BANKING REGULATION AND THE PERFORMANCE OF THE NIGERIA BANKING INDUSTRY (1990-2006)

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BANKING REGULATION AND THE PERFORMANCE OF THE NIGERIA BANKING INDUSTRY (1990-2006)

ABSTRACT
The purpose of this research is to assess the impact of banking regulation on the performance of the Nigerian banking sector between 1999 and 2006.

Because bank failure and suffering can lead to serious monetary contraction and real-economy upheaval, consumers lose faith in the financial system. This entails bank supervision and regulation in order to improve the banking industry’s performance.

As a result, the following are among the goals of this research.

To determine whether or not banks must be regulated

To determine the need for regulation/guidance on the operations and performance of the banking industry, as well as the feelings of bank workers on their regulation.

The following are the hypotheses used in the work:

Bank regulation is unnecessary, according to Ho.

Hi: Bank regulation is required.

Ho: Banking regulations/guidance have no effect on the

Nigeria’s banking system’s performance.

Hi: Banking regulations and recommendations have an impact on the

Nigeria’s banking system’s performance.

The approach employed in creating this study work is the chi-square model, and the operative assumptions used are degree of freedom given as (R-DCc-1) and level of significance is 5%.

The following findings were derived from the analysis.

Regulation of the banking system in Nigeria is desirable in that its implementation will sanitise the banking system and improve its performance in the long run secondary many of the old banks that are heavily burdened with bad and doubtful debts have begun to bear the effects of this regulatory guideline to varying degrees.

Based on the findings, the following recommendations were made, among others. The government should start regulating and deregulating the banking system. This banking regulation/guideline should be backed up with sanctions when necessary or in times of difficulty.

INTRODUCTION TO CHAPTER ONE

1.1 BACKGROUND  TO THE STUDY

Banking revolves around the pillar or pivot of confidence. As a result, depositors’ loss of faith in a bank’s stability might lead to major problems for that bank. Official anxiety about the stability of bank failure may result in server monitory contractions and real-economy dislocation.

As a result, bank supervision and regulation have emerged in order to improve the banking industry’s performance.

The government regards an emotional system of matter as being of primary importance. The principal function is to lower the depositor’s risk of capital loss.

In this approach, supervision also plays a broader role in the effective management of banks in order to improve their performance, which caused the monetary authorities to establish guidelines for licenced banks and their auditors in November 1990.

The monetary authority has made clear their intention to improve the performance of the Nigeria banking system by regulating it and ensuring its absorption.

The fact that bad debt has persisted in a deregulated financial environment demonstrates the market system’s inadequacy to protect depositors’ and the financial system’s interests.

As a result, guideline regulation and implementation are required to protect the economy as a whole. From this vantage point, regulations and guidelines are capable of bringing industry sanity into the system by inducing banks to improve the quality of their loan portfolios,

ensure discipline in lending, and unanimity in reporting. In particular, regulations will enable banks to adopt a move provident and him form approach in their credit portfolio classification, providing for nonperforming facilities creditor disclosure interest on nonperforming assets, and off balance sh

Hopefully, they will safeguard the veracity of reported accounting information and operating results, as well as save banks from attracting undue attention from one another.

As a result of their pivotal role in the saving and investment process, as well as in promoting monetary policy and other macroeconomic objectives,

government banks are able to correct market failure and ensure stately and systematic stability of the financial system not only nationally but also internationally.

1.2 STATEMENT OF THE PROBLEM

This study is focused with the issue of banking regulation and the performance of the Nigerian banking industry from 1990 to 1960.

Despite numerous banking regulations, bank collapse and bank difficulty are common in today’s economy. Many Nigerian businessmen have decided not to deposit their money in banks in order to avoid capital loss.

And the goal of this research is to rebuild trust in our banks in order to influence the attitudes of those who have lost faith in the Nigerian banking system.

1.3 GOAL OF STUDY

1. Determine whether network failure prevention is one of the consequences of bank rules on the performance of Nigerian banks.

2. Determine whether the frequency of bank director and top management staff appointments is one of the effects of bank regulation on the performance of Nigerian banks.

3. Determine whether regulating the capacity to extend credit and hence control over all equipment in the economy is one of the effects of bank regulation on the performance of the Nigeria banking industry.

4. To identify the various ways in which banking regulation affects the performance of Nigerian banks.

5. Determine whether the operating minimum capital base of a Niger bank may be used to represent one of the effects of banking regulation on the performance of the banking industry.

RESEARCH QUESTIONS

1. Does the prevention of network failure affect bank regulation and the performance of Nigerian banks?

2. How does the frequency of appointment of bank directors and top management staff affect bank regulations and the performance of Nigerian banks?

3. Is the CBN’s control over power banks’ ability to extend credit an effect of banking regulation on the performance of the Nigerian banking industry?

4. In what ways does banking regulation affect the performance of the Nigerian banking industry?

5. Is the termination of the actual minimum operational capital base of a bank in Nigeria having an influence on the performance of the Nigeria banking industry?

1.4 THEORETICAL HYPOTHESES FOR RESEARCH

Ho: Banking regulation guidelines have had no good effect on the

Nigeria’s banking industry performance

Hi: The influence of banking regulation guidelines on performance is good.

Nigeria’s banking industry’s performance

Ho: The failure of numerous banks in Nigeria in recent years is not due to a lack of capital.

The monetary authorities regulate and effectively supervise the Nigerian banking industry.

Ho: In recent times, numerous Nigerian banks have failed due to a shortage of capital.

The monetary authorities regulate and effectively supervise the banking industry.

1.5 THE SIGNIFICANCE OF THE STUDY

This study will serve as a starting point for anyone working on a relevant study in the future.

This study project will educate the public about the nature and consequences of various banking regulations, as well as their effects on the banking industry and the overall economy.

This research also demonstrates how regulations and their execution have protected the interests of the banking industry and the economy as a whole.

1.6 DEFINITION OF TERMINOLOGY

1. BANKING REGULATION/GUIDELINE: This is defined as a body of specific by some government agreed behaviour either imposed by some government within industry that unites the activities and business operations of financial institutions. Central Bank of Nigeria prudential guidelines for licenced banks (1991)

2. PRUDENTIAL REGULATION/ GUIDELINE: The final basis for prudential guidelines in credit risk recognition and proving for the drafting of some to avoid a deceptive picture of the balanced sheet.

This business practise is common in the industrial sector and is required for meeting accounting standards. The aims of prudential regulation are thus to protect the depositor’s microeconomic interests as well as the financial system’s microeconomic interests. Another rationale for prudential is effect consideration.

3. NOW PERFORMANCES CREDIT: Interest or principal is owed but has not been paid for 90 days or more.

4. OPEN MARKET OPERATION (OMO): The Central Bank of Nigeria buys and sells treasury notes on a weekly basis in order to affect liquidity in the system. Inventors must send their bids only to discount firms, which will bid as agents for their own investment.

The maturity of a bill sold at (OMO) is substantially less than that of a 91-day bill sold at the primary tender, whereas the allocation at the primary market (OMO) is based on a multiple rate acceptable to him for the appropriate maturity. Successful bids are those that are less than the marginal rate of the CBN’s stop rate for the specific auction.

5. DISCOUNT RATE: This is the cost of borrowing from the central bank by commercial banks when they need cash to replenish reserves in order to create deposits (money) by extending loans to clients.

Raising the discount rate raises interest rates and reduces lending and investing activity. Customers’ demand for bank loans has risen as a result. A reduction in the discount rate will have the opposite effect.

By raising or lowering the discount, the central bank can discourage or encourage money creation by private banks.

6. LIQUIDITY RATIO: Banks must have sufficient funds to cover maturing obligations. As a result, sufficient cash must be retained to ensure that expected receipts equal the profit of cash flows.

Banks must maintain a minimum liquidly ratio of 30% in treasury securities, treasury bills, and certification. The bank performs an equal check on each bank’s liquidity stock and assesses liquid assets such as eligible envelopments stock (EDS), certificates of deposits (CDS), Treasury certificates, treasury bills and commercial papers.

7. REQUIREMENTS RESERVES OF FUND: These are the reserves of fund that commercial banks are required by law or convention to hold against their deposit liabilities.

The central bank’s authority over these reserves is one technique by which it might influence commercial banks to lend money to customers who have surplus reserves, or reserves that exceed the minimum required.

As a result, the central bank can effectively control commercial banks’ ability to create money by simply varying their reserves requirements.

For example, if a tight money policy is desired, the Central Bank raises the reserved or liquidity ratio, forcing commercial banks to curtail their lending operations. The Central Bank’s opposite action would necessitate easy money in circulation.

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