1.1
Introduction
Corporate
governance is about putting in place the structure, and mechanisms that insure
that the firm is being directed and managed in a way that enhances long term
shareholder value through accountability 0f managers and enhancing firm
performance. In otherwords, through such structure, processes and mechanisms,
the well- known agency problem (which results from the separation of ownership
from management and leads to conflict of interests within the firm) may be
addressed such that the interest of managers can be aligned with those of the
shareholders.
The
issue of corporate governance has become obverse and centre of the agenda for
both business leaders and regulators all over the world, following the global
financial crisis. The crisis has provided many illustrations of the collapse of corporate
governance and, consequently, international regulators are hard at work to influence
appropriate regulatory controls. Thus, the role of effective corporate governance
is of massive importance for the society as whole. First, it encourages the
efficient use of scarce resources within the organization and the economy.
Second,
it makes the resources flow to the most efficient sectors or entities. Third it helps
the mangers to remain focused on improving performance. Fourth, it Provides
Finally,
it forces the organization to comply with the rules, YegUlations and prospects
of society.
Today,
the well-known agency problems resulting from the separation of ownership from
management (Jensen & Meckling,1976). still prevail in firms worldwide.
Recent research suggests that firms tend to have poor performance when they have
greater agency problem. These problems allow managers to generate personal
benefits that serve their own interests instead of those of the stockholders. An
efficient governance structure is believed to be one of the most important means
by which such agency problems may be alleviated.
Corporate
governance issues related to banks have been ignored by prior research.
Therefore, The Basel Committee on Banking Supervision has called attentiveness
to the need to study and improve the corporate governance of the financial
institutions. The Committee especially advocates a governance structure composed
of a board of directors and senior management. Furthermore, the
Committee
believes that corporate governance is necessary to guarantee a sound monetary
system and, therefore, a country’s economic development. While, most of the
empirical studies on corporate governance focused on firms in the non- financial
sector (Adams and Mehran,2003).there are some papers concentrated on banks’
corporate governance. The bank corporate governance process is a complex framework.
This governance framework encompasses a bank’s stockholders, its managers and
other employees, and the board of directors. Banks further Operate under a
unique system of public oversight in the form 0f bank supervisors and a comprehensive
body 0f banking laws and regulations. The interaction between all of these
elements determines how well the performance of a bank will satisfy the desires
of its stockholders, while also complying with public objectives. For investors
and regulators, this bank corporate governance framework is thus of critical
importance in a bank’s success and its daily operations. As a result, undersranding
the corporate governance of banks is especially important because of the
systematic risk that banking activity poses for the economy at large as evidenced
by the U.S. savings and loan crisis in the 1980’s, the Asian financial crisis in
the 1990’s and the more recent supreme mortgage crisis (Alexander 2006).
The
purpose of this research is to examine the relationship between the efficiency of
corporate governance structure and bank performance in Nigeria.
The
rationale behind studying the effect of corporate governance structure on
banks’ performance may be a factor in helping investors to invest in a specific bank.
If the quality of bank performance is affected by the efficiency of corporate governance
structure, then the stakeholders need to monitor the management in order to
reduce the effect of the conflict of interests resulting from agency costs on the
bank profitability.
Furthermore,
potential long-term invest only in banks with higher profitability and more
efficient corporate governance structure
Studies
on corporate governance and bank performance in Nigeria are on the increase in
View of lingering crisis in nation’s financial system (e.g cases of official
recklessness amongst the managers and directors of banks, ethical and
inadequacy of supervisory structures). These studies on bank corporate governance
narrowly focused on some aspect of governance, such as the role of directors or
that of stock holders, non-performing loans, audit control, acceptance of
standard practices by directors, top management, regulatory authorities and audit
committee while omitting other factors and interactions that may be important
within the governance framework. Besides these variables, the present study
revealed that bank age and composition of board committee in exhibiting good
governance practices adversely affect bank performance.
The
paper is made up of five major sections: The first section focus on the introduction,
section two discusses the literature review, the third section lies on the
methodology, the fourth section presents the results of data analyzed, and the fifth
section presents the conclusion and recommendations.
1.2 Background
of Study
First
Bank of Nigeria, sometimes referred to as First Bank, is a Nigerian multinational
bank and financial services headquartered in Lagos. It is the biggest bank in
Nigeria by total deposits and gross earnings and operates a network of over 750
business locations across Africa, the United Kingdom and representative
offices
in Abu Dhabi, Beijing and Johannesburg set up to capture trade-related business
between geographies. It specializes in retail banking and has the largest retail
client base in Nigeria. In 2015. The asian Banker awarded First Bank the Best
Retail Bank in Nigeria award for the fifth consecutive year.
The
Nigerian banking business operates nationally. with an active customer base of
over l0 million. and employs over 7000 staff, FirstBank operates along four key
Strategic Business Units (SBUs)- Retail Banking. Corporate Banking, Commercial
Banking and Public Sector Banking. It was previously structured as an operating
holding company before the implementation of a non-counting Holding Company
structure.
1.3 Objective
of the Study.
This
study seeks to achieve the following objectives:
1. To
determine the extent to which noncompliance with corporate governance codes by
the bank executives contributed to this present crisis and management problem.
2. To
ascertain the relationship between cooperate governance and the performance of
commercial banks in Nigeria.
3. To investigate if there is any
significant change in the performance of banks in Nigeria y the proper
implementations of corporate governance by board of directors.
4. To empirically determine factors that
militates against successful implementations of corporate governance framework
in commercial banks.
1.4 Statement of Research Problem
Banks
and other financial intermediaries are at the heart of the world recent
financial crisis. The deterioration of their asset portfolios, largely due to
distorted credit management, was one of the main structural sources of the
crisis.
To
a large extent, this problem was the result of poor corporate governance in countries"
banking institutions and industrial groups. Schjoed (2000). Observed that this
poor corporate governance, in turn, was very much attributable to the relationships
among the government, banks and big businesses as well as the organizational
structure of businesses.
In
Nigeria, before the consolidation exercise, the banking industry had about 89
active players whose overall performance led to sagging of customers" confidence.
There was lingering distress in the industry, the supervisory structures were
inadequate and there were cases of official recklessness amongst the managers
and directors, while the industry was notorious for ethical abuses (Akpan,
2007). Poor corporate governance was identified as factors in virtually all known
instances of bank distress in the corporate governance was seen manifesting in
form of weak internal systems, excessive risk taking, override of internal
control measures, absence of or non-adherence to limits of authority, disregard
for cannons of prudent lending, absence of risk management processes, insider
abuses and fraudulent practices remain a worrisome feature of the banking
system (Soludo, 2004). This view is supported by the Nigeria Security and
Exchange Commission (SEC) survey in April 2004, which shows that corporate
governance was at a rudimentary stage, as only about 40% of quoted companies
including banks had recognized codes of corporate governance in place. This, as
suggested by the study may hinder the public trust particularly in the Nigerian
banks if proper measures are not put in place by regulatory bodies.
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