IMPACT OF THE NIGERIAN DEPOSIT CORPORATION (NDIC) ON THE OPERATIONS OF THE NIGERIA BANKING INDUSTRY
The paper examines The Nigerian Deposit Insurance Corporation's effects on the Nigerian banking sector empirically. Finding out how the NDIC has benefited bank operations is the study's main goal. In-depth fieldwork, library study, and careful analysis of the obtained data were all done.
To gather feedback, questionnaires were given to the appropriate responders. The data was nevertheless analysed using the percentage technique.
The results demonstrate that the Nigerian Deposit Insurance Corporation's supervisory role is insufficient to ensure efficient banking practises in Nigeria.
Due to the impact of inflation and the ongoing devaluation of the Naira, there is a need to enhance the maximum insurance coverage. Additionally, there is a need to regularly report transactions in order to maintain financial responsibility through regular supervision and monitoring of the financial health of local banks.
The following findings and recommendations are made: The CBSA should harmonise banking laws, rules, and regulations for acceptance and implementation by all licenced financial institutions. The CBSA, which ought to have an administrative secretariat, ought to convene at least once every three months.
Impact of the Nigerian Deposit Corporation (NDIC) on Nigerian banking operations: Chapter One 1.0 Introduction
1.1 BACKGROUND OF THE STUDY
An economy's banking industry acts as a driver of expansion and advancement. Through their essential roles in financial intermediation, the establishment of a reliable payments system, and the facilitation of the implementation of monetary policy, banks are able to carry out this task.
Therefore, it is not surprising that governments all over the world work to develop an efficient banking system, not only to encourage efficient intermediation but also to protect depositors, encourage efficient competition, uphold public confidence in the stability of the system, and safeguard against systemic risks and collapse.
The banking industry is heavily regulated on a global scale. This is due to the crucial role that the financial sector plays in the majority of economies. It is a well-accepted system that must exist for the economy of a country to run well.
As a result, in order for the sector to be efficient, it needs to be regulated and overseen due to the market system's failure to take social reason into account and market participants' propensity to take unwarranted risks that could harm the stability and solvency of their institutions.
Iwuchukwu (2013) claims that the mechanism for maintaining safe and sound banking practises continues to include the regulation and supervision of banks. The Central Bank of Nigeria (CBN) is at the top of the banking sector's regulation and oversight structure.
However, the supervision of insured banks is a shared responsibility between the Nigerian Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria. These two organisations actively collaborate on the direction and method of the regulation and oversight of insured banks.
The construction of a reliable data management and information exchange system, the reduction of supervisory overlap, the coordinated formulation of supervisory policies, and the observation of the operations of the insured banks are examples of this.
However, bank supervision comprises off-site surveillance, or the analysis of periodically rendered prudential returns, in addition to on-site assessment of the institutions.
In order to prescribe the most effective resolution solutions, the two operations work in tandem to quickly identify and diagnose potential issues in specific banks.
This organisation (NDIC) has continued to emphasise risk-focused bank supervision in Nigeria in accordance with current international norms. The Basle committee on banking supervision's twenty-five (25) basic principles, which served as the framework for bank supervision's fulcrum, have also been formed.
It is important to keep in mind that what is happening in Nigeria right now is not much different from what is happening in other countries, according to Okafor (2011).
A number of other statutes have also been put in place over time, particularly after the first banking ordinance was published, to support the monetary authorities' operations in regulating the banking sector.
Furthermore, from the beginning of 2010, the regulatory/supervision authorities have been implementing numerous failure measures as part of their attempts to ensure the stability of the banking sector and in response to the subsector's persisting difficulties with distress.
As a result, NDIC has successfully adopted over the years with measures as provision of liquidity support through accommodation bill, imposition of prompt corrective actions, assumption control and management, restructuring and sale of some distressed banks, as well as liquidation of the terminally distressed banks as a last but unavoidable option, depending on the severity and peculiarity of the distress.
1.2 STATEMENT OF THE PROBLEM
To ensure a stable and secure financial system in the economy, bank regulation and oversight are put in place. The measurements primarily address the calibre of risk assets held by banks, key ratio compliance, including the liquidity ratio, cash reserve ratio, and capital adequacy ratio, as well as management calibre and other corporate governance issues. The following are the study's flaws:
Insufficient supervisory framework
Absence of a reliable risk asset database
Insufficient information sharing
Ineffective consolidation policy management
Insufficient governmental backing
1.3 AIMS AND OBJECTIVES OF THE STUDY
The main goal of this study project is to evaluate the effect of Nigerian banks' operation of deposit insurance.
The primary goal is;
To carefully assess the effects of the regulators' (NDIC) weak supervisory framework on Nigerian banks
To ascertain how the NDIC's effects on banking supervision are impacted by a lack of accurate risk asset data.
To assess how the NDIC's banking oversight has been impacted by incomplete information.
To evaluate management's performance on consolidation-related issues as they relate to NDIC's role in banking supervision
To ascertain how NDIC's banking oversight has been influenced by insufficient governmental assistance
1.4 RESEARCH QUESTIONS
1. Does the NDIC suffer from an inadequate supervisory framework?
2. Does the NDIC suffer from the lack of an efficient risk asset?
3. How does the NDIC's financial oversight suffer from insufficient information sharing?
4. How is the NDIC impacted by poor management of the consolidation policy?
1.5 RELATIONSHIP TO OTHER STUDIES
The study is important because it will enable financial institution depositors to completely comprehend the banking supervisory system and legal regulations pertaining to the deposit insurance plan.
Additionally, it gives the regulatory bodies a chance to highlight their shortcomings and understand how their actions affect the financial sector.
It is also crucial to note that a study of this kind offers an impartial platform through which the regulators can evaluate key oversight instruments in an effort to make appropriate adjustments as needed.
The results of this study will be extremely helpful not only to the Nigerian banking sector and its associated institutions, but also to those who are interested in comprehending the interactions between the actions of the regulatory bodies on the one hand and the banking institutions on the other. They will also provide a platform for promoting effective banking practises.
When the impact of regulation and supervision is studied against the backdrop of the consolidation exercise of the current Central Bank of Nigeria policy, the significance becomes more apparent.
It is important to note that the current state of the country's financial sector resulted from the NDIC's supervisory framework. As a result, this study aims to determine what effects the current consolidation effort will have on the regulatory system.
1.6 SCOPE OF THE STUDY
The study will only cover the years 2010 to 2015 because it will focus on how the regulatory bodies operated in relation to the banking sector over the previous four years before the advent of electronic banking.
As most banks practise universal banking and the NDIC serves as the industry's regulatory body and bank supervisor, the study also makes the assumption that the banking system remained unregulated over the time period it covers.
1.7 DEFINITION OF TERM
Financial intermediation is the process of collecting money from surplus spending units for a fee or lending it to deficit spending units for a fee both inside and outside the borders of the nation.
A set of precise regulations or accepted behaviour that restricts the activities and business operations of financial institutions, such as the CBN and NDIC, that may be imposed by a governmental authority, another external agency, or self-imposed by explicit or implicit industry agreement.
BANK SUPERVISION: This is the process of keeping an eye on banks to make sure they are operating in a safe and secure manner and in conformity with all applicable laws, rules, and regulations.
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 authorised banking business to justify their investments while at the same time keeping banking failures at a minimum within the country.
A set of precise guidelines established by the government through the central bank known as PRUDENTIAL GUIDELINES aims to ensure prudent management and administration of banks' funds so that financial institutions' reports are accurate and reflect their genuine portfolio.
DEPOSIT INSURANCE SCHEME: Is primarily designed to safeguard the less financially savvy depositor by reducing the dangers that they would experience, acting as a lender of last resort, effectively regulating and supervising banks, and providing an effective payment system.
A deposit insurance system must be supported by robust prudential rules and supervision, solid accounting, and the efficient execution of laws, according to the FINANCIAL STABILITY FORM (FSF).