ABSTRACT
This study assesses the impact of corporate governance on the Nigerian banking industry. The study specifically examined the role of corporate governance in the Nigeria banking industry; the relationship between its adherence and growth in the banking industry; the extent to which fusion of ownership and management affects growth and the extent to which lack of enforcement of corporate governance procedures affects growth in the banking industry. A sample size of 376 was determined from a total population of 1120. Survey method of design was used and data were collected using questionnaire and interview. The tests of hypotheses were performed using regression analysis, chi-square and Friedman and Kendall.W test statistics. The analysis of data and interpretation of results yielded the following results: corporate governance plays a significant role in promoting growth in the banking industry: there exists a positive relationship between effective monitoring of compliance and growth; the fusion of ownership and management has a negative effect on policies and procedures in the banking industry and there exists critical areas of default in corporate governance codes and this negatively affects growth in the banking industry. The study recommends that for growth to be complete, banks must adhere to the codes of corporate governance accordingly.
CHAPTER ONE INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Right from the colonial period up to the 1970’s in Nigeria, there was little challenge to management’s prerogative in the running of corporate enterprises. This is evident as there was neither any demand for independent and off-sight supervision nor the need for transparent disclosure of information. There was also no need for intervention in matters of accountability and corporate power game and there was generally minimal interest in participating in the corporate management process (Yakasai, 2001). . However, today, the situation is entirely different. The situation is such that shareholders, employees, government agencies and regulatory bodies want are keenly interested in having detailed knowledge t the organization, especially with regards to accountability, self-regulation, policy compliance, power relations and aggregate governance.
Corporate governance concerns broadly the rules and processes by which businesses are operated, regulated and controlled, (Organization for Economic Co-operation and Development [OECD],2004). According to Rwegasira (2000), the focal issues in corporate governance are the composition of the board of directors as they make key decisions in the organization, the roles of regulatory authorities as they monitor compliance of laid down rules, laws and regulations guiding all areas of business activity including banking business and the use of independent auditors that assess and endorse all financial accounts.
In every economy, banks play a facilitating role; it is in this respect that their practice of corporate governance is of prime interest to stakeholders, particularly, the government, depositors, shareholders and the public at large. While government and the public want a safe, sound and stable banking industry, shareholders (owners) are more interested in their bank’s profitability, soundness and sustainability and workers are interested in their sustained employment through the continued existence and profitability of their employer-banks (Yakasai, 2001).
Recently, corporate governance issues have come to the fore in various countries. South Africa which is the developing world’s third largest market (second to Hong Kong and Taiwan) capitalized in 1998 at about US$261m was doing much better to attract future investment than the rest partly because of its sophisticated corporate governance and highly
regulated banking sector as well as its low private external debt (Siddiqi, 1998). Sagent (1997), indicates that Canada and the United Kingdom are doing well because of their diligence in the adoption of best-practice codes concerning corporate governance as part of their listing rules. Lozano (2000), notes that in 1997, the president of the Commission of the Spanish Stock Exchange proposed the drawing-up of an ethical code for good corporate governance for the financial sector. Casper and Carsten (2003) notes that in 2002, Denmark, incorporated the Danish Corporate Governance Network, an independent body assigned to provide an inter-disciplinary foundation for research in corporate governance. The need to embrace best practice has gone global with the collapse of global corporations such as Enron, WorldCom, Global Crossing and Andersen a firm of international Accountants. These collapses were blamed on a lack of business ethics, shady accountancy practices and weak regulators.
The strategy for addressing the challenges of corporate governance has taken various forms at both national and international levels with the introduction of codes such as the OECD code and the Cadbury Reports. In Nigeria, the regulatory bodies such as the Central Bank of Nigeria (CBN) and the Security and Exchange Commission (SEC) have constituted committees on corporate governance in the banking industry. Consequently, they set up the Peterside Committee on corporate governance, the Bankers Committee also set up a sub- committee on corporate governance to make recommendations and propose a draft code for adoption by the financial institutions (Anugwom, 2006). The recommendations made by these committees cover best practices in areas such as constituting an effective board and identifying the principal responsibilities of the board, remuneration of directors, board performance assessment, audit committee, duality in the position of the chairman and the head of management, among other things. Contrary to these recommendations, Oyebode (2009) opines that more often than not, non executive directors are not totally up to the task they are supposed to perform as sentinels of corporate governance, having been largely nominated by the managing directors themselves. Chairmen are usually drafted into boards from ranks of retired civil servants, senior military officers or traditional rulers who albeit, might have high public profiles, are largely lacking in the skills or expertise required for the supervision and control of banks, thus, leading to massive fraud and manipulation of books in banks. Webb (2006) asserts that poor corporate governance is responsible for most of the ills in the banking industry.
If corporate governance practices are meant to ensure compliance to the rules governing the functioning of firms in an industry and ensure proactive prevention of fraudulent practices, Ibru (2008), wonders why then are banks facing these ills even in the face of corporate governance codes?
It is against the above stated developments in the banking industry that this study seeks to investigate the extent to which the nature and functioning of corporate governance contributes to the challenges faced in the banking industry.
1.2 STATEMENT OF THE PROBLEM
In spite of the adoption of the tenets of corporate governance by banks and organizations in general, many of them are at various levels of distress. There is no doubt that the poor state of the banking industry has overwhelmed the regulatory agencies. The regulatory machinery of the CBN, SEC, Economic and Financial Crime Commission (EFCC) and similar government agencies notwithstanding, many banks are in deep financial mess that recently the CBN listed some banks that are up for sale to foreign investors. . There have been increasing reports on the upsurge in the rate at which bank executives get involved in unscrupulous practices ranging from the acceptance of dud cheques, financial recklessness, and recruitment of unqualified staff as a result of family ties, money laundering and general mismanagement. Consequently these have resulted in unprecedented rise in operating costs, drastic fall in share price, a collapse in profit, abuse of lending resulting in huge bad debts, weak risk management practices resulting in large quantum of non-performing credits including insider- related credit, poor leadership and administrative ability, loss of government patronage and loss of public confidence. Further, the merger of some of the banks and outright sale of non performing banks have all led to huge job loss in the banking industry. This scenario has added to the economic complications of a developing economy in crisis.
The question is how come we are having these high incidences of financial recklessness and fraudulent activities in the face of massive adoption and practice of corporate governance by the Nigerian banks? What could have gone wrong? Is it that banks claim to have and follow corporate governance procedures when in actual fact they do not? Is it that the regulatory agencies are not properly monitoring the activities of these financial institutions? Are there militating factors against the implementation of the ethics and principles of corporate governance?
This study seeks to provide answers to these questions and in the process assess the impact of corporate governance the Nigerian banking industry.
1.3 OBJECTIVES OF THE STUDY
In view of the identified problems, the aim of the study is to assess the impact of corporate governance on the banking industry. The study will pursue the following specific objectives:
1. To highlight the role of corporate governance in promoting growth in the banking industry.
2. To ascertain the effectiveness of the regulatory agencies in ensuring banks compliance to corporate governance procedures.
3. To ascertain the extent to which the fusion of ownership and management affect policies and procedures in the banking industry.
4. To identify the critical areas of the banking operations where corporate governance defaults occur more frequently.
1.4 RESEARCH QUESTIONS
The under listed research questions will assist the researcher in confronting the problems posed by the research.
1. What role does corporate governance play in promoting growth in the banking industry?
2. What is the nature of the regulatory agencies measuring banks compliance to corporate governance procedures?
3. To what degree does the fusion of ownership and management affect policies and procedures in the banking industry?
4. Are there critical areas of the banking operation where corporate governance defaults occur frequently?
1.5 RESEARCH HYPOTHESES
Based on the research questions, the following hypotheses have been formulated:
1. Ho: Corporate governance does not have a role to play in the growth of the banking industry.
H1: Corporate governance has a role to play in the growth of the banking industry.
2. Ho: Regulatory agencies are not effective ensuring banks compliance to corporate governance procedures.
H1: Regulatory agencies are effective ensuring banks compliance to corporate governance procedures.
3. Ho: The fusion of ownership and management does not negatively affect policies and procedures in the banking industry.
H1: The fusion of ownership and management negatively affects policies and procedures in the banking industry.
4. Ho Corporate governance default is not more in the appointment of key management level staff.
H1: Corporate governance default is more in the appointment of key management level staff
1.6 SIGNIFICANCE OF THE STUDY
The study will be of benefit to the management and employee of the banking industry in the Nigeria environment. Also it will be of relevance to the Apex banks and NDIC as the key regulatory agencies. To a large extent, the study will be of immense benefit to researchers and members of the academia who wish to carryout research in the same or related field of study.
1.7 SCOPE OF THE STUDY
The scope of this study is on the impact of corporate governance on the Nigerian banking industry. Therefore the geographical scope was restricted to the banking industry with emphases on two new generation banks, Intercontinental Bank plc and Zenith Bank plc, and two old generation banks, Union Bank plc and United Bank for Africa plc all within Enugu. The study will cover operations of these banks from 2004-2010.
1.8 LIMITATIONS OF THE STUDY
In the process of conducting the research, the researcher was impeded by some constraints such as;
Financial – This was a major constraint as sourcing for some vital information in certain sites online required registration before one could assess them. This constraint was resolved by a friend who was registered and had access to Jestor site, where some necessary information was gotten from.
Time – Survey research is time consuming. The time required to generate and arrange relevant materials is much. The researcher devoted weekends to total online research and writing as a way of overcoming this constraint.
Attitude of Respondents – The attitude of some of the respondents was indeed not welcoming. In the area of disclosure of information, some respondents were not corporative and this was a major constraint to this end the researcher was able to convince the respondents that responses would be treated with utmost confidentiality thus the research instrument didn’t request for names.
1.9 HISTORICAL BACKGROUND OF THE STUDY AREA Zenith Bank plc.
Zenith Bank Plc is one of the biggest and most profitable banks in Nigeria with total assets plus contingents of N1 .66 trillion as at the end of December 2009. Incorporated as a private limited liability company on 30 May 1990, the Bank received its commercial banking license on 20 June 1990 and commenced operations on 16 July 1990. It became a public limited company on June 17, 2004 and was listed on the Nigerian Stock Exchange on October 21,
2004. The bank presently has a shareholder base of about one million, an indication of the strength of the Zenith brand.
Vision
To build the Zenith brand into a reputable international financial institution recognized for innovation, superior customer service and performance while creating premium value for all stakeholders.
Mission
To establish a presence in all major economic and financial centers in Nigeria, Africa and indeed all over the world; creating premium value for all stakeholders.
Awards & Achievements
Zenith Bank remains outstanding in the pursuit of excellence and commitment to high quality service, a result of which has enhanced our performance in the year under review.
African Bankers Award
Best Global Bank (2008)
Euromoney
Best Bank in Nigeria (2008)
Vanguard Bankers’ Award
Best Bank in ICT (2008)
Best Bank in Export Finance (2008)
This Day Award of Excellence
Bank of the year, 2008
Corporate Citizen of the Year, 2008
CEO of the Year, 2008
Most Corporate Socially Responsible Company in Nigeria, 2007
KPMG
Most Customer-Focused Bank (2008)
Africa Investor
Africa’s Bank of the Year (2007)
Nigeria Stock Exchange (NSE)
Quoted Company of the Year (2007)
African Banker
Most Corporate Socially Responsible Bank in Africa (2007)
Federal Inland Revenue Service
Best Collecting Bank (2007)
Intercontinental Bank Plc
Intercontinental Bank Plc was established in 1989 as a merchant Bank in February under the name, Nigeria Intercontinental Merchant Bank Limited.
Commenced business with paid up ordinary share capital of N12million. In five years it became the most profitable Merchant Bank in Nigeria. (Intercontinental Bank plc, profile
2007).
The first subsidiary, intercontinental securities limited (INTERSEC), and Investment Company was set up in 1993. The bank acquired substantial equity stake in Associated Discount House Limited (ADHL), the largest discount firm in Nigeria.
In 1996, the bank acquired a controlling equity stake in an insurance company, West African Provincial Company (WAPIC) Plc, which expanded the Group’s business into the lucrative insurance business. WAPIC is one of the biggest insurance companies in Nigeria. In 1999, became Intercontinental Bank Limited in July following Conversion to a Commercial Bank. Also, the same 1999, ADHL acquired another commercial bank, Gateway Bank Limited.
In 2000, it was converted into universal banking. While in 2002, it became a publicly quoted
company listed on the Nigeria Stock Exchange with IPO of 283,995,000 ordinary shares, which as fully subscribed. In 2004, there was a public offer of 2.75 million ordinary shares in December, in its quest to exceed the new 25 billion shareholders fund as prescribed by the CBN, by 2005, merged with three other banks: Equity, Gate-way and Global banks.
Core Values
Trust in God Integrity Helpfulness Excellence Resilience Fairness
Awards and Achievements
CBN highest value of transactions Award in 2009 in Kogi state.
African Bank of the year 2008 by the African Banker magazine.
Bank of the year 2008 by the Banker Financial Times, London.
Best Growth Award in cards and e-payment Transaction by Postilion United States
2008.
Financial Brand of the year 2008 by the World Bank( IMF Annual Meeting Daily)
Peal Award for Sectoral Leadership in Banking and the best performer in the Nigerian
Stock Market (banking sub sector) in 2006.
Most Corporate Socially Responsible Bank in Nigeria by the Vanguard Newspaper.
Voted the most improved bank by This day Newspaper, 2005.
Union Bank Nigeria Plc
Union Bank of Nigeria plc was established in 1917 as a Colonial Bank with its first branch in Lagos. In 1925, Barclays Bank acquired the Colonial Bank, which resulted in the change of the Bank’s name to Barclays Bank (Dominion, Colonial and Overseas). Following the enactment of the companies Act 1968 and the all following the enactment of the Companies Act 1968 and the legal requirement for all foreign subsidiaries to be incorporated locally, Barclays Bank (DCO) in 1969 was incorporated as Barclays Bank of Nigeria Limited. The ownership structure of Barclays bank remained un-changed until 1971 when 8.33% of the bank’s shares were offered to Nigerians. In the same year, the bank was listed on the Nigeria Enterprises promotion Act of 1972; the Federal Government of Nigeria acquired 51.67% of the Bank’s shares, which left Barclays Bank plc, London with only 40%. By the enactment of
1972 and 1977 Nigeria Enterprises Promotion Acts, Barclays Bank International disposed its shareholding to Nigerians in 1979. To reflect the new ownership structure and in compliance with the Compliance with the companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc.
In consonance with the government’s programme of privatization and commercialization of public enterprises, the Federal Government in 1993 sold its shares in Union Bank to private individuals. Thus, union Bank became fully owned by Nigerian citizens and organizations. Awards and Achievements
Best Bank in Nigeria award in 2000,2001,2002,2004 and 2006 by Euromoney
Institutional Investor Plc.
The SME Most Friendly Bank award by the Nigerian Association of Small and
Medium Enterprises (NASME)
The Lagos Chamber of Commerce and Industry award as the Best Innovative
Exhibitor in the Financial Service Sector at the 2006 Lagos Trade fair.
The bank with the highest volume of clearing cheques for the year 2006 in the Enugu
Clearing House
The bank picked two additional prizes, for Active Participation in Development
Finance (Agriculture) and High Level of Accuracy at clearing sessions.
The Best Lending Bank under the ACGSF in the federal capital City and won the Best bank for Punctuality at the Abuja Cheque Clearing Centre.
United Bank for Africa
Today’s United Bank for Africa Plc (UBA) is the product of the merger of Nigeria’s third (3rd) and fifth (5th) largest banks, namely the old UBA and the erstwhile Standard Trust Bank Plc (STB) respectively, and a subsequent acquisition of the erstwhile Continental Trust Bank Limited (CTB). The union emerged as the first successful corporate combination in the history of Nigerian banking.
UBA’s history dates back to 1948 when the British and French Bank Limited (“BFB”) commenced business in Nigeria and the erstwhile STB and CTB both in 1990. Following Nigeria’s independence from Britain, UBA was incorporated in 1961 to take over the business of BFB. Although today’s UBA emerged at a time of industry consolidation induced by regulation, the consolidated UBA was borne out of a desire to lead the domestic sector to a new era of global relevance by championing the creation of the Nigerian consumer finance market, leading a private/public sector partnership at supporting the acceleration of Nigeria’s economic development, and growing the institution from a banking to a one-stop financial services institution, while spreading its footprints across Africa to earn the reputation as the face of banking in the continent.
Today, United Bank for Africa Plc is one of Africa’s leading financial institutions offering universal banking to more than 7 million customers across 750 branches in 16 African countries. With presence in New York, London and Paris and assets in excess of $19bn, UBA is your partner for banking services for Africans and African related businesses globally. Vision:
“To be the undisputed leading and dominant financial services institution in Africa.”
Mission:
“To be a role model for African businesses by creating superior value for all our stakeholders, abiding by the utmost professional and ethical standards, and by building an enduring institution.
Achievements:
UBA has maintained a consistent and solid financial performance in its long history. We have a history of leading and pioneering innovations in the Nigerian financial sector. The following are some of our landmark achievements:
UBA was the first among international banks to be registered under Nigerian Law in
1961
UBA is the first Nigerian bank to offer an IPO following its listing on the Nigerian
Stock Exchange in 1971
UBA is the only sub – Saharan African bank (ex-RSA) with a branch in USA (New
York)- set up in 1984
UBA was the first Nigerian Bank to introduce a Cheque Guarantee Scheme known as
UBACARD in 1986
UBA is the 1st and only Nigerian Bank to obtain a banking license in the Cayman
Islands -1988
UBA is the only Nigerian company with a GDR programme – 1998 (1st for a Nigerian
Bank as a means of facilitating international investor interest)
Best Domestic Bank in Nigeria (Euromoney 2000)
UBA is the 1st Nigerian Bank to obtain a banking license in Ghana -2004
UBA was the first ever successful merger in Nigerian banking history – 2005
UBA received excellent credit ratings (short and long term); Global Credit Rating (SA) AA+
and A+ in 2005.
UBA was the first to introduce the Nigerian Government Bond Index in 2006.
UBA is the first ever Nigerian Bank to surpass the N1 trillion balance sheet size
(including contingents) – 2006
Ranked Number One Bank in Nigeria (Agusto & Co, 2007)
1.10 DEFINITION OF TERMS
Corporate Governance
Corporate governance concerns rules and processes by which businesses are operated, regulated and controlled (Agbaeze, 2008).
Dud Cheques
Dud cheques are cheques written by someone who does not have enough money in their bank account (Coker, 2009).
Executive Director:
King 11 defines a director as a person who involved in the day-to-day management and/or in the full time employee of the company, and /or any of its subsidiaries (Bankers Committee Report (2006).
Non- Executive Director:
Primarily is a director that is not involved in the day to day management of the company and not a full time salaries employee of the company or any of its subsidiaries (Bankers Committee Report (2006).
Non- Executive Independent Directors:
CBN (2006) defines directors as those who do not represent any particular shareholder interest and hold no special business interest with the bank and are appointed by the bank on merit.
Compliance Compliance is describes as either a state of being in accordance with established guidelines, specifications or legislation or the process of becoming so
This material content is developed to serve as a GUIDE for students to conduct academic research
THE IMPACT OF CORPORATE GOVERNANCE ON THE NIGERIAN BANKING INDUSTRY
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