ABSTRACT
The current credit crisis and financial turmoil have questioned the effectiveness of bank consolidation programme as a remedy for financial stability and monetary policy in correcting the defects in the financial sector for sustainable development. The project attempts to examine the performances of banks induced bank consolidation and macroeconomic performance in Nigeria in a post consolidation period. The work further analysis published audited account of twenty (20) out of twenty – five (25) banks that emerged from the consolidation exercise and data from Central Bank (CBN), that is, the researcher made use of secondary sources of data for the study. The research employed the use of ordinary least square distribution in the test of two hypotheses formulated. Hypothesis 1, 2, 3, ‘t’ test distribution were used by the researcher and all hypotheses were accepted, while only ordinary least square analysis was used in hypothesis two, which showed that non performing assets of Banks has negative effect on the performance of banks in the post consolidation exercise. More so the use of simple percentage conversion were used in measuring or determining the macroeconomic variables on the yearly basis which covers the pre/post consolidation era 2004- 2005 for the research analysis in chapter four; the following
result/conclusion emerged from research project work: That consolidation programme has not improve the overall performance of banks significantly, and also has contributed marginally to the growth of the real sector for sustainable development; The bank sector is becoming competitive and market forces are creating an atmosphere where many banks simply cannot afford to have weak balance sheets and inadequate corporate governance; That consolidation of banks may not necessarily be sufficient tool for financial stability for sustainable development and we recommend that bank consolidation in the financial market must be market driven to allow for efficient process.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY
Banks serve vital intermediary role in a market- oriented economy and have been seen as the key to investment and growth. Falegan (1987) and Bashir and Kadir (2007) observed that commercial banks play a crucial role in the nation’s economy, by using various financial instruments to obtain surplus funds from those that forgo current consumption for the future. They also make same funds available to the deficit spending unit (borrowers) for investment purposes. In this way, they make available the much need investible funds required for investment as well as for the development of the nation’s economy.
It is important to note that the business of banking is service-oriented, that is, banks render services to their customers. This is why Adekanye (1986) traced the origin of banking to the Italian merchants. The term “bank” is from an Italian language that simply means ‘Bench or Benco’, it is a process that developed out of the ingenuity of the then
Italian blacksmith who specialized in the act of building boxes for safe keeping of jewelries and ornaments. This process was further expanded to numbers of banks in the economy, especially the Bank Consolidation of 2005 which brought the number of banks to 24. This has completely reshaped the face of the financial services industry as we include the safe keeping of other valuables, including money.
The fundamental changes in the industry in the last few years have brought a reduction in the industry now have more enlightened investors that are keen on a higher return on their investment (Pandy, 2004). With more people now becoming shareholders in the banking sector, it is apparent that more dividends will be paid out to these new shareholders.
As such dividend decision is one of the three main financial decisions of any firm and it involves the determination of the proportion of a company’s earnings to be paid-out or retained earnings (Olowe, 1998, ICAN, 2006). Consequently, investors are keenly interested in the
outcome of their investment, that is, the value of their shares (capital appreciation) and the returns on their shares (dividend). These two values are affected by the quality of policy put in place by management, which directly influenced the returns on such investment or the value of the stocks of the firm (ICAN, 2006).
A dividend policy therefore is the tradeoff between retained earnings, on one hand, and paying out cash as dividend, on the other hand (ICAN, 2006). Olowe (1998) opined that dividends are distributions, made out of a company’s earnings after the obligations of all fixed income holders have been met. The objective of this study therefore is to assess the factors that could be responsible for the performance of banks in the post consolidation era in Nigeria, where performance is determined through the level of profitability.
1.2 STATEMENT OF THE PROBLEM
The problem which this study seeks to solve is to ascertain the reasons for banks poor performance in the
post consolidation era in Nigeria. Improvement in individuals, groups or organizations cannot be guaranteed except or unless there is a process of evaluation. Evaluation as a concept is therefore a process by which an organization or firm obtains a feedback on the ways it has carried out its activities over time. Performance links an organization’s goals and objectives with organization’s decisions (Abdulkadir, 2007). It is important to note that before we can declare that an activity has improved, it must have been measured so that the extent of improvement can be determined and/or quantified. Measurement is therefore the first step in achieving improvement.
1.3 RESEARCH QUESTIONS
This study is being guided by the following research questions:
1. To what extent does capital base influence the savings mobilization performance of a bank in the post consolidation era?
2. What is the relationship between banks poor performance and supervision in the post consolidation era?
3. To see if there is a positive impact between shareholders funds and NIM (Net Interest Margin).
1.4 OBJECTIVES OF THE STUDY
The objectives of the study are highlighted below:
1. To evaluate the influence of capital base on the savings mobilization performance of Nigeria banks in the post consolidation era.
2. To determine the relationship between banks poor performance and supervision in the post consolidation era.
3. To state that shareholders fund does not have positive significant impact on NIM.
1.5 HYPOTHESES OF THE STUDY HYPOTHESES I
Ho: That there is no relationship between the capital base
and savings mobilization performance of banks in
Nigeria.
HYPOTHESES II
Ho: That there is no relationship between banks poor performance and supervision in the post consolidation era.
HYPOTHESES III
Ho: That there is no positive impact between shareholders funds and NIM.
1.6 SCOPE AND LIMITATION OF THE STUDY
The scope of this study should be limited to 25 (twenty- five) commercial banks in Nigeria who survived the
2004/2005 bank consolidation exercise. The study covers a period of eight years, (1999-2006). This is in order to ascertain the performance of banks pre/post consolidation.
A major limitation was data lag and paucity of bank data with reference to the contribution of the various commercial banks who survived the consolidation. Another is the financial stress which the researcher encountered during the course of the research work.
1.7 SIGNIFICANCE OF THE STUDY
Therefore, the significance of this study lies in the fact that it would provide an empirical evaluation of the success of the recent recapitalization and consolidation exercise. Besides, it will put to rest the argument stated above between the proponents and opponents of the relationship between banks performance and supervision in the post consolidation era.
The findings of this study would be beneficial to the regulators of the Nigerian banking sector as they would serve as a yardstick for appraising the banks post consolidation so far. It would also be beneficial to the management of Nigeria banks as it intends to reveal the extent to which the recapitalization and consolidation exercise have impacted on their performance thereby providing a basis on the need to re-strategies if the need be. Investors, Banking practitioners, analysts and students of banking and finance would be more enlightened on the direct and indirect effects of bank recapitalization and consolidation on banks performance and the banking sector as a whole.
This material content is developed to serve as a GUIDE for students to conduct academic research
AN APPRAISAL OF THE PERFORMANCE OF NIGERIA BANKING INDUSTRY IN POST CONSOLIDATION ERA
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