Rufus Folorunso Akinyooye - St Clements University

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Abstract The Basel 2 Accord is a comprehensive framework for improving banks safety and soundness by more closely linking regulatory capital requirements with bank risk, improving the ability of supervisors and financial markets to assess capital adequacy, and giving banking organizations stronger incentives to improve risk measurement and management. The framework was laid in 1999 by the Central banks of the Group of Ten countries otherwise known as G10 comprising Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom, United <strong>St</strong>ates, and Luxembourg. The aim is to regulate the management of risks in their large internationally active banks described as banks which insolvency could create significant distress on other banks in countries within the G10, the Organization for Economic Cooperation and Development [OECD], and the world as a whole. Such systemic banks are considered as ‘significant’ banks in other countries outside these two groups none of which Nigeria belongs to. This research examines the relevance of the Accord to the Nigerian banking industry and against the backdrop of the Basel 1 Accord that proceeded it with a view to determining how much it fits into the situation on ground and if not what changes will be required to make it fit so as to ensure successful implementation given the much heralded desire of Nigeria to implement the Accord. The sample population comprised 284 respondents randomly drawn from five major Banks in Nigeria. The sampling technique employed the stratified sampling technique in drawing the sample population. Two main hypotheses were formulated which were later subdivided into sixteen sub-hypotheses and were used to guide the study. The responses received on the statements made in the study were provided by using simple percentage and mean after constructing frequency tables for the items addressing each of the statement. The survey design was used in gathering information from the population under study. All the hypotheses postulated were tested at 0.05 level of significance using the Chi-square statistics. The following findings were made from the study after testing the hypotheses formulated for the study: The technical competence of the board and management of all the banks need to be fine-tuned before Basel 2 Accord can be successfully implemented. This is because the challenges posed by the Basel 2 Accord requires individual with superb technical know-how. It was recorded that there is need for Nigerian banks to be able shoulder Nigeria’s debt rescheduling strategies before Basel 2 Accord can successfully be implemented. Further finding revealed that the high ownership concentration of certain board of some banks needs to be decentralized in order to remove hitches of one-man or key-man dominance before Basel 2 Accord can successfully be implemented in Nigeria. Nigeria also needs to evolve a stable political climate for any meaningful banking practice to take place even before Basel 2 Accord can successfully be implemented. The finding also showed that the present merging process of aligning different entities of mergers will need to be integrated and in line with Basel 2 Accord guidelines before Basel 2 Accord can successfully be implemented. Nigerian banks need to go beyond their present level of information technology systems which have to be integrated with their accounting systems and record before Basel 2 Accord can successfully be implemented. Similarly the present management capacity of most banks need to be overhauled and reinvigorated with directors and managers that possess the inert qualities of good banking experience before Basel 2 Accord can successfully be implemented. On the issue of risk management it was observed that a robust risk management needs to be in place before Basel 2 Accord can successfully be implemented. The issue of resurgence of high-level malpractices
such as round tripping of forex, falsification of records, insider- abuses etc also need to be addressed before Basel 2 Accord can successfully be implemented. The finding of this research also revealed that the problems associated with rendition of false returns, continued concealment need to be addressed before Basel 2 Accord can successfully be implemented. It was also recorded that inadequate operational and financial control of most banks must strictly be addressed before Basel 2 Accord can successfully be implemented. vi Nigerian banks need to go beyond their present transparency level and always adequately disclose information (e.g. risk management strategies, risk concentration, performance measures e.t.c) to the stakeholders before Basel 2 Accord can successfully be implemented. Further result showed that Nigerian banks need to fully comply with the comprehensive risk management framework as spelt out by the Basel 2 recommendation before Basel 2 Accord can successfully be implemented. However it was observed that Nigerian bank’s risk management framework need not capture all the risks the banks are likely to encounter before Basel 2 can successfully be implemented. Finally the credit ratings of Nigerian Banks need to essentially meet up with that of Basel’s 2 recommendations before Basel 2 Accord can successfully be implemented. The result showed that many structural and institutional changes must take place within the Nigerian banking industry before Basel 2 Accord can be successfully implemented.
Page 1: THE CHALLENGES OF IMPLEMENTING THE
Page 4 and 5: DEDICATION I dedicate this research
Page 8 and 9: vii TABLE OF CONTENT CHAPTER I - In
Page 10 and 11: viii
Page 12 and 13: ix Table 4.1.2: Distribution of Res
Page 14 and 15: It should be mentioned that prior t
Page 16 and 17: The NDIC itself was created in 1988
Page 18 and 19: Nigeria as a sovereign has the addi
Page 20 and 21: (6) Crown Merchant Bank Ltd. 1988 1
Page 22 and 23: what makes up the Nigerian banking
Page 24 and 25: maximum losses the bank’s counter
Page 26 and 27: Cribb (1999) also show that in othe
Page 28 and 29: to redeem it from the issuing bank
Page 30 and 31: Honohan (1997) appreciated this kid
Page 32 and 33: An amendment to the Act in 1865 gra
Page 34 and 35: that country would become expensive
Page 36 and 37: - Lebanon 286.8 - Belgium 257.8 - P
Page 38 and 39: The Bretton woods agreement The Sec
Page 40 and 41: and forms of agreements between cre
Page 42 and 43: for losses and of Capital reserves
Page 44 and 45: (d) The Committee promised to close
Page 46 and 47: development banks. They are to attr
Page 48 and 49: 20% (1) Claims on banks in Nigeria/
Page 50 and 51: As mentioned above CBN does not mak
Page 52 and 53: As mentioned above the Group of Ten
Page 54 and 55: Items 41-43 - Are on the amendments
Page 56 and 57:
Item 54 directs that at national di
Page 58 and 59:
Sovereign to AA- A - to BBB- to B -
Page 60 and 61:
Item 72 states that lending fully s
Page 62 and 63:
Item 81 states that at national dis
Page 64 and 65:
Item 100 says whether the bank inte
Page 66 and 67:
wider range of credit risk mitigant
Page 68 and 69:
collateral will receive the risk we
Page 70 and 71:
Supervisory haircuts Item 151 conta
Page 72 and 73:
Items 173 to 177 are on the treatme
Page 74 and 75:
- An instrument that embodies an ob
Page 76 and 77:
(1) Composition of minimum requirem
Page 78 and 79:
orrower and facility grades of pool
Page 80 and 81:
Item 425 directs that borrowers and
Page 82 and 83:
of member countries but stress that
Page 84 and 85:
lending standards in use when the d
Page 86 and 87:
(3) statistical default models. Oth
Page 88 and 89:
REQUIREMENTS FOR RECOGNITION OF LEA
Page 90 and 91:
national Supervisors when there is
Page 92 and 93:
Item 550 defines Excess spread as g
Page 94 and 95:
(f) An opinion must be obtained fro
Page 96 and 97:
Item 645 outlines three methods o c
Page 98 and 99:
Footnote to the title The Standardi
Page 100 and 101:
Item 664 is on the Advanced Measure
Page 102 and 103:
Under the IRB approach, a bank esti
Page 104 and 105:
Nigeria responded to this questionn
Page 106 and 107:
of all external financial assets of
Page 108 and 109:
Accord is of sovereigns, banks and
Page 110 and 111:
of this fact is that under the Base
Page 112 and 113:
the same nationality. The rule of t
Page 114 and 115:
sovereign ratings. The eight variab
Page 116 and 117:
investor makes the final decision t
Page 118 and 119:
Brazil (B2/B+/B+) China A2/BBB/A-)
Page 120 and 121:
Latvia (A2/BBB+/BBB+) Lithuania (A3
Page 122 and 123:
Slovakia (A3/BBB/BBB+) Slovenia (As
Page 124 and 125:
Israel (A2/A-/A-) Malaysia (Baa1/A-
Page 126 and 127:
Russia (Baa3/Ba2/NR) Spain Aaa/AA+/
Page 128 and 129:
(B1/BB-/BB-) Source: Global Economi
Page 130 and 131:
UNDER BASEL 1 AAA 0.03 8 1.6 1.13 A
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other on-site expenses, plus a US$1
Page 134 and 135:
39 CHI Channel Islands - - - - 40 C
Page 136 and 137:
108 LSO Lesotho 6 6 6 6 109 LBR Lib
Page 138 and 139:
176 ZAF South Africa 3 3 3 3 177 ES
Page 140 and 141:
ultimately lead to calls for offici
Page 142 and 143:
Nigerian banks, like banks all over
Page 144 and 145:
Totals 100.0 100.0 100.0 100.0 100.
Page 146 and 147:
Prior to the on-going consolidation
Page 148 and 149:
Item 726 to this end states that ba
Page 150 and 151:
Item 743 directs the bank to establ
Page 152 and 153:
Principle 4: Supervisors should see
Page 154 and 155:
(4) Procedures for the efficient re
Page 156 and 157:
number of issues which according to
Page 158 and 159:
(j) Inability to settle guaranteed
Page 160 and 161:
With the above developments one wou
Page 162 and 163:
Item 760 and 761 are on how Supervi
Page 164 and 165:
Structural Challenges - Pillar 3 Pi
Page 166 and 167:
if investors do not know the risk p
Page 168 and 169:
month would be the due principal an
Page 170 and 171:
(1) Disagreement between Board and
Page 172 and 173:
3.Implementation of Basel 2: Practi
Page 174 and 175:
3. Implementation of Basel II in Ni
Page 177 and 178:
CHAPTER THREE RESEARCH METHODOLOGY
Page 179 and 180:
Decision rule For decision rule, wh
Page 181 and 182:
Fig. 2: Response Distribution on ef
Page 183 and 184:
4. Are there internal rating system
Page 185 and 186:
Fig.6 Response on the issue of fore
Page 187 and 188:
Fig.8 Response Distribution on asse
Page 189 and 190:
Fig.10 Response Distribution on the
Page 191 and 192:
Fig.12 Response Distribution on the
Page 193 and 194:
Table 4.2.1: Response Distribution
Page 195 and 196:
3. Should the following be disclose
Page 197 and 198:
In another response it was also dis
Page 199 and 200:
v) Geographical distribution of exp
Page 201 and 202:
4.3 ANALYSIS OF QUESTIONS ON SUPERV
Page 203 and 204:
Table 4.3.4 Response on the issue o
Page 205 and 206:
BCP 24.0 Host Country Supervision
Page 207 and 208:
10. The issue of resurgence of high
Page 209 and 210:
When the respondents were presented
Page 211 and 212:
hypothesis chosen are deemed true b
Page 213 and 214:
improved working environment need n
Page 215 and 216:
H12: Inadequate operational and fin
Page 217 and 218:
Sub-Hypotheses on structural change
Page 219 and 220:
SA 41 71 -30 900 12.67 A 28 71 -43
Page 221 and 222:
Decision From the table 4.5.5 above
Page 223 and 224:
H8: The present management capacity
Page 225 and 226:
H10: The issue of resurgence of hig
Page 227 and 228:
SD 36 71 -35 1225 17.25 TOTAL 284
Page 229 and 230:
Decision The result in table 4.5.14
Page 231 and 232:
CHAPTER V DISCUSSION OF THE RESULTS
Page 233 and 234:
(b) It has an Operational risk mana
Page 235 and 236:
Another significant finding in this
Page 237 and 238:
e implemented. Judging from the cal
Page 239 and 240:
Proof for Null hypothesis Twelve (H
Page 241 and 242:
As shown in this research many inst
Page 243 and 244:
anks need to fully comply with the
Page 245:
profit that could translate into lo
Page 248 and 249:
(b) No (c) (d) I Don’t Know. (e)
Page 250 and 251:
(b) No If yes, what were they? (8)
Page 252 and 253:
(1) As supervisors, would you say c
Page 254 and 255:
(iv) Procedures for efficient resol
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LC (C) MNC “ 1.6 Information shar
Page 258 and 259:
LC (C) MNC “ 11.0 Country Risk (d
Page 260 and 261:
LC (C) MNC “ 22.0 Remedial Measur
Page 262 and 263:
(D) NC = Noncompliant (8) How soon
Page 264 and 265:
(a) Yes (b) No (c) I don’t know.
Page 266 and 267:
(x) Total and Tier 1 capital ratio.
Page 268 and 269:
(a) Yes (b) No © I don’t know. (
Page 270 and 271:
successfully implemented. 2. The hi
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Rufus Folorunso Akinyooye - St Clements University

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