ABSTRACT
The prudential guidelines for
licensed banks which are based on global 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.
(2)
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
Title
page
ii
Dedication
iii
Acknowledgement
iv
Abstract
vi
Table of
contents
viii
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
2.2
Empirical
review
17
CHAPTER THREE
Research design and
methodology
21
3.1
Hypothesis
21
3.2
Methodology of
study
22
3.3
Limitation of
study
24
3.4
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
1.1 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:
(a)
Did profit figures of the selected commercial banks decrease significantly post
prudential guidelines?
(b)
Did provision for bad and doubtful debts increase significantly under
prudential guidelines?
1.2 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.
1.3 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.
This study will assist the
commercial bank in coming up with strategies that will enhance their credit
portfolio and reduce loan losses and subsequent provision for bad and doubtful
debts. Finally it will provide a good reading material for students of banking
and finance, management, practicing bankers including other related
professionals and will expose other possible areas of research.
1.4 DEFINITION OF TERMS
F B N: First Bank Of Nigeria PLC
U B N: Union Bank of Nigeria PLC
C B N: Central Bank of Nigeria.
PORTFOLIO: According to Odoh (1998)
is a list of securities held by and investor. A good portfolio will show a wide
spread of investment in order to reduce the risk of loss.
BAD AND DOUBTFUL DEBTS:- It is
referred to all non performing credit facilities to reflect such specification
in the central bank prudential guidelines.
Monetary Policy:- A policy which deals with discretionary controls of money
supply by monetary authorities (Orji 1998).
PRUDENTIAL GUIDELINES: According to
Nwankwo (1991).
Prudential guidelines is a body of
specific rules or agreed behaviour either imposed by some government or
external agency that controls the activities and business of operation of the
institutions.
PERFORMING ASSETS: These are those
credit on which payment of both principal and interest are up to data in
accordance with the agreed repayment terms. (Nigeria Accounting standard Board
1990).
NON-PERFORMING ASSETS:- Credits on
which payment of both principal and interest are up to date in accordance with
the agreed repayment term.
FINANCIAL STATEMANT:- According to
Nigeria Accounting standard Board (1984) is a report which consist of Balance
sheet, profit and loss account or income statement, the notes of the account,
source and application of funds statement, value added statement and historical
financial summary.
PAPER PROFIT :- False profit
declaration.
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