In Search of Financial Stability in Nigeria: From Legislation to Effective Regulation of Banks
Pages | 20-46 |
Author | |
Published date | 01 February 2017 |
Date | 01 February 2017 |
DOI | 10.3366/ajicl.2017.0180 |
Banks play invaluable roles in the economy because they carry out financial intermediation functions through the mobilisation of necessary funds from depositors for onward lending to borrowers. This facilitates efficient productivity, effective operation of the payments system, and financial stability in the economy.
The unprecedented spate of failures that plagued the banking system in the early years following the introduction of the banking concept in Nigeria largely influenced the institutionalisation of banking regulation.
Regulation of the banks has indeed resulted in remarkable changes in the banking system in Nigeria. It has not only seen to the arrest of the persistent bank failure syndrome and the consequential loss of deposits, but has also institutionalised relative systemic stability and a measure of sanity in the manner of doing banking business and financial stability. This has resulted in substantial realisation of the objectives behind the introduction of banking regulation in Nigeria. Although a common trend even in some other jurisdictions, enactment of new statutes to address evolving challenges in the banking sector may not always be necessary.
This article examines the legal frameworks for banking regulation in Nigeria in the quest to attain financial stability in the economy and considers the evolution of legislative enactments on the subject. The article finds that the problem militating against effective regulation of banks in Nigeria may not necessarily have to do with the dearth or non-comprehensiveness of statutes on the subject but rather lies with ineffective and uncoordinated enforcement of the provisions of existing statutes. Allied to this observation is the problem of policy inconsistency on the part of banking regulators. This situation engenders confusion, uncertainty and instability because prospective investors tend to be more hesitant, depositors shy away from keeping their money with banks and banks tend to have to grapple with persistent illiquidity, when the system is shrouded in unpredictability. The article therefore advocates a major shift of policy from legislative review to effective enforcement of existing laws regulating the monitoring and supervision of banks in Nigeria. It also reiterates the imperative for the evolution of policies that grow Nigerian licensed banks into transparent, efficient, strong and globally competitive institutions.
The extant statutes relating to banking regulation in Nigeria include the Banks and Other Financial Institutions Act (BOFI Act) 1991, the Central Bank of Nigeria Act (CBN Act) 2007, the Nigeria Deposit Insurance Corporation Act (NDIC Act) 2006, the Asset Management Corporation of Nigeria Act (AMCON Act) 2010 and the Failed Banks (Recovery of Debts) and Financial Malpractices in Banks Act (Failed Banks Act) 1994. It will be useful to discuss these statutes as they relate to banking regulation, in order to identify areas where they are affected by the discussion in this article.
The Banks and Other Financial Institutions Act 1991 (BOFI)
The deregulation of the economy was to touch on all facets of the economy including the banking industry. A situation of free market enterprise meant lesser governmental presence by way of participation in economic activities. Several legislations were enacted to establish the necessary legal framework for the exercise. Also policy decisions were also taken resulting in the liberalization of the banking licensing scheme.
The Central Bank of Nigeria (hereafter in this Act referred to as ‘the Bank’) shall have all the functions and powers conferred and the duties imposed on it under this Act, subject to the overall supervision of the Minister.
The Bank shall in addition to the functions and powers conferred on it by this Act, have the functions and powers conferred and the duties imposed on the Bank by the Central Bank of Nigeria Act.
It is obvious that the BOFI Act provides relatively adequately effective regulation of banks, against the background of the state of the economy when it was enacted. However, it is obvious that the Act is long overdue for comprehensive review, considering the fact that it was enacted over two decades ago. Since its enactment, the banking system and indeed the larger economy have undergone fundamental changes that require that the Act be amended to bring it in tune with prevailing realities. Nevertheless, regulators of banks could address any observed lacunae in the statute or inadequacies in the financial system through administrative measures to achieve an effective regime of banking regulation in Nigeria.
This statute came into force on 25 May 2007,
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