (CBN) in 1958 and it commencement of duty in 1958, there has been the restoration of sanity within the banking industry if not for some economic distraction, which rocked the industry for some times in recent years.
          This has been a major concern to the regulatory authorities; this is due to the fact that the banks play a very important role in the economic advancement of nay nation that knows her worth.  The absence of these duties or some of them has led to set-backs that have being experienced in the Nigeria Economy.  An example of this includes efficient mobilization of savings from funds surplus units to funds investment to take place, which lend to the overall economic advancement in Nigeria.
          Bank Failure is not peculiar to the Nigeria economy alone, rather, what I considered is the degree at which it occurs and its effects on the economy.
          Based on the about problem, the Apex Bank, which is the Central Bank of Nigeria has intensified its efforts to control the failures of banks and has proved it through “the establishment of the Nigeria Deposit Insurance Corporation (NDIC) in 1988 by DECREE NO. 22” of that year.  Ugwuanyi “its is an independent and automations institution”.  This is to add weight to the existing supervisory and control capability of the monetary authorities to insure in the country, provide financial and technical assistance to them and contribute tot he guest per safe and sound banking environment in Nigeria Ugwuanyi.
          To emphasis on the importance of the Nigeria Deposit Insurance Corporation, Emekakwue has the following to say about the importance of NDIC as it relates to the establishment of the Federal Deposit Insurance Corporation (FDIC) in the United State of America.  “As a result of the banking crisis of 1933 where by more than seven thousand banks crashed with three thousand banks crashing in two months February to March 1933, the Federal Deposit Insurance Corporation was established”.
          Despite all these measures, to prevent bank failure, there have been causes of repeated failure in the Nigerian Banking Industry.
          The question now is, with all these measures in check, could it be the fault of the bank examiners or that of the banks themselves can the failure be attributed to be ups and down in the economy of some other factors beyond the control of the supervisory and regulatory authorities and that of banks directors.
          This research seeks to find answers to these question and many work that will be discussed in the proceeding into what will curtail these failure from having advertise effect on the nation economy.

1.2         STATEMENT OF THE PROBLEM

          The gesture of this study repots importance of banking in our national development ad the question that could possible come to mind are:

i.             What are the function of these banking industries to the    economy?

ii.           What are really their caused and effect on the economy?

iii.          Will the death of a greater number of distressed banks      have serious implication on the Nigeria economy?

 

iv.          Will the economic activities be disrupted as a result of      distress in the banking sectors?

v.            Is there any way wherein the play-out of distress in          banking can be arrested?

These are some of the question to which the researcher won’t to find answers to.

1.3         OBJECTIVE OF THE STUDY

          The main objective of the study is to verify or ascertain if actually the crash of banks of failure in banks has affected the stable economic growth in the economy.  The objectives are:

i.             To examine the causes of bank failure

ii.           To examine the affects of bank failure, how they can be    recognized and how they can be prevented

iii.          To explain the role and importance of Central Bank of      Nigeria in the prevention of bank failure

iv.          To make recommendation on the best ways to prevent       bank failure

1.4         HYPOTHESIS

1.       Ho:    The CBN does not play any roles in preventing bank

failure in Nigeria.

          Hi:     The CBN play role in preventing bank failure in Nigeria

2.       Ho:    The CBN does not monitor the affairs of banks in

Nigeria

Hi:     The CBN monitors the affairs of banks in Nigeria

3.       Ho:    The CBN does not licence other banks in Nigeria

                   Hi:     The CBN licence other banks in Nigeria.

1.5         SIGNIFICANCE OF THE STUDY

These are as follows:

i.             It is for the fulfillment of academic requirement for the    award of degree.

ii.           This study will serve as a source of information to future researchers.

iii.          The study will also make the public to know more about    the working operation of banks and possible reason for     distress in the industry

iv.          It will be great importance to both financial and indeed    the entire economy that is down turn, facing serious          problem of credibility and survival.

1.6         DEFINITION OF TERMS

CENTRAL BANK OF NIGERIA (CBN)

          This is the apex bank within the Nigeria financial system, which is responsible for the regulation named supervision of the activities of the banks and other financial institutions operating within the system.  It was established by the Central Bank of Nigeria ordinance of 17th March, 1958.  It commenced operation on the 1st of July, 1959.

NIGERIA DEPOSIT INSURANCE CORPORATION (NBIC)

          Established in 1988 by Decree NO. 22 to add weight to the existing supervisory and control capacities of the monetary authorities to insure the deposit liabilities of licensed banks in the country, provide financial and technical assistance to them.

BANKING SYSTEM

          A sub-see of the Nigeria financial system, which comprises of all banks operating in Nigeria’s money and capital market. 

This includes all the commercial and merchant banks.

NON – BANKING INSTITUTION (NBFI)

          They are those institution that art not banks but engaged in financial intermediation within the financial system.

          These include, insurance companies, financial companies, discount houses and so on.

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