IMPACT OF CENTRAL BANK OF NIGERIA PRUDENTIAL GUIDELINES ON THE FINANCIAL STATEMENT OF LICENSED
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IMPACT OF CENTRAL BANK OF NIGERIA PRUDENTIAL GUIDELINES ON THE FINANCIAL STATEMENT OF LICENSED
Chapter One: The Influence of Central Bank of Nigeria Prudential Guidelines on the Financial Statements of Licenced Entities Introduction
1.1 Statement of the Problem
Prior to the implementation of the prudential norms, as outlined in the Central Bank of Nigeria (CBN) circular of 1990, several banks were known to report significant yet unrealized profits, commonly referred to as “paper profit.”
This study will examine the following issues:
Did the profit numbers of the selected commercial banks see a considerable fall following the implementation of prudential guidelines?
Did the allocation for bad and doubtful debts experience a substantial increase in accordance with prudential guidelines?
1.2 Justification for the Study
Olufun (1991) asserts that the primary objective of prudential standards is to introduce order and stability into the turbulent banking sector.
Prior to the implementation of the standards, many banks commonly reported what is referred to as “paper profit” and excluded off-balance sheet engagements from their overall balance sheet figures.
The guideline aims to support banks in enhancing their credit performance evaluation, while also providing bank supervisors and auditors with improved criteria for evaluating the adequacy of capital provision to safeguard the banks. The adherence to prudential regulations by banks has a significant role in enhancing the effectiveness of monetary policy.
1.3 Significance of the Research
There is a body of literature available that examines the impact of the Central Bank of Nigeria’s 1990 prudential guidelines on financial statements.
Nevertheless, the necessity to update this information is present and should not be underestimated. Hence, this study was conducted with the aim of enhancing the current body of literature by providing updated information.
The primary objective of this study is to provide readers with knowledge regarding the influence of the Central Bank of Nigeria (CBN) guidelines on financial statements. The primary objective of this measure was to promote caution in the categorization of credit portfolios and the allocation of provisions for non-performing facilities.
The implementation of prudence was imperative in order to guarantee the dependability of accounting information and operating results presented by financial institutions, as well as to establish certain standards of consistency in credit portfolio disclosures and interest accruals.
According to Eghodaghe (1993), this study will provide valuable insights for monetary authorities into the extent to which the guidelines have successfully achieved their principal purpose of reducing the reporting of paper profits by banks.
This research aims to provide valuable insights for commercial banks to develop effective methods that can improve their credit portfolio performance and mitigate loan losses, hence reducing the need for provisions related to bad and doubtful debts.
This publication will serve as a valuable resource for students studying banking and finance, management, and professionals working in the banking industry, as well as other relevant fields. Additionally, it may also uncover potential avenues for further research.
1.4 Definition of Terms
The acronym FBN refers to First Bank of Nigeria PLC.
The organisation in question is the Union Bank of Nigeria PLC.
The Central Bank of Nigeria (CBN) is an institution responsible for overseeing and regulating the monetary and financial system in Nigeria.
A portfolio, as defined by Odoh (1998), refers to a compilation of securities that are owned by an investor. An effective portfolio will exhibit a diversified range of investments to mitigate the potential for financial losses.
The term “bad and doubtful debts” include all credit facilities that are non-performing, as outlined in the prudential criteria set by the central bank.
Monetary policy refers to the discretionary measures implemented by monetary authorities to regulate the money supply (Orji, 1998).
The prudential guidelines, as outlined by Nwankwo (1991), are to be considered.
Prudential guidelines refer to a set of explicit regulations or agreed-upon conduct, typically enforced by a governmental entity or external agency, which govern the operations and business activities of institutions.
Performing assets refer to credits that adhere to the specified repayment conditions, with timely payments of both principal and interest. This definition is in compliance with the guidelines set by the Nigeria Accounting Standard Board in 1990.
Non-performing assets (NPAs) refer to credits for which both the principal and interest payments are not being made in line with the stipulated repayment term.
A financial statement, as defined by the Nigeria Accounting Standard Board (1984), is a comprehensive report that includes a balance sheet, profit and loss account (or income statement), notes to the accounts, source and application of funds statement, value added statement, and historical financial summary.
Misleading Financial Reporting: An Analysis of False Profit Declarations.
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