THE ROLE OF CENTRAL BANK OF NIGERIA IN THE DEVELOPMENT OF NIGERIA FINANCIAL SYSTEM

1.0 Introduction

1.1 Background Of The Study

The background to the establishment of the Central Bank of Nigeria (CBN) lies in the characteristics and deficiencies of the monetary system, which preceded it. This was the currency board system. The West Africa Currency Board (WACB) was established in November 1912 following the recommendation of the Emott committee. And because of the deficiencies and demerits of the board there was an urgent need for the establishment of an institution in the nature of the Central Bank of Nigeria (CBN). The nationalists mounted pressure on the colonial government and as a result, the patron commission was set up by the colonial government in 1952. And upon the report of the commission, the first banking legislation in Nigeria was passed in 1952 known as the banking ordinance of 1952.

The motion for the establishment of Central Bank of Nigeria (CBN) was defeated initially but the call could not be totally ignored. Thus Mr, J.L. Fisher of the Bank of England, 1953 to inquire into the desirability and practicability of establishing a Central Bank of Nigeria (CBN) and his report was not feasible to establish a Central Bank.

However, in 1957, Nigeria gained an internal autonomy backed by the report of the World Bank mission on the subject, the federal government appointed a commission headed by the Mr. J.B. Loynes, again of the Bank of England in 1957, to make recommendations in the establishment of Central Bank of Nigeria (CBN), the introduction of Nigeria currency and other associated matters.

This recommendation culminates in the establishment of CBN on March 17th 1958 by the Central Bank of Nigeria (CBN) 0rdinance of year. The bank came into existence and started full operation on 1st July 1959, thus anticipating the date of October 1st 1960. Today Nigeria has a Central Bank with about seven branches and seven currency centers.

1.2 Statement Of Problems

The essence of this study is to know how Central Bank of Nigeria (CBN) roles contributes to the development of Nigeria financial sector. And it is evident that the Central Bank of Nigeria (CBN) encounters a lot of problems trying to carry out this role. Among these problems are as follows:

1. One of the fallings of Central Bank of Nigeria is their inability to guide against unethical actions of Commercial banks in the areas of money laundering, interbank force exchange and fraud.
2. The Central Bank of Nigeria (CBN) inability to curb the current rising inflationary rate in the country.
3. It lack of effective regulatory measures has led to high lending rate imposed by commercial bank on their customers.
4. It also lacks the capacity to effectively execute government economic policies.
5. Inability of Central Bank of Nigeria to monitor the skyrocketing foreign exchange rate in the country.

Central Bank of Nigeria (CBN) has been unable to promote the needed saving culture among Nigeria which could have helped the nation’s capital base.

1.3 Objective Of Study

The purpose of this study is to ascertain the role Central Bank of Nigeria (CBN) play to develop Nigeria financial sector. This research work will be conducted under the following objectives:

1. To evaluate how financial sector comply with Central Bank of Nigeria (CBN) regulatory guidelines in Nigeria.
2. To determine the effect of Central Bank of Nigeria (CBN) and financial sector.
3. To ascertain the relationship between the role of Central Bank of Nigeria (CBN) and financial sector.
4. To examine the extent to which Central Bank of Nigeria (CBN) role contributed to t e development of Nigeria financial sector.

1.4 Research Questions

These questions were asked by the researcher in order to ascertain answers to the research problems and analyze them. Here are some of the questions:

1. Is there any development effort made by Central Bank of Nigeria over the last five years?
2. Does merger and acquisition make Nigerian banks stronger and competitive to face the challenges in the global banking industry?
3. Does the regulatory function of the Central Bank of Nigeria affect the financial development of the economy?
4. What type of investment does Central Bank of Nigeria undertakes?

1.5 Statement Of Hypothesis

H1 Central Bank of Nigeria play significant role in the growth of the Nigeria Financial Sector.

H2 Financial sectors are required to maintain certain minimum reserve requirement with CBN in order to control liquidity.

1.6 Significance Of The Study

The research work will serve as a valuable contribution to knowledge and will also be of particular importance to the student of Banking and Finance, Accountancy and other related course and will serve as a source of useful reference for future researchers.

Secondly, the study will be great significant t o as it will encourage Nigeria populace to embrace saving culture.

Again, this study will also encourage foreign investors to invest in Nigeria. Thus, by creating an enabling environment or policies for investment and above all the facilitation of good conducts of monetary and fiscal policy for ensuring macroeconomic stability and stable governance.

Furthermore, this study will help to restructure the business cycle to enhance its effectiveness, efficiency and productivity.

Finally, the study will reveal the current problems confronting efficient rate of Central Bank of Nigeria (CBN) in developing our financial sector.

1.7 Scope Of The Study

This research work shall cover the role of Central Bank of Nigeria (CBN) to the development of financial sector with more emphasis on banking industry, in ensuring macroeconomic stability in line with the objective of achieving monetary stability and this is only possible if the fiscal, income and other policies of government are supportive.

1.8 Limitations Of The Study

The research work could not come to limelight without the researcher encountering a lot of limiting factors ranging from finance, dearth of relevant reference text, and also time.

Finance:

This research was conducted with limited resource of the researcher; lack of fund coupled with the economic condition and inflationary trend in our country today has resulted to high cost of completing the research work.

Dearth Of Relevant Reference Text:

I think it is not an overstatement for one to say that scarcity of relevant reading materials is a social ill, thus disturbing the fabric of education in our country today. The issue of dearth of relevant reading materials is more with reference text in banking and finance, where only the out
Dated ones exist.

Time:

The time available for the student to carry out the research is limited. This limited normal semester works which are pursued concurrently. Time is also required to lat information from related literature from major libraries. Also data collected has to be analyzed and written, so all this required time.

1.9 Definitions Of Terms

The researcher explains the meaning of some terms and words used in the text below:

1. Money Market:

The money market is a market where money is sold and bought for a short term.

2. Capital Market:

The capital market refers to the mobilization of medium and long term funds from surplus unit to the economy.

3. Foreign Exchange Market:

It is a market where foreign currencies are bought and sold.

4. Federal Ministry Of Finance (FMF):

The federal ministry of finance is responsible for licensing bureau de change and regulation of insurance companies.

5. Security And Exchange Commission (SEC):

This is the apex regulatory organ of the capital market.

6. Federal Mortgage Bank Of Nigeria (FMBN):

This is the apex regulatory body of mortgage institution.

7. Nigerian Bank For Commerce And Industry (NBCI):

This bank grants loans to small and medium scale enterprises.

8. Central Bank Of Nigeria (CBN):

The Central Bank of Nigeria is the apex of financial institutions; they supervise and regulate the activities of all other financial institutions.

9. Fiscal Policy:

This is a policy written the fiscal system of any country that describes the institutional framework within the government, undertakes its financial operation.

10. Monetary Policy:

This is the combination of measuring design to regulate the value supply and cost of money in an economy in consonance with expected levels of economic activity.

11. Financial Intermediation:

This is the mobilization of funds from surplus economic unit and channeling them to deficit unit (investors) for investment purpose.

12. People’S Bank Of Nigeria (PBN):

This bank helps to provide easy credit facilities to the down trodden masses that have no access to conventional financial institution.

13. Lending:

Is the act of granting financial assistance or facility to a personal or corporate customer by a bank for purpose of period of time and at a specific interest rate.

14. Banking Policy:

These are the rules and regulations that guide all the banking operations.

15. Investment:

Is any asset or property right held for the primary purpose of conserving wealth or earning an income.

16. Credit Management:

This is the value of an maximization of an organization by achieving a trade-off between liquidity and profitability.

17. Recovery Procedure:

This is the collecting effort made to recover money from customers owing the bank.

18. Factoring:

This is the selling of company’s debt to a factor company as a discount and the factor upon collection of the full amount takes the difference as his profit.

19. Bonds:

This is a promise to pay issued under seal by a firm or corporation of government bodies to borrow long term funds which bear interest semi-annually and mature on face value.

20. Acquisition:

This is the purchase by one company of all or substantial interest of another such that the acquired company becomes subsidiary of an acquirer.

21. Universal Bank:

They are financial institution established by law to perform some function which include deposit, acceptance, executorships function, development function, fund lending and transfer.

22. Prime Rate:

This is the rate at which banks extend loan to their credit worthy customers.

23. Deregulation:

This is the type of economy where the allocation of resources is determined by market forces.

24. Securities:

Is the right of interest in property which is given to a lender (creditor) by a borrower for the purpose of providing cushion on which the lender falls back in case the borrower defaults in repayment.

25. Mortgage:

This is the conveyance of a legal equitable interest in property to any person with the provision of redemption on the repayment of the loan or the performance of some other obligation.