TABLE OF CONTENTS
1. INTRODUCTION……………………………………………………... 1
1.1 Background………………………………………………………….….2
1.2 Aim of Study…………………………………………………………... 3
1.3 Research Methodology……………………………………………...
…4
1.4 scope of the
study………………………………………………..……..5
1.5 Research
Questions………………………………………..……………6
1.6 Hypothesis
of the study……………………………………………..…..7
1.7 Organizationof
the study……………………………….………………8
2. THEORY OF BANKS.............................................................................
5
2.1 Meaning of Banks and why Banks exist………………….……………. 5
2.2 Regulatory Institution in the Nigeria Banking industry……..…………. 7
2.3 Review of the determinants of Banks performance in the economy….... 9
2.4
Challenges of the Banking industry before the financial crisis……..….12
3. THE GLOBAL FINANCIAL CRISIS……………………...…..…….15
3.1 Background………………………………………………….………...15
3.2 Causes…………………………………………………………………15
3.3
Impacts………………………………………………………………...16
4.
EMPIRICAL STUDY…………………………………………………18
4.1 Research Method …………………………...…………………………18
4.2 Data Presentation ………………………………..……………….........19
4.3 Chi-square tests ………………………………………..………………22
4.2
Findings……………………………………..........................................27
5. DISCUSSION & RECOMMENDATIONS………………………….29
5.1
Discussion and Recommendation……………………………………...30
5.2
Conclusions…………………………………………………………….40
Reference…………………………………………………...……………..41
ABSTRACT
This research paper examines the impacts
of the global financial crisis on the Nigerian banking industry. The Central
Bank of Nigeria (CBN) initiated the first phase of the bank consolidation in
2005, to provide a strong and reliable banking sector that would guarantee the
safety of depositor’s money. The consolidated banks were expected to play a
very active role in the economic growth and development of Nigeria. The
consolidation exercise was remarkable as some of the Banks merged while other
went for outright takeover of the assets and liabilities of the weak banks.
Within the short period of consolidation there were positive changes in the
entire system, as interest and lending rates became stabilized. And some of the
consolidated banks became partners and correspondent banks to foreign
counterparts.
Unfortunately, the current global
financial crisis, which has it roots in the United State of America and Europe,
has spread to other part of the world. The crisis has eroded the confidence of
the general public in the Nigerian banking industry, despite their
consolidation. Even the Nigerian Stock Market (NSM) which is expected to act as
buffer of fund, is not left out of the financial crisis. This research paper
will therefore attempt to examine the impact of the global financial crisis on
the Nigerian banking industry
Key words: Banks, Consolidation, Finance, Global, System.
CHAPTER ONE
1.0 INTRODUCTION
Before the
consolidation exercise started in 2016, the Nigerian banking industry witnessed
a lot of stress, uncertainty and anxiety. This eroded the confidence of the
general public which used to be a great asset of the banking sector in the
past. In addition, investor’s and depositor’s funds were not guaranteed,
thereby making many of the banks to come under stress due to capital
inadequacy. These problems greatly impaired the quality of the bank’s assets as
non-performing assets became unbearable and became huge burdens on many of the
banks. The financial intermediation role of the banks became heavily impaired
while the macroeconomic activities seriously slowed down. It was against this
background, that the Central Bank of Nigeria (CBN) announced a major reform in
the entire Nigerian banking industry. The recapitalization of the capital base
of banks constituted the first phase of the reform policy in the entire banking
sector of the Nigerian economy. The major issues in the consolidation exercise,
according to Adeyemi (2015) include:
1) A minimum capital base of 25 billion naira with a deadline of 31stDecember
2015
2) Consolidation of banking
institutions through mergers and acquisitions
3) Phase withdrawal of public
sector funds from banks, beginning from July, 2014
4) Adoption of a risk-focused
and rule-based regulatory framework
5) Zero tolerance for weak corporate governance, misconduct and lack
of transparency
6) Accelerated completion of
the Electronic Financial Surveillance system (e-FASS)
7) The establishment of asset
management companies
8) Promotion of the enforcement of dormant law
9) Revision and updating of
relevant laws
10)Closer collaboration with the Economic and Financial Crime Commission
(EFCC) and the establishment of the financial intelligence unit.
The two outstanding issues in the reform initiatives
that have attracted a lot of concern and reaction because of its peculiarities
are:
a)
The
recapitalization requirement of 25billion by Banks before the end of 31stDecember,
2015
b)
Consolidation of Banks through mergers and
acquisitions.
The
primary objective of the reform initiative was to have an efficient and
effective banking industry that could guarantee rapid economic growth and
development for the entire nation. But the current global economic crisis,
which started as financial crisis in America and Europe and later spread to
other parts of the world, has eroded the confidence of depositors and
investors. Even the Nigerian Stock Market (NSM), which is supposed to function
as fund buffer, was not left out of the crisis. This research study therefore
will examine the impact of the current global financial crisis on the Nigerian
banking industry. Data from both qualitative and quantitative sources will be
used to gain an insight understanding and knowledge of the Nigerian banking
industry. However, a structured questionnaire and telephone interviews will be
used to get relevant information on areas that require further clarification.
1.1 PROBLEM OF THE BACKGROUND.
The current global economic crisis started as a financial
crisis in the United State of America in 2017. It has it root in credit
contraction in the banking sector due to certain laxities in the US financial
system. The crisis later spread to Europe and now has become a global
phenomenon. The financial crisis at the early stage manifested strongly in the
sub-prime mortgages because households faced difficulties in making higher
payments on adjusted mortgages (Soludo, 2009). This development led to the use
of credit contraction by financial institutions in the US to tighten their
standards in the light of their deteriorating balance sheets. In addition,
financial institutions stopped lending and recalled their credit lines to
ensure capital adequacy (Aluko, 2017).
Since the use of credit contraction by foreign banks began,
the Nigerian banking system has seriously been entangled in a financial crisis.
At the moment, the banks are unable to carry out their statutory function in
the Nigerian economy. In addition, the crisis has eroded the confidence of the
general public in the entire Nigerian banking industry. In view of this
development, this research study is undertaken to examine the impacts of the
global financial crisis on the Nigerian banking industry.
1.2 OBJECTIVES OF THE STUDY.
The Nigerian banking industry experienced remarkable changes
after the consolidation exercise. Shortly after the recapitalization of the
capital base in the industry, the public confidence in the industry became very
high which can be seen from the increase in bank’s depositors’ funds. In
addition, the banks went into project financing in the real sector of the
Nigerian economy. Therefore, they were able to support the process of economic
growth and development of Nigeria. But the current global financial crisis has
seriously affected the Nigeria banking industry in recent time. At present, the
public has lost confidence on the entire Nigerian banking industry. In addition
to this, the value of investor shares in the Stock Market is also depreciating.
The aim of this research study therefore is to examine the impact of the
current global financial crisis on the Nigerian banking industry. The outcome
of this research study is expected to assist Nigerian policy makers, banks
management teams and banks regulatory bodies in Nigeria in the following ways.
1)
To
know the major causes of the financial crisis in Nigeria.
2)
To determine the extent of the impact of the
global financial crisis on the Nigerian banking industry and the entire
economy.
3) To
determine various options that could cushion the impact as well as avoid future
occurrence.
1.3 RESEARCH METHODOLOGY
The study will rely on both primary and secondary sources of statistical
data, collected from a questionnaire, journals, textbooks, articles etc. The
importance of secondary sources of data can not be over emphasized, because it
allows researchers to have an in depth knowledge on “how and why” a certain
phenomenon occurs in a system. The use of this method is likely to give very
important insights into the impact of the global financial crisis on the
Nigerian banking industry. The purpose of using this method is also to expand
the knowledge and understanding of the researcher on the global financial
crisis and the Nigerian banking industry. Nevertheless, recent studies provided
a limited insight on the impact of the global financial crisis on the Nigerian
banking industry.
1.4 SCOPE OF THE STUDY
This research study will also attempt to obtain the opinions of
stakeholders in the banking industry through a structured questionnaire. In
summary, the study will source data from the following areas;
1)
An overview of the literature of related
studies with specific input from journals, publications and other materials.
2)
An overview of journal and financial reports
of the Central Bank of Nigeria
3)
An overview of journal and financial reports
of Nigeria Deposit Insurance Corporation. (NDIC)
4)
Inductive inference from questions
administered to stakeholders in the banking industry.
The out comeof this reseach study is expected to assist stakeholders in
the Nigerian banking industry by addressing the following questions.
1)
What was the position of banks before the global
financial crisis?
2)
What are the impacts of the global financial crisis
on the Nigerian banking industry?
3)
What made the crisis spread to the Nigerian banking
industry?
1.5 HYPOTHESES OF THE STUDY
Ho :There is no
significant relationship between ownership structure of consolidated banks and
the present financial crisis in the Nigerian banking industry.
H1: There is a
significant relationship between ownership structure of capitalized banks and
the present financial crisis in the Nigerian banking industry.
1.6 ORGANIZATION OF THE STUDY.
The
study is divided in to five (5) chapters and organized as follows:
Chapter
one from the introduction part, this is wherever the main them of the research
is given. It comprises of the statement of the problem, objective of the study,
research questions and hypotheses. Scope of the study and organization of the
study
Chapter
two is the literature review of the impact of the Global financial crisis on
the Nigerian banking industry
Chapter
three forms the research methodology which includes sources of data, method of
data analysis and model specification.
Chapter
four is the data analysis while chapter five includes the summary, conclusion
and recommendations.
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