AHAM
NZENWATA
Abstract
This paper examined the
current status of banking regulations in Nigeria. The study indicates that over
time, the regulatory landscape remains dynamic in and in tune with the times.
For example, by 2004, most of the banks in Nigeria were small and weak when
compared with banks in other countries,, this necessitated the raising of the
minimum capital from N4billion to N25billion. Secondly, in the aftermath of the
world economic crisis in 2007-2009, it was discovered that top executives and
board members of some banks colluded in given out margin loans which were used
to trade imprudently in the stock. This also necessitated the review of code of
conduct corporate that saw changes that affected the structure, composition of
board members and CEO tenure restriction. Nigeria also adopted IFRS for annual
reports to correct the lapses in the previous methods as well as enlarged the
areas of mandatory disclosures
1 INTRODUCTION
In general,
banking regulation and supervision involves control over the creation,
operation, and liquidation of banks. Such control is very diverse, carried out
by specialized banking supervisory authorities. Regulation of banks'
operational activities aims to protect the interests of depositors and to
ensure effective functioning of the banking units and industry. This regulation
is the most important and essential part of the functions of banking regulatory
authorities, which is carried out in the name of a sound banking system.
Regulation is performed continuously throughout the whole operating process of
banks.
Although banking
regulation and supervision is generally focused on the financial state and
business performance of individual banks, its main purpose is to maintain
stability of the banking industry. To achieve this goal, banking supervision
takes precautions for preventing loss to depositors, and thereby helping to
sustain public confidence in banks and the banking industry as a whole. The
role of banking regulation and supervision is to create an environment, which
supports only reliable and prudent banks and reduces excessive risk-taking.
Furthermore,
banking regulation is required in order to monitor and assist in the early
detection of problems in the banking institutions, taking all necessary
measures, such as liquidation, with the aim of overcoming and limiting the
adverse effects within the affected bank.
Over
the years, the Central Bank of Nigeria has consistently come out with new
regulations which banks are expected to comply with. Examples of bank
regulations in the recent past include capital requirements, Reserve
requirement, Corporate governance, mandatory
disclosures and new guidelines on financial reporting among others. In the remaining
sections of this paper, we shall explore some of these regulatory issues.
2 REVIEW
OF RELATED LITERATURE
2.1 CAPITAL REQUIREMENT
Currently,
the minimum capital requirement for deposit money banks operating in Nigeria is
N25 billion. This is about to change as the CBN is in the process of revieiwing
the minimum capital base for banks operating in Nigeri. As part of its efforts
at enhancing the quality of banks and ensuring financial system stability, the
Central Bank of Nigeria (CBN) is proposing raising the minimum capital to N100
billion for banks operating in the country.
Under the guidelines rolled out last
week by CBN, the Wholesale Development Finance Institution (WDFI) is a DFI
devoted principally to providing wholesale funds to a group of other financial
institutions under the new arrangement to be known as Participating Finance
Institutions (PFIs) for on-lending to enterprises in identified sectors.
Consequently a PFI is a financial institution licensed and/or regulated by the
Central Bank of Nigeria and is involved in lending directly to end user clients
in identified sectors.
The new policy guideline also says that a Retail Development
Finance Institution (RDFI) is a DFI devoted principally to lending directly to
enterprises/organizations in identified sectors. The objectives of the new DFI
subsector as set out in the operating guidelines are to: fund micro, small and
medium enterprise (MSMEs) and large enterprises (LEs) for economic development;
foster growth in sustainable businesses; create Jobs; reduce poverty and
improve quality of lives of Nigerians (Anaeto 2015). However, the composition
of the capital of the banks remain according to the stipulations of Basle II
Accord.
2.2 PAYMENT SYSTEMS INITIATIVES
According to the CBN (2015), the payments system
plays a very crucial role in any economy, being the channel through which
financial resources flow from one segment of the economy to the other. It,
therefore, represents the major foundation of the modern market economy. Essentially, there are three pivotal roles for
the payments system, namely:
·
The Monetary
Policy role,
·
The financial
stability role and
·
The overall
economic role.
The Nigerian Payments System witnessed remarkable
achievements in the recent past, with the introduction of a number of
initiatives under the Payments System Vision 2020.
In the recent past, the payment system
has been modernized in line international standards in order to build a
reliable database of bank customers across the different banks and also to make
the payment system more secure and safe for account holders. In order to
achieve the goal of modernizing the payment system, the CBN implemented the
following policies:
·
Implementation
of Bank Verification Number (BVN) Scheme to address issues associated with the
absence of unique identifier of bank customers across the industry
·
Issuance of Guidelines on International Money
Transfer services in Nigeria
·
Issuance of
revised Guidelines for card issuance and usage in Nigeria
·
Implementation
of industry e-reference portal
·
Abolished fees
on cash deposit above the cash-less policy threshold.
2.3 CORPORATE GOVERNANCE
According to KPMG (2014) The Financial Policy and
Regulation Department of the Central Bank of Nigeria (CBN) recently published a
circular on the revised code of Corporate Governance for Banks and Discount
Houses in Nigeria. The revised code, which supersedes the previous code issued in
March 2006 amends certain sections of the previous code of corporate governance
in order to align with current realities and leading practices. Highlights of
the amendments and additions to the Code include:
·
Size of the
Board: This section now includes a
requirement for a minimum size of 5 people for the Board of any Bank or
Discount house in addition to the required maximum size of 20 people. The
number of directors on the board (or board size), is a critical factor that
influences their performance
·
Composition of
the Board of Directors: This amndment stipulates what proportion of board
members may be executive and non-executive memebers. The independence of the
members of the board critically determines their ability to significantly
impact the Board performance.
·
Eligibility for
the Chairman, MD/CEO or ED position: This section stipulates that where a bank
is a member of a holding company, no two members of the same extended family
shall occupy the positions of Chairman and MD/CEO or Executive Director of the
bank and Chairman or MD/CEO of a bank’s subsidiary at the same time. The new
code also put a cap on the tenure of the CEO to 10 years.
The code also addressed other issues
like: Whistle Blowing Policy, Appointment/Removal of the Chief Compliance
Officer, Composition of Board Risk Management Committee, etc.
2.4 MANDATORY DISCLOSURES
Mandatory disclosures for reporting: The code now
defines the minimum disclosure in the annual report to include the details of
directors and their shareholdings, corporate governance, and contingency
planning framework amongst others. At the heart of high quality reporting is
full disclosure of relevant information as required by the regulatory
authorities. This is important to the users of the financial statements and
improves overall quality of reporting and disclosures.
2.5 FINANCIAL REPORTING
The
pattern of financial reporting varies in the different countries or regions.
This variation stands in the way of accountability and sound comparability of
financial reporting among different countries (Kamal and Bhuiyan, 2003). The necessity, therefore, of standardization
was felt worldwide. For standardization and harmonization of accounting and
financial reporting, the International Financial Reporting Standards (IFRS)
were developed.
Nigeria officially adopted IFRS in 2012,
although, Nigeria’s leading private sector companies, particularly banks
adopted the IFRS in 2007. The introduction of IFRS represents a significant
change in banks’ loan loss accounting in Nigeria as regards the recognition and
measurement of credit risks.
IFRS has made far reaching changes in reporting
issues like fixed assets, financial ratios and operating expenses. Finally, all
banks were also mandated to switch to a uniform
years end in order to improve comparability of financial reports within
uniform periods of time.
5 CONCLUSION
Banks
are very important institutions that play a critical role in the development of
any economy. Given the pivotal of banks role in any open market economy, the
success or failure of the economy can be gauged on the performance of the
banking system. Hence, there is need to ensure that that the banking system
remains healthy at all times. Thids forms the justification for closely
monitoring the activities of banks through regulation and supervision. This
paper examined the current status of banking regulations in Nigeria. The study
indicates that over time, the regulatory landscape remains dynamic in and in
tune with the times. For example, by 2004, most of the banks in Nigeria were
small and weak when compared with banks in other countries,, this necessitated
the raising of the minimum capital from N4billion to N25billion. Secondly, in
the aftermath of the world economic crisis in 2007-2009, it was discovered that
top executives and board members of some banks colluded in given out margin
loans which were used to trade imprudently in the stock. This also necessitated
the review of code of conduct corporate that saw changes that affected the
structure, composition of board members and CEO tenure restriction. Nigeria
also adopted IFRS for annual reports to correct the lapses in the previous
methods as well as enlarged the areas of mandatory disclosures.
REFERENCES
Anaeto,
Emeka (2015) CBN fixes capital base for Development banks at N100Billion,
Retrieved on 01/05/2016 from: http://www.vanguardngr.com/2015/03/cbn-fixes-capital-base-for-devt-banks-at-n100bn/
Biggar,
Darryl & Heimler, Alberto (2005) An Increasing Role for Competition in the
Regulation of Banks, International Competition Network, Antitrust Enforcement in
Regulated Sectors, Bonn
Kamal,
Y. and Bhuiyan, N.U. (2003). Standardization of Accounting and Financial
Reporting Practices in the Banking Sector in Bangladesh: An Evaluation of the
Implementation of IAS 30 by the Banks in the Private Sector. Journal of
Business Studies, 24(2), 25-37.
KPMG
(2014): Updates To Code Of Corporate Governance for Banks And Discount Houses, http://www.kpmg.com/NG/en/IssuesAndInsights/ArticlesPublications/Documents/Updates%20to%20Code%20of%20Corporate%20Governance.pdf.
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