The Interview Process

UNIT 4 REGULATORY AUTHORITIES EFFORTS AT STABILIZING THE

3.2 Supervision

In the discharge of its statutory responsibility, the CBN has continued to undertake both off-site and on-site supervisory activities. Emerging issues from these supervisory efforts include poor/weak management structure, weak internal control systems, under -capitalization, inadequate collateralization of facilities granted and exceeding the single obligor limits are quite revealing, and are of great concern to the monetary authorities.

In addressing these weaknesses, the CBN introduced prudent guidelines encompassing capital adequate ratio, mandatory uniform accounting standards and strict enforcement of licenses which are issued to only those who are fit and proper to operate a bank.

The ability of the supervisory authorities to prevent, contain, manage and resolve the distress syndrome was severely handicapped by the absence of a comprehensive regulatory framework for distress/crisis management. Against this background the CBN and the NDIC put in place in July 2002 the framework on contingency planning for banking that would ensure the systemic management of crisis in Nigerian banks. The regulators have since then, been ensuring that banks adopt realistic accounting policies and standards, in generating financial statements that would facilitate the valuation of the assets and liabilities and classification in accordance with a uniform bank rating system. This apart, the bankers committee recently adopted the code of corporate governance for directors of banks, which is designed to inculcate good corporate governance in the banking industry in line with international regulations on best practices.

More so, the committee of ethics and professionalism was set up in 2001 and it has since issued the

"code of ethics" which every banker in the country should not only possess but observe. The objective is to enforce the tenets of good ethics and professionalism in Nigerian banking system. The committee, which has so far performed satisfactorily, has entertained and adjudicated on complaints against banks from their customers and banks ag6inst other banks.

3.3 Emphasis on Good Corporate Governance

It will be recalled that the major causes of distress in the Nigerian banking sector in the 1990s were identified to include weak management, poor capital base, inadequate credit policy and fraudulent and corrupt practices. All these were reflections of unsound and inadequate corporate governance structures in the sector. The CBN has, in recent times, placed emphasis on the enthronement of good corporate governance in the financial sector. For instance, the issue of multiple directorships in the banking system has been given regulatory attention by the CBN.

The restriction was designed to reduce or possibly eliminate conflict of interest, reduce sharp practices, reduce undue influence of one director on the others and guard against abridge practice by the banks with common directorship. Also, the banks have strengthened the requirement for appointment into board and top management positions, both in terms of minimum educational qualifications and requisite years of experience.

4.0 CONCLUSION

The focus of regulation has been to reduce the risk of bank insolvency and the potential cost of bank failure to depositors.

In the discharge of its statutory responsibility, the CBN has continued to undertake both off-site and on-site supervisory activities. Emerging issues from these supervisory efforts include

poor/weak management structure, weak internal control systems, under-capitalization, inadequate collateralization of facilities granted and exceeding the single obligor limits are quite revealing, and are of great concern to the monetary authorities.

Since the major causes of distress in the Nigerian banking sector in the 1990s were identified to include weak management, poor capital base, inadequate credit policy and fraudulent and corrupt practices. All these were reflections of unsound and inadequate corporate governance structures in the sector. CBN has put in place regulatory framework to ensure sound corporate governance system in the financial system.

5.0 SUMMARY

In this unit, we made effort to discuss the efforts made by the regulatory authorities aimed at stabilizing the financial system.

In the next unit, we shall consider another important unit viz: critical and emerging aspects of banking practices that requires control and regulation.

6.0 TUTOR-MARKED ASSIGNMENT

What efforts are made by regulatory authorities to address instability in the financial system?

Suggested answers

5.0 One of the efforts made by regulatory authorities to address instability in the financial system is sound regulation. The focus of regulation has been to reduce the risk of bank insolvency and the potential cost of bank failure to depositors. This is the hallmark of the 1988 capital accord of the Basel committee on banking supervision. The major elements of the 1988 capital accord included the explicit linkage of capital requirements to a bank's quantum, degree of risks, and the establishment of internationally comparable minimum capital requirement.

6.0 In the discharge of its statutory responsibility, the CBN has continued to undertake both off-site and on-off-site supervisory activities. Emerging issues from these supervisory efforts include poor/weak management structure, weak internal control systems, under -capitalization, inadequate collateralization of facilities granted and exceeding the single obligor limits are quite revealing, and are of great concern to the monetary authorities. In addressing these weaknesses, the CBN introduced prudent guidelines encompassing capital adequate ratio, mandatory uniform accounting standards and strict enforcement of licenses which are issued to only those who are fit and proper to operate a bank.

The ability of the supervisory authorities to prevent, contain, manage and resolve the distress syndrome was severely handicapped by the absence of a comprehensive regulatory framework for distress/crisis management. Against this background the CBN and the NDIC put in place in July 2002 the framework on contingency planning for banking that would ensure the systemic management of crisis in Nigerian banks.

7.0 It will be recalled that the major causes of distress in the Nigerian banking sector in the 1990s were identified to include weak management, poor capital base, inadequate credit policy and fraudulent and corrupt practices. All these were reflections of unsound and inadequate corporate governance structures in the sector.

The CBN has, in recent times, placed emphasis on the enthronement of good corporate governance in the financial sector. For instance, the issue of multiple directorships in the banking system has been given regulatory attention by the CBN.

The restriction was designed to reduce or possibly eliminate conflict of interest, reduce sharp practices, reduce undue influence of one director on the others and guard against abridge practice by the banks with common directorship. Also, the banks have strengthened the requirement for appointment into board and top management positions, both in terms of minimum educational qualifications and requisite years of experience.

7.0 REFERENCES/FURTHER READINGS

Nwakoby, C.I.N. (2004), Banking Practice and Operations in Nigeria (Principles, Issues and Practice), Enugu-Nigeria:Ojiemeka Associates in Association with New Generation Books.

Okafor, F. O. (2011) Fifty Years of Banking Sector Reforms in Nigeria (1960-2010): -Past Lessons: Future Imperative, First Bank of Nigeria Research Chair Report, Banking and Finance, Nnamdi Azikwe University, Awka, Enugu: Ezu Books Limited.

Spong, K. (2000), Banking Regulation: Its Purposes, Implementation and Effects (5^th ed), USA:

Division of Supervision and Risk Management, Federal Reserve Bank of Kansas City.

UNIT 5 CRITICAL AND EMERGING ASPECTS OF BANKING PRACTICES