Impact Of Prudential Guidelines On The Services And Performances Of Banks

INTRODUCTION
BACKGROUND OF THE STUDY
The Nigerian banking system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure , as well as depth and breadth of operations. These changes have been influenced largely by challenges posed by deregulation of the financial sector, globalization of operations, technological innovation and adoption of supervision and prudential requirements that confirm to international standards.
As at the end of June, 2004, Chime (2004:8) stated that there were 89 deposit money banks operating in the country, composing institutions of various sizes and degrees of soundness. Most banks in Nigeria have capitalization of less than $10million. Even the largest bank in Nigeria has a capital base of about Us $240million compared to Us$526milion for the smallest bank in Malaysia. Apart from the smallness, they have heavy fixed cost and operating expenses leading to high average cost for the industry. This puts undue pressure on banks to engage in sharp practices, increase cost of intermediation, gap between deposit and lending rates and separate investment in software and hardware. The prevailing situation in the industry is more or less a caricature of the system. Chime (2004:9) stated that Nigerians hold more than N4006 as currency outside of the banking system. This he opined that it ie due to large informal economy, perverse incentive to look mostly to high net-worth agents for deposits, government agencies, blue clip companies and rich individuals. According to him, a further analysis of the returns of the marginal and unsound banks reveal that they account for 19.290 of total assets of the banking system, 17.290 of total deposit liability while the industry non performing assets account for 19.5% . These ratios except that for deposits, were below the bigger point for declaring the system as distressed, they are nevertheless of major supervisory concern. Besides the significant dependence of many Nigerian banks on government deposits, with the three tiers of government and parastatals accounting for over 20% of total deposit liabilities of deposit money banking was another concern. The structures of banks promoted tendencies towards a rather strictly behaviour of deposit rates, particularly at the retail level, such that while banks’ lending rates remain high and positive in real terms, most deposit rates especially those on savings, are law and negative.
The summary from the foregoing is that the Nigerian banking system faces enormous challenges just like other sectors of the economy.
Consequently, the federal Government introduced the National Economic Empowerment and Development Strategy (NEEDS) with its state and Local Government affiliates. N
With its state and local government affiliates. Needs is Nigerian home-grown poverty reduction strategy (Chime 2004:2) It is a medium term strategy (2003-2007), but which derives from the countries long-term goals of poverty reduction, wealth creation, employment generation and value re-orientation. The Macro-economic framework of Needs include: Reforming Government and institution (public sector reforms, privatization/Liberalization, governance, transparency and anti-corruption, service delivery). It is under this reform that
Banking sector reform was entrenched. The reform code accordingly was named: PROJECT EAGLES, at the apex bank level (CBN)
Consequently on July 06 2004, the Central Bank of Nigeria Governor announced the Minimum capital base for all banks to N25billion. This saw First Bank of Nigeria PLC merging with MBC International Banks to meet the target.
It was in a bid to assess the effect of this prudential guideline on the service and performance of bank that this work is being carried out with 1st bank of Nigeria PLC Okpara Avenue Enugu as a case study.

1.2 STATEMENT OF THE PROBLEM
With the distress signal apparent at the doors of some banks, there has been dwindling confidence in the banking system. This is further aggravated by the high interest rates charged by banks, emphasis on short term lending to the neglect of manufacturing, agriculture and other capital intensive projects.
The above science required drastic action if the banking system was o properly plays its role as a catalyst to development. The Governor of the Central Bank of Nigeria Prof. Charles Soludo remarked recently that it become necessary to take pre-emptive measures to avoid the cycle of boom and bust” adding that, “it now time to set up a structure that created a strong be relative to the kind of economy we are operating where banks become channels to do proper intermediation.
Oshiomole (2004:3) criticized some of the reform polices especially monetization. Also in Chime (2004:5) noted that they advised that all discussions be initiated to clear the grey areas and agree on modalities for the implementation.
The public sector especially within the National Assembly argue as to:
The success and effects of the prudential and operating guideline.
The efficiency and effectiveness of the existing operating system and whether it will be suitable for the policy.
In some quarters, it is said that there are inadequate resources to meet the N256 capitalization compared to cost of fund generation.
The general public through the NLC (2004:3) say that the likely sufficing problems of the policy will be much when the available resources for implementation are viewed.
Commercial Banks, insurance companies and discount houses cry out because they opined that it will have tremendous effect on the quantum of resources accruing to them.
Workers also argue that it will have serious negative effect on then and is likely to be over-run by problems just like other previous macro-economic polices.
As such, this work is aimed at reviewing the issues raised to find at the workability and effect of the banking guidelines and returns.

1.3 OBJECTIVE OF RESEARCH
The issues raised by the public sector participate above suspected to be from the micro economic and macro economic policies and guidelines are what this work is aimed at redressing with a view as to ascertain the current level of effect of the new guidelines as well as
(1) To examine the extent to which poor inadequate capital; effects the ethics of prudential guidelines in internal accounting practices in first bank of Nigeria Enugu.
(2) To find it the extent to which bad debtor occurs in the bank
(3) To ascertain the extent to which poor management quality affects the application of prudential guidelines in First Bank Enugu.
(4) To find at the extent to which inhabitant policy environment affects banking operations in first bank plc Enugu.

1.4 DELIMINATION OF STUDY
This work titled “Impact of prudential guidelines on the services and performance of banks “a case of FBN Plc Okpara Avenue Enugu was carried out at FBN Plc Okpara Avenue, Enugu.
This is because it is the “East bank operations Headquarters” that oversees all transaction in eastern part of the consolidated firm of two Banks i.e. MDC International Bank and First Bank of Nigeria.

1.5 RESEARCH QUESTIONS
For an in-depth study of the impact of prudential guidelines on the services and performance of Banks, a case of FBN, the following research questions were formulated.
(1) How does inadequate capital effect the ethnics of the prudential guidelines on the operations of the banks.
(2) To what extent has a bad debt occur in first bank of Nigeria Plc Okpara Avenue?
(3) What are the extents to which poor management qualities effect the applications of the strict prudential guidelines in first bank Okpara Avenue.
(4) To what extent has the inhibitive policy environment affected the banking operation of FBN Plc, Okpara Avenue.

1.6 HYPOTHESIS FORMULATION
This research is geared towards testing hypothesis below:-
Ho1: There is no significant difference <P<0.5 between the mean perception of the effect oif inadequate capital in banks on the operation of bank.
Ho2: There is no significant difference <P> 0.05 between the mean perception of the effect of bad debts on the overall operations of first bank of Nigeria Plc, Okpara Avenue.
HO3: There is no significant difference <P.> 0.05 between the mean envisaged effect of poor management quality as it concerns the operation of banks.
Ho4: There is no significant difference <P>0.05 between the mean perception of effect of inhibition policy environments an operation of FBN, Okpara Avenue Enugu.

1.7 SIGNIFICANCE OF THE STUDY
The is of significance in that it will reveal the inherent problems with the Nigerian economy in terms of prudential practices within the banking sectors.
The Nigerian banking system is faced with enormous challenges distress and ultimate closure due to violation of existing prudential guidelines or inability of some banks to fully cope up with such guidelines. As such this work with x-ray some of the internet problems, efficiency or inefficiency with the organizational banking sector. Besides the likely effects of the new banking prudential guidelines will be see at the end of the work.

1.8 DEFINITION OF TERMS
(a) Capital Base: Paid-up capital and reserves unimpaired by losses.
(b) Reserves: all reserves including general reserves / but excluding asset revaluation surpluses
(c) Paid-up capital – ordering shares plus non – redeemable preference shares
(d) Consolidation: A proposal to make banks make up deficiencies in the authorized capital of banks
(e) NDIC: Nigeria deposit insurance corporation responsible to work with the CBN to ensure probability in the international sector
(f) NEEDS: National economic empowerment and development strategy. This is a project under which the current reform on banks was entrenched.
(g) PROJECT EAGLES: A programme of consolidation introduced as a consolidating slogan at the Apex Bank (CBN)
(h) IIL: Investors international (London Limited an investing company FBN for a telecom deal in the country.