CORPORATE GOVERNANCE IN THE NIGERIAN BANKING INDUSTRY

ABSTRACT

Following the high spate of corporate failures and collapses, the issue of corporate governance practice has generated a lot of concern to governance. This research work was undertaken to examine critically the practice of corporate governance in the banking industry. In chapter one, the background to the study was introduced. We also stated in details the objectives, scope and significance of the study. Hypotheses were also formulated and we went further to identify the research problems. The chapter was concluded by the definition of certain terms which was to assist us in understanding the basic concepts of the study.  In chapter two, we reviewed variety of related literature relevant to the study. We carefully documented the views of other researchers in this subject area. We went further to review the code of corporate governance. Finally, we concluded his chapter by examining the code of best practices on corporate governance. The third chapter dealt on the methodology we used to carry out this research work. Here, sources of data were critically discussed. The source of data employed for this research work was primary source. Also discussed were the means by which data was analyzed and hypothesis tested. Chapter four fully concentrated on data presentation and analysis and interpretation. The data collected was presented in a tabular forma and analysis was done in percentages in order to facilitate comprehension. The research hypothesis was also tested in this section. Finally in chapter five, we summarized our research findings made useful recommendations and finally drew up the conclusion for this study.

CHAPTER ONE

INTRODUCTION

BACKGROUND TO THE STUDY

A series of events over the last twenty years have brought corporate governance issues to the tope of concerns for both the international financial institutions and international business institutions and international business community. Some business failures such as the infamous Bank Credit and Commerce International (BCCI) Scandal heightened the demand for improved corporate governance, especially in corporations operating in the developed countries. More recently, high profile scandals, financial crises and/or institutional failures in Russia, Asia and the United States have brought corporate governance issues to the fore in developing countries and emerging markets. These incidents illustrate that the lack of corporate governance enables insiders, whether they be company managers, company directors or public officials, to ransack companies and/or public (offers at the expense of shareholders, creditors and other stakeholders (employees, suppliers, the general public, etc).
According to Hermes, corporate governance activities is the improvement of the performance of the companies in which it invests on behalf and for the benefit of its clients. Also, the term corporate governance means decisions-making and control procedures in respect of company’s relations with wide range of stakeholders or company’s compliance with the provisions of best practice codes.  McKinsey’s survey (2000) (updated 2002) surveyed over 200 institutional investors and found that 80% of the respondents paid their premium for well governed companies. In 1975, the Basel Committee on Banking Supervision was established by the Central Bank Governors of ten group of countries to issue guidance on good governance on banks operation.
In Nigeria, the financial services sector in the 1990s witnessed a turmoil arising from widespread abuses of corporate governance principles. This led to the emergence of the failed banks. Tribunals in the 1990s and eventually the consolidation in the banking industry in the early 2000s. This research work is an attempt to look at corporate governance in the banking industry.

STATEMENT OF THE RESEARCH PROBLEM

For proper focus of the study, corporate governance in the banking industry, will be aimed at finding solutions to the problems faced by banks and the public.  Also, the efforts of government to control, introduce a more effects the development, policies and implementation. Another area of the study includes the efforts of government to check the excess of banks and how to stabilize them. Against this backdrop, we are going to be faced with the following research problems in the course of this research work.

Will corporate governance improve professionalism in the banking industry?

Does the effectiveness of corporate governance in the banking industry depend on strong government policies and implementation?

What are the inhibiting factors that hindered the development of corporate governance in the banking industry?

Is it not possible for banks to circumvent the government in the banking?

OBJECTIVES OF THE STUDY

This study is aimed at the following objectives:

To find out whether corporate governance will improve professionalism in the banking industry.

To determine whether the effectiveness of corporate governance in the banking industry depends on strong government policies and implementation.

To find out the inhibiting factors that hindered the development of corporate governance in the banking industry.

To determine whether it is possible for banks to circumvent the governance in the industry?

SCOPE OF THE STUDY

This study is aimed at examining the corporate governance in the banking industry. However, for the purpose of proper focus and better analysis of the study, Benin City Commercial banks were used as a case study.

SIGNIFICANCE OF THE STUDY

The significance of the study is to identify the most appropriate policies that will lead to the realization of the chosen policy objectives of the corporate governance in the banking industry in Nigeria. Also, this study will be of immense importance to students of accounting, finance, business and other economic related discipline for further research work on the subject matter. It is equally expected that this study will be a useful guide to investors (potentials and present). The study will help to know the type of policy that enable banks to have strong financial hold to meet its financial transactions to avoid liquidation.

RESEARCH HYPOTHESES

Ho: Corporate governance will not improve professionalism in the banking industry.

H1: Corporate governance will improve professionalism in the banking industry.

Ho: The effectiveness of corporate governance in the banking industry will not depends on strong government policies and implementation.

H1: The effectiveness of corporate governance in the banking industry depends on strong government policies and implementation

RESEARCH METHODOLOGY

Research methodology refers to the techniques that will be used in the collation and analysis of data and also the types of data that will be used (Izedonmi, 1998).  This study will make use of secondary source of data obtained from already published works, Central Bank of Nigeria, Journal and the questionnaires and the hypothesis tested and “Statistical References”.

This study will also rely on the technique of regression, which emphasized the minimization of the sum of squared residual.

LIMITATION OF THE STUDY

The nature of this study makes it prone to a number of constraints and limitations. These constraints are the response of respondents is at low rate, thereby leading to the smallness of the sample size. Also, the imprecise measure of variables.

DEFINITION OF TERMS

For the purpose of clarity and misconception of terms, the following terms are hereby defined in the context in which they are used in this paper.

Bank: A financial institution where money is kept and used for business transaction.

Merger of Banks: this implies coming together of commercial banks into one stronghold to transact solid financial businesses.

Policies: Guided operational rules and regulations.

Performance: A patterned behaviour of business transaction.

Implementation: Carrying out or doing what the policy says.

Mismanagement: Wrong control of business activities.

Corporate Governance: As an internal system encompassing policies, processes and people which serves the needs of shareholders and other by directing and controlling management activities with good business savvy, objectivity accountability and integrity.

Sound corporate governance is reliant on external market place commitment and legislation, plus a healthy board culture which safeguards policies and processes.

Board Members: Members who have a senior management position as well as being a member of the board.

Proxy: Someone empowered to vote on behalf of their shareholders at the Annual General Meeting (AGM).

Capital Increase: An issue of new shares by a company.

Executive Committee: A committee formed the boards executive members like members of management board, members of the executive committee may be titled “directors” and may have similar powers, however, unlike the management, the committee is not a separate board ties.

Non-Executive Board Members: A board member who broadly speaking does not take part in the day to day operation of the company and is not an employee of the company.

OECD: Organization for Economic Corporation and Development is an institution that notably includes the country’s corporate laws, security laws, accounting rules, generally accepted business practices and prevailing business ethics.

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