THE IMPACT OF NIGERIA DEPOSIT INSURANCE COOPERATION (NDIC) ON NIGERIA BANKING INDUSTRY (A CASE STUDY OF NDIC, ILORIN KWARA STATE)
TABLE OF CONTENT
TITLE PAGE i
1.1 Background of the study 1
1.2 Statement of Research problems 4
1.3 Objective of the study 4
1.4 Scope and limitation of the study 5
1.5 Significance of the study 6
1.6 Statement of the Study 6
1.7 Definitions of Terms 7
1.8 Organization of the Study 8
2.1 Historical Background of the study9
2.2 Historical Background of Nigeria Deposit
Insurance Corporation 12
2.2 Aims and objectives N.D.I.C 14
2.3 Effects/Roles of N.D.I.C in the banking industry 15
2.4 Challenges faced by N.D.I.C 16
2.5 Management and operation of N.D.I.C17
3.1 Restatement of the Research Question and Hypothesis 19
3.2 Research design and data collection techniques 21
3.3 Characteristics of the study population and sampling 21
3.4 Administration of the data collection instrument 22
3.5 Procedure for processing the collection data 22
3.6 Limitation of methodology 22
DATA PRESENTATION AND ANALYSIS23
4.1 Presentation and analysis of data according to
research question 25
4.2 Presentation and analysis of data according to hypothesis 31
4.3 Discussion of findings 35
Summary, conclusion and Recommendation 36
5.1 Summary 36
5.2 Conclusion 37
5.3 Recommendations 39
1.1 BACKGROUND OF THE STUDY
Prior to 2006,distress in the Nigerian banking industry had become more great source of concern to the entire financial system, the scale was generally induced until 2008, when the body called Nigerian deposit insurance corporation[NDIC] begun its operation on the safety and soundness of the depositors and system basically in Nigeria.
Consequently, the introduction of the structural adjustment programmed [S.A.P] had not given room for competition in banking industry but rather it had also complicated the financial structural structure of the country. Apart from allocating funds purely on commercial basis, banks also accommodate the handicap of numerous borrowers who have been crippled by the structural adjustment programme [S.A.P].In the provision of bad and doubtful debt of banks, convention is over rift that in major banking cycle that a financial system with an increasing provision. Bad and doubtful calls for caution from the management because this may serve as disincentive to new entrants into the banking industry.
Proliferations of the new banks have gained ground for speculation of Nigeria maybe heading towards having failure. The reason behind proliferations centered on the fact that Nigeria is under banking service and therefore needs as many banks as possible. This position was perhaps encouraged by an international monetary fund [IMF] report on the healthy numbers of persons per bank branch in Nigeria.
The federal military government formulated decree No. 22 which shortly established the N.D.I.C [Nigeria deposit insurance corporation] is an autonomous regulating body with power among other to examine the books and affairs of the insured bank and other deposit-taking financial institution operating in Nigeria to ensure total deposit liabilities with NDIC with the exception of insider deposits i.e. deposits belonging to the board members and staff of the insured banks e.g. deposits used as collateral. As a matter of fact a depositor in an NDIC insured bank will not pay through annual assessment of its volume of such deposits. It is the premium paid by the insured banks and the investment income that makeup fund of the corporation.
In general, deposit fund in current or fixed time savings and other deposit account are insured in each commercial or merchant bank or other deposit account –taking financial institutions. Not too far, the management of Nigeria deposit insurance corporation (NDIC) proposed to extend their operations which was later granted under the community bank (N.A.C.B) but shortly after the corporation was under to go ahead with the task of the activities of regulating community bank, this is because of the previous activities were carried out on the risk of commercial bank, merchant banks were not adequately fulfilled by the corporation banks under the establishment of failed bank [recovery of debts] and financial malpractices in bank had come into existence as past operation of the s contributed directly or indirectly to the failure of the bank or any financial institutions experiencing distress.
In most recent years even before the establishment of failed bank decree some provisions in the decree establishment N.D.I.C eroded the statutory powers in the corporation to perform its function effectively it requires adequate enforcement powers so that the whole country can believe that the safety and soundness of the banking system is assured.
1.2 STATEMENT OF RESEARCH PROBLEM
How does Nigeria deposit insurance corporation [NDIC] protect the bank depositor against loss?
Does the Nigeria deposit insurance corporation [NDIC] protect the interest of the creditors or shareholders of a failed bank?
⦁ Are financial institution insured by the Nigeria deposit insurance corporation
⦁ Can an insured status in Nigeria deposit Insurance Corporation be terminated?
⦁ Does an account held by a company or partnership be insured separately from individuals account?
1.3 OBJECTIVES OF THE STUDY
⦁ To check on how to give assistance in the interest of the depositors in the case of financial difficulties of bank especially when suspensions of payment are threatened.
⦁ To examine the effectiveness of the Nigeria deposit insurance corporation and how it protect the interest of shareholders and creditors of a failed bank.
⦁ To examine how Nigeria deposit insurance corporation [NDIC] insures financial institutions most especially banks.
⦁ To find out whether an insured status in Nigeria deposit insurance corporation can be terminated and if yes, how
⦁ To find out whether an account held by a company or partnership is insured separately from the individuals account.
1.4 SCOPE AND LIMITATION OF THE STUDY
The Nigeria deposit insurance corporation is a texture of a modern financial system in Nigeria. Nevertheless , the rationale for establishing the Nigeria deposit insurance corporation [NDIC] is well known in spite of the good reason for establishing the NDIC , it was not established without considerable debates.
The scope of the study is to examine critically to what extent the corporation controls the economic development as regards banking system in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
It is hoped that this study would provide valuable information on the function of NDIC to the banks and as well the customers’ deposits which is their basic function.
Another important reasons why this study is essential is that it will enable the depositors to know their right on claims in case default arises with any of the banks insured by NDIC.
Furthermore this study would focus on how to improve the standard of banking industry in the country.
1.5 STATEMENT OF THE STUDY
Hypothesis are assumptions upon which a researcher bases his or her findings are regards the data collected to a research topic or an investigation about undenying population or variables which may be true or false. Hypothesis maybe seen as an option about population variable or statement Rober .
Ho; The Nigeria deposit Insurance Corporation does not have any significant improvement on the banking industry and has not improved the country economically.
H1: The Nigeria deposit Insurance Corporation has seriously improved and assisted the country economically on the banking industry.
1.6 DEFINITIONS OF TERMS
N.D.I.C: The Acronym `NDIC` means the Nigeria deposit Insurance Corporation and is an independent agency of the federal government of Nigeria. The purpose of the deposit insurance system is to protect depositors and guarantee the settlement of insured funds when a deposit taking financial institution can no longer repay their deposits.
S.A.P: The acronym `S.A.P` means the structural adjustment programmers’ and are the economic policies for developing countries that have been promoted by the world bank and international monetary fund (IMF) since the early 1980s by the provisions of loans conditional on the adoption of such policies.
I.M.F: The acronym `IMF` is international monetary fund is an organization of 188 countries working to foster global monetary corporation, secure financial stability, facilitate international trade promote growth and reduce poverty around the world.
Proliferation of New Banks; proliferation of banks is an increase in number of banks.
1.7 ORGANISATION OF THE STUDY
For the purpose and nature of this research work, the project is divided into five chapters. Project chapter one consists the introduction of the research topic while chapter two also discusses the literature review which was broken down into subheadings to reflect the research topic, chapter three is the research methodology and how it is being implemented and also chapter four explains data presentation and analysis on research topic, finally the chapter five of this research work deals with summary conclusion and recommendations.
2.1 HISTORICAL BACKGROUND OF THE STUDY
The Nigeria Deposit Insurance Corporation (N.D.I.C) is an independent agency of the federal government of Nigeria. The purpose of the deposit insurance is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay their deposits.
The Nigeria deposit insurance corporation (N.D.I.C) has its origin in the report of a committee set up in 1983 by the central bank of Nigeria. The committee in its report recommended the establishment of a depositor’s protection fund. The primary objective of the corporation is to protect depositors of an insured bank against loss.
Different institutions, society and people especially experts in insurance, banking and economic sector have at one time or the other expressed their personal opinion and interest on the Nigeria deposit insurance corporation (N.D.I.C) in writing this paper therefore, information have been gathered from past seminar paper presented by some experts.
According to Ebhodahe (1989) explained that experience in the banking industry since the establishment of the Nigeria Deposit Insurance Corporation (N.D.I.C) has strengthened customers confidence in banks adding that the usual ascetics expressed by deposit would insured and customers would be able to recover their money in the event of failure.
Ogunlowo, Ademota (1988) is also of the view that the Nigeria deposit insurance corporation (N.D.I.C) is widely accepted by the banking system but that unless some of the anomalies in the banking industry are abolish, the success of the Nigeria deposit insurance corporation (N.D.I.C) would still strictly be restricted.
Abaka (1990) indicates that it common for decision unit modify their behavior when the consequence of their action are insured, this is known as moral hazard. Therefore if all banks are not equally risky then the less risky banks effect subsidizes the riskier banks.
According to Azuh Daniel (1989) he asserts the establishment of the Nigeria deposit insurance corporation (N.D.I.C) through government degree was widely acclaimed the general opinion that the central bank of Nigeria in its bank regularity function and provide solution to some criticisms as regards the establishment of the Nigeria deposit insurance corporation (N.D.I.C) and that some of the criticisms have to do with the mandatory participation of the licensed banks volume of insurance deposited aquarium of premium payable and amount of insurance coverage.
Recently the corporation had to give serious thought to the issue of the distressed banks in the system and it is however not worthy to mention if it is the deposit based rather than the incremental yearly deposit that is needed that is to be insured if the Nigeria deposit insurance corporation (N.D.I.C) should exclude interbank deposit from coverage, the authorities believe that such instance would significantly increase the likelihood of failing banks because the best informed depositors in the bank themselves would be protected if inter-bank depositor are no covered and banks fail, those banks that still have deposit in the failing banks would sustain losses and such losses would weaken the bank depending on the size of the deposit..