A TERM PAPER ON

A REVIEW OF THE NIGERIAN BANKING REGULATORY BODIES

FOR PARTIAL FULFILMENT OF THE REQUIREMENTS OF THE COURSE

GNS 301

Instructor: Mr Adediran

Submitted by

OLUYI SUNDAY JOSEPH

16/69/0057

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 A REVIEW OF THE NIGERIAN
BANKING REGULATORY
BODIES

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ABSTRACT

The Nigerian banking sector can be said to be the most regulated sector. It
is so because there are depositors to be protected, as well as the employees. The
regulatory bodies are there to protect both parties interest without bias. This paper
attempts to review the following regulatory bodies :

The Central Bank of Nigeria (CBN)

Nigeria Deposit Insurance Corporation (NDIC)

Securities and Exchange Commission, Nigeria (SEC)

Federal Ministry of Finance, Nigeria (FMF)

Federal Mortgage Bank of Nigeria (FMBN)

It attempts to review their history and functions slightly. This will enable us
know the roles they are to play and help us understand how they can be of use
to the citizens.

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TABLE OF CONTENT

CHAPTER 1- INTRODUCTION

CHAPTER 2 - LITERATURE REVIEW

CHAPTER 3- METHODOLOGY

CHAPTER 4- RESULTS ANALYSIS AND DISCUSSIONS

-CHAPTER 5- SUMMARY OF THE FINDINGS, CONCLUSION AND

RECOMMENDATIONS

Reference

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 CHAPTER ONE
INTRODUCTION
1.1. Definition of Terms
THE CENTRAL BANK OF NIGERIA

The Central Bank of Nigeria (CBN) was established by the CBN Act of 1958 and
commenced operations on July 1, 1959.

HeadquartersAbuja, FCT, Nigeria

Established1958

GovernorGodwin Emefiele

Central bank ofNigeria

CurrencyNigerian naira--NGN 566 (ISO 4217)

Websitewww.cbn.gov.ng

The central bank was instrumental in the growth and financial credibility of
Nigerian commercial banks by making sure that all the financial banks operating
in the country had a capital base (required reserves).

The Central Bank of Nigeria (CBN) has also taken responsibility for nurturing the
money and capital markets. Sequel to this, the CBN introduced treasury bills in
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 1960, treasury certificate in 1968, and facilitated the establishment of Lagos Stock
Exchange in 1961 and the capital issue committee now known as the Securities &
Exchange Committee in the early 1970s.

Mr. Godwin Emefiele, the former Zenith Bank Plc Chief Executive assumed the
mantle as the 11th CBN chief as well as its 10th indigenous governor. Emefiele,
who replaced Mallam Sanusi Lamido Sanusi, whose tenure elapsed on 1st of June,
brings to the job over 20 years of banking experience.

FUNCTIONS OF NIGERIA’SAPEXBANK (CBN)

i. Banker to banks and other financial institutions: Central bank keeps

account for commercial banks as well as other financial institutions
operating within the country.
ii. Banker and Adviser to the government: The Central bank plays the role of
financial advisers to the federal government in the following
capacities;Provides foreign exchange for payment of debts or purchase of
foreign goods. Accepts deposits from the government. Offers financial
information and counsel to the government on economic, monetary and
fiscal matters. Maintains the account of the federal government.
iii. Lender of last resort : The CBN maintains current account for commercial
banks. Similarly, it undertakes trade finance functions on behalf of banks’
customers. Finally, it provides temporary accommodation to banks in the
performance of its functions as lender of last resort.
iv. Debt Management : The Central bank manages domestic debt under strict
compliance to instructions from the federal ministry of finance. On the
domestic front, the Bank advises the Federal Government as to the timing
and size of new debt instruments, advertises for public subscription to new
issues, redeems matured stocks, pays interest and principal as and when
due, collects proceeds of issues for and on behalf of the Federal

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 Government, and sensitizes the Government on the implications of the size
of debt and budget deficit, among others.
v. Clearing house for cheque and other financial instrument The Central Bank
performs the duty of a Clearing House for cheque : It settles the accounts
of commercial banks and enables them to clear their dues by the process of
book entries. It should be carefully noted that a Central Bank does not come
in competition with other banks. That is why it does not pay interest on the
money kept with it.
vi. Promotion and maintenance of monetary stability and efficient financial
system: The effectiveness of any central bank in executing its functions
hinges crucially on its ability to promote monetary stability.Price stability is
indispensable for money to perform its role of medium exchange, store of
value, standard of deferred payments and unit of account.
vii. Control of Credit: Perhaps the most important function of a Central Bank
today is the control of credit, i.e., regulating the volume and direction of
bank loans.
viii. Maintenance of Exchange Rate: Another very important function of a
Central Bank is to maintain a stable external value of the home currency.A
stable exchange rate is necessary to maintain and promote a country’s
foreign trade and to encourage the inflow of foreign investments, which is
so essential for accelerating the pace of economic growth, particularly in
the under-developed countries. In order to maintain the rate of exchange
stable, a Central Bank is always prepared to buy and sell foreign currencies
at the rates fixed by it.
ix. Custodian of National Reserves : It is the Central Bank which serves as the
custodian of nation’s reserves of gold and international currency. It is its
duty to take appropriate measures to safeguard these reserves.
x. Monopoly of Note-Issue : Formerly, in certain countries like the U.K., even
ordinary banks used to issue notes. This resulted in uncontrolled confusion.

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 Hence gradually the right of note-issue was withdrawn from other banks
and conferred on the Central Bank. Thus, note-issue became the sole
privilege of the Central Bank in a country and its notes became full legal
tender.
xi. Monetary stability : Monetary policy decision-making and implementation
are the defining characteristics of the central bank. Whichever institution
undertakes these functions is, in essence, the central bank.However, there
are differences between countries as to how extensive the central bank’s
independent responsibilities are for these aspects of monetary policy
making.The Central bank promotes the reliable, efficient and smooth
operation of national payment and settlement systems.
xii. Maintenance of the foreign exchange rates : The central bank is required to
maintain the rate of exchange, i.e., the external value of the currency it has
to conduct foreign exchange operations at some specified exchange rates. It
also exercises the exchange control, i.e., control of foreign exchange.
xiii. Strengthening the banking structure : The central bank is required to take
various steps such as deposits insurance, extension of banking facilities in
the unbanked areas, etc. for strengthening the country’s banking structure.
xiv. Control and supervision of other banks : The central bank controls and
supervises the operations of other banks through licensing, inspection of
bank accounts, bank mergers, etc.
xv. Set interest rates to target low inflation and maintain economic growth : To
make a judgment on inflationary pressures. CBN examines every aspect of
the economic situation and look at a variety of economic statistics to get a
picture of the whole economy.Asset purchase facility Bank Central Bank of
Nigeria has since 2009, served as an Asset Purchase Facility (APF) to buy
“high-quality assets financed by the issue of Treasury bills and the Debt
Management Office (DMO‘s) cash management operations” and thereby
improve liquidity in the credit markets.

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 xvi. Central Bank of Nigeria Promotes Consumer Protection and Community
Development: The Customer is the most important person in the economy
and every business succeeds only when the customer is happy. This
explains why the customer is regarded as King. As a King, the customer has
many rights. But a King also has duties which he owes himself and the
economy. In Nigeria, customers of banks have certain rights and duties
guaranteed by law, regulation and conventions. Some of these rights
includes; right to choose, right to privacy and confidentiality, right to
safety, right to equality, as well as right to good service.
xvii. It regulates the laws to balance the inflation and deflation in the economy .
xviii. Developmental finance role: The central bank of Nigeria conducted
development finance roles through its credit schemes such as: Refinancing
facilities for agricultural export commodities, Rural finance and banking
support scheme, Agricultural credit guarantee scheme, Commercial
agricultural credit scheme, Small and medium scale industry credit scheme.

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 CHAPTER TWO
2.0 NIGERIA DEPOSITINSURANCECORPORATION(NDIC)

The Nigeria Deposit Insurance Corporation (NDIC) was established on 15 June

1988 to strengthen the safety net for the newly liberalized banking sector,
following the recommendation of former Central Bank of Nigeria governor Ola
Vincent. The NDIC provides a safety net for depositors in the newly liberalized
banking sector.

Established15 June 1988

Type Regulatory body

Purpose To protect depositors' funds and ensure the safety and soundness

of the Nigerian banking system

Headquarters Abuja,FCT, Nigeria

Location Nigeria

Official language English

Managing Director/CEOAlh Umaru Ibrahim mni

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Websitehttp://www.ndic.gov.ng/

Nigeria Deposit Insurance Corporation is an independent agency of the Federal

Government of Nigeria. The objective of the deposit insurance system is to protect
depositors and guarantee payment of insured funds in the event of failure of
insured institutions.

2.1 THE RATIONALE FOR THE ESTABLISHMENT OF THE

NIGERIA DEPOSIT

INSURANCE CORPORATION (NDIC)

The NDIC provides a safety net for depositors in the newly liberalized banking
sector. Ogunleye(2004) says that “The Nigeria Deposit Insurance Corporation
(NDIC) was established on 15 June1988 as an explicit deposit Insurance scheme
under the Nigeria Deposit Insurance Corporation Decree No 22 of 1988 now Cap.
301, Laws of the Federation 1990 as amended. Section 1 (I) of the NDIC Act
provides for the establishment of the NDIC as a body corporate with perpetual
succession and a common seal. The NDIC commenced operations in March 1989.

The primary aim of establishing the NDIC is to maintain stability and public
confidence in the banking sector by guaranteeing payments to depositors in the
event of failure of insure institutions as well as promoting safe and sound banking
practices through effective supervision.

It is an autonomous regulatory body with powers to examine the books of insured

banks and other deposit-taking financial institutions and to restrict the activities of
banks found not to be incompliance with regulations. It can also arrange for other
banks to assume the deposit liabilities of a failing bank or take over the
management of a bank where such action becomes necessary to protect depositors'
interest.

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In a nutshell, the functions of the NDIC include:- insuring the deposit liabilities of
all licensed banks, supervising the activities of all insured institutions through off-
site and on-site examinations alongside the Central Bank of Nigeria (CBN). In
conjunction with the CBN, the

NDIC also resolves distress in the industry where ever and whenever it occurs and
acts as liquidator and receiver of any failed bank. Aguolu (1998) says that “in
terms of management and control, the NDIC has the Governor of the Central Bank
as chairman. It also has a managing director, two executive directors and three
representatives of the Federal Government. The NDICis owned 60% by the
Central Bank and 40% by the Federal Government." With deposit insurance
therefore, the failure of one bank becomes an isolated event since it eliminates the
danger that unfounded rumors would trigger off bank runs. The corporation tries
to ensure safety of depositors' funds and to promote stability in the banking
system. The depositor in insured financial institutions does not lose all his
deposits in a case of bank failure.

In the early 1980’s assessment of the World Bank, seven Nigerian banks were
found to be insolvent. Yet, the country had no mechanism to see to the orderly
exit of the insolvent banks.

The need to have a government agency to guarantee deposits of the failed banks
and to handle the liquidation of such failed banks so as to avoid banking crises
and instability led to the establishment of the NDIC in 1988.

Specifically, the reasons for the establishment of the NDIC are:

i. The lessons of history connected with the experience of prior bank

failures in Nigeria
ii. The establishment of the NDIC was also informed by the approaches
adopted in othercountries to ensure banking stability. For example,

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 Czechoslovakia which was the first toestablish a nationwide deposit
scheme in 1924 used the scheme to revitalize the country’sbanking
system after ravages of the First World War. In addition, the scheme
served toencourage saving by increasing the safety of deposits and
ensuring the best possibledevelopment of banking practice in that
country. Other countries that had depositinsurance schemes to protect
depositors which Nigeria learnt from areIndia (1961/62),Phillipines
(1963), United Kingdom (1979), France (1980), Kenya (1985) and Sri
Lanca1987).
iii. The Structural Adjustment Programme was introduced in 1986 with the
aim ofderegulating the economy. Since deregulation involved the
liberalization of the banklicensing process, there was substantial increase
in the number of licensed banks to besupervised by the Central Bank of
Nigeria (CBN). The establishment of an explicit deposit insurance
scheme with supervisory power over insured institutions was expected to
complement the supervisory efforts of the CBN.
iv. Prior to the establishment of the Corporation, government has been
unwilling to let anybank fail, no matter a banks financial condition
and/or quality of management.Government feared the potential adverse
effects on confidence in the banking system andin the economy,
following a bank failure. Thus, government established the corporation
to administer the deposit protection scheme on its behalf and to serve as
a vehicle for implementing failure resolution options on its behalf and to
serve as a vehicle for implementing failure resolution options for badly
managed insolvent banks.

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2.2 THE FUNCTIONS/ROLES OF THE NDIC STATED IN SECTION 2
(1) OF THE NDIC

ACT INCLUDE THE FOLLOWING:

i. Insuring all deposit liabilities of licensed banks and such other deposit
taking financial institutions operating in Nigeria so as to engender
rconfidence in the Nigerian banking system.
ii. Giving assistance in the interest of depositors, in case of imminent or actual
financial difficulties of banks particularly when suspension of payment is
threatened and avoiding damage to public confidence in the banking system.
iii. Guaranteeing payment to depositors, in case of imminent or actual
suspension of payments by insured banks or financial institutions up to the
maximum amount as provided for in section 20 of the Act.
iv. Assisting monetary authorities in the formulation and implementation of
banking policies so as to ensure sound banking practice and fair competition
among banks operating in the country.
v. Pursuing any other measures necessary to achieve the functions of the
corporation provided such measures and actions are not repugnant to the
objectives of the corporation.

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 CHAPTER THREE
3.0 SECURITIES AND EXCHANGE COMISSION (NIGERIA)
The Securities and Exchange Commission (SEC) evolved in 1979 from the
Capital Issues Committee, an arm of the Central Bank of Nigeria (CBN),
following a comprehensive review of the Nigerian financial system. It is the
primary regulatory institution of the Nigerian capital markets and is supervised by
the Federal Ministry of Finance. A more prominent role the SEC assumes is
ensuring fair dealings and protecting the trading abuses on the Nigerian Stock
Exchange.

The SEC intends to promote, develop and regulate a capital market that is
dynamic, fair, transparent and efficient. It does this predominantly by monitoring
the registration of securities and market intermediaries to ensure that only capable
institutions can operate in the market; inspection and audits of information from
capital market operators; and investigation of alleged breaches of the laws and
regulations governing the capital market and enforcement of sanctions where
appropriate.

It also promotes market development by encouraging improved investor

participation in the market through a combination of the investor activities.

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Established1979

Preceding agencyCapital Issues Commission

JurisdictionNigeria

HeadquartersAbuja, FCT, Nigeria

Agency executivesPeter Obi, Chairman

Ms. [Mr. Mounir H. Gwarzo],

Acting Director General

Websitehttps://www.sec.gov.ng/

3.1 FUNCTIONS OF SECURITY AND EXCHANGE COMISSIONIN

NIGERIA

i. The Securities and Exchange Commission, SEC is a Federal Government

Of Nigeria Agency with the sole Mandate to Regulate and Develop the
entire Capital Market. Below we have stated some of their Key Functions
And how it affect the Nigeria Market.
ii. They carryout surveillance on all major market transactions to ensure all
parties play by the market rules.
iii. The Commission from time to time call to Inspect the Capital Market
Operators both onsite and offsite to ensure no one flaunt the law.
iv. The Commission also has the mandate to Investigate any reported or
perceived breaches of the law governing the capital market.
v. They Enforce all the Capital Market Laws.
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3.2 FEDERAL MINISTRY OF FINANCE, NIGERIA (FMF)
The Federal Ministry of Finance is the government body that manages the
finances of the Federal Government of Nigeria, including managing, controlling
and monitoring federal revenues and expenditures.

The Federal Ministry of Finance was established in 1958 by the Finance (Control
and Management) Ordinance, to replace the then Finance Department.

Services include collecting and disbursing government revenue, formulating

policies on taxation, tariffs, fiscal management etc., preparing and managing the
annual budget, preparing annual accounts for ministries, departments and
agencies, managing federal debt and regulating the capital market.

Established : 1958

Minister: Kemi Adeosun

Address: Federal Ministry Of Finance (FMF)

Ahmadu Bello Way, Central Business District

Abuja, Nigeria

Mailings: Enquiries @ Fmf.gov.ng

PMB 14, Abuja, Nigeria

Website: http://www.finance.gov.ng/
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 CHAPTER FOUR
CONCLUSION
4.0 THE FEDERAL MORTGAGE BANK OF NIGERIA (FMBN)

Federal Mortgage Bank of Nigeria (FMBN) was established in 1956, known then
as the Nigerian Building Society (NBS), a joint venture of the Commonwealth
Development Corporation and the Federal and Eastern Governments of Nigeria.

Following the introduction of the Indigenization Policy, the Federal Government,

by Indigenization Act [1973], acquired the NBS and consequently renamed it the
Federal Mortgage Bank of Nigeria (FMBN).

In 1994, FMBN assumed the status of the apex mortgage institution in Nigeria,
with the promulgation of the FMBN Act 82 [1993] and the Mortgage Institutions
Act 53 [1989]. It also commenced the management and administration of the
contributory savings scheme known as the National Housing Fund (NHF)
established by Act 3 of [1992]. The National Housing Fund (NHF) is a social
savings scheme designed to mobilize long-term funds from Nigerian workers,
banks, insurance companies and the Federal Government to advance
concessionary loans to contributors.

FMBN is shifting operational emphasis to expand its functions from solely social
housing on-lending under the NHF, to other areas of business including
commercial on-lending for housing, refinancing of commercial mortgages created
by mortgage loan originators, mortgage purchasing and warehousing and
mortgage-backed securitization.

The Bank's current business model targets partnerships with local and
international organisations with financial and technical capacity, interested in
delivering affordable mass housing for the low income end of the market.

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Established 1956

Proceeding body Nigerian Building Society (NBS)

Managing Director /CEO Arc. Ahmed Musa Dangiwa

Headquarters Abuja , FCT, Nigeria

Website http://www.fmbn.gov.ng/

FUNCTIONS OF THE FEDERAL MORTGAGE BANK OF NIGERIA

i. The Federal Mortgage Bank provides long-term credit services to mortgage

banks in Nigeria and other mortgage institutions at rates that will allow the
mortgage banks and institution grant loans to individuals who want to
acquire their own houses.
ii. It encourages and promotes the establishment and development of mortgage
institutions at federal, state, local, and even rural levels.
iii. It encourages the growth of the required of lasting secondary mortgage
institutions to meet the housing needs of Nigerians.

The main goal of the Federal Mortgage Bank is to advance homeownership

among every Nigerian by creating mortgage markets with a sustainable financing
system. But the bank has encountered a lot of challenges in an unstable economy
which has prevented it from achieving its objectives.

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