THE PERCEIVED IMPACT OF CENTRAL BANK OF NIGERIA BANKING REFORMS ON COMMERCIAL BANKS

Amount: ₦5,000.00 |

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ABSTRACT

Banking Industry reforms was intended to improve so many indices in the banking industry. Some of the indices as affected  were;  poor  capitalization,  inefficiency  and negligence, loss of depositor’s fund, poor management, poor staffing, fraudulent practices, Bank Liquidation, High interest rate, Heavy debts Loan racketeering and Little/no attraction to investment. The magnitude of improvement of the current indices and the former indices before the reforms are not the same. The research sought to discern on the nature of change in the indices after the reforms. The topic: The perceived  impact  of  the  Central  Bank  of  Nigeria banking reforms  on  Commercial  banks  in  meant  to  expose  what these reforms has  done in the Nigerian Commercial banks and why it is necessary. It was observed that there had been a success in the performance and the activities of the commercial banks after these reforms. Having examined the above topic and identified the problems and prospects, recommendations were made to prove to these commercial banks that have been  reluctant  in accepting these reforms to accept  it in good faith for its good interest to the economy.

CHAPTER ONE

1.0    INTRODUCTION

The  Nigerian  banking  sector  witnessed  dramatic  growth post-consolidation. However, neither the industry nor the regulators were sufficiently prepared to sustain and monitors the sector’s explosive growth prevailing sentiment and economic   orthodoxy  all  encouraged  this   rapid  growth, creating a blind spot to the risk building up in the system.

Prior to the crisis, the sentiment in the industry was that the banking sector was sound and growth should be encouraged. The IMF endorsed the strength of the banking system  to  support  this  growth.  However,  this  sentiment proved misplaced. I believe 8 main interdependent factors led to the creation of an extremely fragile financial system that was tipped into crisis by the global financial crisis and recession.

These 8 factors were:

1.      Macro-economic   instability   caused   by   large   and sudden capital inflows.

2.      Major failures incorporate government at banks

3.      Lack of investor and consumer sophistication

4.      Inadequate    disclosure    and    transparency    about financial position of banks.

5.      Critical gaps in regulatory framework and regulations.

6.      Uneven supervision and enforcement

7.      Unstructured governance and management processes at the CBN/weakness within the CBN.

8.      Weaknesses  in  the  business  environment.  Each  of these factors is serious on its own right. Acted together they brought the entire Nigerian financial system to the brink of collapse.

1.1    BACKGROUND OF THE STUDY

Banking regulation was first introduced in Nigeria in the early 1950s in response to the failure of local banks.

The   1952   Banking   ordinance   imposed   minimum requirements for paid up capital and the establishment of

reserve funds. This was followed by the enactment of the

1958 Central Bank act and the Banking ordinance of 1959. The banking legislation was further strengthened with the enactment of the banking decree of 1969.

Reform  is  an  Amendment  of  laws  to  accommodate new development that the already existing regulation can no longer  curtail.  In  other  words,  there  cannot  be  reforms without regulators.

Regulation means an official rule by a government or some other authority.

Better  still,  Regulation  means  that  rules  are established to guide the activities of the people in order to maintain standard and if not kept, someone should be sanctioned.

Whereas, reform simply means to improve a system, or a law by making changes to it,

it is very important to note that the central bank of Nigeria which was established to regulate the activities of these commercial   banks   cannot   conveniently   do   so   without

improving on their regulations. In other words regulation is dynamics, thus reforms are of necessity.

The need for these reforms was as a result of inefficiency and negligence, poor capitalization, poor staffing poor management and bank liquidation.

When these banks are finally liquidated, it is not just these banks and their staff that are affected, but also the Depositors, the shareholders, the government and the general public.

When such is the case, solution is almost not available thus prevention is better than cure.

This is the reason why the Central Bank of Nigeria has ensured that these banks are well capitalized and of recent that no commercial bank will be allowed to fail.

This has shown why these reforms are very important in the banking industry, if not for other important services that they do render, at least for the safety of depositors fund.

1.9    STATEMENT OF PROBLEM

Some of the problems that have been encountered in the banking industry of Nigeria before these reforms were made:

1.      Poor  capitalization

2.      Inefficiency and negligence

3.      Fraudulent practices

4.      Poor  staffing

5.      poor management

6.      bank liquidation

7.      High  interest rate

8.      Heavy debts

9.      Loan racketeering

10.    Little/no attraction to investment

It is believed that enhancing the existing Laws in order to solve these problems should lead to a better banking regime in Nigeria

1.10  OBJECTIVES OF THE STUDY

The objectives of this study are as follows:

1.      To determine the effect of the central bank reforms on commercial banks.

2.      To prove that these reforms by the central Bank of Nigeria is of benefit to the government and commercial banks.

1.11  RESEARCH QUESTIONS

1.      Do you think that N25b recapitalization has enhanced bank liquidity and also increase its sales and gains in the Nigeria capital market?

2.       Do   you   think   that   the   removal   of   banks   chief executives and other related measures will help to checkmate corrupt practices these banks?

1.12  HYPOTHESIS OF THE STUDY

The following hypotheses are tested within the study:

Ho: These reforms have not had any positive impact to the enhancement of growth and profitability of the commercial banks in Nigeria.

Ho: These reforms have increased the level of service delivery in the Nigerian Commercial banks.

1.13  SCOPE OF THE STUDY

This research work will deal with the perceived impact of the

CBN banking reforms on Nigerian Commercial banks.

The area this work will cover is the branches of all these commercial banks in Enugu metropolis, which will be generalized due to the existence of all these commercial banks in Nigeria.

The study will be limited to two selected CBN reforms in the area   of   recapitalization   and   removal   of   Bank   chief Executives, thus; tenure limits.

1.14  SIGNIFICANCE OF THE STUDY

The major roles that are expected to be played by these reforms if given adequate support in the present economic circumstances in Nigeria are:

1.      The   research   work   is   aimed   at   enhancing   the performance of the commercial banks and creating customer confidence in the banking industry.

2.       The  study  will  also  prove  that  these  reforms  will enable adequate growth on investment and improving on the Nigerian economy.

3.      The result obtained from this study will help decision- makers, the shareholders of these banks, the investors as well as the general public in good decision  taking.

4.      This research work will help to discourage the belief among the general public that the purpose of these reforms  is  not  to  witch-hunt  enemies  or  to benefits friends and families by the central bank governor.

5.      The result obtained from this study will encourage the commercial banks who for now have been apathetic to these reforms to accept it, regardless of the immediate tension it may generate but for the future benefits that the reforms has to offer.

1.15  LIMITATIONS OF THE STUDY

The researcher does not find it easy with the study as the materials needed for it were scarcely available and could not find any textbook that has written on reforms as a topic.

Most  of  the  information  used  in  this  study  were obtained through the internet, hence costing the researcher a lot.

The  researcher  covered  both  the  expert  and  non export in finance.

In the quest to gather the materials needed for this project, access to its data were somewhat refused having it as classified information.



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THE PERCEIVED IMPACT OF CENTRAL BANK OF NIGERIA BANKING REFORMS ON COMMERCIAL BANKS

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