Within the framework of this project “Perceived impact of Prudential Guidelines on the services and performance of Commercial Banks in Nigeria”, the researcher has attempted to reiterate the importance of prudential guidelines in helping banks to improve on their performance. The study set out to examine its impact on bank safety and confidence of Nigerians especially depositors among others.
The researcher employed both primary and secondary sources of data from samples derived from the populations of selected commercial banks. The researcher adopted the use of structured questionnaire as the main instrument of data collection. Data were analyzed using the Chi-Square (X2) analytical technique.
Findings from the study revealed that there is increased need for bank supervision from the regulatory bodies. The guidelines have been welcomed as a step in the right direction as they have helped to check the mismatch between banks’ reported and actual profits and also checked the early detection of fraud, distress and deterioration of banks credit portfolio.

In conclusion, prudential guidelines have also helped to check non-performing loans and ensure proper scrutiny of loan proposals and enhanced regulatory activities in the banking industry most especially the commercial banks. Several recommendations were made in a bid to alleviate the difficulties banks encounter in implementation of the provision of the prudential guidelines. These include encouragement of management effectiveness via enlightenment programe seminars, periodic review of the guidelines to meet prevailing national and international banking trend. It is recommended that further research be conducted to improve on existing ones.

All over the world, the banking industry plays a strategic role in every nation’s economic development. The Central Bank plays a dominant role in both the decision making and managerial process taking place in the economy while other banks do provide the essential financial services needed for effective operation of the economy. Bank failures do have destabilizing impact on the economy of any nation. It is precisely the consequence of these failures that led to the enactment of various legislations, rules and guidelines by relevant authorities to curb the excesses the banks with a view to ensuring that banks operating in Nigeria do so in accordance with the best practices of International banking professional standards.

Banking malpractices alternatively referred to as corruption and economic crimes constitute the genius of what is generally known as and commonly called “Elite or white collar crimes. Legislation governing the banking practice in Nigeria is sourced from three major areas. They are:

Ø      Law of General Application: This is the law that is applicable across the countries under the former British Empire. Such law because it was bequeathed to Nigeria at the Independence is otherwise referred to as “received English laws”.

Ø      Statute Law: These are laws specifically enacted by the nation’s legislature known as the Parliament of the National Assembly to deal with specific subjects or sectors. Example of such statute law are BOFIA (Banks and other financial institution Acts 1991), the CBN Act 1991 and CAMA (Companies and Allied Matters Act) 1990.

Ø      Subsidiary Legislations: These are legislations made under the authorities of existing statutes. Examples are Rules, Orders, and Regulations by laws and ordinances.

The core legislation for this research is the Subsidiary laws and such are made by the apex bank CBN for other banks to observe. The prudential guideline was issued on November 7th 1990 Circular No BSD/DO/23/VOL.1/11 to all licensed Banks addressed requirements forasset classification and disclosure, provisioning, interest accrual and off balance sheet engagements.

In view of the importance of the circular to bank management, bank auditors and bank examiners, the objective of these guidelines is to prescribe the prudential treatment of restructured accounts to provide a transparent mechanism for timely structuring of debts of viable entities facing problems, outside the purview of BIFR, DRT and other legal proceedings for the benefit of all concerned. The scope of these guidelines are applicable to restructuring/rescheduling of amounts due from all borrowers other than those eligible for restructuring under CDR Mechanism, eligible for restructuring under the debt mechanism for SME’s and restructured on account of Natural calamities for which Reserve Bank has issued a separate set of guidelines.

Casting a look at the size structure, the assets structure, the deposits structure and the volume of credits they grantto the economy, their dominant position becomes evident. In the light of this therefore, their indispensable role of pooling together funds from the surplus economic unit to the deficit unit fast tracks economic activities. Effective management of banks assets and liabilities posed a great concern to all stakeholders because of large scale financial distress. The late 1980s and early 1990s were years of financial boom, as the number of players increased substantially in the system. For instance, between 1986 and 1989, about 38 new commercial and merchant banks were created. The increase in the number of banks over stretched the existing human resources capacity of the banks which resulted into many problems such as poor credit appraisal system, financial crimes, accumulation of poor asset quality among others. The consequence was increased in the number of distress, banks and depositors began to loose confidence on our financial institutions in managing their fund.

Based on these experiences, the Federal Government of Nigeria through the Central Bank of Nigeria (CBN), 1990 indicates that regulation and supervision are essential ingredients for stable and healthy financial system, and that the need becomes greater as the number and variety of financial

Institutions increased. The banking sector was singled out for a special protection because of the vital role banks play in an economy. Bank supervision entails not only the enforcement of rules and regulations, but also judgment concerning the soundness of banks assets, its capital adequacy and management (Volker, 1992). Effective supervision leads to healthy banking industry. At this direction, the deposit insurance scheme the assets quality of banks, reduce bad and doubtful debt, and ensure capital adequacy and stability of the system so that the depositor’s fund would be protected.

Banking as essentially an international business, especially now that domestic financial markets are being internationalized, need to develop and continuously review their reporting system which allow for a high degree of comparability of banking performance across national boundaries. Such systems have been evolved in such areas of banking practice as credit portfolio classification, disclosure interest accrual and off balance sheet engagements. The apex institution in Nigeria banking system, the Central Bank of Nigeria (CBN) is continuously moving banks in the country towards compliance with international banking practices.

To this end, the Banking Supervision Department (BSD) issued no November 7, 1990, circular letter No.BSD/DO/23VOL.1/11, to all licensed banks and their auditors. The circular titled “Prudential guidelines for licensed Banks” addressed requirements for asset classification and disclosure, provisioning interest accruals and off-balance-sheet engagements. The prudential guideline is intended as a hand book for target groups such as the bank auditors and the examiners. It is the task of the examiner to prevent bank failure by identifying bank problems at an early stage to allow for intervention and or corrective action before the situation gets out of hand......

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