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

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 SCOPE AND LIMITATION OF THE STUDY

This research work is aimed at explaining the role and in the prevention of bank failure in Nigeria.  To achieve this aim, it will only cover recent causes of bank failure with a brief flash back of the banking environment shortly before the establishment of the banking ordinance of 1952 and before the establishment of Central Bank of Nigeria in 1958.  An introduction will be made on a new cause of bank failure, which if not properly handled could bring distressed.

The research covers the effect of this failure on the economy, how the symptoms could be recognized, and how they can be prevented.

A population size of one hundred and fifty respondents was employed for the research question asked.

As a result of transportation cost, I hunted for my research the following areas. Enugu and Asaba.

Obtaining information was not easy such respondents complained of time to fill the questionnaires, which prolonged the research period and transportation cost for visitation of libraries art not exempted including cost of making copies of relevant information.

1.6 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.

1.7 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.

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