EVALUATION OF THE IMPACT OF THE NIGERIAN DEPOSIT INSURANCE CORPORATION

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The federal government of Nigeria ride decree No 22 established the Nigeria deposit insurance corporation in July 1988, This regulatory institution is set up to insure all deposit liabilities of licensed banks and other financial institutions the NDIC act Capt 301 L.F.N 1998 further stress on the establishment of the

NDIC by the federal government to incuse bank deposit protect depositors interest and also help in promoting page and sound banking system and further inculcating banking habit among our people.

The Nigeria deposit insurance corporation is an antonymous regulatory body and has the authority to examine the books and affairs of insured banks and other deposit taking financial institution every licensed bank and other deposit taking financial institution operating in Nigeria are man dated to insure its total deposits.

A depositor in a Nigerian deposit insurance corporation insured bank will not pay for the cost of this deposit insurance. It is the insured bank that pays through annual assessment on its volume of such deposits.

The authorized capital of the corporation is N100 million out of which N50million had already been called and paid up by the federal government and central bank of Nigeria banks of Nigeria (CBN) in the ratio of 2.3 the decision by the federal government of Nigeria to establish the NDIC are.

1. To encourage saving by increasing the safely of deposit and ensuring development of banking practice.

2. To refund every insured bank depositor to the maximum tune of N50,000 if this bank is liquidated.

3. To protect the deposit of customers.

In Nigeria today hardly can any year pass by without one hearing of one kind of distress or the other in the banking sector. The problem of distress in the financial sector including outright bank failure was observed in Nigeria as far back as 1930, when the first bank failure was reported.

Between 1930 and 1958 when the CBN was established over 21-bank failure was reported the number of banks today classified as problem banks as on the increase and have continued to be of serious concern to depositor government and regulatory authorities.

1.2 STATEMENT OF PROBLEMS

This problem of distress in the financial sector has consumed a greater part of the Nigerian financial services industry.

Between 1993 and 2000, the financial condition of banks in particular worsened considerably according to NDIC reports by the end of 1993 27 banks were officially classified as distressed by 1994, the number rose to 47, 63 in 1995 and 89 in 1996 however the figure dropped after the establishment of deposit insurance scheme to 34 banks in liquidation as at December 2000.

During this period a number of measures were adopted by the regulatory/ supervisory authorities to resolve the distress problem. The goal therefore is to know how effective this regulating/ supervisory authorities especially the Nigerian deposit insurance corporation (NDIC)have been resolving distress in the Nigerian financial sector through the various policies.

1. The Nigeria banking industry in recent years has operated in an environment that has been very conducive on the economic front the nation continued to wittiness high rate of inflation balance of payment problems high debt burden low productivity industrial unrest and general economic decline.

2. In protecting banking system form collapse and above all, to find out how the distressed banks are responding to the policies and other distress resolving formular.

1.3 PURPOSE OF THE STUDY

Considering the various bottlenecks and adhere distress resolution strategies had not significantly achieved the distress objective in terms of the safely soundness and stability of the financial system.

This work aims at the development of a more comprehensive framework for prompt and efficient resolution of the crisis the specific objectives of this work include

a. Objectively determine the cause of the present distress conditions in the Nigerian service industry.

b. Access the extent and the depth of the distress situation in the Nigeria service industry.

c. Undertake a comprehensive review of developments is the financial services industry in Nigeria particularly during the period 1986-2000 for necessary insight into the operation of the Nigerian financial system.

d. On the basis of the findings of the work ascertain the effects of The existing financial polices in the Nigerian financial service industry.

1.4 SIGNIFICANCE OF THE STUDY

This study is conducted so as to give an insight review of issue of distress in Nigerian banking industry and the effect it has no the nations financial system the work will be useful to the management of these banks other institutions as well as the government in the following ways.

a. This work will aid them in the adoption of a more realistic approach to solving these institutional problems like distress crisis frauds and forgeries.

b. The study also assess the regulatory agencies especially the NDIC & CBN in the banking sector and this reviews the lapses in their policies. It is the first step in the reactivation of effective regulation system is the Nigerian financial services industry.

c. It would also provide a yardstick for further researchers in this field of academic discipline.

1.5 DEFINITION OF TERMS

i. Collateral/ Securities : These are properties e.g. stocks and bounds pledges as security for repayment of a loan.

ii. Deregulation: It is the process whereby the government does not apply it stick systematic control of the financial sector to the core like in the banks where they are allowed to six interest rates.

iii Cross default: In the infer- bank market, where one bank fails to meet its financial obligation to another, it is said to be involved in cross default.

V Insolvency: where a bank can no longer fulfill its obligation of payment to its depositors as q result of squeeze that bank in said to be Insolvency.