Description
ABSTRACT
This work critically examines the power of the Central Bank of Nigeria (CBN) in terms of the revocation of a banking license. Specifically, the paper examines the process for revocation and considers the doctrine of natural justice in curbing the excesses of CBN revoking of banking license in Nigeria. The Central Bank of Nigeria (CBN) is the apex regulatory body for the regulation and supervision of the banking sector in Nigeria. It is charged with various responsibilities including but not limited to, the issuance of banking licenses, formulating regulations to guide the operations of operators in the sector, sanction and punishment of banks in breach of these regulations. The punishments include, but are not limited to, fines and in some instances, the revocation of a banks banking license. The objective of this paper, primarily, is to consider the process for the revocation of banking licenses, and more specifically, whether this process is in tandem with the doctrine of natural justice. In the exercise of these powers, it rarely has to take on quasi-judicial responsibilities and in doing this, it becomes important that the principle of Natural Justice which is expedient to any judicial setting be adhered to, as the failure to do so amounts to miscarriage of justice.
TABLE OF CONTENTS
COVER PAGE
TITLE PAGE
APPROVAL PAGE
DEDICATION
ACKNOWELDGEMENT
ABSTRACT
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO THE STUDY
1.2 STATEMENT OF THE PROBLEM
1.3 RESEARCH QUESTIONS
1.4 AIM AND OBJECTIVES OF THE STUDY
1.5 SIGNIFICANCE OF THE STUDY
1.6 SCOPE OF THE STUDY
1.7 LIMITATIONS OF THE STUDY
1.8 RESEARCH METHODOLOGY
1.9 STRUCTURE OF THE STUDY
CHAPTER TWO
2.1 INTRODUCTION
2.2 CONCEPTUAL FRAMEWORK
2.2.1 OVERVIEW OF BANKING IN NIGERIA
2.2.2 THE IMPACT OF REGULATION AND SUPERVISION ON THE ACTIVITIES OF BANKS IN NIGERIA
2.2.3 BANKING LICENCE IN NIGERIA
2.2.4 THE POWER OF THE CENTRAL BANK OF NIGERIA TO ISSUE AND REVOKE BANKING LICENCE
2.3 THEORETICAL FRAMEWORK
2.3.1 HISTORICAL THEORY
2.3.2 OPERATIONAL THEORY
2.3.3 HYPOTHESIS
2.4 EMPIRICAL FRAMEWORK
2.5 SUMMARY OF LITERATURE /GAP IN KNOWLEDGE
2.6 CONCLUSION
CHAPTER THREE
INTRODUCTION
3.2 LEGAL FRAMEWORK
3.2.1 BANKING AND OTHER FINANCIAL INSTITUTION ACT (BOFIA)
3.2.2 BILL EXCHANGE ACT
3.2.3 CENTRAL BANK OF NIGERIA ACT (CBN ACT)
3.2.4 NIGERIAN DEPOSIT INSURANCE CORPORATION ACT (NDIC ACT)
3.2.5 MONEY LAUNDERING PROHIBITION ACT
3.2.6 ECONOMIC FINANCIAL CRIME COMMISSION ACT ( EFCC ACT)
3.2.7 COMPANY AND ALLIED MATTERS ACT (CAMA)
3.2.8 INTERNATIONAL INSTRUMENTS
3.3 INSTITUTIONAL FRAMEWORK
3.3.1 CENTRAL BANK OF NIGERIA (CBN)
3.3.2 NIGERIAN DEPOSIT INSURANCE CORPORATION (NDIC)
CHAPTER FOUR
4.1 INTRODUCTION
4.2 PROCEDURES TO OBTAIN BANKING LICENCE IN NIGERIA
4.3 THE POWER OF CENTRAL BANK OF NIGERIA TO REVOKE BANKING LICENCE IN NIGERIA
4.4 THE LEGAL EFFECT OF REVOCATION OF BANKING LICENCE ON CORPORATE PERSONALITY OF THE
BANK
4.5 THE DOCTRINE OF NATURAL JUSTICE WITH RELATIONS TO CURBING THE EXCESSES OF THE CBN
CHAPTER FIVE: CONCLUSION AND RECOMMENDATION
5.1 SUMMARY OF FINDINGS
5.2 RECOMMENDATIONS
5.3 CONCLUSION
CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The revocation of a banking license is one of the various powers conferred on the CBN in the exercise of its regulatory and supervisory role in the banking sector. A banking license is a legal prerequisite for any financial institution interested in carrying out banking business. It is issued by the CBN. Without a banking license, it is impossible for banking institutions to engage in banking business.
The doctrine of natural justice, in its simplest form, stipulates that there should be fair-hearing1 and no iota of bias to an individual in the process of making decisions affecting him. The doctrine of natural justice is to be complied to by any judicial or quasi-judicial body in the reaching of its decision. It is germane that any judicial-related sitting in Nigeria that receives representation or pronounce decisions must abide by this doctrine. The failure to do so will leave its decision tainted and likely to be set aside.
In the revocation of banking licenses, the CBN as a financial regulator is sometimes required to exercise quasi-judicial functions. In performing this duty, it must adhere to the principle of natural justice.
1.2 STATEMENT OF THE PROBLEM
The problem of distress in the banking sector including outright failure of banks has been observed in Nigeria as far back as 1930. Indeed, between 1930 and 1958 over 21 banks failed. Also between 1994 and 1998, about 31 banks’ licenses were revoked for failure to meet the statutory minimum capital requirement for banking operations. There was serious over-dependence on public sector funds and CBN credits as well as income from foreign exchange trading on part of banks. As at the end of 2004 bank indebtedness to CBN was about #71.36 billion. In 2009, the CBN hinged the removal of five banks chief executive officers on distress occasioned by high concentration of non-performing loans on the board. This revocation syndrome has caused a down turn in the economy and made negative impact on virtually every segment of the Nigerian economy.
In Nigeria, CBN (2010) report reveals a large volume of commercial banks total credit goes to the government rather than the private sector which are the major corporate organizations that makeup the economy. In the past two decades, the country also witnessed an atmosphere of crisis and disappointment. The nation’s situation was in many ways dramatic which resulted in enormous and fast growing deficits.
This is because firms find it difficult to raise funds to engage in new investment or expansion. Commercial banks have abandoned their traditional services and engage in speculative businesses such as trading in stock and oil business.
In the past, and perhaps till now, most banks in Nigeria do not have clearly defined and adherently implemented credit lending policies. What exist is more or less “discretion orgood judgment lending”a practice which has fuelled unacceptable incidence of bad debt stock, leading to stresses and depletion on liquidity position of the banks. However, The Central Bank of Nigeria (CBN) has continued to issue Prudential Guidelines to banks on time interval basis.
Based on the above identified problems the study seeks to examine ways of restricting the CBN from the excesses of revoking bank license in Nigeria.
1.3 RESEARCH QUESTIONS
The following research questions are set to guide the conduct of these research findings.
- What are the trends of CBN policies in the development of the banking industry?
- To what extent do CBN revoking policies affect banks in Nigeria?
- Will the death of a greater number of revoked banks have serious implications on the Nigeria economy?
- Is there a way wherein excess license revocation in the banking sector can be arrested?
- Does revocation of banking license affects CBN?
- Does revocation of banking license affects economy of the country?
- Does CBN have laws that Governs all banks in Nigeria?
1.4 AIM AND OBJECTIVES OF THE STUDY
The primary aim of the study is to verify and examine the role of CBN in preventing bank distress in Nigeria. In order to achieve this aim, the study specifically seeks:
- To review the trend of CBN policies in the development of the banking industry.
- To evaluate the impact of CBN policies in revoking of banking license in Nigeria.
- To examine if the dearth of a greater number of revoked banks have serious implication on the Nigerian economy.
- To know if there is any way excess revocation of banking license of banks can be reduced.
- To consider the process for the revocation of banking licenses, and more specifically, whether this process is in tandem with the doctrine of natural justice
1.5 SIGNIFICANCE OF THE STUDY
The findings and recommendations of this study will be of great contribution to academic works, as it is a contribution to the body of knowledge on the various implications of the topical issue of role of CBN in revocation of banking license in Nigeria. This research work serves as a source of reference to the banking and non-banking public and will also aid other researchers to carry out more studious research on areas not covered by this study.
The study will help financial analysts and consultants, human resource managers and consultants, financial institutions, bankers and professionals alike to improve in their analytical, consulting and operational strategies to boost their clients’ performance in the face of CBN’s policies for revocation of banking license in Nigeria.
The study will also help the banking industry by highlighting the areas that need improvements in their existing services in line with role of CBN, in order to improve their organizational performance.
This research will also be useful to the government in enhancing its regulatory and supervisory roles as well as formulation of policies to ensure that the financial system is well reformed to protect banks from going distressed and weather any global or national financial storm now or in future. Finally, the research will help the CBN put in place measures to help banks reduce rate of license revocation in order to protect the financial sector which is the strong bone of the economy.
1.6 SCOPE OF THE STUDY
This study focuses on assessing due process of revocation of banking license in the Nigerian banking sector. It will also examine the effects and solution to the CBN excesses in Nigeria. The research covers the methods and ways for which excesses of revocation could be curbed.
In this study, the purpose of Section 53(1) of BOFIA is majorly to act as a shield for the CBN, and its officers in the carrying out of its powers as provided for under BOFIA. From the marginal notes, which is ‘protection against adverse claims,’ it is clear that the purpose of the provisions of Section 53(1) as intended by the drafters of the law is to protect the Government, the CBN and its officers from adverse claims in respect of acts done in good faith and within the scope of their public duty.
1.7 LIMITATIONS OF THE STUDY
The study however, faced certain factors which serve as limitations these include; Lack of adequate material due to reluctance by banks to release their rules, regulation and policies that cover the whole banks in Nigeria. Another limitation is difficulty in laying hand of old news papers that are related to the past revoked banks.
1.8 RESEARCH METHODOLOGY
For the purpose of study, higher percentage of information gathered or used in this study was gotten from banks, Google search, news paper and text book.
1.9 STRUCTURE OF THE STUDY
The work is organized as follows: chapter one discuses the introductory part of the work, chapter two presents the literature review of the study, chapter three describes the different acts that can be applied to ensure that is a regulated banking operation, chapter four discusses the results of the work, chapter five summarizes the research outcomes and the recommendations.
1.10 DEFINITION OF TERMS
Some terms used were defined in order to eliminate some misinterpretation or misunderstanding of the research work. These terms include;
Bank: A bank is a financial intermediary that accepts deposits and channels those deposits into lending activities either directly or through capital markets.
Banking Industry: In general term, it is the business activity of accepting and safeguarding money owned by other individual and entities and then lending out these money in order to earn a profit.
Bank regulation: a body of specific rules or agreed behavior either imposed by some government or other external agency, or self-imposed by explicit or implicit agreement within the industry that limits the activities and business operations of financial institutions e.g. CBN/NDIC.
Bank supervision: Is the process of monitoring banks to ensure that they are carrying out their activities in accordance with laws, rules and regulations, and in a safe and sound manner.
Liquidity: This ability of a bank or business to meet its current obligations, the quality that makes an asset quickly and readily convertible into cash, the ease with which people can get their money bank from and investment the ability of an asset to the converted into cash quickly and without any price discount.
Monetary Policy: The regulation of the money supply and interest rate by the central bank order to control inflation and stabilize currency. Monetary policy is one of the two ways the government can impact the economy.
Financial system: This comprises the financial institutions, intermediaries, instruments, regulations and rules interacting together in ensuring capital are moved from surplus to deficit unit.
Revocation: Revocation is the act of recall or annulment. It is the cancelling of an act, the recalling of a grant or privilege, or the making void of some deed previously existing. A temporary revocation of a grant or privilege is called a suspension.
CHAPTER TWO
2.0 LITERATURE REVIEW
2.1 INTRODUCTION
In this chapter a critical review of related literature is carried out. The chapter discussed the variables used in the study. It begins by discussing and giving an overview of conceptual, theoretical review, it ends by looking at empirical review.
2.2 CONCEPTUAL FRAMEWORK
The Black’s Law Dictionary defines bank as a financial establishment for the deposit, loan, exchange, or issue of money and for the transmission of funds (Garner, 2009) . In Federal Mortgage Bank of Nigeria vs. Nigeria Deposit Insurance Corporation,3 the Supreme Court of Nigeria defined a bank simply as an organization or place that provides financial services. It would appear that this is the operative definition of a bank for Nigerian Courts considering the pervasive influence of judicial precedent and stare devises in a country where the Supreme Court is the apex court and final arbiter in all matters relating…
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