CHAPTER ONE
1.0 INTRODUCTION
1.1 BACKGROUND OF THE STUDY
A bank deposit insurance scheme (DIS) is
a financial guarantee to depositor particularly the small ones, in the
event of a bank failure bank deposit insurance scheme developed out of
the need to protect depositor, especially the uniformed, from the risk
of loss and to also protect the banking system from instability
occasioned by runs and loss of confidence The banking system has been
singled out for this special protection because of the vital role banks
play in the economy whether developed or developing. For a DIS to be
effective in achieving the above objectives. It must be properly
designed, well implemented by the fancy established to execute the
scheme and well understood by members of the public {financial stability
forum (FSF), 200}. A well designed DIS contributes to the stability of
withdraw their insured deposits from banks following rumours about their
financial conditions.
The establishment of Nigerian deposit
insurance cooperation (NDIC) in 1988 heralded the introduction of an
explicit deposit insurance scheme in Nigeria the Nigerian deposit
insurance corporation is responsible for insuring the deposits at all
banks and other deposit taking financial institutions licensed by the
central bank of Nigeria (CBN). It also give financial and technical
assistance in the interest of depositors, to banks in difficulties and
in case a bank fails, it guarantee the payment of insured deposits
The corporation assists the central bank
of Nigeria (CBN) in the formulation and implementation of banking
policies, with a view to ensuring sound banking practice among others.
The scheme was meant to argument the existing safely not by protecting
depositor, thereby boosting confidence of the banking public. It was
also considered as an additional frame work to serve as a substitute to
the government support policy (implicit insurance) hitherto in place.
Prior to the establishment of the corporation, government was unwilling
to let any bank fail no matter its financial condition due to fear of
the potential adverse government support over the years. However, such
direct supports (implicit insurance) could not be sustained under the
structural adjustment programmed introduced in 1986 which among others,
deregulated the economy towards market orientation, with the
establishment of the Nigerian Deposit insurance corporation scheme
(NDIC), the pain of bank failure unsuitable in a market environment were
reduced to a minimum while moral hazard associated with direct
government support was eliminated.
1.2 STATEMENT OF THE PROBLEM
Some public opinions, particularly the
press has been vociferous in the argument that the rate of proliferation
in the banking industry is unmanageable and many new banks were bound
to fail. it was like the regulatory authorities like Nigerian deposit
insurance corporation (NDIC) were determined to avoid failure with of
prudential guideline in additional to existing schedule to banking and
which have indeed put the government at alert to avert any crises. All
there are to assist the supervising authority in the critical evolution
of banks financial position and facilitate the identification of problem
in banking industry the problem facing banks also includes.
High level of intensified competition due to the liberalization of industry.
Increased systematic risk arising from increased off balance sheet transaction.
The problems of bank distress which result to loss of bring money by the bank customer.
The prevalent of fraud in the banking industry.
This research will address the
challenges facing banking industry because of its tremendous impact on
the economic growth of the country.
1.3 OBJECTIVE OF THE COUNTRY
The financial section has not only
become incessant to the growth of the nation’s economy but has also been
in the increase in recent years. The objective of the research
includes;
To highlight some of the problem facing
Nigerian deposit insurance corporation (NDIC) in its attempt to achieve
economic growth through stability in the banking industry.
To examine who checks and solution has been proffered by the Nigerian deposit insurance corporation (NDIC) against the problems.
To examine the role of banking industry in economic growth.
To examine the prospects of Nigerian deposit insurance corporation (NDIC) in the performance of banking industry.
To recommend measures to curb the
problem militating against Nigerian deposit insurance corporation (NDIC)
in performing their function.
1.4 RESEARCH HYPOTHESIS
The study is based on the following hypothesis.
Ho: There is no significant relationship
between effective performance of Nigerian deposit insurance corporation
(NDIC) and economic growth
Hi: there is significant relationship
between effective performance of Nigerian deposit insurance corporation
(NDIC) and economic growth
Ho: Nigerian deposit insurance
corporation (NDIC) has no significant impact on the operation of the
banking industry and economic growth.
Hi: Nigerian deposit insurance
corporation (NDIC) has significant impact on the operation of the
banking industry and economic growth.
Ho: banking stability has no significant influence on the economic growth in Nigeria.
1.5 SIGNIFICANCE OF THE STUDY
The significance of this study cannot be
emphasized and can be considered in relation to the scope of study.
This research can be visualized from the effects of distress in bank
that lead to loss in banking customer’s deposits.
However, banking distress has contributed immensely to the lack of economic growth in the economic of the nation.
The research will be tremdous assistance
to policy market and practitioners. It will also provide to the
existing literature in the field for researcher, and student in higher
institution of learning can devoice various secondary sources from it.
1.6 SCOPE OF THE STUDY
The scope of the study will cover the
following areas. Reason for establishment of Nigerian deposit insurance
corporation (NDIC). Its achievement and challenges facing Nigerian
deposit insurance corporation (NDIC). The study will also be limited to
inter continental bank plc, due to time constraint of the research.
1.7 LIMITATION OF THE STUDY
There are some limitation of this
research though, there limitation do not have significant influence on
the reliability of this study, there are:
- The time factor in thin the researcher’s disposal is inadequate to thoroughly carry out an in – deposit study
- Restricted access to information and
- Financial constraints.
1.8 PROFILE OF NIGERIAN DEPOSIT INSURANCE CORPORATION (NDIC)
The NDIC was established by the federal
government through decree No. 22 of June 15, 1988, but it started
operation in February 1989. The 60 percent (60) of NDIC’s authorized
capital of N 100 million while the federal government holds the
remaining 40 percent (40). The NDIC was set up primarily to protect
depositor from bank failure there by promoting public confidence in the
banking industry.
The affairs of the corporation are
controlled by the board of directors of which the governor of the CBN is
the chairman. The board also consist of a representation of the federal
ministry of finance and economic development (FMEED), the managing
director and two executive directors of the corporation.
1.9 DEFINITION OF TERMS.
- A. Economic Growth: this is defined as the
rate of expansion of the national income or total volume of production
of goods and services of a country
- b. CBN: Central bank of Nigeria: this is
the Apex bank of the country. it is the bank of all banks of the nation
CBN is a financial institution established by the law or constitution of
the country. It is the bank of all banks of the nation CBN is a
financial institution establish by the law or constitution of
The country with the responsible or duty to manage and controlled all money matter of the nation
- c. NDIC: Nigerian deposit Insurance
Corporation: this is the corporation that is responsible for insuring
the deposit of all banks and other deposit taking financial institution
licensed by central bank of Nigerian (CBN). It is the corporations that
assist the CBN in the formulation and implementation of the banking
policies with a view of ensuring sound banking practices among others.
- Depositors: - These are the person (s) that keep or save money into the bank. Deposits are also known as bank customers.
- e. Deposits: - These are thing or money which the depositions keep in the banks. Deposit are things that are been kept in the bank.
- f. Bank Stability: This defined as a
process in which a bank is stable in its operation. This is also a
process of bank regulation that is the operation or service of a
particular bank is a regular or not having problem.
- g. Bank Failure: This the opposite of bank
stability that is the process in which a particular bank is having
problem in it operation or the system of a bank been liquidating it is
the bank that is no more operating or that has uncounted financial
problem.