THE ROLE OF CENTRAL BANK OF NIGERIA IN THE DEVELOPMENT OF NIGERIA FINANCIAL SECTOR
ABSTRACT
The Central Bank of Nigeria through its various regulatory, prudential and contingency measures has continued to contribute the development of financial sector and the economy. The establishment of Central Bank of Nigeria (CBN), has been of great help in providing solutions, to problems facing financial institution, industries and the general public. And the purpose and objective of this study is to investigate and report on the role of Central Bank of Nigeria in development of financial sector. Meanwhile, this research work will be made up of five chapters. Chapter one will discussing the introduction, General overview of the study, statement of problems, its objective, scope and limitation, statement of hypothesis and significance of the research. Chapter two, will take a detail look of various literature review relating to the topic with subheadings. Furthermore, chapter three will be discussing research methodology, sources of data collection sampling procedure, method of data collection and data analysis techniques. Chapter four presentation and analysis of data. Finally, chapter five will summaries all the research findings, drawn conclusion and also make recommendation. Bibliography and appendix shall be attached to this project work and these chapters will be discussed in details in the previous chapter.
CHAPTER ONE
1.1 GENERAL OVERVIEW OF THE STUDY
The background to the establishment of the Central Bank of Nigeria (CBN) lies in the characteristics and deficiencies of the monetary system, which preceded it. This was the currency board system. The West Africa current Board (WACB) was established in November 1912 following the recommendation of the Emott committee. And because of the deficiencies and demerits of the board there was an urgent need for the established of an institution in the nature of the a Central Bank of Nigeria (CBN). The nationalists mounted pressure on the colonial government and as a result, the patron commission, was set up by the colonial government in 1952. And upon the report of the commission, the first banking legislation in Nigeria was passed in 1952 known as the Banking Ordinance 1952.
The motion for the establishment of Central Bank of Nigeria (CBN) was defeated initially but the call could not be totally ignored. Thus Mr. J. L. Fisher of the Bank of England, 1953 to inquire into the desirability and practicability of establishing a Central Bank of Nigeria (CBN and his report was not feasible to established a Central Bank.
Meanwhile as Mr. Fisher was reporting the world mission visited Nigeria in 1953. They also examined the desirability and practicability of establishing a Central Bank of Nigeria (CBN. But recommended the establishment of a state bank. However, in 1957, Nigeria gained an internal autonomy backed by the report of the world bank mission on the subject, the federation government appointed a commission headed by the Mr. J. B. Loynes, again of the Bank of England in 1957, to make recommendations in the establishment of Central Bank of Nigeria (CBN), the introduction of Nigeria currency and other associated matters. It recommendation culminated in the establishment of CBN on march, 17th, 1958 by the Central Bank of Nigeria (CBN ordinance of the year. The bank came into existence and started operation fully on 1st July, 1959, thus anticipating the date of October 1st, 1960. Today Nigeria has a Central Bank with about seven branches and seven currency centers.
THE STRUCTURE OF CENTRAL BANK OF NIGERIA
The board of directors is at the Apex of the Central bank, the actual operation are the responsibility of the excessive directors and through them the department director. The board consist of a governor, a deputy government and nine other directors, three of whom are executive directors. The governors and deputy governor are appointed, by the head of the Federal Government while in office, these two officials of the bank cannot engage in other services expect those specified by the federal government. The directors are persons, of recognized standing and experience in affairs of monetary management. they are also appointed by head of the federal government.
FINANCIAL SECTOR
A financial sector is a composition of various institutions, markets, instrument and operators that interact within an economy to provide financial service. It can also been seen in the content of sets of rules and regulation and heap of financial arrangements within the financial sector.In Nigeria, the financial sector has undergone remarkable changes in terms of ownership structure the depth and breath of instrument employed, the number of institutions established, the economic environment and the regulatory framework within which the sector operators. The Nigeria financial sector has also witnessed remarkable evolution over the past two decoder. The major phrase during this period are:
THE PRE – SAP ERA (BETWEEN 1980 AND 1986)
This era witnessed the emergence of wholly owned Nigeria banks. The banking industry, during the period was characterized by minimal competition and poor capitalization. Also during the period of the banking industry was highly regulated and dominated by government. In terms of policy it was a period of relative monetary restraint. The key factors in this regard include the economy stabilization measures of 1982 – 1983 and the authority of 1983 to 1985
THE SAP ERA (BETWEEN 1986 AND 1993)
This era witnessed an economic reform package designed to liberalize the economy with emphasize on the financial sector. The resource brought about the removal of various administrative controls and the progress we move towards a marketable oriented economy
THE POST SAP ERA (THE PERIOD FOLLOWING THE TERMINATION OF SAP)
This era witnessed a brief (1994) of renew regulation (with interest and exchange rates fixed by flat) and subsequently, the period of guided residential proliferation of banking and financial institutions in the early 1990’s, which brought about increase number of players for beyond what could be effectively managed by the Central Bank of Nigeria (CBN). As a result, the financial section witnessed serious waves of distress that caused crisis of confidence in the industry. The Central Bank of Nigeria (CBN) in collaboration with NDIC has since 1994 intensified effort towards achieving a healthy operating environment for the financial service sector.
FUNCTIONS OF THE FINANCIAL SECTOR
The financial sector performs quite a number of unique functions within the Nigeria Economy, Chief amongst which is ensuring adequate stock of money to the needs of the economy as well as facilities the transfer of money is usually from areas of surplus to areas where there are deficits or needs. The financial sector also helps to mobilize the collection and storages of savings
STRUCTURE OF THE NIGERIA FINANCIAL SECTOR
The Nigeria Financial Sector is made up of various segments including the regularity and supervisory authorities for banks, and non – banks financial institution other are money market and its institutions, the capital market and tits players. The sectors also consist of the development financial institutions and other institutions and funds. The financial institution include the CBN, SEC, FMBN, NBCI, NACB, NDIC, NIDB, PBN etc
THE RELATIONSHIP BETWEEN CENTRAL BANK OF NIGERIA (CBN) AND FINANCIAL SECTOR
Central Bank of Nigeria (CBN) refers to the role of the Central money authority within entire financial sector. In Nigeria CBN performs the following roles among other.
FINANCIAL SECTOR SURVEILLANCE
Central Bank of Nigeria (CBN) out a comprehensive surveillance of the financial sector. It also develops a regulatory and supervisory framework for on – site and off – site supervisor of the other financial institutions.
FOREIGN EXCHANGE MANAGEMENT
The Central Bank of Nigeria (CBN) participants actively in the buying and selling of forex. It has very proactive in the inter bank foreign exchange market.
LIQUIDITY MANAGEMENT
Central Bank of Nigeria (CBN) has played very active role in this area and is expected to enhance, the operations at the secondary ,market for government debt instrument through the introduction of a diversified portfolio instruments.
MAINTENANCE OF MONETARY STABILITY
The role of Central Bank of Nigeria in ensuring macroeconomic stability in tied to the objective of achieving monetary stability and this is only possible if the fiscal, income and other policies of government are supportive.
EFFICIENT PAYMENT SYSTEM
An efficient payment system underlies the optimal utilization of resources, enhance implementation of monetary policies and maintains monetary stability
1.2 STATEMENT OF THE PROBLEM
The essence of this study is to known how Central Bank of Nigeria (CBN) role contributes to the development of Nigeria financial sector. And it is evident that Central Bank of Nigeria (CBN) encounter a lot of problems trying to carryout this role. Among those problems are as follows.
One of the fallings of Central Bank of Nigeria (CBN) is their inability to guide against unethical actions of commercial banks in the areas of money laundering, Interbank force exchange, fraud;
The Central Bank of Nigeria (CBN) inability to curb the current rising inflationary rate in the country
Its lack of effective regulatory measures has led to high lending rate imposed by commercial banks on their customer
It also lack the capacity to effectively execute government economic policies
Inability of Central Bank of Nigeria (CBN) to monitor the skyrocketing foreign exchange rate in the country
Central Bank of Nigeria (CBN) has been unable to promote the need saving culture among Nigerian which could have helped the nations capital base.
1.3 OBJECTIVE OF STUDY
The purpose of this study is ascertain the role Central Bank of Nigeria (CBN) plays to develop Nigeria Financial Sector. And this research will be conducted under the following objectives.
To determine the effect of Central Bank of Nigeria (CBN) role in the development of Nigeria finaical sector
To ascertain the relationship between the role of Central Bank of Nigeria (CBN) and financial sector
To examine the extent to which Central Bank of Nigeria (CBN) role contributed to the development of Nigeria Financial Sector
To evaluate how financial sector comply to Central Bank of Nigeria (CBN) regulatory guideline in Nigeria
1.4 STATEMENT OF HYPOTHESIS
H1: financial sector compliance with the central bank of Nigeria (CBN) policy guidelines leads to financial sector stability.
H2: Financial sector are required to maintain certain minimum reserve requirement MRR with CBN in order to control liquidity.
1.5 SIGNIFICANCE OF THE STUDY
The research work will serve as a valuable contribute to knowledge and will also be of particular importance to the student of banking and finance, Accountancy and other related course and will serve as a source of useful reference for future researchers.
Secondly, the study will be great significance to as it will encourage Nigeria populace to embrace saving culture.
Again, this study will also encourage foreign investors to invest in Nigeria. thus, by creating an enabling environment or policies for investment and above all the facilitation of good conducts of monitory and fiscal for ensuring macro economic stability and stable governance.
Furthermore, this study will help to restructure the business cycle to enhance its effectiveness, efficiency and productivity. Finally the study will reveal the current problems confronting efficient rate of Central Bank of Nigeria (CBN) in developing our financial sector.
1.6 SCOPE OF STUDY
This research work shall cover the role of Central Bank of Nigeria (CBN) to the development of financial sector with more emphasis on baking industry.
1.7 LIMITATIONS OF THE STUDY
The research work could not come to time light without the researcher encountering a lot of limiting factors ranging from finance, dearth of relevant reference text, time.
FINANCE
This research was conducted with the limited resource of the researcher, lack of fund coupled, with the economic condition and inflationary trend in our country today, has resulted to high cost of completing research work.
DEARTH OF RELEVANT REFERENCE TEST
I think it is not an overstatements for one to say that scarcity of relevant reading materials, is a social ill, thus disturbing the fabric of education in our country today. The issue of dearth of relevant rending materials is more with reference to text in Banking and Finance, where only the out dated ones exit.
TIME
The time available for the student to carryout the research is listed. This limited normal semester work which are pursed concurrently.
FINANCIAL SECTOR
Is a composition of various institutions, markets, instruments operators that interact within an economy to provide financial service.
EFFICIENT PAYMENT SYSTEM
It underlies the optimal utilization of resources, enhances implementation of monetary policies and maintains monetary stability.
LIQUIDITY MANAGEMENT
This is the method of handling funds that have not yet been converted to cash.
CAPITAL
It could be defined as the money or fund used to start a business
ASSETS- Assets are instruments owned by companies especially properties that can be sold to settle debt.
1.8 DEFINITION OF TERMS
MONEY MARKET
The money market is a market where money is sold and bought for a short – term period
CAPITAL MARKET
The capital market refers to the mobilization of medium and long term funds from surplus unit to the economy
FOREIGN EXCHANGE MARKETING
It is a market where foreign currencies are bought and sold
FINANCIAL SECTOR SURVEILLANCE
This is a situation when central bank of Nigeria carriers out close observation of financial sector
FEDERAL MINISTRY OF FINANCE (FMF)
The federal ministry of financial in responsible for licensing bureaus de change an regulation of insurance companies.
SECURITY EXCHANGE COMMISSION (SEC)
The Security and exchange commission is an apex regulatory organ of the capital market.
FEDERAL MORTGAGE BANK OF NIGERIA (FMBN)
The federal mortgage bank of Nigeria is the apex regulatory body of mortgage institutions
NIGERIA BANK FOR COMMERCE AND INDUSTRY (NBCI) .
Nigeria Bank For Commerce And Industry grant loans to small and medium scale enterprises
NIGERIA AGRICULTURE & COOPERATIVE BANK (NACB)
Nigeria Agriculture And Cooperative Bank responsible assisting the agricultural sector
NIGERIA DEPOSIT INSURANCE COOPERATION (NDIC)
Nigeria Deposit Insurance Cooperation is responsible for providing deposit insurance and other related service for banks
NIGERIA INDUSTRIAL DEVELOPMENT BANK (NIDB)
Nigeria Industrial Development Bank is responsible in developing industrial sector
PEOPLE BANK OF NIGERIA (PBN)
This bank helps to provide easy credit facilities to the down trodden masses who have no access to conventional financial institutions.
CENTRAL BANK OF NIGERIA (CBN)
The Central Bank of Nigeria is the apex of financial institutions, they supervise and regulate the activities of all other financial institutions.
LIABILITIES
Liabilities are referred to as the amount of money a company owes.
THE ROLE OF CENTRAL BANK OF NIGERIA IN THE DEVELOPMENT OF NIGERIA FINANCIAL SECTOR