CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Banking is defined in the 1969 Act as “the business of receiving monies from outside sources as deposits irrespective of the payment of interest and the granting of loans and acceptance of credits, of the purchase and sale of securities for account of others, or the incurring of the obligation to acquire claims in respect of loans prior to their maturity or the assumption of guarantees and other warranties for others, or the effecting of transfer and clearings and such other transactions as the commissioner may, on the recommendation of the central bank, by order publish in the Federal Gazette designate as banking business. The Nigerian banking system is made up of the central bank, commercial banks, merchant banks and development banks. However, in the most recent past, the federal military government established the community and people’s banks, with broad based programmes to enhance the welfare of the citizens. In Nigeria, the banks are closely monitored and regulated by the government through its agency, the Central Bank of Nigeria (CBN). The need for this close marking is to ensure that banks render services to their customers in a manner consistent with safe banking operations and government financial policy. Due to the direct need to effectively and efficiently manage depositors’ fund, the task of managing is entrusted to reputable and diligent personnel. This is due to the various functions involved in the art of bank management.
The management personnel of banks usually establish internal control procedures for the effective discharge of the major functions in order to attain their corporate objectives. In doing this, special attention is always given to communication problems. The organizational structures of banks usually have a line-end-staff form so that there will be free flow of information vertically. Similarly, the lower level management can also advise top-level management. This free flow of information will make those below the top management to be fully aware of the bank’s policy and their own individual and group responsibilities toward the bank. It also provides a basis for effective decision making. This is followed by planning which deals with mapping out strategies to implement decision. There is therefore a need to establish a follow-up mechanism so that performances can be monitored to know whether actions are going according to plan and policies. If not, then adjustments can be made. It is in the light of these factors that the management function of controlling becomes very desirable. A good combination of the basic functions of management planning, organizing, controlling and co-ordinating leads to overall efficiency and effectiveness. In order to enhance proper management and ensure this efficiency, the bank’s management usually establishes internal control units known as the inspectorate division. This division carries out daily and periodic supervision and inspection of all operations of the bank. In the entire banking sector, the inspectorate is a household name, as it exists in all banks though under different names. The setting up of the inspectorate divisions is aimed at stopping any form of financial distress in the Nigerian banking industry as well as other undesirables to both the bankers and customers. Despite the establishment of this division, there seems to be lapses all over, Nigerian banks are characterized by persistent liquidity, slow loan recovery rate, inefficiency, and so on.
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