PROPOSAL ON AN EXAMINATION OF BANK INSPECTION AS AN EFFECTIVE TOOL IN BANK MANAGEMENT

Abstract

The study focused on the examination of bank inspection as an effective tool in bank management. It adopted a questionnaire-based method of evaluation based on four point likert scale and tested the efficacy of the Hypothesis using the chi-square method. The study revealed that the Bank inspection functions have not been effective in creating stability in the commercial banking system. Bank inspection functions have not been effective in improving Corporate Governance issues in commercial banking system. Bank inspection have not stemmed the incidence of widespread bad loan portfolio in the commercial banking system. Effective inspection would boost the volume and the value of transactions witnessed in commercial banks.

                                INTRODUCTION

The role of banking sector in a develop economy such as ours cannot be over emphasized.  Bank inspection, is the process of monitoring banks to ensure that they are carrying out their activities in a safe and sound manner and in accordance with laws, rules and regulations. It is a means of determining the financial condition and of ensuring compliance with laid down rules and regulations at any given time. Bench (2013) asserts that effective supervision of banks leads to a healthy banking industry. Dimitri (2010) also believes that good regulation and supervision will minimize the negative impact of moral hazard and price shocks on the banking system, thereby leading to a reduction in bank failures and banking system distress. Traditionally, the role of banks whether in a developed or developing economy, consists of financial intermediation, provision of an efficient payments system and serving as a conduit for the implementation of monetary policies. It has been postulated that if these functions are efficiently carried out, the economy would be able to mobilize meaningful level of savings and channel these funds in an efficient and effective manner to ensure that no viable project is frustrated due to lack of funds. Banking regulation was first introduced in Nigeria in the early 1950s in response to the failure of local banks. The 1952 Banking Ordinance imposed minimum requirements for paid up capital and the establishment of reserve funds. This was followed by the enactment of the 1958 Central Bank Act and the Banking Ordinance of 1959. The banking legislation was further strengthened with the enactment of the Banking Decree of 1969. This consolidated previous banking legislation; raised minimum paid up capital requirements and empowered the CBN to specify a minimum capital/deposit ratio (Ekundayo 2014). It also empowered the CBN to impose liquidity ratios and placed restrictions on loan exposure and insider lending (Oloyede 2014). Banking sector forms the life wire of economic growth of any nation.  According to recent publication by an international magazine banking sector contributed about 55% of the total economic development of Nigeria.  Also the development of small and medium scale enterprise cannot be ruled out in this huge success curtained by the banking indicatory. The banking sector in Nigeria comprises the central commercial merchant and development banks etc.  Also inclusive are the community banks which were introduced by the feel government budget of 1990.  The  origin of banking sector dated  back to the early 18th century even through its definition was given in the later part of the 60s  and     thus  definition has to do with the business of  receiving movies from outside sources as deposit with the agreed interstate  granting of deposit with  the agreed interstate granting of loans and acceptance of credits or the  purchase of loans and checks or the purchase and sales of securities for accounts  of  others or the uncurling    of the obligations to acquire claims in respect of loans prior to their maturity or the assumption  of guarantor and other warrantees for  others or the effecting  of transfers and  clearing  and such other transaction as the commission may on recommendation of the central bank by order published the federal gazelle  designated as banking business.  The central  bank of  Nigeria  which is government  charged with the responsibility  of closely monitoring and regulation of the activities of other banks to ensure  that they render service to  their customer in a  manners that is consistent with government  stipulated  rules  and financial policies. The  ensure that these laid down rules and standard are maintained among  other bank and to guarantee  that  depositors  monies are effectively managed  there is the need for inspection and  examination for effective discharge of these functions the inspectorate division of the central bank has adopted an effective internal control procedures in order to  give adequate coverage thorough inspection and examination this defined objective this is enhanced by selecting adequate man-power needs for  this purpose.  In the recent time the comparization and digitalization of various function of banks has helped in a no small measure to curb down the excesses of bank.  Also bank have established internal audit unit (inspectorate divisions) charged with the responsibility of overacting any anomaly transaction based on through inspection and examination of its account on short term basis.

Concept of Inspection

In inspection terms of reference. It should be clearly defined as lack of a clear statement of his duties and limitation etc is deleterious to his confidence, morals and prestige while this can result in friction between him and other members of staffs management should be able to issue a clear directive of all regulatory bodies policy statement and keep all staff informed where changes in its scope and duties. The main objective of compliance test or inspection. Which is generally conducted with (3) three month of commencement of business by a bank’s branch unit is essentially to ascertain that the bank complies with the conditions under which its license was granted such policy as: Capital adequacies, provision of (BOFID) (1991) Equity participation, prudential guideline of 1990, monetary authorities guideline, CBN directives, bankers tariff issued from time to time money laundry decrees foreign exchange etc are meant to be complied by banks in their operation. It is also to ensure that the bank operation is strictly in compliance with the regulatory authority policies and practices in term of inter alias.

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