1.1 BACKGROUND TO THE STUDY
Commercial banks are generally all-purpose retail bankers, Ajayi (1991). They mobilize deposits of all sizes and from all and sundry in retail as well as in wholesale markets. They engage mainly in borrowing and lending activities. The lending activities of Nigerian commercial banks have been increasing steadily over the years and recently, the pace of increase has acquired a tempo that needs some explanation. Management of banks is the process of managing money and providing a whole gamut of banking services. Beginning with the management itself, it involves finding the optimal size and composition of banks overall assets and liabilities, Nwankwo (1991).
Considering the supervisory and regulatory role of NDIC on commercial banks with the aim of protecting customer’s bank deposits, banking supervision seeks to reduce the potential risk of failure and ensures that unsafe and unsound banking practices do not go unchecked. Bank supervision is a supervisory function charged with the responsibility of ensuring the safety and soundness of the banking system as a whole. Books and affairs of every licensed insured institution are examined as a means of meeting its supervisory mandate. This function is performed through the off-site surveillance and on-site examination of the books and affairs of the banks, which exceptions are reported and recommendations made on how the observed lapses can be corrected, and the implementation of such recommendations is monitored through scheduled post examination visits to the affected banks (Garcia, 1998).
Commercial bank supervision is a supervisory function charged with the responsibility of ensuring the safety and soundness of the banking system as a whole. While on the other hand Regulation involves providing input into developing and interpreting legislation and regulations, issuing guidelines, and approving requests from regulated financial institutions.
Commercial bank Supervision in the NDIC is the responsibility of three departments, namely, Bank Examination Department (BED), Insurance & Surveillance Department (ISD) and Special Insured Institutions Department (SIID). As the names imply, on-site examination is carried out by BED and SIID while the ISD is charged with the responsibility of maintaining off-site surveillance over all insured banks. Both the On-site and Off-site supervision ensure that the insured institutions remain healthy at all times and/or where there are problems, they would be detected and addressed promptly. In addition, supervision protects the bank depositors, encourages competition among banks and assists in efficient and orderly payment system (Ebhodaghe, 1991).
The Nigeria Deposit Insurance Corporation (NDIC) was established on 15 June 1988 to strengthen the safety net for the newly liberalized banking sector, following the recommendation of former Central Bank of Nigeria governor Ola Vincent. The NDIC provides a safety net for depositors in the newly liberalized banking sector (Ebhodaghe, 1991).
The NDIC is a parastatal under the Nigerian Ministry of Finance. The corporation is charged with protecting the banking system from instability occasioned by runs and loss of depositors’ confidence. It operates under the Nigeria Deposit Insurance Corporation Act (1990). The NDIC is a member of the Financial Reporting Council of Nigeria. The NDIC complements the regulatory and supervisory role of the Central Bank of Nigeria (CBN), although it reports to the Federal Ministry of Finance. The NDIC advises the CBN in the liquidation of distressed banks and manages distressed banks’ assets until they are fully liquidated
1.2 STATEMENT OF THE PROBLEM
Regulation and supervision of commercial banks remain an integral part of the mechanism for ensuring safe and sound banking practice. At the apex of the regulatory and supervisory framework for the banking industry is the Central Bank of Nigeria (CBN). The Nigerian Deposit Insurance Corporation (NDIC) however, exercises shared responsibility with the Central Bank of Nigeria for the supervision of insured banks. Active co-operation exists between these two agencies on both the focus and modality for regulating and supervising insured banks. This is exemplified in the coordinated formulation of supervisory strategies and surveillance on the activities of the insured banks, elimination of supervisory over lap, establishment of a credible data management and information sharing system. This study however focuses on examining the role of NDIC in regulation and supervision of commercial banks in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The following are the objectives of this study:
1.4 RESEARCH QUESTIONS
HO: NDIC does not play significant role in the regulation and supervision of commercial banks in Nigeria.
HA: NDIC does play significant role in the regulation and supervision of commercial banks in Nigeria.
1.6 SIGNIFICANCE OF THE STUDY
The following are the significance of this study:
1.7 SCOPE/LIMITATIONS OF THE STUDY
This study will cover the commercial Banks in the selected towns of Edo State. It will also cover the role of NDIC in their regulation and supervision.
LIMITATION OF STUDY
Financial constraint– Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
Time constraint– The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.
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