Access Bank SBE Trainee Manual - Banking Regulations

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Questions and Answers

What is the key purpose of bank supervision?

  • To guarantee high returns for depositors.
  • To maximize profits generated by banks.
  • To provide loans to struggling businesses.
  • To ensure banks operate in a safe and sound manner. (correct)

What are some key aspects examined during bank examination?

  • The bank's employee morale and training programs.
  • The bank's risk profile, risk management practices, and available resources. (correct)
  • The bank's investment portfolio and trading activities.
  • Customer satisfaction ratings and marketing strategies.

Which of the following is NOT a direct impact of bank supervision on the financial system?

  • Enhanced compliance with regulations and laws.
  • Increased market transparency and confidence.
  • Higher interest rates offered by banks. (correct)
  • Improved deposit insurance and protection.

What is the role of Prompt Corrective Action (PCA) in bank supervision?

<p>To take remedial measures to address identified issues in troubled banks. (D)</p> Signup and view all the answers

What is the significance of Early Warning Signals (EWS) in bank supervision?

<p>They identify potential issues or risks within banks before they escalate. (C)</p> Signup and view all the answers

What is the provisioning percentage for facilities considered subjectively uncollectible and of little value for continuation as a bankable asset?

<p>100% (D)</p> Signup and view all the answers

Based on the given content, what are the criteria used to identify doubtful credit facilities?

<p>Facilities with weaknesses related to sub-standard credit facilities and uncertain repayment or insufficient collateral value. (E)</p> Signup and view all the answers

What is the purpose of introducing a process for collateral adjustments in loan provisioning?

<p>To encourage banks to provide more credit enhancement and mitigation strategies. (B)</p> Signup and view all the answers

What is the objective criteria for identifying lost credit facilities?

<p>Facilities on which unpaid principal and/or interest remain outstanding for 360 days or more, and are not secured by legal title to leased assets or perfected realizable collateral. (B)</p> Signup and view all the answers

What was the primary reason for the establishment of the Central Bank of Nigeria (CBN) in 1959?

<p>To oversee the issuance of legal tender currency and promote a healthy Nigerian financial system (D)</p> Signup and view all the answers

What are the characteristics of collateral that can be considered for "Haircut Adjustments"?

<p>Perfectly realizable collateral that is regularly valued with a transparent method of valuation. (A)</p> Signup and view all the answers

Which of these is NOT a key regulatory agency mentioned in the text?

<p>Federal Reserve Bank of the United States (B)</p> Signup and view all the answers

What was a significant outcome of the "Free Banking Era" in Nigeria (1894 - 1952)?

<p>Financial instability and widespread losses for depositors (C)</p> Signup and view all the answers

Why can it be said that the Banking Act of 1968 was significant in the history of banking regulation in Nigeria?

<p>It presented the first comprehensive regulatory framework for the Nigerian banking system (C)</p> Signup and view all the answers

What is the primary purpose of banking regulation?

<p>To ensure financial stability and protect depositors (D)</p> Signup and view all the answers

What is the role of the National Assembly in banking regulation in Nigeria?

<p>To pass laws and create a regulatory framework (B)</p> Signup and view all the answers

Which of the following is NOT a key purpose of banking regulation as described in the text?

<p>To regulate the issuance of government securities (D)</p> Signup and view all the answers

What is meant by "subsidiary legislation" in the context of banking regulation?

<p>Regulations, guidelines, and directives issued by regulatory agencies (B)</p> Signup and view all the answers

Which of the following is NOT a responsibility of the CBN?

<p>Directly overseeing the activities of individual businesses (C)</p> Signup and view all the answers

What is the primary role of the Central Bank of Nigeria (CBN) in the Nigerian financial system?

<p>To manage the country's financial system and ensure its stability (C)</p> Signup and view all the answers

What is a key objective of the CBN in relation to the Nigerian currency?

<p>To ensure the Naira remains stable and maintains its purchasing power (A)</p> Signup and view all the answers

Besides the CBN, which other institution plays a significant role in the supervision of banks in Nigeria?

<p>The Nigerian Deposit Insurance Corporation (NDIC) (A)</p> Signup and view all the answers

Which of the following is NOT a key objective of the CBN in regulating the Nigerian financial system?

<p>To directly control the prices of goods and services in the country (A)</p> Signup and view all the answers

What is the maximum percentage of shareholders' funds unimpaired by losses that a commercial bank can grant as a loan or credit facility to any single person, according to the content?

<p>20% (C)</p> Signup and view all the answers

Which of the following practices is NOT directly related to the CBN's responsibility for ensuring financial stability?

<p>Directly investing in specific companies to boost their growth (E)</p> Signup and view all the answers

According to the content, what is the maximum amount of unsecured advances, loans, or unsecured credit facilities that a bank can permit to be outstanding to its directors or significant shareholders?

<p>An amount prescribed by the Bank (A)</p> Signup and view all the answers

What is the primary aim of the CBN in guiding the allocation of credit by banks in Nigeria?

<p>To influence economic growth and development by directing credit to specific sectors (C)</p> Signup and view all the answers

A bank is prohibited from re-employing individuals who have been convicted of which of the following offenses?

<p>Fraud or dishonesty (A)</p> Signup and view all the answers

One of the key roles of the CBN in international business is to:

<p>Maintain stability in the foreign exchange market to support international trade (A)</p> Signup and view all the answers

What is the primary purpose of the reserve fund that banks are required to maintain, according to the content?

<p>To cover potential losses and expenses (D)</p> Signup and view all the answers

Which of the following is NOT a restriction placed on a bank's lending practices, as described in the content?

<p>Mandating a specific interest rate for loans to small businesses (A)</p> Signup and view all the answers

What is the maximum amount of unsecured credit facilities that a bank can permit to be outstanding to its officers and employees, according to the content?

<p>An amount specified by the Bank (C)</p> Signup and view all the answers

Which of the following statements accurately reflects the content regarding interlocking directorship?

<p>A bank can have a director who is also a director of another bank, only with the approval of the CBN. (B)</p> Signup and view all the answers

According to the content, what is the minimum holding of cash reserves that banks are expected to maintain with the CBN?

<p>A percentage of their total deposits (A)</p> Signup and view all the answers

What is the primary objective of the 'fit and proper person' test, as described in the text?

<p>To prohibit individuals with questionable integrity from participating in the banking sector. (A)</p> Signup and view all the answers

Which of the following is NOT considered a primary function of bank supervisors in the text?

<p>Providing financial assistance to struggling banks. (C)</p> Signup and view all the answers

What is the main purpose of the 'prescription of capital' measure mentioned in the text?

<p>To ensure that banks have sufficient funds to cover potential losses. (D)</p> Signup and view all the answers

How does the text suggest that information disclosure contributes to the stability of the banking sector?

<p>It helps to prevent bank runs by keeping depositors informed. (A)</p> Signup and view all the answers

What is the primary objective of imposing sanctions on banks?

<p>To deter future violations of regulatory guidelines. (B)</p> Signup and view all the answers

What does the term 'curative role' refer to in the context of bank supervision?

<p>The corrective actions taken to address existing problems in the banking system. (C)</p> Signup and view all the answers

What is the significance of the Core Principles mentioned in the text?

<p>They represent the minimum standards for bank supervision. (C)</p> Signup and view all the answers

Which of the following is NOT mentioned as a possible sanction that bank supervisors can impose?

<p>Closure of bank branches. (A)</p> Signup and view all the answers

Flashcards

Banking Regulation

Laws made by Nigeria’s legislature and regulatory authorities to govern banks.

Federal Legislature

The National Assembly in Nigeria responsible for enacting banking laws.

Central Bank of Nigeria (CBN)

The main regulatory authority for banking in Nigeria, established to promote financial stability.

Banking Ordinance of 1952

The first substantial banking regulation enacted in Nigeria, introducing licensing for banks.

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Era of Free Banking

Period from 1894 to 1952 in Nigeria characterized by no banking regulations.

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CBN Act of 1958

Legislation that granted the CBN authority to manage currency and ensure sound financial systems.

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Minimum Paid Up Capital Requirements

Regulations introduced in 1952 requiring banks to maintain a minimum financial base to operate.

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Banking Act of 1968

Created to standardize regulations and institutionalize banking practices in Nigeria.

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Money Laundering

The process of disguising illegally obtained funds as legitimate.

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Monetary Policy

Actions by a central bank to control money supply and interest rates.

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Liquidity

The availability of cash or easily convertible assets in a bank.

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Basel Accords

International banking regulations focusing on risk management and capital adequacy.

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Foreign Exchange Market Stability

Maintaining consistent currency values for international trade.

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Consumer Protection

Measures to safeguard consumers from financial fraud and unfair practices.

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Risk Management Practices

Strategies to identify, assess, and mitigate financial risks.

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Minimum Cash Reserves

Banks must maintain specified cash reserves with the CBN.

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Reserve Fund Maintenance

Banks can declare dividends only after providing for taxes and losses.

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Disclosure of Interest

Bank officials must reveal personal financial interests in loans.

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Interlocking Directorship Prohibition

Banks cannot employ convicted individuals or have overlapping directors across banks.

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Single Obligor Limit

Banks cannot lend more than specified percentages of their shareholders' funds to a single borrower.

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Unsecured Advances Restrictions

Banks can't provide unsecured loans exceeding set limits to directors and employees.

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Credit Facility Disclosure

Loans to staff can't surpass one year's salary or specific amounts set by the bank.

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Debt Remittance Restrictions

Banks cannot reduce debts owed by directors or significant shareholders without permission.

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Bank Examination

The process of assessing a bank's risk, management, and resources.

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Bank Supervision

Monitoring banks to ensure safe operations and compliance with laws.

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Early Warning Signals (EWS)

Indicators used to detect a bank's financial distress early.

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Prompt Corrective Action (PCA)

Immediate measures taken to restore a troubled bank's health.

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Impact of Bank Supervision

The role of supervision in ensuring financial stability and safety.

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Subjective Criteria

Conditions reflecting uncertainty in debt repayment and collateral values.

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Lost Credit Facilities

Loans unpaid for 360 days or more without secure collateral.

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Objective Criteria

Measurable factors indicating non-payment on loans for an extended period.

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Haircut Adjustments

Adjustments to loan provisions based on collateral quality and value.

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Provisioning

Setting aside funds to cover expected losses on credit facilities.

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Core Principles

Best standards for bank supervision worldwide.

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Preventive Role

Proactive measures to ensure integrity in banking management.

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Fit and Proper Person Test

Assessment to exclude individuals with questionable integrity from banking.

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Capital Adequacy

Minimum capital requirement relative to a bank's risk-weighted assets.

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Continuous Supervision

Ongoing oversight through on-site and off-site evaluations.

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Information Disclosure

Banks must disclose financial results to ensure transparency.

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Sanctions

Regulatory penalties for non-compliance in banking.

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Curative Role

Actions to correct and restore confidence in banks.

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Study Notes

Access Bank SBE Trainee Manual, October 2023 - Banking Regulations and Supervision

  • Banking regulation is the laws made by Nigeria's legislature and subsidiary legislation made by regulatory authorities like the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC).

  • Banking regulation in Nigeria began with the Banking Ordinance of 1952.

  • A key regulatory agency is the Central Bank of Nigeria (CBN), established in 1959.

  • The CBN Act amended in both 1991 and 2007.

  • From 1894 - 1952, there was no significant regulation which led to many bank failures and significant loss of depositors' money.

  • The increase in banking regulation in 1952 brought about licensing and minimum paid-up capital requirements.

  • The Banking Act of 1968 put formal regulation into place attempting to institutionalize standard regulatory and supervisory frameworks in the banking sector.

  • The Nigerian Enterprises Promotion Act (1972-1976) promoted local participation in foreign banks. 

  • From 1984 - 1992, there was a period of liberalization which removed stringent regulations leading to the establishment of deposit protection in 1988, and an increase in the number of banks operating in Nigeria (120).

  • The Banks and Other Financial Institutions Act (BOFIA) of 1991 aimed to strengthen the financial sector's regulatory and supervisory structures.

  • The Prudential Guidelines of 1990 were set as a framework for asset classification and loan loss provisions and the implementation of the Basel 1 Capital Adequacy computation framework.

  • The Nigerian Deposit Insurance Corporation (NDIC) was set up in 1988 to provide support in times of bank failure.

  • The 2004-2009 period saw Banking Consolidation implemented aimed at improving the structural integrity of the banks through increasing the minimum capitalisation requirements.

  • Banks are heavily regulated to prevent financial crises, ensure stability for customers, and prevent illegal activity such as money laundering.

  • The Federal Ministry of Finance (FMF) is a regulatory body responsible for fiscal policy.

  • Key regulators include the CBN (the apex institution), NDIC, SEC, NAICOM, etc.

  • The Economic and Financial Crimes Commission (EFCC) investigates and enforces laws against financial crimes.

  • The National Drug Law Enforcement Agency (NDLEA) combats drug-related crimes.

  • Regulation includes the oversight of banks on issuing currency, handling local and foreign business for the Federal Government, and maintaining the quality of banking supervision throughout Nigeria.

  • The Basel Committee on Banking Supervision (Basel Committee) introduced capital adequacy requirements and a framework of risk assessment measures for banks.

  • Basel II and III protocols introduced further requirements aiming to improve banking supervision.

  • The FSRCC (Financial Services Regulation Coordinating Committee) coordinates the supervisory efforts of various regulatory institutions.

  • The CBN, SEC, CAC, FMF, NAICOM and NDIC are key regulatory bodies under the FSRCC.

  • The Act focuses on banking business, opening/closing branches, restructuring, minimum capital, license revocation, and resolution of banking crises.

  • The Banking Sector Resolution Fund is established to provide support during banking crises.

  • The guidelines focus on capital adequacy ratios, loan standards, and preventing bank failures.

  • "CAMELS" parameters are used to evaluate bank performance, looking at Capital, Asset Quality, Management, Earnings, Liquidity, and Sensitivity.

  • Key topics detailed in the study include Prudential requirements, failure resolution processes, important legislation, types of banking examinations and the roles of supervisors.

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