ABSTRACT
The banking industry in Nigeria has been undergoing transformation both through government regulations and the dynamic nature of the finance sector generally. In the same fashion, retail financial services and products have changed tremendously both in design and delivery. These changes and transformation have therefore prompted my research interest in the area of retail financial services. This research work appraises the impact and effects of the consolidation and reform of the banking industry in Nigeria on the retail financial services and products.
Equally assessed are the effects of the consolidation and reform exercise on the overall performance of banks in Nigeria in the areas of ;
1. Effective and efficient services delivery.
2. Corporate and business performance as regards earnings generation.
3. Confidence level of the banking public on the consolidated banks.
4. Opportunities and challenges facing the consolidated banks.
5. Contributions of the banks on the general economic growth and development in Nigeria post consolidation.
This study will also x-ray the framework and operations of the consolidated banks and the regulatory authorities. This work also looked into new financial products and services by Nigerian banks. The study goes further to determine how the consolidation and reform have encouraged savings and investments by the banking public.
The way forward for sustaining the confidence level of the banking public on the sector is recommended. Similarly, post consolidation outlook of banks in Nigeria, together with current innovations by both government and operators in the sector are examined. The impact of these innovations and trends on the development of banking and finance institutions
ABSTRACT
The banking industry in Nigeria has been undergoing transformation both through government regulations and the dynamic nature of the finance sector generally. In the same fashion, retail financial services and products have changed tremendously both in design and delivery. These changes and transformation have therefore prompted my research interest in the area of retail financial services. This research work appraises the impact and effects of the consolidation and reform of the banking industry in Nigeria on the retail financial services and products.
Equally assessed are the effects of the consolidation and reform exercise on the overall performance of banks in Nigeria in the areas of ;
1. Effective and efficient services delivery.
2. Corporate and business performance as regards earnings generation.
3. Confidence level of the banking public on the consolidated banks.
4. Opportunities and challenges facing the consolidated banks.
5. Contributions of the banks on the general economic growth and development in Nigeria post consolidation.
This study will also x-ray the framework and operations of the consolidated banks and the regulatory authorities. This work also looked into new financial products and services by Nigerian banks. The study goes further to determine how the consolidation and reform have encouraged savings and investments by the banking public.
The way forward for sustaining the confidence level of the banking public on the sector is recommended. Similarly, post consolidation outlook of banks in Nigeria, together with current innovations by both government and operators in the sector are examined. The impact of these innovations and trends on the development of banking and finance institutions
CHAPTER ONE
INTRODUCTION
1.1 Overview and Background of Study
Banks in any given economy are one of the main engines
towards the growth of that economy (Ndukaife, 2004:21). Banks, basically in any economy are financial intermediaries that perform two main traditional functions which include deposit collection and lending. According to Hanson (1972:409), a bank is an institution that is prepared to accept deposits of money and repay cash on demand. However, today banks’ functions, have been greatly transformed and expanded to include trading in financial instruments and foreign exchange and its derivatives, underwriting of new securities, equity issues, brokerage , investment management and insurance.
The Nigerian banking industry has grown over the years, and a lot of changes, reforms and development have taken place to position the sector for transformation and optimal performance, and at the same time align their operations and practices with international standards. Globalization and internationalization in the 21st century have
thrown up new challenges, opportunities and threats in the
banking and finance industry. Advancement and sophistication in Information and Communications Technology (ICT) have made banking and financial transactions more robust, flexible, efficient and standardized. The era of manual and paper works in financial services transactions extincted with the 19th century. Today, automation and electronic banking have taken over.
The banking industry is the engine and wheel that drive economic activities, and thus is strategic in a nation’s efforts at development. In the words of Ojiakor (2003-2006:28) “the role of banks in the economic life of any nation is so strategic that every effort is made by appropriate national authorities to regulate and effectively supervise the banking business”. The Nigerian banks provide a wide range of retail financial services, geared toward customers’ satisfaction and stimulation of economic activities in all the sectors of the economy. Banks in the 21st century have moved a step further
from merely accepting money deposits and lending same to
individual and corporate bodies including government at all levels, to rendering other financial services, such as trade and investment advisory services, local and international money transfer services, Automated Teller Machine (ATM) services, internet and mobile banking services, home banking services, etc.
The landscape of the Nigerian banking prior to the reform and consolidation exercise had been characterized by the need to strengthen the institutions in the financial intermediation process with the banks playing a critical role in the mobilization of funds (Alio and Ukandu, 2006; 76-83). With the consolidation and reform, a lot of opportunities and challenges have been thrown up in all the operations and practices of the banking industry. With a unified and deregulated financial services operations granted to banks in Nigeria, there has been keen competition in products design and offerings. Retail financial services have been transformed
and continue to evolve to meet customers’ needs and also
encourage savings and investments. Most financial services and products are now personalized and formulated to meet the ever changing needs of the banking public. Automated and electronic banking is now the order of the day, and as a result, retail financial services have been tailored to be in tune with modern technology and, thus, meet the standard of international best practices.
In order to avoid the systemic distress and failures witnessed in the banking and finance industry in the 1990s, the Central Bank of Nigeria (CBN) introduced wide ranging reforms and changes in the sector. According to the former Central Bank governor, Soludo (2004), “it became necessary to take preemptive measures to avoid the cycle of boom and burst” adding that it was time to set up a structure that creates a strong base relative, to the kind of economy we are operating where banks become channels to do proper intermediation. Continuing, Soludo averred that our banking system should be
part of the global change and one that is strong, competitive
and reliable, a banking system which depositors can trust, and investors can rely upon.
With the reform and consolidation exercise over, Nigerian banks are now formulating and packaging their products and services uniquely to meet special needs of target customers. In the same way, banking practices and operations have changed tremendously over the years reflecting the current global trends in financial services delivery. The era of arm-chair banking and banking as an all-comers affair are gone and gone for good. The distress and failures of many banks in Nigeria during the 1990s was due largely to
(1) Poor capitalization ;
(2) Poor products and services delivery;
(3) Lack of adequate and regulatory framework by relevant authorities;
(4) Inadequate experienced professionals in the industry;
(5) Over reliance on manual and paper works, resulting to
inefficiency and huge bank frauds;
(6) Poor and inadequate infrastructural development, among other factors.
It is as a result of all the changes that have taken place since after the reform and consolidation of banks that a look into the retail financial services by the banks becomes imperative. Commercial banking today presents a new picture – a picture of innovations in practice, of wider horizons and of new enterprises (Basu, 1971:268). The twenty five (25) banks that emerged after the consolidation exercise have been positioning themselves to remain relevant and competitive in the dynamic and ever changing banking and finance sector. Because of the importance of banks to the economic growth and development, their services are of immense concern to both governments and corporate bodies, including individuals. The peculiar importance of banks, distinguishing them from other financial institutions (insurance companies, building societies, money
lenders, etc) which also lend and borrow money, is derived
from the fact that claims against them, called bank deposits, are themselves unmistakably money (Sayers, 1960:2).
This study will therefore focus on the retail financial services provided by the consolidated banks and the opportunities and challenges that have arisen following the consolidation. Diamond Bank Plc is used as a reference point being a second generation bank in Nigeria. However, the study also appraised generally the retail financial products and services of other banks, examples, GT Bank, UBA, Zenith Bank, etc.
1.2 Statement of the Problem
Following the introduction of Universal Banking in Nigerian Banking system in the year 2000 by the CBN, the regulatory barriers, which separated commercial and merchant banks were completely removed (Ndukaife:32). Uniform capital base was therefore set for all operating banks in Nigeria to meet up with the globalization and revolution both, in information
technology and in economic activities. Banks’ capital base was
raised to five hundred million naira (N500m) as minimum paid- up capital and in 2002, the banks minimum paid up capital was raised to one billion naira (N1bn) for existing banks and two billion naira (N2b) for new banks (Ibid).
The consolidation and reform of banks having brought up new opportunities and challenges have equally made the business of banking very competitive and dynamic. Financial products design and delivery have become so critical to the survival and sustenance of banks that problem areas now exist and demands in-depth study and analysis. It is therefore with regards to this that the study will look into:
How today’s retail financial services by the consolidated banks impact on the banking habits of Nigerians and their effects on savings and investments;
The problem of advancement in information technology and the automation and electronic banking operation and services ;
The global competitiveness of Nigerian banks and the
challenges facing the post consolidated banks;
The regulatory framework and its efficacies on the consolidated and recapitalized banks; and
Finally, the way forward for the banks and how to position them for more efficient and effective operations and services aimed at moving the economy in the right direction for optimal performance.
1.3 Motivation, Aims and Objectives of Study
The banking industry is very crucial and critical to the economic development of a nation and its economy. Finance and banking industry is the engine and wheel that drive economic activities and this is strategic in a nation’s effort at development. In the words of Cooper (1984:21), “in the 1970s and early 1980s, control of the banking system has become a
major preoccupation of governments and control authorities in
the UK, the other members of European Community and generally throughout the world”. The preoccupation has focused on two quite separate types of control, prompted by two distinct groups of factors: prudential control designed to ensure that banks are prudently run, with the aim of protecting depositors and avoiding major upheavals in confidence and the movement of funds; and monetary control, designed to use the banking mechanism as a positive tool in the conduct of macro economic policy generally or, at the very least to prevent the banking mechanism from pulling in the opposite direction from, and thwarting, other measures of economic policy.
With the reform and recapitalization of banks and financial institutions in Nigeria in 2005, the framework and operations have transformed radically in tune with government policy goals and objectives. Initially, twenty five (25) banks emerged after the twenty five billion naira (N25bn) minimum
capital base requirement by the apex bank. But with the
merging of IBTC and Stanbic banks into Stanbic IBTC, we now have twenty four (24) banks in Nigeria. This development spurred my interest in the retail financial products and services offerings by the recapitalized banks. Equally, my motivation to study the banking system post consolidation stems from the deregulated operations and services embodied in the CBN policy guidelines and regulations.
The aims and objectives of this study therefore are basically:
1. To determine the retail financial products and services offering by the consolidated banks, and then appraise their quality and appeal to the banking public.
2. To determine the impact and import of the retail financial services on savings and investments, and how the new products and services offerings have impacted on the economy generally and on the welbeing of the banking public particularly.
3. To determine post-consolidation outlook of Nigerian
banks, together with current innovations in the banking industry. Similarly, the effects of these innovations and trends on the development of banking and finance institutions are critically examined.
4. Finally, this study will determine how the consolidated banks are performing under the new regulatory framework, and the role of government and the regulatory authorities on the liberalized banking system.
Together, the way forward for improvement or sustenance of the confidence of both the banking public and government are proffered. It is my view that the results above will help in appraising the contributions the banks have made and are making on the growth, development and stability of the banking and finance sector in particular and on the economy in general. The study and findings will help make a comparative analysis of the retail financial services in the banking industry
pre and post consolidation. Also, areas of opportunities and
growth potentials will be outlined and the challenges in the face of global competition explored. In the same vein, areas of improvements are examined, and future prospects assessed.
Finally, recommendations will be made for the improvement, stability and growth of retail financial services and the banking industry in Nigeria.
1.4 Research Questions
In order to look into the issues raised in the objectives of this study, the following pertinent questions will be asked:
1. The first question is: How have the pre consolidation retail financial products and services of the banks in Nigeria been transformed and repackaged to meet the ever changing needs of the banking public.
2. The second question is: Are there new retail financial
products and services by banks post consolidation.
3. Thirdly, how have these retail financial products and services served to meet the needs and demands of the banking public. In other words, what is the level of patronage enjoyed by these products and services?
4. Another question is: In which areas and in what forms have the products and services thrown up new opportunities and challenges to the bankers and the banking sector.
5. What is the appraisal rating and performance of the consolidated banks in providing these retail financial services to the banking public? Corollarily, had the provision of these products and services encouraged banking habit, savings and investments?
6. Finally, this study looks at the ways of attaining and sustaining effective and efficient banking practice and services in Nigeria.
Scope and Limitations of Study
To appraise the operations and services of all the consolidated banks’ retail financial services will be an uphill and almost impossible task at this point. Therefore, due to the specialized nature of banking, coupled with the lack of adequate, appropriate and timely information on the activities and operations of banks in Nigeria, the scope of this work will only cover the following areas:
General outline and overview of banking products and services as they relate to the banks in Nigeria, and to the banking public.
A highlight of some of the various retail financial products and services by the recapitalized banks, namely, (a) Diamond Bank Plc (b) United Bank for Africa Plc and (c) Guarantee Trust (GT Bank) Plc
Finally, Diamond Bank is used as a representative of the consolidated banks for the assessment and appraisal of
the retail financial products and services post
consolidation.
Again, universal banking has been approved and introduced into the nation’s banking business. As a result, there are no restrictions as to which services to provide, and as such the banks are operating under the same regulatory environment unlike before. Therefore a study into the operations of the banks in the area of retail financial services can be undertaken in one or two of the consolidated banks. Similarly is the fact that there are many networks of branches of these banks scattered all over towns and cities in Nigeria. It is discovered that many of the banking public for one reason or the other, operate accounts in two or more of the banks. This means that if one of the banks is lacking in the provision of efficient services, the customer will switch to another bank with a more efficient services. Hence, one of the banks can make a fair representation of the assessment of the retail financial products and services offered by the banks.
Limitations
This study is constrained by:
1. Inadequate working funds to run around the major cities and towns to collect the relevant data and materials to prosecute this study.
2. Difficulties associated with sourcing relevant data and information from the banks as a result of certain orientation in the banking institutions which make the availability of relevant and reliable information almost impossible.
3. Finally time was also a limitation in this study considering other equally demanding engagements.
1.6 Significance Of Study
In this era of advancement in technology vis-a-vis the sophistication in Information and Communications Technology (ICT) and the specialized nature of banking, this work becomes significant in many ways:
This study will x ray the various retail financial products and services in the banking industry and how they have been impacted upon and transformed by computerization and electronic data transmission technology now prevalent in all banking operations. The products and services have been designed to provide specific and personalized services to the banking public and will avail the banking public the opportunity to choose from the various forms available in the banking sector. This will help them make sound choices and decisions, hence optimizing their benefits.
This study will also provide the banking institutions the opportunities to look into their operations and then determine their areas of Strength, Weaknesses, opportunities and Threat (SWOT).This will enable them confront any arising challenges inherent in their operations This study is equally significant to the government and regulatory authorities so as to be able to continuously monitor, supervise and regulate the activities and operations of the banking industry. This is critical to the attainment of optimal performance, efficiency and stability in the sector. Highlighting the challenges facing the sector will help the regulators perform effectively to avoid any distress or systemic failures in the banking sector. This work is also important in serving to educate and enlighten the public on the various products and services offerings by banks and other finance institutions post consolidation; and in this manner encourage savings and investments. Microfinance banking is a new concept in Nigeria. The role of microfinance banks in the area of entrepreneurial development, Small and Medium Enterprises development and poverty reduction can no longer be over emphasized. According to Akinboyo (2007) micro finance is about providing financial services to the poor who are not traditionally served by the conventional financial
institutions. It involves the provision of small loans (micro-
credit) to the poor to help them engage in new productive business activities. Even the conventional banks in Nigeria have ventured into this area by creating subsidiaries to operate and provide micro finance banking services.
This study is also intended to give an insight into the operations of the consolidated banks and then discover how efficient to their customers these products and services are.
Overall, the lessons from the reform and consolidation and the way forward for banks and finance institutions in Nigeria are other highlights of this study which will no doubt position the banks for global competition and international best practices in the years ahead.
The rest of the project work is organized as follows: Chapter two is devoted to review of related literature as to have an insight into previous works on the subject matter. Chapter three consists of the methodology used in the research, which is the approach and design of the study. Included here also are: Sources and methods of data collection and analysis, statement of null and alternative hypothesis and finally hypothesis test statistics.
Chapter four is essentially presentation and analysis of data and then hypothesis testing. Finally, chapter five which is the summary comprises the findings, extensions, recommendations and conclusions.
This material content is developed to serve as a GUIDE for students to conduct academic research
RETAIL FINANCIAL SERVICES IN THE NIGERIAN BANKING INDUSTRY OPPORTUNITIES AND CHALLENGES POST CONSOLIDATION (A STUDY OF DIAMOND BANK PLC)
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