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To complement the off-site surveillance, on-site examinations are usually undertaken to determine the reliability of the banks’ returns sent to the regulators, determine banks’ adherence to laws and regulations as well as verify the quality of their assets.  The type of examination to undertake usually depends on the initial objectives of the exercise.  Accordingly, a maiden examination is carried out six months after a bank commences operation to ascertain compliance with the conditions under which it was granted licence.  At least once a year, a routine examination is supposed to be carried out on a bank to determine its financial condition.  Special target examinations are conducted when the CBN and NDIC have reasons to believe that a bank is carrying on its business in a manner detrimental to the interests of its depositors and other creditors or has insufficient assets to cover its liabilities or contravenes the provisions of the banking and NDIC Acts.

The examination of a bank generally entails an appraisal of the soundness of the institution’s assets; an evaluation of the adequacy of internal operations, policies and management; and analysis of key financial factors such as capital, earnings, liquidity, and interest rate sensitivity.  Also, bank examination involves a review to ascertain the correctness or otherwise of banks’ returns on their operating books of account in order to ensure compliance with all banking laws and regulation as well as monetary policy circulars; an overall determination of the bank’s solvency; and ensuring that the banking operations, especially external transactions, are being carried out in accordance with standard accounting practices.  The CAMEL (Capital, Assets Quality, Management, Earnings and Liquidity) rating is used as an internal assessment guide to determine how sound a bank is.  This is done with a view to highlighting the position of a particular bank in comparison with the rest of its peer group, as well as determine the level of health of the particular bank in respect of capital-to-risk-weighted-assets ratio parameters.

After an examination a copy of the report is sent to the board of the bank which is required to send its response on the observations and recommendations within 14 days from the date of presentation.  The bank’s response forms the basis of any post-examination follow-up.  The bank is allowed three months from the date of presentation before monitoring visits are conducted to ascertain the degree of compliance/implementation of the directives/recommendations as contained in the examination report.  The examination plans of the CBN and NDIC are harmonized to avoid duplication and to achieve optimum coverage of insured banks within the limits of the resources available to the two institutions.  The CBN and NDIC sometimes carry out joint examinations if the circumstances of a particular bank to be examined demand this arrangement.