The Effect of Financial Regulations on Corporate Performance of Banks in Nigeria

CHAPTER ONE/INTRODUCTION

Background of the Study

Banking business is not a mere activity for which all decisions of the business should be surrendered to the owners or management of such companies. The nature of the banking and its accompanying risks to operators and economist system call for certain degrees of uniform operational practices. The need to regulate the activities of banks is becoming a matter of very high necessity following global trends of financial institutions collapse and maladministration. The global financial crisis following the failure of big firms like Lehman Brothers and others has highlighted the importance of adequate bank regulation and supervision. The approval of the Basel Committee on Banking Regulation to strengthen global capital and liquidity regulations in order to promote a more resilient banking sector by the G20 is a positive signal in this direction (Klomps & De Haans, 2011)

The Banking Sector serves as catalyst for growth and development and is therefore sensitive to the economy in terms of stability. The critical nature of the sector induces need for checks and regulations to minimize possible financial mishap to national and global economies. It is not surprising that government the world over are attempting to evolve efficient banking system not only for the promotion of efficient intermediation, but also for the protection of depositors, encouragement of efficient competition, maintenance of public confidence in the system, stability of the system and protection against systemic risk and collapse. The degree to which governments should intervene remains an issue of international debate. Financial analyst differs on the level of intervention required per economy; particularly on regulation imposed on the financial intermediaries. Some scholars have clamoured for more stringent regulatory frameworks to authorize, oblige, supervise and control banking business so as to ensure smooth, consistent and sanitized system of banking business, while others are of the opinion that a liberal system is the most ideal given a market driven economy.

The risky nature of banking under voluntary financial markets amidst stringenent competition will only worsen the economic condition of the globe. From internal to external regulatory framework, banking business must be closely monitored by ombudsmen to minimize the possibilities of mortgaging public interest and the overall stability of economic systems. More importantly, laws are tools on which stable economies strive. They act as legal mechanisms that provide guide for the appropriate conduct within the industry. A system that exist without laws is prone to all manners of manipulations

Interestingly, banking started in Nigeria as an unregulated business. Even with the dominance of the scene at inception by foreign banks, neither the foreign nor government made any regulatory demand on the banks as the then. This partly may be due to the emergent business with little or no details of control and mainly on the fact that banking at inception had little risk and complexity compared to the present day. It may not be in Nigeria commenced as a regulation-free business and glides to a highly sophisticated and duly regulated one today.

Taking into cognizance the importance of the business of banking in Nigeria economy and the series of corporate malpractices and financial scam in the then banking institutions, the first banking legislation into Nigeria, the 1952 banking ordinance, was passed into law. By 1958, another banking ordinance was passed section 25 of which repealed the 1952 Act. Subsequent banking legislations- 1958 CBN Act, 1968 Banking Act, 1990 Banking Act, The BOH ACT of 1991, the CBN Act, 1991, CAMA 1991 and the recent 2007 CBN Act Prescribe rules, regulations and principles, which any corporate person willing to partake in banking business must observe before it is authorized to do so.

These legislations equally impose certain duties and obligation on licensed banks and equally put in place series of rules and conventions empowering the central Bank and other bodies like the Federal Ministry of Finance to supervise and control banking institutions so as to ensure smooth running of the business, avoid all the problems experienced by banking institutions prior to 1952 and to safeguard members of the public from losing their funds. The banking sector being a conspicuous and significant partner in every nation’s economy needs to be regulated for its stability, reliability, confidence and above all, tranquility.

Statement of the Problem

Bank regulation is implemented to ensure a sound and safe financial system in the economy. The measures are mainly concerned with the quality of risk asset in banks, compliance with key ratios such as liquidity ratio, cash reserve ratio, capital adequacy ratio amongst others, the quality of management and other corporate governance issues.

However, inadequate regulatory framework and lack of an effective risk asset database and information sharing system have contributed in no small measure in disrupting the activities of banks, thereby leading to the often distasteful incidents of banking distress and liquidation by the regulators.

In line with this problem, various banking legislation/acts have been promulgated as well as the introduction of different strategies all aimed at increasing the efficiency of banking regulatory supervision. Among them are on-site, off-site banking examination, routine examination, special examinations culled at the instance of the regulators as well as other methods of surveillance to be discussed in subsequent chapters. These measures are mutually reinforcing and are designed to timely identify and diagnose emerging problems in individual banks with a view to presenting most efficient resolution directed towards ensuring continued public confidence in the banking system.

Objectives of the Study

The general aim of this research work is to investigate Bank Regulation and Performance in Nigeria.

The main objective is of this study are as follows:

  1. To examine thoroughly how supervisory and regulatory functions of the regulating agencies and their performances has effect on Nigerian banks.
  2. To determine if the Nigerian banking industry has become safe, stable and command the confidence of the general public since the promulgation/implementation of the BOFIA/NDIC Act?
  3. To determine the efficiency and effectiveness of Deposit Insurance Scheme in Nigerian banks as a means to boosting depositors’ confidence in the system.

Research Questions

The research will provide answer to the following research questions:

  1. Is the supervisory and regulatory functions of the regulating agencies has effect on Nigerian banks?
  2. Has the Nigerian banking industry become safe, stable and command the confidence of the general public since the promulgation/implementation of the BOFIA/NDIC Act?
  3. How effective has NDIC guaranteed depositors’ funds through its deposit insurance scheme?

Research Hypothesis

Ho: The supervisory and regulatory functions of the Central Bank (CBN) and the NDIC have been effective in curtailing distress in the Nigeria banking system.

H1: The supervisory and regulatory functions of the CBN and the NDIC have not been effective in curtailing distress in the Nigerian banking system.

Scope of the Study

The study will cover the operation of the regulatory authorities as it relates to the banking industry in the past twelve years prior to the consolidation era and thus, would be limited to the period of 2005-2015.

In view of the technicalities involved, it would be unrealistic to assume that all necessary facts have been gathered in the process of the study. Information gathered is limited to those accesses and made available by the respondents and also those gathered with the aid of local newspapers, magazines, journals and annual reports of the Central Bank of Nigeria (CBN), Nigeria Deposit Insurance Corporation (NDIC), Chartered Institute of Bankers of Nigeria (CIBN), Agusto Industry report and basically the internet. However, the effect of this limitation will be reduced to the barest minimum.

Significance of the Study

The findings of this study will be of immense benefit not only to the Nigerian banking industry and its related institutions, but also to those interested in understanding the inter-relationship between the actions of the regulators on one hand and the banking institutions on the other as well as providing a platform for promoting an efficient and effective banking practice.

It is also imperative to state that a study of this nature provides an independent platform via which the regulators can appraise fundamental tools of supervision in a bid to make reasonable adjustments where necessary.

The study is significant in that it will help depositors of funds in financial institutions to fully understand the mechanism of banking supervision and the provisions of the law as it relates to the deposit insurance scheme. It also provides a platform for the regulatory authorities to appreciate the impact of their activities on the banking industry, and underscores areas for improvement.

The significance becomes more prominent when the effect of regulation and supervision is examined against the background of the consolidation exercise of the present policies of the Central bank of Nigeria. It is worth mentioning that the present state of the nation’s financial industry precipitated out of the supervisory framework of the Central Bank, hence this study would attempt to examine what impact the present consolidation exercise would have on the regulatory framework.

Organization of the Study

This research is structured into five chapters. Chapter one deals with the introduction and general background to the study. In this chapter, statement of the problem, research objectives and hypotheses were stated. In addition, the scope of the study, significance of the study and definition of terms were highlighted. Chapter two was set aside for review of literature dealing so on. In Chapter three methodology was presented with focus on research design, types and sources of data, methods of data collection and analysis. In Chapter four, the data collected presented, analysed and presented. Finally, the summary, conclusion, recommendation and suggested areas for further research were discussed in chapter five.

Operational Definition of Terms

Financial Intermediation: Financial Intermediation is the mobilization of funds from the surplus spending units at a cost or lending of such funds to the deficit spending units at a price both within and outside the shore of a country.(Gabriel, 2008)

Bank regulation: A body of specific rules or agreed behaviour either imposed by some government or other external agency, or self-imposed by explicit or implicit agreement within the industry that limits the activities and business operations of financial institutions e.g. CBN/NDIC (Mark, 2011).

Bank supervision: Is the process of monitoring banks to ensure that they carry out their activities in accordance with laws, rules and regulations, and in a safe and sound manner.(Masaka, 2015)

Stable banking system: A stable banking system means that banks have the ability and capacity to meet maturing obligations as they fall due, and are making adequate profits from authorized banking business to justify their investment while at the same time keeping banking failures at a minimum within the country.(Akpan,2014)

Prudential guidelines: Is a body of specific rules imposed by government through the Central bank aimed at ensuring prudent management and administration of banks’ funds so that reports of financial institutions are correct and reflective of their true portfolio. (Onsachi, 2011)

Deposit insurance scheme: Is primarily intended to promote stability of the financial system and to protect depositors by minimizing the risk that depositors will suffer, lender of last resort. (Yinka, 2000)

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Sep 13

THE IMPACT OF AGRICULTURAL CREDIT ON AGRICULTURAL PRODUCTIVITY IN NIGERIA

ABSTRACT

In most agrarian economies like the type that exists in Nigeria, agricultural production provides the needed fulcrum upon which a sustainable development would blossom. Being the main source of food for most of the population, till date, agricultural production remains the mainstay of the Nigerian economy. It provides the means of livelihood for most of the population, a major source of raw materials for the agro-allied industries and a potent source of the much needed foreign exchange.  However, inadequate credit (among other factors) to the agricultural sector led to the downward trend observed in agricultural productivity in Nigeria. To avert such trend, the Federal Government of Nigeria established the Agricultural Credit Guarantee Scheme Fund (ACGSF) in 1977 to assist farmers have access to credit as to improve agricultural productivity. The setting up of the ACGSF was predicated on the unwillingness of commercial banks to give loans to smallholder farmers for reasons of high default rate on loan repayment and, therefore high risk, of repayment. In the course of the fund’s operations, a number of problems have been identified as militating against its smooth performance; some of which affected the amount of credit granted to the various agricultural subsectors. Therefore, this study sought to examine (i) the impact of Agricultural Credit Guarantee Scheme Fund on crop output in Nigeria; (ii) the impact of Agricultural Credit Guarantee Scheme Fund on livestock output in Nigeria; (iii) the impact of Agricultural Credit Guarantee Scheme Fund on fisheries output in Nigeria; and (iv) the impact of Agricultural Credit Guarantee Scheme Fund total fund granted on Agricultural output and productivity in Nigeria. The ex-post facto research design was adopted to enable the researcher make use of secondary data and determine cause-effect relationship during the period, 1978-2008. The Ordinary Least Square (OLS) estimation technique was adopted, using SPSS statistical software to test the hypotheses, where Total Agricultural Credit Guarantee Scheme Fund (TACGSF), Agricultural Credit Guarantee Scheme Fund to crop production (ACGSFCP), Agricultural Credit Guarantee Scheme Fund to livestock (ACGSFLSP) and Agricultural Credit Guarantee Scheme Fund to fisheries (ACGSFP) were used as the independent variables while Agricultural Production (AP), Gross Domestic Product Agricultural Crop Production (GDPACP), Gross Domestic Product Agricultural Livestock Production (GDPALS) and Gross Domestic Product Agricultural Fisheries Production (GDPAFP) were used as the dependent variable. The study found that Agricultural Credit guarantee scheme fund for crop production, livestock production and fisheries had significant positive impact on crop, livestock and fisheries productivity in Nigeria for the period of the study and also, the total agricultural credit guarantee scheme fund had significant positive impact on agricultural output in Nigeria. The study therefore recommends that stakeholders in the scheme viz: the farmers, lending institutions and government must show greater commitment and dedication for the scheme to achieve its laudable objectives.

TABLE OF CONTENTS
Title Page – – – – – – – i
Approval Page – – – – – – – ii
Certification Page – – – – – – – iii
Dedication – – – – – – – iv
Acknowledgements – – – – – – – v
Abstract – – – – – – – vii
Table of Contents – – – – – – – x
List of Figures – – – – – – – xi
List of Appendices – – – – – – – xii

CHAPTER ONE INTRODUCTION
1.1 Background of the Study – – – – – – 1
1.2 Statement of the Problem – – – – – – 5
1.3 Objectives of the Study – – – – – – 6
1.4 Research Questions – – – – – – 7
1.5 Research Hypotheses – – – – – – 7
1.6 Scope of the Study – – – – – – 8
1.7 Significance of the Study – – – – – – 8
1.8 Definition of Terms – – – – – – 8
References – – – – – – 10

CHAPTER TWO REVIEW OF RELATED LITERATURE
2.1 Agricultural Financing Policies in Nigeria – – – – 13
2.2 Challenges of agricultural financial policies – – – – 15
2.3 Agricultural Production in Nigeria – – – – 17
2.4 The Agricultural Sector and Nigeria’s Development – – – – 19
2.5 The Agricultural Credit Guarantee Scheme: Roles, Problems and Prospects – 21
2.6 Structure, Organization and Mandate of the ACGSF – – – – 24
2.7 Overview of the agricultural finance policies in Nigeria- – – – 25
2.7.1 Agricultural Finance Policies Schemes – – – – – 25
2.7.2 Agricultural Finance Policies Programmes – – – – – 27
2.7.3 Agricultural Finance Policies Institutions – – – – – 30
2.8.1 Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) – 31
2.8.2 Agricultural Credit Support Scheme (ACSS) – – – – 33
2.8.3 Micro Credit Fund (MCF) – – – 33
2.8.4 Rural Finance Institution Building Programme (RUFIN) – – – 34
2.8.5 Nigerian Agricultural Insurance Scheme (NAIS) – – – 35
2.9 Credit Guarantee Schemes in Developing Countries – – – 35
2.10 Agricultural Budget in Nigeria – – – 38
2.11 Agricultural Finance through Bank Lending – – – 44
2.12 Agricultural Credit Guarantee Scheme Fund on Cash Crops – – – 45
2.13 Agricultural Credit Rationing by Commercial Banks in Nigeria – – 47
2.14 Issues on Banking Lending for Agricultural produce – – – 51
2.15 Lending risks and agricultural loans – – – 53
2.16 Credit Risk Management in Bank Lending to Agriculture – – – 54
2.17 Potentials for diversifying Nigeria’s non-oil exports to non-traditional markets – 55
2.18 Causes of Credit Risks in Agricultural Financing – – – – 57
2.19 Sources of Risks of Agricultural Firms – – – – 58
References – – – – 59
CHAPTER THREE RESEARCH METHODOLOGY
3.1 Research Design – – – – – 67
3.2 Nature and Sources of Data – – – – – 67
3.3 Model Specification – – – – – 67
3.4 Model Justification – – – – – 67
3.5 Techniques of Analysis 69
References 71

CHAPTER FOUR PRESENTATION AND ANALYSIS OF DATA
4.1 Presentation of Data – – – – – 72
4.2 Test of Hypotheses – – – – – 75
4.2.1 Test of Hypothesis One – – – – – 75
4.2.2 Test of Hypothesis Two – – – – – 76
4.2.3 Test of Hypothesis Three – – – – – 77
4.2.4 Test of Hypothesis Four – – – – – 78
4.3 Comparison of the Findings with the Objectives of the Study – – – 79
References – – – – – 81

CHAPTER FIVE SUMMARY OF FINDINGS, CONCUSION AND RECOMMENDATIONS
5.0 Introduction – – – – – 82
5.1 Summary of Findings – – – – – 82
5.2 Conclusion – – – – – 82
5.3 Recommendations – – – – – 84
References – – – – – 86
Bibliography – – – – – 8 Appendices – –

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Sep 12

IMPACT OF GOVERNMENT EXPENDITURE ON MAJOR MACROECONOMIC VARIABLES IN NIGERIA, 1980 – 2014

Abstract

Using annual time series data from 1980 to 2014, this study investigated the impact of government expenditure disaggregated into capital (CEXP) and recurrent (REXP) on GDP Per Capita (GDPPC), inflation (INF), unemployment (UNEMP), and Gini index (GINCO, proxy for poverty) respectively to construct principally four econometrics models. The study adopted the ex-post facto research design in the study and five hypotheses were proposed and tested.The multiple regression and Granger causality test of the Ordinary Least Square (OLS) technique of analysis were employed in obtaining the numerical estimates of the coefficients in the different equations. The study estimated the models in the statistical procedure of co-integration and Error-Correction Model (ECM). The results of long run regression showed that government capital and recurrent expenditure both had positive and significant impact on GDP per capita; capital expenditure had a significant negative impact on inflation, while recurrent expenditure had positive but non-significant impact on inflation. Government capital expenditure had a significant negative impact on unemployment, while recurrent expenditure had negative but non-significant impact on unemployment; equally capital and recurrent expenditure showed a significant negative impact on poverty. While bidirectional causality exists between recurrent expenditure and inflation, no causality relationship was found between capital expenditure and inflation, capital expenditure and GDP per capita, and recurrent expenditure and GDP per capita respectively.Error Correction Model (ECM) was introducedin all the equations in order to adjust the short-run discrepancies in the parameters, and it showed a speed of adjustment of 72%, 51%, 24% and 27% respectively, to any disequilibrium within a year. The study recommended that government expenditures should be redirected and refocused towards the growth of the real sectors to stimulate general productivity in the economy; and that deliberate efforts are consciously needed to begin at reversing the observed excessive government recurrent expenditures over capital expenditures given the dangerous and inhibiting effect it has on a typical developing economy.

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Nov 22

THE AUTOMATED TELLER MACHINE (ATM) SYSTEM IN THE BANKING SECTOR; PROBLEM AND PROSPECTS

THE AUTOMATED TELLER MACHINE (ATM) SYSTEM IN THE BANKING SECTOR; PROBLEM AND PROSPECTS

CHAPTER ONE

INTRODUCTION

1.1Background to the Study

If you ask four (4) different people who invented the Automated Teller Machine (ATM) there is a good chance that you may receive four different answers. Four (4) or more individual, have actually claim to have invented the Automated Teller Machine (ATM). Including “Don Wetzel, George Simjian, John Shepherd. Barron and John D. White”. No matter who invented the Automated Teller Machine (ATM), no one can dispute the impact it has had on our society. An Automated Teller Machine (ATM), by the way is a machine that allows you to do banking transaction, from a remote computer operated terminal.
Prior to the invention of ATM, people had to visit a bank or other financial institution to do their banking. It was not uncommon to see a line of 40 to 50 people waiting outside the bank on a Monday morning waiting for it to open.

While some banks still have this type of activity. The Automated Teller Machine (ATM) has decreas ed the need to wait in line and has helped many people perform their transactions in a fraction of the time it once took.

When you visit an Automated Teller Machine (ATM) you are able to perform almost every transaction that you can inside the bank. You can deposit and withdraw money, transfer money between account access a home equity line of credit, purchase stamps and deposit a check. We will probably always have human tellers, but Automated Teller Machine (ATM) have provided a certain amount of convenience designed to accommodate customers.

In 2004 there were more than 370,000 Automated Teller Machine (ATM) in the United State. You can find them in grocery store, Airport terminal, convenience stores, gambling Casinos, Movie theatres, shopping malls, gas station and many more locations.

This allows you to do your banking whenever you want.

The Automated Teller Machine (ATM) has become another mechanism that banks use to make money. If you go to an Automated Teller Machine (ATM) that is not your own bank, you will be charged a fee of Nl00, but it all depends on the bank. Most people would like to use their own bank but if one is not available they are willing to pay the fee to gain access to their money Banks makes millions of Naira in fees also if a customer does not record their Automated Teller Machine (ATM) transactions they could over draft their account which lead to more fees.

At this junction, is good to know what Automated Teller Machine (ATM) is all about.

According to investor words.com: Define Automated Teller Machine (ATM) as a machine at a bank branch or other location which enables a customer to perform basic banking activities (checking one’s balance, with drawing or transferring finds) even when the bank is closed. Automated Teller Machine (ATM) is also use to provide the convenient withdrawal service in everywhere, even if users don’t come to a bank.

According to Edet, O. (2008), Automated Teller Machine (ATM) means (Advice To Men) in the sense that you don’t have to worry the weekend because Automated Teller Machine is meant to serve us 24/7.

According to Abubakar Aleghe Isah, Accounting Department HND Final 2013: Automated Teller Machine (ATM) is a cash machine made available by
banks to service individual 24/7 without network interruption or any difficulties in carrying out individuals transaction.

 

1.2 Statement of Problem

The problem of the project is as follow: Each bank provides, its own computer to maintain its own accounts and process transactions against them with this system, a client must first open an account before he/she can use Automated Teller Machine (ATM).

The opening account involves the client providing his personal information. A client may open one or more accounts for deposit account. The client can check the account status 24 hours a day. When the client deposit/withdraw money. The client must specify which account and the amount. The Automated Teller Machine (ATM) communicates with a central computer which clears transaction with the appropriate banks. An Automated Teller Machine (ATM) accepts a cash card, interacts with the user, communicates with the central system to carry out the transaction, dispenses cash, and prints receipts. The system requires appropriate record keeping and security provisions.

The system must handle concurrent accesses to the same account correctly. The bank will provide their own software for their own computer.

1.3 Research Questions

In order to get information from respondents. The following questions were raised;

  1. To what extent can Automated Teller Machine (ATM) improve or enhance banking services?
  2. What are the major problems associated with the development of Automated Teller Machine (ATM)?
  3. To what extent has Automated Teller Machine (ATM) affected banking activities?
  4. Is Automated Teller Machine prone to any fraud?
  5. Is the Automated Teller Machine (ATM) a welcome development to all bank depositors?

1.4 Objectives of the Study

This research work intends to assess the extent of Automated Teller Machine (ATM) payment in banking activities as well as identify the various types of Automated Teller Machine (ATM) banking.

The researcher will also evaluate the major problems associated with the development of Automated Teller Machine (ATM) banking system in Nigeria as well as evaluating possible solutions to these problems.

The effect of Automated Teller Machine (ATM) banking on profitability of banks will also be assessed.

To examine the different types of Automated Teller Machine (ATM) used In Nigeria banks.

The researcher will like to evaluate the impact of these e-payment systems on banking industry and also assess the impact of Automated Teller Machine (ATM) banking in Nigeria economy.

1.5   Statement of Hypothesis

Ho:  Automated Teller Machine (ATM) does not improve or enhance banking service

HI: Automated Teller Machine (ATM) improve or enhance banking service

Ho:  Automated Teller Machine (ATM) system is not prone to any fraud.

HI:    Automated Teller Machine (ATM) system is prone to some fraud.

Ho:  The Automated Teller Machine (ATM) is not a welcome development to all bank depositors.

HI:   The Automated Teller Machine (ATM) is a welcome development to all bank depositors.

1.6   Significance of the Study

Automated Teller Machine (ATM) banking in our economy today is a welcome development and also its impact in the society are over whelming, so this research is significant in so many ways.

It will expose the strength and weakness of Automated Teller Machine (ATM) banking. It will motive banks and other economy agent to computerize their services.

Knowledge in the area of Automated Teller Machine (ATM) banking will be advanced. Apart from contributing to the knowledge of Automated Teller Machine (ATM) banking, it forms a reference for future research in this area.

1.7   Scope of the Study

This research is on economic implication of Automated Teller Machine (ATM) banking in Nigeria banks and also the various form of payment an Automated Teller Machine (ATM) system used by banks.

The researcher will base this work on the entire deposit money banks in Nigeria but to First Bank in particular.

1.8   Limitations of Study

Time is a major factor to the researcher as research of this kind requires enough time in gathering of data, but it was not given to carry out the research, distribution, collection and analysis of questionnaires.

Also the school system has made it difficult for student to go out in search for information by not granting. exert for student.

Finally, finance was in fact the most limited factor in spite of this the researcher have to go to the street to interviewed most of the student, workers and the jobless in individuals using Automated Teller Machine (ATM).

1.9   Definition of Terms

Automated Teller Machine (ATM): This is defined as a machine at a bank branch or other location which enables a customer to perform basic banking activities (checking one’s balance, with drawing or transferring finds) even when the bank is closed.

Payment System: This defined as a system which consists of net works which link members, the switches for routing message, rules and procedures for the use of its infrastructure.

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