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THE IMPACT OF NIGERIA DEPOSIT INSURANCE CORPORATION ON NIGERIA BANKING INDUSTRY (A CASE STUDY OF NDIC ILORIN)

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CHAPTER ONE

INTRODUCTION

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 [1982].

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.

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