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THE IMPACT OF CENTRAL BANK OF NIGERIA PRUDENTIAL GUIDELINES ON THE FINANCIAL STATEMENT OF LICENSED

(A CASE STUDY OF FIRST BANK OF NIGERIA PLC AND UNION BANK OF NIGERIA PLC)

 

ABSTRACT

The prudential guidelines for licensed banks which are based on globa banking standards, imposed far-reaching requirements in the classification of risk assets and provision for bad and doubtful debts. Since its introduction in November 1990 the implementation of the guidelines has had a profound impact on the operations of banks. In this project, the researcher has succeeded in identifying the features of the prudential guidelines as well as its impact on published financial statements of commercial banks in Nigeria. Published financial statement of the banks for the period of 1990 that is, the inception of prudential guidelines were examined and with that of the period 1994-1998 the prudential guidelines period.           Both primary and secondary sources of data were used in the course of the research. Two hypothesis  were tested using chi-square test.  The research work revealed that:-

1. The net profit position of commercial banks in Nigeria have been significantly altered since the implementation of the prudential guidelines.

1. The provision for bad and doubtful debts of commercial banks in Nigeria have significantly increased since the implementation of the prudential guidelines.

The exercise was concluded with suggestion for further study which include:-

1. further research be conducted to ascertain the impact of the prudential guidelines on the overall activities of all licensed banks in Nigeria.
2. Further research be carried out on the central bank of Nigeria monitoring implementation measures concerning banks and non-banks financial institutions in Nigeria.

 

 

TABLE OF CONTENTS

CHAPTER ONE

Introduction                                                                                                1

1.1     Statement of problem and objective of                                   

 the study                                                                                1

1.2     Rationale of the study                                                             1

1.3     Significance of the study                                                                   2

1.4     Definitions of terms                                                                 4

CHAPTER TWO                  

Review of Related Literature                                                             6

2.1     Theoretical review                                                                             6

1. Empirical review                                                                     17

CHAPTER THREE    

Research design and methodology                                                    21

1. Hypothesis                                                                              21
2. Methodology of study                                                             22
3. Limitation of study                                                                  24
4. Sources of data                                                                        25

CHAPTER FOUR       

4.1     Presentation of data                                                                27

4.2     Analysis of data                                                                      32

4.3     Discussion of the result of analysis                                         42

CHAPTER FIVE         

5.1     Summary of the study                                                             44

5.2     Conclusion                                                                              45

5.3     Recommendation                                                                     47

Bibliography                                                                           48

Appendix questionnaire                                                          52

 

 

CHAPTER ONE

INTRODUCTION

1. STATEMENT OF THE PROBLEM

Before the introduction of the prudential guidelines, according to CBN circular (1990) some banks were used to declaring huge but unrealized profit, otherwise referred to as “paper profit”.

          The following problems will be investigated in this study:

1. Did profit figures of the selected commercial banks decrease significantly post prudential guidelines?
2. Did provision for bad and doubtful debts increase significantly under prudential guidelines?

 

1.  RATIONAL OF THE STUDY

          According to Olufun (1991) prudential guidelines seeks to infuse sanity into the chaotic banking industry.

Before the introduction of the guidelines most banks were used to declaring what is known as “paper profit “ and off – balance sheet, engagement ceased to form part of the majority commercial banks balance sheet totals. The guide line will assist banks in improving the assessment of their credit performance as well as providing banks supervisors and auditors with enhanced assessment criteria for adequate capital provision for the protection of the banks. Strict observation of prudential rules by banks contribute towards the efficiency of monetary policy.

 

1. SIGNIFICANCE OF THE STUDY

          Obviously some literature exists on the effects of the CBN 1990 prudential guide lines on the financial statement.

However, the need to up-data such information exists and cannot be over emphasized. Therefore this research was undertaken in other to contribute to the existing literature by up-data it as much as possible.

          The major significance of this study is aimed at educating the readers on the impact of the CBN guidelines on the financial statement. It was intended to ensure prudence in credit portfolio classification, provisioning for no-performing facilities. It was necessary to have such prudence to ensure reliability in published accounting information and operating results by financial institutions plus some measures of uniformity in credit portfolio disclosures and interest accruals. According to Eghodaghe (1993) it will help the monetary authorities to know how far the guidelines have achieved it’s primary objective reduction in the declaration of paper profits by banks.

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