Department of Banking and Finance, Faculty of Law
ABSTRACT
The
Nigerian Banking System has grown in leaps and bounds since 1892 when banking
business commenced in Nigeria. Although this has not been without occasional
hiccups, the structure, size and depth of the system in terms of financial
products and the level of sophistication had changed significantly over the
years. However, what followed were
occasional failures particularly in the early 1990’s, which led to the
establishment of the “Failed Banks’ (Recovery of Debts) and Financial
Malpractice in Banks Decree No 18 of 1994”.
This paper traces the history of failure in the system and how these
endemic failures were stemmed by the
military decree of 1994. The transition
from the failed banks’ decree to the 1999 failed banks’ Act of the National Assembly provided the impetus for the Bank capital
regulation leading to the recent recapitalization exercise of the Nigerian
banking industry. These has resulted in the apparent state of soundness,
stability and security in the system
amidst global wave of financial crisis at the moment.
INTRODUCTION
A
bank is said or considered a failure not only when it ceases operation but also
when it cannot meet any of its obligations (Ezeuduji, 1997). These obligations
are due, first and foremost, to its customers as well as to its shareholders
and the community where it is established.
However, failure to meet obligations could be mild, serious or
negligible.
The
critical importance of banks in economic growth and development explains why
every economy takes serious view of their failure. Consequently, any affected
economy seeks to prevent such failure.
However, despite preventive measures, every economy experiences varying
degrees of bank failure at one time or the other. It is on this backdrop that
the need to check failure follows from adverse consequences of failure. Also the Federal Military Government of
Nigeria following the colossal and monumental failures earlier recorded in the
banking sector promulgated a Decree entitled “Promulgation of the Failed Banks’
(Recovery of Debts) and Financial Malpractice in Banks Decree No. 18 of 1994.”
The
1994 Failed Banks” Decree was transformed (through an Act of the National
Assembly) to a Failed Bank Act following the transition to civil rule in 1999.
Since
then, the law has come to stand as one of the most important instruments in the
prevention and management of distresses and failures in the Nigerian banking
industry. Not only does the law empower
the Nigerian Deposit Insurance Corporation to insure deposit liabilities of all
licensed banks in the country, it also provides legal background for the
protection of bank capital. While most authors and researchers have focused on
the distress resolution role of the 1994 failed Bank Act, very few emphasis is
placed on the provisions of the Act that are proactive and protective of the
assets and capitals of banks. Example of such provisions is the 1999 amendments
to the CBN and BOFI Acts which empowered the CBN to revoke a bank license
without seeking the approval of the presidency.
The current reforms in the banking sub-sector are aimed at achieving
strong, reliable and healthy banks so as to avert the cycle of periodic bank
liquidations occasioned by the failure of badly managed institutions.
1.1 Statement of the Problem
Poor
capitalization, bank distress, fraud and poor financial intermediation
characterized the Nigerian banking industry before it was consolidated from 89
banks to 25 banks (now 24) between 2004 and 2005 (Onwe, 2007).
The
expectation was that reforms and consolidation would help to solve the problems
of the industry and possibly boost public confidence on banks. Unfortunately, little progress has been
recorded since the consolidation, especially as signs of distress continue to
build up. As is usually the case in the
country, the laws and policies might be right, but implementation is in most
cases faulty. Poor adherence to existing
laws and guidelines and non-enforcement of such by the regulatory agencies
contribute to breeding signs of distress in banks. This negatively affects the capital bases of
the banks.
Following
the enactment of the 1999 Banking Act of the National Assembly, those policies
which were less enforced in the bid to protect banks in the 1994 failed Banks
Decree were consequently restructured and subsequently used as a basis for the
recent recapitalization exercise in the banking system.
Attempts
to understand the Decree only focus on the distress resolution role, with less
research interest on the protective role.
This paper seeks to bridge the gap between these distress resolution
roles and the current protective role of the new Act.
1.2 Objectives of the Study
The
main objective of this paper is to attempt to unravel the interlink ages
between the draconian decree of 1994 in resolving distress situation in the
banking industry and the subsequent Act of 1999 which dwelt extensively on
protective resolutions against bank distress and failure in Nigeria.
Specifically, the paper addresses the following objectives:
-
To
examine the aspects of the provisions of the 1994 decree (as amended in the
1999 Act) which provided the platform for the recent recapitalization exercise
in the banking industry between 2004 and 2005 with a view to assessing their
adequacy.
-
To
ascertain certain provisions of the enactment leading to the protective
resolutions of bank capital regulation and supervision by the Central Bank of Nigeria.
- To examine the capacity of the Act
to protect bank capital against
depletion and possible insolvency.
2. REVIEW OF RELATED LITERATURE
2.1 History of Bank Failure in Nigeria
Commercial
banking in the Nigerian colony commenced in 1891 with the advent of the African
Banking Corporation (Uche 2001). In
1894, banking operations were taken over by the Bank of British West Africa
(BBWA). In 1899 a second foreign bank, the Bank of Nigeria, was
established. This bank was absorbed by
the BBWA in 1912. For the next four
years, the BBWA had the banking field in Nigeria to itself. All this changed
in 1916 with the advent of the Colonial Bank.
Barclays Bank entered the Nigerian banking arena in 1925, through the
merger between the Colonial bank, the Anglo-Egyptian Bank (which it already
owned) and the National Bank of South
Africa to create Barclays Bank (Dominion,
Colonial and Overseas).
Up
till 1928, when the foreign banks dominated the Nigerian banking arena, there
was very little documentation of malpractices in banks in the country. This was so despite the fact that there were
few rules regulating the practice of banking at the time. In fact, some of these foreign banks had
sufficient internal control mechanism to help prevent malpractices with
consequent failure. They had extensive
experience in other parts of the world before establishing themselves in Nigeria. For instance, the colonial bank had a
successful operation in the West Indies spanning
almost 80 years.
It
therefore became imperative that there was obvious need to establish indigenous
banks, having the economic emancipation of Africans as its main objective. In practice, however, many of these indigenous
banks became known more for their fraud and malpractices and less for their
role in assisting Africans.
The near absence of regulations was
in part responsible for this. The
emergence of these indigenous banks took the center stage with the arrival of
the first indigenous bank in Nigeria
as; The Industrial and Commercial Bank in the year 1929. This bank was however short-lived and went
into liquidation in 1930. It’s failure
has been attributed to mismanagement, accounting incompetence, embezzlement and
the non-co-operative attitude of and denigration by colonial banks.
The second Nigerian indigenous bank
that came into operation was the Nigerian Mercantile Bank. It also had a short and chequered life having
been established in 1931 and failed in 1936.
Next
was the National Bank, established in 1933 and became the first successful
indigenous bank to be established. It
also failed accordingly. In 1945, the
Nigerian Penny Bank was established but by 1946, the bank had failed.
In 1947, another indigenous bank
(the African Continental Bank) was established. Worried by the spate of
establishment of such indigenous banks and not unmindful of past bank failures,
the central government, in 1948, appointed G. D. Paton, an official of the Bank
of England, to enquire generally into the business of banking in Nigeria and
make recommendations to the Government on the form and extent of control which
should be introduced.
Paton
submitted his report accompanied by a draft ordinance on 28th
October, 1948. This culminated in the
1952 Banking Ordinance. Preceding the enactment of the 1952 Law, Africans
fearing the imminent clampdown on the establishment of commercial banks
following the setting up of the Paton inquiry, had rushed to establish more
banks before the advent of regulation.
The result was that by 1952, at least 24 local banks had been
established. By 1954, with the
promulgation of the ordinance, most of them failed.
Again,
fraud, insider abuses and mismanagement became widespread in most of these
failed indigenous banks.
2.2 Provisions of the Failed Banks’ Decree
1994
Due to the deregulation of the
economy in the early 1980’s coupled with loopholes in and in some cases
outright evasion of the law by some of the new banks, it was possible for some of them to survive, simply
by buying and selling foreign exchange.
Banks therefore made brisk profits.
This defective government policy was mistaken by many as proof of
banking profitability. This opened the
floodgate of application for banking licenses and the number of registered
banks dramatically rose from 41 in 1985 to 120 in 1993, (Uche, 2001).
The
Decree
Government
believed that the banking crises of the 1990s was caused mainly by frauds and
therefore had no other option than the enactment entitled “Promulgation of the
Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Decree
Number 18 of 1994 (Failed Banks Decree)”.
The
Provisions of the Enactment
The
Failed Banks’ Decree was supposed to represent an attempt by the Nigerian
military government to prevent parties from evading justice by exploiting the
technicalities, inefficiencies and loopholes in the legal system (CBN,
2004:14).The decree therefore assigned little weights to legal technicalities
and contained provisions that helped ensure
speedy conclusion of trials. For instance, on any one case, the tribunals were
mandated to deliver judgments not later than 21 working days from the day of
the first sitting.
Section 1(2) of the Decree stated that;
“To enable the tribunal to
achieve the above objectives ,they are granted exclusive jurisdiction over all
auxiliary matters, including remand, bail and any other preliminary issues
connected with an offence or hearing over which the tribunal has jurisdiction”. “They also
have the powers to admit and act on any evidence which are considered relevant
in any civil or criminal proceedings, notwithstanding that the evidence is
inadmissible under any other law or enactment”.
Section 1(3(b) also states that;
“The
tribunals are granted powers to lift the veil of a body corporate where it is
necessary for the purpose of revealing its members who may be guilty of an
offence under the decree or liable, jointly or severally, for the debts owed by
the corporate body to a failed bank. It
is in this spirit that the decree defines a director to include a wife,
husband, mother, father, son or daughter of a director”.
An employee is also defined by the decree in Section
1(4)(a-d) to mean,
“Any person who is or has been employed or
connected in any capacity with the affairs of a bank or any person arraigned
before the tribunal under the decree”.
Therefore, persons associated with such failed banks
long before the decree came into effect are all liable under the decree. In other words, the decree takes retrospective
effect.
Section 1 (4)(a-d) of the decree further
specifies that,
“The
jurisdiction or authority of the tribunals shall not be affected by the fact
that a person charged or brought before the tribunal for trial or hearing has
resigned or retired from the banks, has had his appointment terminated in the
bank or has otherwise left the employment of the bank.”
Any
person who attempts to commit any of the offences specified by the decree is
guilty of an offence and liable on conviction for the same punishment as is
prescribed for the full offence under the decree.
Furthermore, Section 3(7)(i-iv) states that;
“Where
a person is charged with any of the offences specified by the decree, but the
evidence establishes an attempt to commit that offence, such a person may be
convicted of having attempted to commit that offence although the attempt is
not separately charged and will be liable for the same punishment as is
prescribed for the offence”.
The decree further provides that,
“where the assets of a debtor company, whether
pledged as security or not are inadequate to offset the company’s debt, the
personal property of the directors of such a company can be sold and applied
for the satisfaction of the outstanding debts”.
Where the security pledged for a loan is impossible
to locate, or where no security is pledged at all or the debtor is fictitious,
the tribunal will hold liable for the outstanding debts and interest thereon
the directors, shareholders, partners, managers, officers and other employees
of the failed bank who in the performance of their duties were found to have
been connected in any way with the granting of the loan which has become
irrecoverable.
Section 3(i)(a-e), stipulates that;
“Any director, manager, officer or employee of
a bank who knowingly, recklessly, negligently, willfully or otherwise grants,
approves the grant, or is otherwise connected with the grant or approval of a
loan, advance, guarantee or any other credit facility or financial
accommodation to any person:
(a)
without
adequate security or collateral, contrary to the accepted practice or the banks regulations, or
(b)
with
no security or collateral where such security or collateral is normally
required in accordance with the bank’s regulations, or
(c)
with
a defective security or collateral or
(d)
without
perfecting, through his negligence or otherwise, a security or collateral
obtained, is guilty of an offence”.
“Any
official of the bank, who grants, approves the grants or is otherwise connected
with the grant or approval of a loan, advance, guarantee or any other credit
which is above his officially approved limit or contravenes any directive of
the regulatory authorities is guilty of an offence”.
The
decree empowers members of the police force or armed forces to arrest offenders
under the decree without any warrant, and allows for the trial and sentencing
of offenders in absentia.
2.3 Aspect of the 1999 Failed Banks’ Act drawn
from the 1994 Failed Banks’ Decree
In order to transmute from a Decree
to a civilian Act, certain aspects of the decree had to be amended in order to add colour and reflect the human face in the new Act, for example; some provisions of the Failed Banks’ Act such as the trial in absentia and the
stringent bail conditions were amended in 1999.
Secondly, the jurisdiction of the
Act was transferred to the Federal High Courts for adjudication instead of a Special
Military Tribunal as was the case before the Act. Since then, few debt recovery
cases had been concluded at the courts. For instance, a total of 1,049 debt
recovery suits were yet to be settled as at the end of 2004, amounting to
N14.14billion or $46.6million then, of this amount only N554.1million was
recovered (NDIC 2004).
Altogether, the judgments obtained
as at the end of 2004 on debt recovery in favour of the closed banks stood at a
total of 743 judgments valued at N6.186billion or $34.14million, then.
2.4 Aspects of the 1994 Failed Banks’ Act Dealing with Bank
Capital Regulation
From
the foregoing, it is certain that the goal of the Act is not only to resolve
distress, but also to protect banks assets and capital. This is evidenced in the establishment of the
NDIC as the major enforcement agent for the Act. By that establishment, the NDIC is mandated
to carry out the following functions (NDIC 2004):
1.
Onsite
supervision, which enables the NDIC to visit bank branches and perform on the
spot assessment of documents required of them.
2.
Taking
over and management of technically insolvent bank to avert distress.
3.
Financial
assistance to enhance capital bases of banks.
4.
Loan
recovery assignments and
5.
Imposition
of holding Actions.
Essentially,
in the bid to protect bank capital, the duty of monitoring and supervising how
banks are using their capital has become a joint function of the Central Bank of
Nigeria
and that of the Nigeria Deposit Insurance Corporation.
2.5 Effects of Distress on Bank Capital
As a result of distress, the capital
base of the banks had been either completely or substantially eroded and each
of them required huge sums of fresh capital injection. Also the liquidity position of the banks had
equally been precarious. In that case,
all the affected banks are saddled with large portfolios of non-performing
assets and huge accumulated losses. The qualities
of management of the affected banks are nothing to write home about (NDIC, 2004).
The
Bank capital is however affected in the following ways (NDIC, 2004):
1. Erosion on Capital Adequacy:
Under a distress situation, the
banks are grossly undercapitalized and technically insolvent. The development no doubt will hamper banks
ability to absorb losses thus exposing the banks fragile financial position.
2. Negative Effect on Asset Quality:
The Asset Quality of distressed
banks are measured by relating the proportion of non-performing loans and
advances to the total loans and advances granted by the failed banks. In this
regard, the ratio of non-performing loans to shareholders’ funds will be
negative.
3. The problem of Management
The self-serving disposition of
management can affect bank capital as evidenced by the high level of insider
loans to total loans disbursed. This
situation coupled with weak loan recovery efforts aggravates banks’ capital
performance and lead to distress condition.
4. Erosion on Earning and Profitability
In this situation, most of the
affected banks accumulate losses that are of very high magnitude there by pulling down on bank capital.
5. Bad Liquidity Position.
Once a bank has been found illiquid,
the capital of the bank is bound to be gravely hampered. This illiquidity condition is further
occasioned by a negative current account balances with the CBN.
2.6
The
2004 Recapitalization Regulation Drawn from the 1999 Failed Banks’ Act
The
implementation of the Failed Banks Act
sent a clear signal that it was no longer business as usual for debtors
who borrowed from banks with no intention of repaying, as well as bank
directors and officers who hitherto had squandered depositors” funds through
insider lending and other malpractices.
The
Failed Banks’ Tribunal played a critical role in criminal adjudication by
making accused persons refund the various sums involved in the offences
committed. In fact, the fear of criminal prosecution alone compelled bank
directors and customers to repay their loans so as to avoid the consequences
and stigma of criminal prosecution and consequent conviction.
It was on this backdrop, and in order to avert the
future resurgence of this ugly trend of distress and failure in the industry,
that the Central Bank of Nigeria
considered the option of recapitalization and consolidation in the sector.
In
July 2004, the CBN finally announced the increase in the premium paid-up
capital of Banks to N25billion about $200million per bank.
This was in an effort to strategically place the nations banking system
in regional and international context and promote soundness, stability and
enhanced efficiency of the system. This
led to mergers and acquisition within the banking industry, thereby
restructuring the entire system.
The aim of the recapitalization
exercise, amongst others, was to groom and transform the banks into
institutions that investors could rely on, and depositors can trust; play
developmental roles in the nation’s economy; eliminate corruption; enhance
transparency, professionalism and corporate governance and accountability. It is also expected that the reform will,
over time, down-size the cost structure of the banks and guarantee higher
returns to the shareholders and other stakeholders of the banking industry.
The consolidated banking system no
doubt poses some challenges to both the banking institutions as well as the
regulatory authorities. This is because
the banking industry becomes more concentrated as a result of recapitalization
and larger institutions also are more complex and tend to deal in sophisticated
financial products. This makes them pose
greater challenges in case of any failure. Nwankwo (2001) was specific in
defining regulation in banking as;
“a body of specific rules or agreed behaviour
either imposed by some government or external agency, or self-imposed by the
explicit or implied agreement within the industry that constraints the
activities and business operations of the institutions in the industry to
achieve defined objectives and act prudently.”
In Uche (2001), regulation generally
suggests some form of intervention in any activity, and ranges from explicit
legal control to informal peer group control by government or some such
authoritative body. Banking regulation has to do with prescriptions and
directives, which are binding on banking institutions in order to attain some
expressed objectives. The regulation may
either be officially imposed by the regulatory authorities or self – imposed by
the constituent institutions in the system (self-regulation). Whichever is the
case, there are rationale or objectives for banking regulation. In general terms, banking regulation aims at
achieving efficiency, stability and fairness in both the banking industry and
the entire economy (Vittas 1992). Other objectives
include to ensure safe and sound banking practices by individual banks to
ensure depositor’s protection amongst others (Odozi, 1992).
The banking sector operates on a
platform that is uniquely different from that of the other sectors of the economy. The sector provides the grease that
lubricates the engine and drives the other sectors and, indeed, makes it a
strategic sector in any economy.
Besides, the sector is rocked on public confidence and once that
confidence is shaken, the sector’s survival becomes endangered. Here a high level of transparency is required
and this informs the high level of statutory regulation which banks are usually
subjected to.
An
Overview of the Recapitalization Exercise
The
Nigerian banking system has undergone remarkable changes over the years, in
terms of the number of institutions, ownership structure, as well as the scale
of operation driven largely by the deregulation of the financial sector in line
with the global trend. Prior to the recapitalization exercise, the banking
sector was highly concentrated with the top ten banks accounting for more than
50% of the total assets. Many of the 89
banks then, were small in size and unable to compete effectively with the 8
bigger ones. The banking industry was
highly oligopolistic and plagued by low capital base, weak corporate governance
as manifested in the meddlesome interference in management function and poor
risk management (Ogunleye, 2005).
The then CBN governor in his July 6,
2004 address to the Bankers Committee stated that when the nations banking
sector is compared with the banking sectors of the emerging economies, “our
banking sector could be rightly described as fragile, poorly developed and
extremely small.”
As
observed by Marcus (2001), small banking systems under-perform. They suffer from concentration of risks and
are more vulnerable to external shocks. Regulation and supervision of small
banking systems have also been observed to be disproportionately costly.
The
foregoing weakness and the global trend of competition and internationalization
of finance informed the decision to reposition the Nigerian banking
industry. This took the form of
recapitalization through mergers and acquisition.
According to Ogunleye (2005),
recapitalization of banking firms involves either a combination of existing
banks, growth among the leading banks or exit from the industry of weak
banks. The policy was aimed at
developing a more resilient, competitive and dynamic banking system that
supports and contributes positively to the growth of the economy with a core of
strong and forward looking banking institutions that are technology driven and
ready to face the challenges of liberalization and globalization.
2.6 The Regulatory Challenges of
Recapitalization
The recapitalized Nigerian banking
system poses some challenges to the regulatory authorities (Owo, 2007 :23) such
as:
a)
Inadequate
Managerial Capacity:
The mega banks need a fit and proper, competent, properly skilled and prudent
management team who should be able to lead the institutions through its process
of globalization and internationalization of the banking system.
Given
that banking is all about risk management, the inability of any bank management
to effectively manage the risks facing it, would inadvertently constitute a
challenge to the regulatory authority.
The recent case of Spring Bank Plc is an instance where the CBN had to
wade in and dissolve the Board of Directors of the bank.
There
is need for a change of orientation, attitude, value system and above all,
capacity building by the operators at all levels, particularly at the top
management level.
b)
Poor Corporate Governance: The
regulatory authorities always monitor responsive corporate governance in order
to ensure transparency and accountability of management of banking institutions
and the curtailment of their risk appetite. Strong corporate governance entails
appropriate oversight by directors and senior management; compliance with legal
and regulatory requirement; transparency and accountability to the various
stakeholders: provision of adequate internal controls as well as appropriate
risk management.
Weak
or poor corporate governance becomes an issue with the emergence of these mega
banks because it can cause a rapid collapse of an institution. In the present dispensation, the collapse or
distress of any bank will have far-reaching effects.
The Central Bank of Nigeria,
according to Chizea (2006), stated
specifically that for the financial sector, poor corporate governance
has been identified as one of the major causative factors in virtually all
known instances of a financial institutions’ distress in the country.
Good governance for banks should be
about reducing risk of crisis and not intervening after the event. The recapitalization exercise has produced
mega banks with large funds that must be managed effectively to produce the
kind of returns that the shareholders are expecting. Some malpractices might take place in an
effort to boost income as a result of intense competition and probable lack of
risk management and marketing competences.
The board members must be people of high integrity and unquestionable
character who understand the banking environment and can add value to the
operations of the bank. The new banking
industry demands that the role of a bank board must change from management
support to organizational leadership.
They are more expectations from the boards of banks than from the boards
of other companies. This is because the
bank board not only looks after the interest of shareholders but has to protect
the interest of depositors as well (Ogbechie, 2006). The regulatory authorities
should therefore continue to encourage and monitor the enthronement of strong
corporate governance structure for effective risk management by banks.
c)
The
Possibility of an Increase in the Level of Bank Fraud: With the advent of electronic
based banking such as the use of Automated teller machines (ATM), electronic
transfer of funds, amongst others, ample room and avenues is created for fraudsters
to perpetrate their acts in the banking system. The possibility of cheque kiting,
that is, when in – transit or non-existent cash is recorded in more than one
bank account, is increased with the use of wire transfers. Also all forms of
credit card fraud and theft is possible.
This poses a challenge to the regulatory authorities who will
necessarily need to beef up their capability to deal with, check and curtail or
prevent such frauds.
d)
The
Approach to Supervision:
The adoption of an appropriate risk-based supervisory approach as against the
hitherto transaction and compliance-based approach cannot be overemphasized.
This approach will entail the design
of a customized supervisory programme for each bank. This will enable the
optimal utilization of supervisor resources.
e)
The Proliferation of Banking Services:
The mega banks are flooding the market with all forms of banking services. Some
instances are; the U-first of the First Bank, Diamond Advantage of the Diamond
Bank, M-power of the Access Bank and a variety of savings products introduced
by the banks most of which offered little requirement and documentation from
customers. The onus lies in the hands of
the regulatory authorities to ensure the proper implementation of and
compliance with the terms of each of the services provided by any of the banks.
With the intense competition in the
banking industry now and the aggressive marketing of bank services, the
regulatory authorities need to ensure efficiency and compliance with ethical
standards in the offer of these services.
f)
Information
Asymmetry Between Banks and the Investing Public: The recapitalization of the
industry may create information asymmetry between banks and the investing
public. There is need for the regulatory
agencies to review information disclosure requirement so as to minimize such.
As stated by Ogunleye (2005),
appropriate actions on the part of regulators need to be taken to ensure that
business decisions by the investing public are well informed under the present
dispensation. Adequate information disclosure requirement will force banks to
pay greater attention to reputational risk that could result in loss of
confidence as well as poor image. As a
necessary step to promote market discipline, it is important that the full weight
of the provisions of relevant laws be brought to bear on erring operators in
order to help promote safe and sound practices under the recapitalized banking
environment. The policy of
zero-tolerance towards unethical
behaviour should be strictly applied.
3. CONCLUSION AND RECOMMENDATIONS
3.1 Conclusions
Having critically traced the history
of bank failure in Nigeria and the consequent legislations to stem the tide of
failure, this paper has shown that the Nigerian banking scene has suffered a
chequered history of a sort. Different measures have however been adopted by
successive governments (military and civilian) to sanitize the banking sector.
The Failed Banks’ Decree, though
genuine in intention, but fraught with the Nigerian factor, further complicated
the issue and plugged the economy into more difficult banking situation. This helpless situation led to the 1999
Failed Bank Act, which certain provisions were adopted by way of amendment to form the 1999 Failed
Banks” Act, upon which the critical framework for recapitalization was formed in the year
2004.
The
recapitalization exercise was on this basis crafted to address the protective
aspect of bank capital which the decree neglected and did not cover. However,
with the reform in place, the issue of bank capital has been addressed with
human face depicting civil touch in the Act.
There is now a paradigm shift from the military proceeding to issue of
this sort, to the normal civil approach on issues in the Nigerian banking
environment.
A
3.2 Recommendations
In view of the foregoing conclusion,
this paper recommends that:
1.
More
legislation on protecting bank capital should be put in place to avert future
distress situations as witnessed in the early 1990’s.
2.
Though
the Central Bank of Nigeria
has been empowered by the new banking Act to revoke the licenses of ailing
banks without recourse to the presidency, efforts should be geared towards
legislations that empower the CBN to detect any distress situation using its
instrumentality before it becomes of public knowledge.
3.
No
undercapitalized bank in Nigeria
(in relation to the level of operation) should be allowed to open its financial
window without adequate capitalization or otherwise achieving same through
mergers and or acquisition.
4.
The
CBN should through the instrumentality of its supervision ensure that no high
level of classified loan and advances should be allowed in the operations of
banks in the industry. Unless these issues are addressed, regulating bank
capital in Nigeria
will continue to reoccur as a decimal in the Nigerian banking system.
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