Research Midas

The Impact of External Debt Burden And Servicing on The Nigerian Economy

AHAM NZENWATA

1. INTRODUCTION

Debt is created by the act of borrowing. It is defined according to Oyejide et al (1985) as the resource or money in use in an organization which is not contributed by its owner and does not in any other way belong to them. It is a liability represented by a financial instrument or other formal equivalent. In modern law, debt has no precisely fixed meaning and may be regarded essentially as that which one person legally own to another or an obligation that is enforceable by legal action to make payment of money.

When a government borrows, the debt is a public debt. Public debts either internal or external are debts incurred by the government through borrowing in the domestic and international markets so as to finance domestic investment. Debts are classified into two i.e. reproductive debt and dead weight debt. When a loan is obtained to enable the state or nation to purchase some sort of assets, the debt is said to be reproductive e.g. Money borrowed for acquiring factories, electricity refineries etc. However, debt undertaken to finance wars and expenses on current expenditures are dead weight debts. When a country obtains a loan from abroad, it means that the country can import from abroad goods and services to the value of the loan without at the same time having to export anything for exchange.

When capital and interest have to be repaid, the same country will have to get the burden of exporting goods and service without receiving any imports in exchange. Internal loans do not have the type of burden exchange of goods and services. These two types of debt, however, require that the borrowers’ future savings must cover the interest and principal payment (Debt servicing). Therefore, debt financed investment need to be productive and well managed enough to earn a rate of return higher than the cost of debt servicing

Developing countries in African e.g. Nigerian are characterized by inadequate internal capital formation arising from the vicious circle of low productivity, low income, and low savings. This scenario calls for technical, managerial and financial support from abroad to bridge the resources gap. The accesses to external finance strongly influence the economic development process of nations. It is an important resources needed to support sustainable economic growth. Ordinarily, economic growth should depend largely on domestic capital formation and accumulation, but due to severe limitations it requires imports of capital goods and complementary raw materials that are not domestically available.

External financial supports, when used productively accelerate the pace of economic development. It will not only provide foreign capital but will also give managerial know-how, technology, technical expertise as well as access to foreign markets for the mobilization of a nation’s human and material resources for development purposes. Specifically, loans can be used in areas such as increasing agricultural production of goods for export, mineral exploration and exploitation, industrialization, transport and communication, rural and urban development, heath care services balance of payments, tourism, infrastructural development etc (Anyanwu et al 1997). thus, in the present paper intend to investigate how well Nigeria has utilized the external debt it acquired over the years.

2. REVIEW Of LITERATURE

In international economics relations, external debt is the term that describes the financial obligation that ties ones party (debtor country) to another (lender country). It usually refers to incurred debt that is payable in currencies other than that of the debtor country. In principle, external debt includes short-term debts, such as trade debts which mature between one and two years or whose payment would be settled within a fiscal year in which the transaction is conducted.

External debt may be incurred through a number of transactions such as trade, contractor finance, supplies credit, private investment and public borrowing. Source of loan that make up external debt include banks, international financial market (euro money and capital markets) international organization e.g. IMF and the World Bank international loans and multilateral private loans.

Foreign loans are organized international credit negotiated between two countries, on terms acceptable to them in today’s world, the lender countries are usually the advanced industrialized countries of Europe, Asia (Japan) and North America while the borrowing countries are the poor under developed countries of the thirds word in Africa, Asia and Latin America, From the stand point of the latter, foreign loans are ostensibly for development purposes or to facilitate industrial progress ,or for improving the quality and quantity of food production. The ultimate objective is to increase the standard of living of the generality of the people (Nwoke, 1990).

There have been numerous attempts to empirically assess the external debt – economic growth link – the debt overhang and crowding out effects – mainly by using OLS. Borensztein (1990) found that debt overhang had an adverse effect on private investment in Philippines. The effect was strongest when private debt rather than total debt was used as a measure of the debt overhang.

Iyoha (1996) observed similar results for SSA countries. He concluded that heavy debt burden acts to reduce investment through both the debt overhang and the ‘crowding out’ effect. Using data from Cameroon, Mbanga and Sikod (2001) found that there exist a debt overhang and crowding out effects on private and public investments respectively.

Elbadawi et al (1996) confirmed a debt overhang effect on economic growth using cross- sectional regression for 99 developing countries spanning SSA, Latin America, Asia and Middle East. They identified three direct channels in which indebtedness in SSA works against growth: current debt inflows as ratio of GDP (which should stimulate growth), past debt accumulation (capturing debt overhang) and debt service ratio. The fourth indirect channels on public sector expenditure. Elbadawi, et al (1996) concluded that debt accumulation deters growth while debt stock spurs growth. Their result also showed that the debt burden has led to fiscal distress as manifested by severely compressed budgets.

Degefe (1992) also discovered a negative effect of external debt on growth. Fosu (1996) argued that debt can additionally influence economic growth via effect on the productivity of investment. And even if debt service payments do not reduce saving and investments significantly. They could still decrease output growth directly by diminishing productivity as a result of the adverse changes in investment mix. Ajayi (1991), Osei (1995) and Mbire & Atingi (1997) used the simulation analysis to show the impact of the debt burden indicators on economic growth under different scenarios.

Furthermore, Elbadawi, et al (1996) opined that these debt burden indicators also affect growth indirectly through their impact on public sector expenditures. As economic condition worsens, government find themselves with fewer resources and public expenditure is cut. Part of this expenditure destined for social programs has several effects on the very poor. Most studies confirm debt overhang/ crowding out effects. The only work that has shown favourable effect of external debt is Crowdhurry (1994) for Bangladesh, Indonesia and South Korea.

Were (2001) using an error correction formulation, the estimation result showed a debt overhang problem in both the growth and investment equation. This result tally with result from similar studies (Elbadawi et al, 1996, Mbanga & Sikod 2001). The estimation result for the growth equation showed that not only does past debt accumulation deters growth but so do current debt flow in the short run. The error correction term also showed that external debt had negative implications on growth. Ali & Mshelia (2007) using Nigerian debt data found among others; positive and negative relations with GDP.

Ezirim et al (2007) in their study on the foreign investment burden, exchange rates and external debt crises in Nigeria using two different methods namely the OLS and exact maximum likelihood (EML) techniques. They applied these methods to time-series annual Nigerian data derived from 1970-2001. They found that the foreign investment crisis or burden is associated positively and significantly with external debt crisis, previous spates of foreign investment burden but negatively and significantly related with exchange rates conditions and international oil prices

3. RESEARCH METHOD

3.1 Sources of Data

The data for this study were derived from various secondary sources such as: The Central Bank of Nigeria Statistical Bulletin (2006) Volume 17; the Federal Bureau of Statistical (formerly federal office of Statistics) Abstract of Statistics (various issues) and Central Bank of Nigeria website (www.cenbak.org).

3.2 Model Specification

The following model was built in line with the Ordinary Least Squares (OLs) of the Regression analysis which is given as:

GDP = β0 + β1LC + β3PC + β3MLC + ut

Where β0, β1, β2, β3 = coefficients of the regression line

GDP = Gross Domestic Product

LC = Annual debt service payment to the London Club Creditors

PC = Annual debt service payment to the Paris club creditors

MFC = Annual debt service payment to Multilateral Creditors.

Ut = error term

4. DATA ANALYSIS AND RESULTS

Coefficients^a
Model		Unstandardized Coefficients		Standardized Coefficients	t	Sig.
Model		B	Std. Error	Beta	t	Sig.
1	(Constant)	464595.027	779110.049		.596	.557
	LC	-54.010	15.431	-.488	-3.500	.002
	PC	.030	1.022	.004	.030	.977
	MFC	48.952	2.875	1.045	17.030	.000
R = .964, R²= .929, F- Stat = 106.1, Sig = 000

Gross Domestic Product (GDP) shows a high explanatory power of the independent variables. The coefficient of multiple determination (R²) of 92.9% indicates that about 92.9% variation in the observed behaviour in the dependent variable is jointly explained by the independent variables. The remaining 7.1% may better be accounted for by other omitted variables and is represented by the stochastic error term. The high R² indicates that the model fits the data well and is statistically robust; there is a tight fit of the model. The F- statistic of 106.1 is significant at 1% level. On the test of significance, only debt payment to multilateral financial creditors (PC) failed the test of significance. Under economic a prior criteria the positive sign of the estimated coefficient of PC is inconsistent with the economic a priors expectation. That debt payment should have a negative effect on economic growth. This means that if there is a one percent increase or decrease in debt payment to Paris club creditors (PC), gross domestic product will increase or reduce by 0.030. The DW statistic is 1.164 shows an inconclusive result about the presence or absence of serial correlation.

5. CONCLUSION AND POLICY RECOMMENDATIONS

Discussion of Findings

Our study shows that debt payment to Nigerian creditors affect the economic growth both positively and negatively. This is partially consistent with the work of Ali and Mshelia (2007) who found a mixed outcome; the influence of the value of intercept and debt service payment to Paris club creditor (PC) showed some level of positive relationship while debt payment to London club of creditors (LC) indicated a negative relationship GDP; but with difference in parameters sign in both study. In their study they found MLC and PN to be positively significant while LC and OTHERS are negatively significant. The main findings of this study are:

· That economic growth in Nigeria are significantly influenced by debt payment to other creditors, Paris club creditors, London club creditors except payment to Multilateral Financial creditors has no significant influence.

· That debt payment to Paris club creditors (PC) significantly and positively influence the observed Nigerian economic growth.

Based on our findings in this study, we wish to recommend the followings:

· Government should provide enabling social and economic environment as this will encourage entrepreneurship and promote foreign direct investment.

· Government should promote portfolio investment which will generate employment opportunities that are highly needed for increase in per capital saving leading to high capital labour ratio.

· Place embargo on new loans especially to the state government and other government parastatals except for important economic reasons which are inevitable and for project which are self floating and self sustaining.

· Government should ensure that any deal with the London Club and Other creditors(i.e. Non Paris Club) should be deals that will open Nigeria to greater trade and investment and can stimulate the private sector since; debt services to these two creditors has a significant negative impact on our economic growth.

· External financing of project should be used only for projects with higher priority. Thus is so because it is huge external debt that threw us into the series of economic problem in the first instance.

REFERENCES

Anyanwu J.C, Oyefusi A, Oaikhenan and F.A. Dimowo (1997): The Structure of the Nigeria Economy. Joanee Educational Publishers Ltd, Onitsha, Anambra. Pg. 631.

Ajayi, S. I., (1991). ‘Macroeconomic approach to external debt: the case of Nigeria’ Nairobi AERC (African economics research consortium), research paper 8.

Ali, B.M and Mshelia, S.I., (2007). Impact of external debt services on Nigeria’s Economy, global journal of social sciences, 6, (2): pg. 111-118.

Borensztein, E., (1990). ‘Debt overhang, debt reduction and investment. The case of the Philippines”. International monetary fund working paper No WP/90/77, September.

Crowdhurry, K. A., (1994). ‘Structural analysis of external debt and economic growth: some evidence from selected countries in Asia and pacific.’ Applied Economics 26.

Degefe, B., (1992). ‘Growth and foreign debt: the Ethiopian experience: 1964- 86’ Nairobi AERC Research paper 13.

Elbadawi, A. I., Ndulu, J. B. and Ndung’u, (1996). ‘Debt overhang and economic growth in sub Saharan Africa’ A paper presented to the IMF/World Bank Conference on external financing for low income countries December.

Ezirim, C. B., Muoghalu, M. I., Elike, U. (2007) Foreign Investment Burden, Exchange Rates and External Debt Crises in Nigeria: AN Empirical Extension, Journal of Banks and Bank Systems, Volume 2, Issue 3, 2007

Fosu, A. K., (1996). ‘The impact of external debt on economic growth in sub Saharan Africa’. Journal of economic development, 12. (1):

Iyoha, M. A., (1996). “External debt and Economic growth in Sub-Saharan African Countries: An Econometrics Study”, A paper presented at AERC workshop, Nairobi.

Mbanga, G.N. and Sikod, F., (2001). ”The impact of debt and debt-service payments on investment in Cameroon”. A final report presented at AERC Biannual Research Workshop at the Grand Regency Hotel, Nairobi, May, 26-31.

Mbire, B. and Atingi, M.,(1997). “Growth and Foreign Debt: The Ugandan Experience.”. AERC Research Paper 66, Nairobi.

Nwoke, C (1990): The Origins and Dimension of Nigeria External debt: In Nigeria External Debt Crisis; Its Management. Edd by Adebayo O. Olukosi. Malthouse Press Ltd, Pg 42 – 61.

Osei, B., 1995. “Ghana: The burden of debt service payment under structural Adjustment”. AERC research paper 33: Nairobi.

Were, M., (2001). “The impact of external debt on economic growth and private investments in Kenya: An Empirical Assessment”. A paper presented at the Wider development conference on debt relief, August, 17 -18.

APPENDIX 1 TABLE 1.

PERIOD	GDP	LONDON CLUB	PARIS CLUB	MULTI-LATERAL LOANS
1983	53107.38	2758.80	6002.20	566.40
1984	59622.53	5443.70	6360.40	1271.20
1985	67908.55	6164.30	7726.40	1293.50
1986	69146.99	8444.70	21725.30	4670.70
1987	105222.84	6766.50	63205.60	8781.50
1988	139085.3	14986.10	75445.30	9991.80
1989	216797.54	42840.00	121229.60	21473.60
1990	267549.99	53431.80	154550.60	34606.30
1991	312139.74	58238.10	173051.20	39458.30
1992	532613.83	41890.60	324729.90	89274.30
1993	683869.79	45323.80	400380.90	81456.30
1994	899863.22	45367.90	404212.60	97056.60
1995	1933211.55	44990.00	476731.20	97042.00
1996	2702719.13	44946.00	420002.00	102630.00
1997	2801972.58	44946.00	417568.80	96199.00
1998	2708430.86	44946.00	458257.80	93214.00
1999	3194014.97	187627.10	1885664.80	361194.90
2000	4582127.29	223832.60	2320269.00	379043.00
2001	4725086	228950.20	2475509.40	313504.70
2002	6912381.25	182964.50	3220823.50	375700.10
2003	8487031.57	196156.90	3737279.90	413877.70
2004	11411066.91	196155.50	4196844.60	384248.70
2005	14572239.12	189768.40	2028580.10	330654.40
2006	18564594.73	0.00	0.00	332219.20
2007	20657317.66	0.00	0.00	363448.79
2008	24296329.29	0.00	0.00	420603.58
2009	24794238.66	0.00	0.00	524208.11
2010	29205782.96	0.00	0.00	635454.90

Source: CBN statistical bulletin 2011 edition.

Regression

Variables Entered/Removed^b
Model	Variables Entered	Variables Removed	Method
1	MLA, LC, PC^a	.	Enter
a. All requested variables entered.
b. Dependent Variable: GDP

Model Summary^b
Model	R	R Square	Adjusted R Square	Std. Error of the Estimate	Durbin-Watson
1	.964^a	.929	.920	2.51858E6	1.184
a. Predictors: (Constant), MLA, LC, PC
b. Dependent Variable: GDP

ANOVA^b
Model		Sum of Squares	df	Mean Square	F	Sig.
1	Regression	1.999E15	3	6.665E14	105.066	.000^a
	Residual	1.522E14	24	6.343E12
	Total	2.152E15	27
a. Predictors: (Constant), MLA, LC, PC
b. Dependent Variable: GDP

Coefficients^a
Model		Unstandardized Coefficients		Standardized Coefficients	t	Sig.
Model		B	Std. Error	Beta	t	Sig.
1	(Constant)	464595.027	779110.049		.596	.557
	LC	-54.010	15.431	-.488	-3.500	.002
	PC	.030	1.022	.004	.030	.977
	MLA	48.952	2.875	1.045	17.030	.000
a. Dependent Variable: GDP

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A Critical Evaluation of the Nigeria Banking System Regulation and Supervision 1980 – 2015

AHAM NZENWATA

ABSTRACT

This paper is a critical evaluation of the Nigeria banking system regulation and supervision from 1980 – 2015. For the purpose of the paper, we explored the nature, meaning and classification of bank regulation and supervision. The paper showed that in addition to On-site and off-site supervision, bank supervision can also be classified as: transaction based, consolidated and risk based supervision. On the other hand, regulatory tools/requirements include: Capital requirement, Reserve requirement, corporate governance, exposures restrictions and financial reporting and disclosure requirements among other. The paper also showed that for the period of the study, the Central Bank of Nigeria (CBN) has enacted and pushed through numerous regulatory and supervisory reforms for controlling the activities of banks in Nigeria including the consolidation and recapitalization of banks, altering the structure of banks to become universal in nature involving in all sorts non-bank financial services and back again to the original core banking and specialized banks license. Finally, the paper showed that over time, the supervisory and regulatory efforts of the CBN has paid off as the populace now has more confidence in the ability of the banks to withstand economic and financial shocks and continue operating. However, it is recommended that the CBN must continue to actively monitoring the both the internal and external economies and be proactive in proffering timely solutions to challenges that may arise.

1. INTRODUCTION

According to Barth et al., (2006), the issue of financial regulation – particularly in relation to the banking sector – is often considered a controversial issue. Regulation is costly and can give rise to moral hazard problems. In addition distortions between regulated and unregulated institutions can occur.

Yet the special role that banks play in the economic system implies that banks should be regulated and supervised not only to protect investors and consumers but also to ensure systemic stability. More specifically, bank regulations exist for safeguarding the industry against systemic risk, protecting consumers from excessive prices or opportunistic behaviour and finally to achieve some social objectives, including stability (Llewellyn, 1999).

Bank regulations are a form of government controls which subject banks to certain requirements, restrictions and guidelines. This regulatory structure creates transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. In most cases, the government carries out these regulatory activities through its agencies the most important of which is the Central Bank.

In carrying out its regulatory functions, the Central Bank is saddled with the responsibility of issuing license to banks and supervising their activities to ensure that the banks so licensed conduct their activities within the confines of the law as spelt out in their license and in such a manner that contribute positively to the growth and development of the financial system.

From the above, we can infer that the Central Bank regulates the activities of banks by providing both general and specific frameworks within which the banks are expected to operate. And in order to ensure that banks operate within the set guidelines, the Central Bank provides supervision of the activities of specific banks.

In Nigeria, the central Bank of Nigeria (CBN) is saddled with the responsibility by itself and through other government agencies the responsibility of not only regulating banking business but also supervising individual banks to ensure they operate within the ambits of the law and in such a manner that will not be detrimental to growth and development of the financial system and by extension the economy.

The purpose of this paper is to provide an appraisal of the regulatory and supervisory functions of the central bank of Nigeria for the period 2005 to 2014 in order to determine how well the central bank has played these roles.

2. BANKING SYSTEM REGULATION AND SUPERVISION

2.1 Concept of Bank Supervision

According to the Nigeria Deposit Insurance Corporation (NDIC), banking supervision seeks to reduce the potential risks of failure and ensures that unsafe and unsound banking practices do not go unchecked. Bank supervision is a supervisory function charged with the responsibility of ensuring the safety and soundness of the banking system as a whole.

Books and affairs of every licensed insured institution are examined as a means of meeting its supervisory mandate. This function is performed through the off-site surveillance and on-site examination of the books and affairs of the banks, which exceptions are reported and recommendations made on how the observed lapses can be corrected, and the implementation of such recommendations is monitored through scheduled post examination visits to the affected banks.

While Off-site supervision involves the receipt and analysis of returns from insured banks on a periodic basis to ascertain the banks’ compliance with prudential regulations. Returns, basically, are requirements of the regulatory/supervisory authorities from the banking institutions which are made on determined periodic basis to assist in ensuring that the banks conform to desired operating rules. Thus, this involves deposit money banks taking their records to the supervisory authorities for assessment.

To complement the off-site supervision, on-site examinations are usually undertaken to determine the reliability of the banks’ returns sent to the regulators, determine banks’ adherence to laws and regulations as well as verify the quality of their assets. The type of examination to undertake usually depends on the initial objectives of the exercise. Thus, On-site supervision involves a visit to the bank by officials saddled with the responsibility of supervising their activities.

2.2 Types of Bank Supervision

Transaction Based Supervision: This supervisory approach focuses on individual/group entities. Individual entities are supervised on a solo basis according to the capital requirements of their respective regulators. The Transaction’s Based Type of Supervision of individual entities is complemented by a general qualitative assessment of the group as a whole and, usually, by a quantitative group-wide assessment of the adequacy of capital.

Consolidated supervision: Consolidated supervision is a group-wide approach to supervision whereby all the risks undertaken by a group of companies are taken into account in the supervisory process. This will entail the identification of the risks to which the components of the group are exposed to and the impact of such risks on the group operational activities. Consolidated supervision entails the process whereby the supervisor can satisfy himself about the health of the entire group’s activities which may include bank and non bank companies, financial affiliates as well as branches and subsidiary companies.

Risk Based Supervision: Risk Based Supervision assesses the efficacy of a bank’s ability to identify, measure, monitor and control risks. It designs a customized supervisory program for each bank and focuses more attention on banks that are considered to have potentially high systemic impact. By the very nature of banking business, banks are inextricably involved in risk-taking.

The major risks banks face in the course of business include, but not limited to, credit, market, liquidity, operational, legal and reputational risks. In practice, a bank’s business activities present various combinations of these risks, depending on the nature and scope of the particular activity. To the financial sector regulatory and supervisory authorities, what constitute risks are those factors that pose threat or portend danger to the achievement of statutory objectives.

2.3 Instruments and Requirements of Bank Regulation

Capital requirement: The capital requirement sets a framework on how banks must handle their capital in relation to their assets. Internationally, the Bank for International Settlements' Basel Committee on Banking Supervision influences each country's capital requirements. In 1988, the Committee decided to introduce a capital measurement system commonly referred to as the Basel Capital Accords (BIS, 2005).

Reserve requirement: The reserve requirement sets the minimum reserves each bank must hold to demand deposits and banknotes. This type of regulation has lost the role it once had, as the emphasis has moved toward capital adequacy, and in many countries there is no minimum reserve ratio. The purpose of minimum reserve ratios is liquidity rather than safety (Wikipedia, 2014).

Corporate governance: Corporate governance requirements are intended to encourage the bank to be well managed, and is an indirect way of achieving other objectives. As many banks are relatively large, with many divisions, it is important for management to maintain a close watch on all operations. Investors and clients will often hold higher management accountable for missteps, as these individuals are expected to be aware of all activities of the institution.

Large exposures restrictions: Banks may be restricted from having imprudently large exposures to individual counterparties or groups of connected counterparties. Such limitation may be expressed as a proportion of the bank's assets or equity, and different limits may apply based on the security held and/or the credit rating of the counterparty. Restricting disproportionate exposure to high-risk investment prevents financial institutions from placing equity holders' (as well as the firm's) capital at an unnecessary risk.

Financial reporting and disclosure requirements: Among the most important regulations that are placed on banking institutions is the requirement for disclosure of the bank's finances. Particularly for banks that trade on the public market, in the Nigeria for example the Securities and Exchange Commission (SEC) requires management to prepare annual financial statements according to a financial reporting standard, have them audited, and to register or publish them.

2.4 REVIEW OF RELATED LITERATURE

Bank Regulatory and Supervisory Reforms

In view of the importance of the banking sector in economic development and the imperfection of the market mechanism to mobilize and allocate financial resources to socially desirable economic activities of any nation, governments all over the world provide extensive regulation of the sector more than any other sector in the economy. The justification for regulation is to prevent bank failures which may have destabilizing effect on the rest of the economy and also to ensure that they carry out their activities in accordance with economic and social objectives of the country (Uche,2001).

The 1952 Banking Ordinance laid the groundwork for future regulation of the banking industry in Nigeria. It 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. It also empowered the CBN to impose liquidity ratios and placed restrictions on loan exposure and insider lending (Nwankwo 2011, Adedipe, 2010).

With the introduction of the Structural Adjustment Program (SAP) in 1989, banks and other financial institutions mushroomed as a result of the relaxation of regulation, licensing and other market controls. The increased number of banks as result of deregulation of the markets led to serious problems in bank supervision as the necessary manpower and technical know-how was inadequate to handle the increased number of banks. The direct consequence of this state of affairs was a large number of very weak and small banks lacking in capacity to provide the necessary financial backbone to grow the economy.

In 2004, Charles Soludo was appointed the Governor of the CBN and his primary focus was the strengthening the banking system which was achieved by mandating that banks increase their capital base to N25 billion. Given the small size of most of the banks operating at the time, most of the banks opted for either mergers or acquisition. This led to a reduction in the number of banks from 89 to 25 in 2005. The banks that emerged as a result of the recapitalization program were bigger, stronger and less vulnerable to failure and also reduced the supervision workload.

Notwithstanding the consolidation reforms, a number of problemss plagued banking institutions in the post-consolidation era, including but not limited to

· The global financial crisis

· Macro-economic instability arising from large and sudden cash flows,

· Failure in corporate governance by the banks

· Dearth of investor and consumer sophistication

· Inadequate disclosure and exposure about the financial position of banks

· Gaps in the regulatory framework and regulation of banks,

· Uneven supervision and enforcement

· Unstructured governance and management processes at the CBN, and a

· Weak business environment, leaving the banking institutions in dire straits and setting the tone for the next wave of regulatory measures in the sector (Abayomi,2014).

According to Sanusi (2010) the next phase of bank reforms were predicated on achieving the following objectives:

i. Enhancing the quality of banks;

ii. Establishing financial stability;

iii. Enabling healthy financial sector evolution; and

iv. Ensuring the financial sector contributes to the real economy.

Given the above objectives, stringent examinations were conducted by the CBN in 2009, culminating in the interventionist steps and the adoption of a risk-based supervision model by the regulator, and the institution of regulatory reforms aimed at resolving the crisis, some of which are succinctly highlighted below:

· Removal of the chief executives and other executive management personnel of five (5) banks and the capital injection by the CBN of N620bn (US$3,974,280) in Tier 2 capital into the nine (9) distressed banks.

· The establishment of the Asset Management Corporation of Nigeria (AMCON) with the statutory mandate of purchasing impaired assets, and targeted recapitalization of the distressed banks. AMCON has till date purchased over US$16.5bn of distressed assets and recapitalized three banks.

· The review of the universal banking model conceived under the consolidation reforms, and the creation of a new licensing regime aimed principally at ring-fencing core banking from non-core banking business. The new licensing regime conceived led to the discontinuance of universal banking licenses and creation of specialized banking licenses.

· The adoption of a common accounting year for all banks, in a bid to stop different reporting year ends for Nigerian banks, which made comparison amongst banks difficult and cast doubts on the accuracy of banks’ financial results. The purpose of the policy change was to further enhance the level playing field in the banking sector post-consolidation.

· Prudential Guidelines for Deposit Money Banks in Nigeria 2010 (Prudential Guidelines 2010), and the Guidelines for the Tenure of Managing Directors of Deposit Money Banks and Related Matters, heralded the mandatory cap on CEOs’ tenure of banks to a maximum of ten years.

With the post-consolidation crisis stabilized and significant regulatory reforms underway, the banking sector witnessed further reduction in respect of a number of participants. Nonetheless, the spate of regulations and supervision increased investor confidence, fostered financial stability and strengthened the sector’s growth potential. The recent experience from the global financial crisis further underscored the imperatives of the CBN to embark on banking regulatory reforms.

With the intervention of the CBN and the various reforms targeted at stabilizing the financial system, trust and confidence have been restored, and the macro effect of these reforms is evidenced in appreciation of banking shares on the stock exchange, and the emergence of four new banks.

3 DISCUSSION, CONCLUSION AND RECOMMENDATION

The paper also showed that for the period of the study, the Central Bank of Nigeria (CBN) has enacted and pushed through numerous regulatory and supervisory reforms for controlling the activities of banks in Nigeria including the consolidation and recapitalization of banks, altering the structure of banks to become universal in nature involving in all sorts non-bank financial services and back again to the original core banking and specialized banks license. The spate of regulatory reforms also witnessed the establishment of the \asset Management Company of Nigeria (AMCON) and increasing the deposit insurance scheme from N50, 000 to N250,000. Core supervision was also not left out as more attention was paid to risk based supervision.

Finally, the paper showed that over time, the supervisory and regulatory efforts of the CBN has paid off as the populace now has more confidence in the ability of the banks to withstand economic and financial shocks and continue operating. However, it is recommended that the CBN must continue to actively monitoring the both the internal and external economies and be proactive in proffering timely solutions to challenges that may arise

REFERENCES

Abayomi, A. Oluwaseye, A.J., & Etti, E. (2014) Banking Regulation, Published and reproduced with kind permission by Global Legal Group Ltd, London, www.globallegalinsights.com

Adedipe, B. (2010). Reforming the Nigerian Banking sector: Emerging Issues, Bullion Publication of CBN 34(3), 6-11

Barth, J.R., Caprio, G. and R. Levine, (2006), Rethinking Bank Regulation: Till Angels Govern, Cambridge: Cambridge University Press.

BIS (2005) "Basel II Comprehensive version part 2: The First Pillar – Minimum Capital Requirements" (pdf). November 2005. p.86.

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www.//https://en.wikipedia.org/wiki/Basel_Committee_on_Banking_Supervision