ABSTRACT
Within the framework of this
project “Perceived impact of Prudential Guidelines on the services and
performance of Commercial Banks in Nigeria”, the researcher has attempted to
reiterate the importance of prudential guidelines in helping banks to improve on
their performance. The study set out to examine its impact on bank safety and
confidence of Nigerians especially depositors among others.
The researcher employed both
primary and secondary sources of data from samples derived from the populations
of selected commercial banks. The researcher adopted the use of structured
questionnaire as the main instrument of data collection. Data were analyzed
using the Chi-Square (X2) analytical technique.
Findings from the study revealed
that there is increased need for bank supervision from the regulatory bodies.
The guidelines have been welcomed as a step in the right direction as they have
helped to check the mismatch between banks’ reported and actual profits and
also checked the early detection of fraud, distress and deterioration of banks
credit portfolio.
In conclusion, prudential
guidelines have also helped to check non-performing loans and ensure proper
scrutiny of loan proposals and enhanced regulatory activities in the banking
industry most especially the commercial banks. Several recommendations were
made in a bid to alleviate the difficulties banks encounter in implementation
of the provision of the prudential guidelines. These include encouragement of
management effectiveness via enlightenment programe seminars, periodic review
of the guidelines to meet prevailing national and international banking trend.
It is recommended that further research be conducted to improve on existing
ones.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
All over the world, the banking
industry plays a strategic role in every nation’s economic development. The
Central Bank plays a dominant role in both the decision making and managerial
process taking place in the economy while other banks do provide the essential
financial services needed for effective operation of the economy. Bank failures
do have destabilizing impact on the economy of any nation. It is precisely the
consequence of these failures that led to the enactment of various
legislations, rules and guidelines by relevant authorities to curb the excesses
the banks with a view to ensuring that banks operating in Nigeria do so in
accordance with the best practices of International banking professional
standards.
Banking malpractices alternatively
referred to as corruption and economic crimes constitute the genius of what is
generally known as and commonly called “Elite or white collar crimes.
Legislation governing the banking practice in Nigeria is sourced from three
major areas. They are:
Ø Law of General Application: This is the law that is
applicable across the countries under the former British Empire. Such law
because it was bequeathed to Nigeria at the Independence is otherwise referred
to as “received English laws”.
Ø Statute Law: These are laws specifically enacted by
the nation’s legislature known as the Parliament of the National Assembly to
deal with specific subjects or sectors. Example of such statute law are BOFIA
(Banks and other financial institution Acts 1991), the CBN Act
1991 and CAMA (Companies and Allied Matters Act) 1990.
Ø Subsidiary Legislations: These are legislations made
under the authorities of existing statutes. Examples are Rules, Orders, and
Regulations by laws and ordinances.
The core legislation for this research
is the Subsidiary laws and such are made by the apex bank CBN for other banks
to observe. The prudential guideline was issued on November 7th 1990
Circular No BSD/DO/23/VOL.1/11 to all licensed Banks addressed requirements
forasset classification and disclosure, provisioning, interest accrual and off
balance sheet engagements.
In view of the importance of the
circular to bank management, bank auditors and bank examiners, the objective of
these guidelines is to prescribe the prudential treatment of restructured
accounts to provide a transparent mechanism for timely structuring of debts of
viable entities facing problems, outside the purview of BIFR, DRT and other legal
proceedings for the benefit of all concerned. The scope of these guidelines are
applicable to restructuring/rescheduling of amounts due from all borrowers
other than those eligible for restructuring under CDR Mechanism, eligible for
restructuring under the debt mechanism for SME’s and restructured on account of
Natural calamities for which Reserve Bank has issued a separate set of
guidelines.
Casting
a look at the size structure, the assets structure, the deposits structure and
the volume of credits they grantto the economy, their dominant position becomes
evident. In the light of this therefore, their indispensable role of pooling
together funds from the surplus economic unit to the deficit unit fast tracks
economic activities. Effective management of banks assets and liabilities posed
a great concern to all stakeholders because of large scale financial distress.
The late 1980s and early 1990s were years of financial boom, as the number of
players increased substantially in the system. For instance, between 1986 and
1989, about 38 new commercial and merchant banks were created. The increase in
the number of banks over stretched the existing human resources capacity of the
banks which resulted into many problems such as poor credit appraisal system,
financial crimes, accumulation of poor asset quality among others. The consequence was
increased in the number of distress, banks and depositors began to loose
confidence on our financial institutions in managing their fund.
Based on these experiences, the
Federal Government of Nigeria through the Central Bank of Nigeria (CBN), 1990
indicates that regulation and supervision are essential ingredients for stable
and healthy financial system, and that the need becomes greater as the number
and variety of financial
Institutions increased. The
banking sector was singled out for a special protection because of the vital
role banks play in an economy. Bank supervision entails not only the
enforcement of rules and regulations, but also judgment concerning the
soundness of banks assets, its capital adequacy and management (Volker, 1992).
Effective supervision leads to healthy banking industry. At this direction, the
deposit insurance scheme the assets quality of banks, reduce bad and doubtful
debt, and ensure capital adequacy and stability of the system so that the depositor’s
fund would be protected.
Banking as essentially an
international business, especially now that domestic financial markets are
being internationalized, need to develop and continuously review their
reporting system which allow for a high degree of comparability of banking
performance across national boundaries. Such systems have been evolved in such
areas of banking practice as credit portfolio classification, disclosure
interest accrual and off balance sheet engagements. The apex institution in Nigeria
banking system, the Central Bank of Nigeria (CBN) is continuously moving banks
in the country towards compliance with international banking practices.
To this end, the Banking
Supervision Department (BSD) issued no November 7, 1990, circular letter No.BSD/DO/23VOL.1/11,
to all licensed banks and their auditors. The circular titled
“Prudential guidelines for licensed Banks” addressed requirements for asset
classification and disclosure, provisioning interest accruals and
off-balance-sheet engagements. The prudential guideline is intended as a hand
book for target groups such as the bank auditors and the examiners. It is the
task of the examiner to prevent bank failure by identifying bank problems at an
early stage to allow for intervention and or corrective action before the
situation gets out of hand......
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Item Type: Project Material | Attribute: 65 pages | Chapters: 1-5
Format: MS Word | Price: N3,000 | Delivery: Within 30Mins.
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