1.0. INTRODUCTION
In a sense, the dual purpose of banking is to provide needed
banking services, and to earn
an appropriate return on the capital investment. These needed
banking services reflect
recognition of a bank’s obligations to its customers and
depositors, its shareholders, its staff, and
In addition, its obligation must look beyond local considerations,
and conscientiously
shape its institutional policies and practices to conform to the
national pattern of monetary
policy. The mission of a bank is the task of accomplishing such
objectives with due regard for
the conditions and constraints that must be observed, and in
accordance with accepted criteria of
successful accomplishment.
In fulfilling these tasks, the bank consciously manages its human
resources, cash, credit,
working capital and inventories judiciously and efficiently on
daily basis. It is the primary
occupation of this note to educate you on how banks manages these
available resources and also
expose you to the concept of bank regulation and bank fraud in
Nigeria.
2.0. OBJECTIVES
At the end of this note, you should be able to;
· Discuss how a bank manages human, Working
Capital, Cash, Credit and
inventory resources.
· Define and explain the concept of Bank
Regulation
· State and explain the objectives of bank
regulations in Nigeria
· Identify some banking Laws and Regulations in
Nigeria
· Discuss the benefits and problems of bank
Regulations in Nigeria.
· Define and explain the concept of bank Fraud
· Identify and explain the types of bank Fraud
3.0. BANK RESOURCES
MANAGEMENT AND BANK REGULATIONS IN
NIGERIA
3.1. Bank Resources Management
3.1.1. Human Resource Management
Personnel management is an important element of the broader subject
of human resources
management (HRM), although in practice the two are frequently
interchanged emphasizing the
fact that the people employed in a bank or company are resources
which at least as important as
financial material resources and must be given careful expert
attention.
Personal Management is the responsibility of all those who manage
people, as well as
being a description of the work of those who are employed as
specialist (Nmadu, 1991:1). It is
the part of management which is concerned with people at work and
with their relationships
within a bank or an enterprise. Through human resources
management, banks seeks to bring
together and develop into effective organization the men and women
who make up an enterprise,
enabling each to make his own best contribution to its success
both as an individual and as a
member of a working group. It seeks to provide fair terms and
conditions of employment, and
satisfying work for those employed. In managing human resources in
the bank, it requires that
employees be treated as important resources to be invested in
prudently, to be used productivity,
and from a return can be expected, a return that should be
monitored wisely. Human resources
management plans, develops and administers policies and programmes
to make expeditious use
of the banks human resources.
The major role that human resource management plays in the
management of banks
includes planning, staffing, development and maintenance. In the
aspect of planning, human
resource management in banks involves the planning of
organizational goals and objectives, job
analysis and human resources. In the area of staffing, it recruits
and select staff. Besides,
development in this respect, involves activities like orientation,
training and development,
performance appraisal, carrier planning etc. Finally, the
activities that are involved in
maintenance include compensation, benefits, safety and Health,
labor relations etc.
3.1.2. Working Capital Management
Working capital can be defined as the excess of current assets
over current liabilities. It is the same
as net current assets. It represents the investments of a
company’s medium and long-term funds in
assets which are expected to be realized within the years trading.
It is not permanent investment,
but as the name implies is continually in use, being turn over
many times in a year. It is used to
finance production, to invest in stock and to provide credit for
customers. The more of a business
finance invested in working capital, the less is available for
investing in long-term assets such as
buildings, plant and machinery.
In the management of working capital, at least three questions
need to be considered. First, what
size of investment should be allocated to the different forms of
current assets? Second, what
proportions of these current assets should be financed
respectively by short-term and long- term
funds? Third, what proportion of the total assets should be in the
form of current assets, and what
proportion in fixed asset? The successful control of working
capital or cash depends on detailed
budgets, which must be as accurate as possible. These are needed
for planning balance sheets and
profits and loss accounts, and consequently it is common practice
for the conventional budgetary
system to include estimates of the component parts of working
capital. All that is needed for the
management of working capital as a whole is that the parts should
be put together. The size of the
cash balance that a company might need depends on the nearness or
availability of other sources of
funds at short notice, on the control of debtors and creditors – a
crucial factor for short-term
financial planning.
3.1.3. Cash Management
There are no simple rules to govern decisions concerning the
amount of cash a firm should have on
hand or short call at a bank. Part of the difficulty is that such
decisions involve management’s
subjective attitude to the risks ahead. The more cash that is on
hand, the more easily the company
can meet its bills when they are due for payment. By carrying a
quantity of cash or processing
securities at short call, the company is buying peace of mind. On
the other hand, the more cash the
company can invest or put to work within the business, the greater
will be the profits it earns.
However, if it does not retain a sufficient amount of liquidity,
the company can lose the
opportunities to take advantage of discounts and perhaps, because
of late payments, lose suppliers.
Management must therefore balance liquidity with profitability.
There are three basic reasons why a company would wish to hold
some of its assets in the
form of cash or cash equivalent. These reasons according to
economic theory are; the transaction
motive, precaution motive, and the speculative motive. One
explanation often given for holding
cash is that any profitable opportunities that arise can be met
immediately. This motive may be
strong in the case of a company that exists primarily for
speculative purposes. To hold cash or near
cash has a cost, which is the earnings that could have been obtained
through using the funds
elsewhere. The company has to ensure that the gains from the
possible speculative opportunities
are greater than the earnings from normal investment opportunities.
Determining the amount of
cash a firm needs at a point in time is not an easy matter. As
already explained, if a bank has too
little cash, it can run into liquidity difficulties, if it has too
much cash, it will be missing
opportunities to earn profits. The problem is to determine how
much cash is too much cash.
The key statements by which management can be kept informed about
the cash position of the
company are the cash budget and the cash -flow statement. It is
necessary to have these
informative statements as quick as possible and as up to date as
possible, so that action can be
taken on the figures. The cash budget involves estimating what the
inflow and outflow of cash will
be at fixed intervals over the next planning period.
3.1.4 Credit Management
Credit management is an important part of financial management.
The credit issuing policy of a
company should answer several questions. For instance, whom should
credit be extended to?
How much credit should be allowed (at individual level and in
total), how long should the credit
be for? And what is to be done about defaulting debtors? The
objective of the company is
assumed to be to choose the credit policy that, taken into
conjunction with its other policy
decisions, maximizes the expected profits of the company. It may
well be that the credit policy
cannot be formulated without reference to constraints. The
liquidity position of the company
presents an obvious constraint, and production capacity,
management capacity, and risk may
define others. The problem is thus a programming problem in form,
but it is, even in principle, so
involved that a complete vigorous and general formalization would
not be useful from the
operational point of view. Some of the data that would be required
for such model illustrates this
difficulty. The company need to know the probability of sale to
each potential customer as a
function of the credit terms offered to him and the expected
timing of the payments received
from the customers. The choice of which customers to advance
credit to, is really a question of
the level of risk of non-payment that is considered acceptable.
With every credit or sale, there is
some risks that the customers will not be able to pay, but with
most large banks or companies,
the risk may be small. But with small illiquid banks or companies,
the risks of non-payment
might be so high.
3.1.5. Inventory Management
An inventory policy is a set of decision rules which determine the
size and timing of
replenishment orders and what to do in a stock out situation. The
policy issue here is that an
order for replenishment is placed when inventory fell to or below
the re-order level and the size
of replenishment is fixed. The re-order level policy calls for
continuous monitoring of inventory
level. The periodic review policy retains the concept of a
re-order level but stock on hand is not
constantly known, there are periodic stock takings. If at the time
of stocktaking inventory is at or
below the re-order level a replenishment order, of fixed size, is
placed. Otherwise there is no reordering.
An efficient inventory policy is always an important requirement
for the successful management
of banking, manufacturing and distributing enterprise. Usually a
fraction of the total assets of
these companies are in the form of stock, so that improvement in
stock control policy can bring
major benefits for companies.
Any idle resource may be thought of as an inventory. Rather more
vividly, stocks have been
described as “money in disguise”. Indeed the stock may be of money
itself, as in the case of
holdings of cash. In terms of physical goods, it is conventional
to distinguish three types of
inventory.
i. Pre-production inventory
ii. In- process inventory
iii. Finished goods inventory
Pre- production inventory is a raw material or other inputs
secured from outside the firm.
In-process inventory is work-in-progress (Possibly at several
stages in the production process)
and finished goods are the products of the enterprise awaiting
sale. The purpose of inventory is
to allow each stage of the production and distribution system to
operate economically by
insulating it from different or varying rates of activity at other
stages.
The most obvious illustration of this is the role that finished
goods inventory plays as a
cushion between production and sales. Even if the rate of sales is
predictable and steady, it may
be uneconomical to produce continually at just that rate while if
demand is erratic it would be
nonsense to keep changing the rate of production. The entire
production process usually needs
insulating from irregularities in the arrival of suppliers. This
is the main function of preproduction
or raw material inventory. In times of inflation, there may be a
speculative role too.
3.2. Bank Regulations in Nigeria
3.2.1. The Concept of Bank Regulation
It refers to the supervision and control of the banking sector by
government in the interest
of economic efficiency, fairness, healthy and safety of the
banking system in the country.
Regulation may be imposed simply by enacting laws and leaving
their supervision to the normal
process of the law, by setting up special regulatory agencies or
by encouraging self-regulation by
recognizing, and in some cases delegating powers to bodies or
agencies. Regulation in the
banking sector is ultimately aimed at the “safety and soundness”
of the banking institutions, the
protection of depositors’ money, the shareholders’ investments and
the effective implementation
of government monetary and other policies in the economy.
In Nigeria, there is evidence that over the years, the banking
laws and regulations tended
to make operations of commercial and merchant banks uniform. For
example, while in 1979, the
amendment to the repealed 1969 Decree made wholesale banking and
medium-term lending as
the main functions of merchant banks, the Banks and other
Financial Institutions Decree of 1991
was silent on the role of merchant banks in wholesale banking and
medium to long-term lending.
Furthermore, the prescribed proportion of loans to medium and
long-term enterprises was
reduced from 50% in 1979 to 20% in 1991 and was abolished in 1996.
Similarly, the prescribed
minimum deposit accepted by merchant banks was reduced from
N50,000 in 1992 to N10,000
since 1994. These legal and regulatory changes continued in the
banking sector until the
adoption of universal banking in 1999 and subsequently bank
consolidation in 2004.
The changes in the laws and regulations were responses to the
pressures mounted by the banking
institutions to be allowed to expand the scope of their
activities. Since the establishment of the
CBN in 1958, the other major regulatory measure that had been
taken was the establishment of
the NDIC in 1988.
3.2.2. Objectives of Regulation of the
Nigerian Banking System
The objectives of bank regulation and the emphases, varies from
one country to another.
In Nigeria, some of the objectives of regulating the banking
sector include the following:
i. To achieve public policy
objectives of financial stability, high economic growth,
price stability, full
employment levels of out put, and a balance of payments
equilibrium position.
ii. To ensure that adequate
services are provided at reasonable costs to the public and
that the services reach the
people at reasonable low costs.
iii. To provide safety for
depositors.
iv. To protect investors
from fraud and deceit.
v. To limit the risk taken
by banking financial institutions.
vi. To preserve the
liquidity and ensure the solvency of the banks.
vii. To built up confidence
in the public and hence promote savings mobilization and
investment.
viii. To promote a highly
competitive financial market.
ix. To prevent unhealthy
proliferation of banking institutions.
x. To prevent bank failure
and help built up confidence in the public.
xi. To ensure that
resources are allocated into their most efficient and profitable uses.
xii. To improve the
flexibility of financial institutions to respond to the challenging
needs of individuals and
businesses.
xiii. To preserve a sound
and resilient financial system.
xiv. To maintain a base for
effective monetary policy.
xv. To promote a stable and
growing standard of living.
3.2.3. Some Laws and Regulations in Nigeria
Some of the regulations/ legislations affecting the Nigerian
banking system are enumerated
below. You should note that by this enumeration, these bank laws
and legislations in Nigeria
are not exhaustive. These include:
1. The banking ordinance of 1952; which provided for the licensing
of banks and
prescribed a mandatory minimum capital requirement of N25,000 for
the banks to
operate in the country.
2. The Central Bank of Nigeria, Act 1958; this provided for the
establishment of the
CBN as an apex financial institution to regulate and control the
commercial banks
and other banks or financial institutions.
3. Banking Decree of (Acts), 1969; this provided for the
regulation and control of the
monetary and financial system. It made provision for the grant of
licenses to banks
before they can carry on banking business in the country and also
imposed restriction
on certain activities of licensed banks. It also empowered the
CBN, among other
things, to prescribe the licensed banks’ minimum holding of cash
reserves, specified
liquid assets, specified deposits and stabilization securities.
4. Banking (Amendment) Act, 1970; this provided sundry amendments
to the CBN Act
of 1958, including approval required before the award of certain
banking activities
and the determination of the salaries and allowances of the
employees of the CBN.
5. Banking (Amendment) Act, 1972; This further amended the CBN Act
of enable the
CBN to grant advances to commercial banks which incur deficits in
their clearing
operations.
Some of the Nigerian banking laws and regulations are listed below
to include:
i. Money Laundering Act (PROHIBITION) Act No.7, 2003.
ii. Banks and other financial institutions Decree 25, 1991 Act
CAP. B3 L. F. N.
iii. Nigerian Bank for commerce and industry Act CAP. 296 L.F. N
1990 Act CAP.
N92, L. F. N 2004.
iv. Peoples Bank of Nigeria Decree No. 22 1990 Act CAP. P7 L.F.N
2004.
v. Revocation of Banking license S. I 1 2003.
vi. Nigerian Education Bank Decree No. 50 1993 Act CAP. N104 L.F.N
2004.
vii. Urban Development Bank of Nigeria Act. U16 L. F. N 2004.
viii. Commnotey Banks Decree No.46 1992 Act CAP. C18 L. F. N 2004.
ix. Nigerian Export Import Bank Decree No. 38 1991 Act CAP. No.106
L. F. N
2004.
x. Federal Savings Bank Act CAP. 142, L. N. F 1990 Act CAP F20 L.
F. N 2004.
3.2.4. Benefits of Bank Regulations in
Nigeria
Banking regulation is expected to yield some benefits not only to
the banking industry,
but to the entire economy. Some of the benefits of bank regulation
in Nigeria include the
following:
i) It prevents bank runs and avoidance of the resulting losses to
depositors and to
bank institutions.
ii) Reduction of fraud, gross mismanagement, and excessive
risk-taking by some
managers of banks.
iii) Reduction of some possible aspects of centralized power and
self-dealing should
this occur were banks unconstrained as to location and products
offered to the
public.
iv) Greater and efficient allocation of resources than in the
absence of laws and
regulations.
v) Enhances bestow confidence in the banking system.
3.2.5. Problems of Bank Regulation in
Nigeria
i) Consumers tend to be major losers since they bear the cost of
reduced competition in
the form of higher prices and or worse services.
ii) The regulated institutions bear costs also from two sources;
first, the cost of
complying with the regulations such as supervision and
examination, and second, the
cost of being prevented from organizing their activities
efficiently and offering
products that customers want.
iii) It entails movement away from free competition and toward
greater costs or
suboptimal portfolio.
iv) It limits innovations in the banking system and banks also
attempt measures to evade
the supervisory/ regulatory structures.
.
3.2. Bank Fraud
3.3.1. What is Bank Fraud?
Fraud, generally, refers to an act or course of deception
deliberately practiced to gain
unlawful or unfair advantage; such deception directed to the
detriment of another. It therefore
suggests unfair dealing and could be against the customer by the
bank officers, or against the
bank by its officers, or by the customers against the bank, etc.
What constitutes fraud in banking
practice has to do with some elements of deception,
misrepresentation and the intent to obtain
some unjustifiable advantage. Such act is generally perceived
professionally unethical, legally
unjust, and morally wrong.
3.3.2. Types of Bank Frauds
a). Forged cheques: This is perpetrated in a number of ways
depending on the type of cheque.
Any type of cheque, be it personal cheque, government cheque or
travellers cheque, has its
unique and peculiar characteristics and vulnerability. Compared to
corporate cheques, individual
cheques are more vulnerable to theft and fraud since they do not
necessarily require confirmation
as in the case of corporate cheques.
b).Cash fraud: This includes suppressing and converting
customers’ cash lodgements by
fraudulent bank cashiers. Bank depositors who are illiterate are
always victims of this kind of
bank fraud.
c). Cross firing of cheques or
kiting: This involves using bank
funds without proper authority,
whereby the customer usually has two or more accounts at two or
more different banks or
branches. He draws a cheque on his account in bank A, (knowing
fully well that there are no
funds in that account) and deposits the cheque into his account
with Bank B. He then draws on
the uncollected funds at bank B and immediately deposits in bank A
another cheque drawn on
non -existing funds in his account at Bank B.
d). Foreign exchange malpractices: These involve unlawful trafficking in foreign
exchange and
non-adherence to official guidelines on foreign exchange
transactions.
e). Printing of Bank Stationary and
Carving of bank Rubber Stamps: These forged papers
and stamps are usually used by unscrupulous people to prepare
forged letters of and other
international trade instruments which are circulated all over the
world with a view to obtaining
goods worth millions of naira under pretence.
f). Spurious letters of Credit: This kind of letters of credit are usually
accompanied with
spurious “bank drafts” on the reserve of which are fake
endorsements which guarantee payment.
4.0. CONCLUSION
While managing the resources of a bank prudentially and in the
most efficient way enhances the
attainment of the bank’s basic objectives with less time and
efforts and at minimal cost, bank
regulations keep the banking system under check and guides the
back staff, its shareholders,
customers and all who are involves in the system from any form of
irregularity for the smooth
operation of the system. On the other hand, bank fraud is a very
serious cankerworm that has
caused failure in many banks in Nigeria and it requires all hands
on deck to fight the menace to a
halt and total elimination for economic development.
5.0. SUMMARY
In this note, we have learned about;
i. Managing the available resources in a bank
ii. Bank regulation in Nigeria
iii. Bank fraud in Nigeria.
0 comments:
Post a Comment