CHAPTER ONE
1.0 INTRODUCTION
The global scene in
the twenty first
century has witnessed
a resurgence of international banking
and a
holistic integration
of business transaction with little or no
restriction. These according to
Goldberg (2008)
have occasioned
a tremendous growth in the
liberalization of banking operations
across borders. Though,
the international Monetary
Fund (IMF) (2007) sees globalization
as the growing
economic and social interdependence
of countries through
increased volume of
cross-border transactions and
improved technology, therefore the
financial operations of any nation significantly translates into the socio-economic
status of the
citizenries. Eboh, Okanya, Uma
(2010) and Uma, Obidike
(2013) argued that globalization
has increased
access to capital inflow,
technological transfer and strong bargain for improved technical and
managerial
workforce. Globalization does
not only broaden
the nation’s economic
fortunes but also exposes the nation to
stiff competition and efficiency through huge
capital inflow, capacity building and improved service
delivery.
Banking institutions occupy
a strategic position
in the nation’s
financial system and
are pivotal in determining
the economic fortune. Through
the banking system the
economic transactions are facilitated
through
trade, commerce, communication
and advanced technology
(Berger, hunter, and
Timme 1993).
And the international
factors of production
vis-à-vis Foreign Direct Investment (FDI) have spur the
nation economic activities and
enhanced strategic
employment generation which
consequently has direct
link with the financial inflow/output
ratio and welfare of the citizens.
Arodoye and Iyoha
(2014) noted that Foreign Direct Investment is not a guarantee for economic
growth as various variables such as the gross
domestic product (GDP), income per capital and exchange rate also play a significant role
in measuring the economic profile of the nation
on one hand and the citizens on the order
hand hence, this
paper explores three
fundamental variables such
as foreign direct
investment, foreign
exchange and profitability
of a selected
bank in Nigeria.
It is expected that this
multivariate approach
would create a
more robust findings that will
guarantee a virile economy for the
nation.
Globalization
has been defined by various authors, depending on the background of the author
and the variables of interest. According to Asogwa (2004), economists defined
globalization as encompassing declining barriers to trade, migration, capital
flows, technology transfers and foreign direct investment (FDI). In this sense,
globalization affects three types of market: commodities – goods and services
of all varieties; labour – workers who produce goods and services; assets and
debts – securities, bank loans and deposits. Markets of the third type fall under
the umbrella of financial globalization, which refers to the global integration
in both the “capital market” and the “banking sector”. Financial globalization
is the process by which the financial markets of various countries of the globe
are integrated. Before financial globalization became a popular term, financial
liberalisation was the key policy believed to bring efficiency in the financial
sector. Many African countries embarked on financial liberalisation reforms as part
of their recommended structural adjustment programmes (Soyibo, 1994; Aryeetey,
2000; and Asogwa, 2004).
There
are four broad groups of industry globalization drivers which are market, cost,
Government and competition. Together, these drivers cover all the major
critical industry conditions that affect the potential for globalization.
Drivers are primarily uncontrolled by the worldwide business. Each industry has
a level of globalization potential that is determined by these external
drivers. However, globalization is affecting all sectors of the Nigerian
economy especially the banking industry. The banking sector today is highly
competitive and this competition is expected to intensify as new players of
local and global scope enter the market. As the competitive terrain becomes
more challenging, banks will need to maintain their competitive edge through
the adoption of new technology.
Clearly,
technology is the key driver of change. For the change to be beneficial, the
use of technology should be business driven to meet clearly defined business
needs.
Resulting
from the deregulation and liberalisation of the Nigerian banking industry, the
industry environment has changed in many ways. Before 1987, there was little or
no competition because the monetary authorities restricted entry, with the
concentration of activities on the four largest banks (First Bank, United Bank
for Africa, Union bank, and International Bank for West Africa) (REDASEL,
1989/1990:
335). In 1987, following the introduction of financial liberalisation, entry
barriers were relaxed and interest rates were decontrolled. Many new private
banks, some with foreign equity ownership initiated activities in the market.
This lasted for a few years as the licensing of new banks was stopped in 1993,
while interest rate regulation was reintroduced in 1994. In 1997, interest rate
deregulation was re-implemented while entry restriction was again relaxed in
1999 (Asogwa, 2004).
At
the same time, a lot of structural reforms have been observed in the Nigerian
banking industry such as: bank closures, takeover of management and control by
the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation
(NDIC). Also, an on-going process of consolidation has been observed in the
Nigerian market. On the average, the number of banks in Nigeria shrank by approximately
23 per cent from 115 in 1997 to 89 in 1999 and by 72 per cent from 89 in 2000
to 25 in 2005. Other important developments include the conversion of some
banks to public limited liability companies and the introduction of universal
banking since 2001 (Asogwa, 2004). To understand and take advantage of the
changes in the industry, which may be opportunities or threats, Nigerian banks
need to understand the important factors shaping the industry, and the relevant
strategic decisions to be taken.
These
strategic decisions must take into account the relevant competitive, economic,
political, regulatory, legal, technological and socio-cultural factors, among
others, in the Nigerian business environment.
The
next section discusses the problem on ground that this study intends to solve,
followed by the literature review and then the research methodology. The
empirical results section assesses the effect of globalization on the
performance of Nigerian banks.
1.1 STATEMENT
OF THE PROBLEM
The reality of
globalization has undoubtedly exposed
most organizations both
formal and informal sectors to stiff competition,
dynamics of world
economic climate, accelerated
formulation
and execution of economic policies and
programmes cum broaden access to
competing for scarce resources.
Turyahikayo (2014) noted that
the effect of globalization is more adverse
in developing economy especially
considering the fact that they have little or no
access to the resources required to complete favorably in the global scene.
However, the key
players in the global economy were considered to be at more advantage at the expense of
the third
world nations resulting
from inadequate infrastructure, monumental
corruption, policy reversal,
lack of technical
manpower to fit the global
reality.
Consequently, the
foreign direct investment, gross domestic product of the developing nations is relatively
low hence affecting
the profitability profile of
most organization. The banking sector plays a pivotal role in
the economy of
every nation therefore it is
against this backdrop that this
research is being carried out.
1.3 RESEARCH
PROPOSITION
That Globalization
has significantly affected banking
operations in Nigeria
1.4 SCOPE
OF THE STUDY
The concept of
globalization is so broad,
diverse and significant
to the socio-economic scene
of every
nation. This study
shall focus on the effect of globalization on the
operations of banking sector in Nigeria.
For purpose of
emphasis, the research
shall empirically focus on Access bankPLC and
its profitability
profile for the
period of 2005-2014. Finally the
nation’s economy shall be x-rayed using two variables such as foreign direct
investment and gross domestic product and how the duo have
affected banking operations in Nigeria.
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