EVALUATION OF THE ROLE OF CENTRAL BANK OF NIGERIA IN ENSURING EFFICIENT AND EFFECTIVE BANKING OPERATION IN NIGERIA

EVALUATION OF THE ROLE OF CENTRAL BANK OF NIGERIA IN ENSURING EFFICIENT AND EFFECTIVE BANKING OPERATION IN NIGERIA

BACKGROUND OF THE STUDY

The need for supervision and control of commercial banks activities is to ensure that they adhere to the stipulated monetary policies, rules and regulations as well. The last three decades has seen industrialized countries around the world face multitude of shocks, which led to the inflationary experience of many countries during the 1970s, to the exchange rate crises during the early 1990s (Yamin, 2004). The monetary experiences faced by these countries have also led to numerous questions. These questions rage from what kind of policy should central bank follow when shocks occur to how should central banks react to such shock that hits the economy and the welfare effect of such shocks? Any hope of answering this type of question relies on researchers having a clear idea of the transmission mechanism of monetary policy. The formulation and implementation of appropriate monetary policy is one of the major responsibilities of central bank worldwide (Ajayi, 2007).

Monetary policy can be described as the central banks action to influence the availability and the cost of money and credit as a means of promoting national economic goals (Patrick and Xavier, 2000). Specifically it can be defined as a combination of measures designed to regulate the value, supply and cost of credit in an economy in consonance with the expected level of economic activity (Olekah, 2006). Uchendu (2009) posits that monetary policy is the use of the instruments at the disposal of the monetary authorities to influence the availability and cost of credit/money with the ultimate objective of achieving price stability. In the same vein, Okafor (2009) also argues that monetary policy is a blend of measures and or set of instruments designed by the central bank to regulate the value, supply and cost of money consistent with the absorptive capacity of the economy or the expected level of economic activity without necessarily generating undue pressure on domestic prices and the exchange rate.

The centrality of these definitions is that monetary policy is a measure designed to influence the availability, volume and direction of money and credit to achieve the desired economic objectives. The set objectives are achieved through the use of monetary policy instruments (Ajayi, 2007). The policy tools under the control of central bank are not however directly linked to the policy objectives. Consequently, the usual practice is that intermediate target such as money supply; interest rate and bank credit are employed to achieve monetary policy objectives. Generally developing a practical understanding of how monetary policy action transmits to the economy remains a day to day challenge to the central banks.

According to Mbutor (2009), the financial repressive policies that preceded the adjustment era of the late 1980s seem to have made the understanding of the channels of monetary transmission more difficult due to interest rate volatility. When central bank takes a policy action, it sets in motion a series of economic events. The consequence of these events start with the initial influence on the financial market, which in turn slowly work its way through changes in the current expenditure level, especially, private consumption and investment. Changes in domestic demand influences the current production levels, wages and employment and in the process eventually lead to a change in domestic prices (Ajayi, 2007). The chain of event which link change in the monetary policy with changes in prices and output is known as the transmission mechanism of monetary policy

In Nigeria, monetary policy formulation is the sole prerogative of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN). The MPC which was formally consolidated in 1999, consisting of the governor of the bank as the chairman, the four deputy governors of the bank, two members of the board of directors of the bank, three members appointed by the president and two members appointed by the governor. The MPC has the responsibility for formulating monetary and credit policies. The traditional function of Central Bank of Nigeria is to ensure financial stability, favourable macroeconomic environment and safe guard the external value of Naira.

Since monetary policy covers the monetary aspect of the general economic policy, a high level of co-ordination is required between monetary policy and its transmission channel so as to achieve effective monetary policy objectives. Such objectives include price stability (or low inflation rate), full employment and growth in aggregate income. A successful implementation of monetary policy requires an accurate assessment of how fast the effects of policy changes propagate to other part of the economy and how large these effects are (Thorarinn, 2001). This requires a thorough understanding of the mechanism through which monetary policy affects economic activity. The priority of price stability over other monetary policy objectives tends to be potentially accepted in most countries, if not enshrines in the laws governing the central banks (Norman and Klaus 2002). The channels through which monetary policy actions are transmitted to the economy are so vast and vary across countries. In the Nigerian, there are some many channels through which monetary policies transmit to the economy. However, scholars and practitioners usually identify three major channels which include; interest rate channel, exchange rate channel and credit channel (Mbutor, 2009; Boivin, Kiley, and Mishkin, 2010; Francisco, 1998).

1.2 STATEMENT OF PROBLEM

It is a general belief that bankers were concerned with their customer plight when it comes to matter of withdrawing money. Charges of commission, interest and services charges were cases of wore to the customers. Delay and rampant bank strike could not be excluded. The lending habit of banks in Nigeria also call for question in that they try to lend only to the sector from where they derive maximum benefit to the detriment of the other sectors of the economy. It sometimes make it difficult for workers to get their earned income or salary when due. The present inflationary trend and the subsequent dwindling of the value of the naira is also a problem that need to be tackled. In areas of control cover the other financial institution, orders and regulation issued by the CBN are violated with impurity and with little or no punitive corrective measures (Ajayi, 2007).

The above problem clearly indicate that banking operation in Nigeria is grossly ineffective. Not withstanding that in recent time that much improvement have been observed but more improvement are still expected.

1.3 PURPOSE OF THE STUDY

The primary purpose of this study is to evaluate the role of central bank of Nigeria in ensuring efficient and effective banking operation in Nigeria. Specifically, this study will look:

1. To find out causes of incessant bank distress in spite of the policy measures and improvement made by the central bank of Nigeria.
2. To determine ways of improving supervisory role of the CBN
3. To make recommendation based on the findings.

1.4 RESEARCH QUESTIONS

The following research questions will be answered by this study:

1. What are the causes of incessant bank distress in spite of the policy measures and improvement made by the central bank of Nigeria?
2. What are the ways of improving supervisory role of the CBN?
3. What are the recommendation based on the findings?

 1.5 SIGNIFICANCE OF THE STUDY

The commercial bank and its customer will benefit from the evaluation of the role of central bank of Nigeria in ensuring efficient and effective banking operation in Nigeria.

1.6 SCOPE OF THE STUDY

This study will focus on evaluating the role of central bank of Nigeria in ensuring efficient and effective banking operation in Nigeria. Specifically, it will focus on finding out causes of incessant bank distress in spite of the policy measures and improvement made by the central bank of Nigeria, determining ways of improving supervisory role of the CBN and make recommendation based on the findings.

Selected staff of Central Bank of Nigeria at Udoudoma Avenue, Uyo will serve as enrolled participants for this study.

1.7 LIMITATIONS OF THE STUDY

This study will be limited to evaluating the role of central bank of Nigeria in ensuring efficient and effective banking operation in Nigeria. Specifically, it will be limited to finding out causes of incessant bank distress in spite of the policy measures and improvement made by the central bank of Nigeria, determining ways of improving supervisory role of the CBN and make recommendation based on the findings.

Selected staff of Central Bank of Nigeria at Udoudoma Avenue, Uyo will serve as enrolled participants for this study and as such further research is needed if this data is to be used in other parts of the country.

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