ABSTRACT
In this study, we undertook a critical appraisal of the strategic management practices of selected old and new generation banks in Nigeria. It is motivated by the problem of high rate of bank distresses and failures in the economy. The objectives therefore were to ascertain the level of corporate accountability, honesty and integrity exhibited by banks’ management/directors in Nigeria; discover the level of efficiency in the strategic management of human, financial and material resources in Nigerian banks; find out the level of compliance to banking ethics and professionalism that exist in Nigerian banks.
For the research methodology, we adopted opinion survey techniques, where primary data for the study came mainly through questionnaires and personal interviews were conducted where appropriate, while the secondary data were obtained from unpublished materials, Journals and relevant articles in banking and trade newsletters/in-house journals. The data were analysed through Chi-Square statistical techniques.
At the end of the analysis, the results showed that there is a low level of corporate accountability, honesty and integrity by banks’ management/directors in Nigeria. There is also a low level of efficiency in the strategic management of financial, human resources
and assets by Nigerian banks, and low level of compliance to banking ethics and professionalism by Nigerian banks’ staff and management.
CHAPTER ONE
1.0 INTRODUCTION:
With the devastating global economic and financial crises, which had seen to the collapse of stocks and banks in many countries of the world, it is the belief of management and financial experts that for any Nigerian bank to survive it, it must adopt a wholesome strategic management practices in its corporate governance.
Donli (2005) observed that traditionally, the role of banks whether in a developed or developing economy, consists of financial intermediation, provision of an efficient payments system and serving as conduit for the implementation of monetary policies. It has been postulated that if these functions are efficiently carried out, the economy would be able to mobilise meaningful level of savings and channel these funds in an efficient and effective manner to ensure that no viable project is frustrated due to lack of funds. The role of banks in economic development has been richly articulated in the literature. Pioneer contribution of Schumpeter (1934) was of the view that financial institutions are necessary condition for economic development. This view has
been variously corroborated by other scholars like Goldsmith
(1969), Cameron et al (19720, Patrick (1966).
In view of the importance of the banking sector in economic development and the imperfections of the market mechanism to mobilise and allocate financial resources to socially desirable economic activities of any nation, governments the world over, do regulate them more than any sector in an economy. These underscore the need for banking sector regulation. However, in addition, the nature of banking business (being highly geared and conducted with greater secrecy when compared with other real sector businesses) provides added reason for strict supervision. This is to constantly beam a search-light on the sector’s activities with a view to ensuring that operators play by the rules of the game and imbibe sound and safe banking practices. Furthermore, such an oversight is intended to assist supervisory authorities in timely identification of deterioration in bank financial conditions before it degenerates to threaten the stability of the banking system or even the economy.
Nwakoby (2004:156) observes that the Nigerian commercial
banking system dates back to 1892 with the establishment of
African Banking Corporation (ABC). The British Bank for West
Africa took this over in 1894. This is today known as first Bank of Nigeria plc. Then came Barclays Bank in 1917 which is todays Union Bank of Nigeria. According to Uche (1997:3) “these institutions were registered in, had their head offices in, and were control from London, and consequently fell under the regulatory jurisdiction of London.
Nwakoby (2004:156) again reported that there was strong accusation among Nigerians that these expatriate banks, were discriminating against Nigerians and their businesses, by denying them banking services and loans. This brought about wide agitations for the establishment of indigenous banks.
Hence, came in indigenous banks into the Nigerian financial system, but most of these banks collapsed with the speed with which they were established, going down with billions of naira worth of innocent depositors’ funds. Some poor Nigerian depositor had been recorded to have committed suicide at the liquidation/closure of those banks, while others died gradually in their homes at the pains of such financial losses.
Even though, the former Central Bank Governor, Professor
Chukwuma Soludo, tried out what he termed ‘Banking
Consolidation by raising the liquidity ratio of a bank in Nigeria to
N25 billion and thus squeezing out the crowd of many sick and small banks, recent revelations by the new Central Bank Governor, SanusI (2010) shows there is more cause for worry. According to his findings, the Nigerian banking industry is riddled with high-level corruption, mismanagement of depositors’ funds and falsehood in annual reports. From that, the breeze has blown and Nigerians have seen the anus of the fowl, that bank directors are actually feeding fat on depositors’ funds through some wicked boardroom manipulations and shady deals. For instance, Sanusi (2010) on a Nigeria Television interview reported that it is known to Nigerians that the Ibrus hold majority shares at Oceanic Bank. But during his recent investigation, it was revealed that the bank was actually registered with the name of Ibru’s housemaid and lawyer, and loans worth billions of naira withdrawn in the name of the said housemaid. Thus, revealing that the lender and the borrower were one and the same person (Ibru).
It is mindful of this that Uche (1997:11) catalogued some of
the causes of distress or failure of Nigerian banks as follows:
Outright embezzlement of depositors funds by bank directors.
Poor management and accounting procedures in the banks.
Poor capital base, leading to bank’s inability sometimes to meet customers withdrawals and other financial demands.
Political interference and regulatory constraints.
The asset quality of many banks went down progressively as the directors engage in personal aggrandizement.
Huge operational costs, in order to maintain a false image of
bigness and liquidity
Finally, the prevailing global economic crisis, which has drastically reduced the Gross Domestic Product (GDP) growth rate, heightened inflation and reduced citizen’s disposable income.
Indeed, in the United States of America in 2008-2009 alone,
200 banks collapsed, while others needed government bail out to stay afloat, as reported on CNN (2009) and Voice of America (2009). So, this is not an isolated Nigerian problem.
However, our focus in this study is to empirically assess the claims that the application of strategic management practices could help Nigerian banks to weather the storms of the prevailing global financial crisis and still remain solvent while it lasts. To do this effectively, we have isolated two old generation banks and two new generation banks for the analysis. They are the First Bank
of Nigeria Plc, Union Bank Nigeria Plc, Zenith Bank Plc and
Intercontinental Bank Plc, respectively.
1.2 STATEMENT OF PROBLEM
The rate at which indigenous banks in Nigeria go into distress or outright collapse has been a course of grave concern to many Nigerians. Innocent citizens of the country, especially poor depositors are usually thrown into untold hardship when this happened, while some had collapsed and died at the sudden news of such banks’ liquidations. Professor Soludo’s recipe of N25billion as the liquidity ratio that qualified a bank to operate in Nigeria, does not seem to have addressed this problem of constant distress, at least recent revelations show.
With the prevailing global economic and financial crisis, which has even brought down many solid banks in Europe and America, Nigerians were wondering what was the fate of their indigenous banks, most of which were masking their shaky financial positions, until Sanusi’s lifted off the veil. From Sanusi’s investigations so far, it has been made clear that many Nigerian banks are being grossly mismanaged by their top brass. These corrupt men and women cast aside the banking ethics of honesty
and integrity by flagrantly granting mouthwatering loans to themselves, which they also write-off as bad loans at the end of every financial year, thereby cheating poor shareholders out of their fair dividends.
So, financial and management experts argue that if Nigerian banks could imbibe a wholisitic strategic management practices in their operations, it will help them to survive the present global financial crisis. But the target of such strategic management, they assert, must be in three cardinal areas:
Corporate accountability, honesty and integrity,
Efficient management of human and material resources, and
Strict compliance to banking ethics and professional conducts.
1.3 RESEARCH OBJECTIVES
The objectives of this research therefore include:
To ascertain the level of corporate accountability, honesty and integrity exhibited by banks’ management/directors in Nigeria
To discover the level of efficiency in the strategic
management of human, financial and material resources in
Nigerian banks
To find out the level of compliance to banking ethics and professionalism that exist in Nigerian banks.
To proffer some useful recommendations for the way forward.
1.4 RESEARCH HYPOTHESES
The following hypotheses will therefore be tested in this study:
(1) Ho: There is a low level of corporate accountability,
honesty and integrity by bank management/directors in Nigeria
Hi: There is a high level of corporate accountability, honesty and integrity by bank management/directors in Nigeria.
(2) Ho: There is low level of efficiency in the strategic
management of human, financial and material resources in Nigerian banks.
HI: There is a high level of efficiency in the strategic management of human, financial and material resources in Nigerian banks.
| (3) | HO: | There is a low level of compliance to | banking | ethics |
| and professionalism by Nigerian banks. | ||||
| HI: | There is a high level of compliance to and professionalism by Nigerian banks. | banking | ethics |
1.5 BACKGROUND OF THE STUDY AREAS (a) First Bank of Nigeria
Type Public
Founded 1894, Re-named 1979
Headquarters Lagos, Nigeria
Key people Dr. Ayoola Oba Otudeko, OFR, Chairman
Industry Finance
Products Financial Services
Revenue 67 billion Nigerian Naira (2006) (about $500 million (US))
First Bank traces its ancestry back to the first major financial institution founded in Nigeria; hence the name. The current chairman is Dr. Ayoola Oba Otudeko, OFR. The bank is the largest retail lender in the nation, while most banks gather funds from consumers and loan it out to large corporations and multinationals, First Bank has created a small market for some of its retail clients.
At the end of August 2006, the bank had assets totaling 650 billion Naira or $5 billion dollars. The bank was also the most highly capitalized stock on the Nigerian Stock Exchange, and had about 10 billion outstanding shares. It has a subsidiary in the United Kingdom, FBN Bank (UK), which has a branch in Paris. The bank also has representative offices in South Africa and China.
The company was named the best bank in Nigeria by Global Finance magazine in September 2006.[2] The firm’s auditors are Akintola Williams Deloitte & Touche (Chartered Accountants) and KPMG Audit (Chartered Accountants). The firm has solid short and long term ratings from Fitch and the Global Credit Rating Company partly due to its low exposure to non-performing loans. The firm’s compliance with financial laws has also strengthened with the Economic Financial Crimes Commission giving it a strong rating.
Pre-independence
The Bank traces its history back to 1894 and the Bank of British West Africa. The bank originally served the British shipping and trading agencies in Nigeria. The founder, Alfred Lewis Jones, was a shipping magnate who originally had a monopoly on importing silver currency into west Africa through his Elder
Dempster shipping company. According to its founder, without a bank, economies were reduced to using barter and a wide variety of mediums of exchange, leading to unsound practices. A bank could provide a secure home for deposits and also a uniform medium of exchange. The bank primarily financed foreign trade, but did little lending to indigenous Nigerians, who had little to offer as collateral for loans.
Post-indepedence
In 1957, Bank of British West Africa changed its name to Bank of West Africa (BWA). After Nigeria’s independence in 1960, the bank began to extend more credit to indigenous Nigerians. At the same time, citizens began to trust British banks since there was an ‘independent’ financial control mechanism and more citizens began to patronize the new Bank of West Africa.
In 1965, Standard Bank of South Africa acquired Bank of West Africa and changed its acquisition’s name to Standard Bank of West Africa. In 1969, Standard Bank of West Africa incorporated its Nigerian operations under the name Standard Bank of Nigeria. In 1971, Standard Bank of Nigeria listed its shares on the Nigerian Stock Exchange and placed 13% of its share capital with Nigerian
investors. After the end of the Nigerian civil war, Nigeria’s military government sought to increase local control of the retail-banking sector. In response, now Standard Chartered Bank reduced its stake in Standard Bank Nigeria to 38%. Once it had lost majority control, Standard Chartered wished to signal that it was no longer responsible for the bank and the bank changed its name to First Bank of Nigeria in 1979. By then, the bank had re-organized and had more Nigerian directors than ever.
In 1982 First Bank opened a branch in London, that in 2002 it converted to a subsidiary, FBN Bank (UK). Its most recent international expansion was the opening in 2004 of a representative office in Johannesburg, South Africa. In 2005 it acquired MBC International Bank Ltd. and FBN (Merchant Bankers) Ltd. Paribas and a group of Nigerian investors had founded MBC in
1982 as a merchant bank; it had become a commercial bank in
2002. In 2009 the bank opened a representative office in London and the USA.
(b) UNION BANK OF 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 legal requirement for all foreign subsidiaries to be incorporated locally, Barclays Bank (D C O) 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 Nigerian Stock Exchange. As a result of 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 the 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 Companies and Allied Matters Act of 1990, it assumed the name Union Bank of Nigeria Plc.
In consonance with the government’s programme of privatisation and commercialisation 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 organisations.
In line with the Central Bank of Nigeria’s banking sector consolidation policy, Union Bank of Nigeria Plc acquired the former Universal Trust Bank Plc and Broad Bank Ltd and absorbed its erstwhile subsidiary Union Merchant Bank Ltd. The Bank also increased its shareholders’ funds through a Public Offer/Rights Issue in the last quarter of 2005. It has a shareholders’ funds of N119.160billion and operates through 405 network of branches that are well spread across the country, all of which are on-line, real time.
Subsidiaries:
(a) Union Homes Savings and Loans Plc
(b) Union Trustees Limited
(c) Union Assurance Company Limited
(d) Union Bank UK Plc.
(e) Banque Internationale du Benin , Cotonou
(f) UTL Communications Services Limited
(g) UBN Property Company Limited
(h) Union Capital Markets Limited
(i) Union Registrars Limited
Associated Companies:
(a) Consolidated Discounts Ltd. (b) HFC Bank Ghana Limited.
(c) Unique Venture Capital Management Co. Ltd.
Union Bank Group operates an interlocking organisational structure whereby some board members of Union Bank of Nigeria Plc act as external directors in the subsidiaries and associated companies. This arrangement ensures effective oversight and participation in the decision-making process of these companies, thereby safeguarding the Bank’s investments.
Today, the Bank is a leading regional bank in sub-Sahara Africa in terms of its diverse investments across the globe. A glance at the Bank’s financial summary reveals its solidity. As at
31st March, 2008, the Bank’s gross earnings was N112.988 billion; profit before tax was N33.012 billion; total assets was N 1,128.890 billion; and shareholders’ fund was N119.160 billion.
© INTERCONTINENTAL BANK PLC, NIGERIA.
Intercontinental Bank Plc is a financial institution driven by a passionate customer-centric philosophy. The Head Office is located in Lagos, Nigeria. Intercontinental Bank is one of the leading new generation banks in Nigeria today, although found to be sick too by the recent Sanusi’s investigation on the financial health of Nigerian banks, largely due to top management greed.
(d) ZENITH BANK NIGERIA Plc
Zenith Bank is one of the leading new generation banks in Nigeria today. It is among the enviable few banks not found to be sick by Sanusi’s recent investigation on the financial health of Nigerian banks.
Hence, from Zenith news, an inhouse magazine of the bank we gather the following further information:
Zenith News
Zenith names Godwin Emefiele as MD/CEO Designate
Zenith emerges best bank In Ghana
Zenith Bank Website Remains Best in Industry – Web Jurist
Zenith Bank Shareholders Funds Hit N346 Billion – Pays dividend
of N28.5 billion, highest ever by any bank
Zenith, Now Best Global Bank in Africa
Zenith Sierra Leone Commences Operation
Zenith Changes Financial Year End to September 30 – Expected
To Pay N1.70 dividend
Zenith Changes Financial Year End to September 30
Zenith Bank Posts N40 Billion Profit In Nine Months
Zenith Launches Mutual Funds, To Raise N8 Billion
Zenith Bank Emerges African Bank Of The Year
Zenith Bank To Raise N130Billion Through Hybrid Offer
Zenith Nets N29BN in First Quarter
Zenith Remains Biggest Bank in Nigeria
Foreign Equity Investment In Zenith Bank Total $165 Million
(N20.79 Billion).
Zenith Bank Nets N10.4 Billion Profit.
Zenith Wins Web Jurist Award (2006).
Zenith Emerges Nigeria’s Biggest Bank.
CBN appoints Zenith Bank/JP Morgan chase first global
custodian.
Zenith Nets N11.08billion Profit In Nine Months.
What’s new in Zenith?
Zenith-Unicef Partnership For Children’s Right In Nigeria
Zenith Bank Launches Dual Currency VISA Card
ZMobile – A mobile payment solution
Zenith Emerges Most Capitalized Bank
Zenith Bank rolls out new ATMs.
Zenith, now most respected bank in Nigeria.
Zenith Bank Ghana Begins Operation
Eazy transfer now live on Zenith Bank website.
Zenith Rated High on POS Deployment.
Zenith Wins Bank of the Year Award.
Zenith Bank holds Annual General Meeting in Abuja.
Zenith Bank makes N3 Billion Profit in first quarter
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study include:
Making clear the level of corporate accountability, honesty and integrity being exhibited by bank management and directors in Nigeria.
Lead to a better appreciation of the level of efficiency in strategic human, financial and material resources management in Nigerian banks.
It will bring out clearly the level of compliance to banking
ethics and professionalism exhibited by Nigerian bankers, management and directors.
1.7 SCOPE OF THE STUDY
This study is limited in scope to a survey of the opinion of some informed target audience of our subject matter. They included: bank staff, management and directors, bank customers, bank shareholders, Central Bank of Nigeria staff, Security and Exchange Commission’s staff, Nigerian Deposit Insurance Corporations staff, Nigerian Stock Exchange staff, Ministry of Finance staff and students of Management, Banking and Finance. These were drawn from three states of the federation, that reflect a true geographic representation of the country. They are Lagos state in the southwest, Kano state in the North and Enugu state in the south-east.
1.8 LIMITATIONS OF THE STUDY
In the course of this study, the researcher was beset with time constraints arising from deadlines usually given for the submission of students’ projects of this nature.
There was also remarkable respondents’ apathy, especially from top bank managers and directors who probably felt that the researcher had come to spy on them. So, it took some time and a lot of explanations before they were convinced and gave their cooperation.
This material content is developed to serve as a GUIDE for students to conduct academic research
APPRAISAL OF THE STRATEGIC MANAGEMENT PRACTICES IN NIGERIAN BANKING ORGANIZATIONS SELECTED STATE
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