FINANCIAL CRISIS IN THE NIGERIAN BANKING SECTOR: ROLE, EFFECTS AND SOLUTIONS

ABSTRACT

This is a research project carried out to identify and determine the role, effects and solutions of financial crisis in the Nigerian banking industry, a study of selected banks (First Bank of Nigeria Plc, and Intercontinental Bank Plc). A sample size of 200 respondents. all randomly selected from the staff and management (both senior and junior) and customers of First Bank Nigeria Plc and Intercontinental Bank Plc was used in this study. Both primary and secondary data were collected and analyzed using percentages and chi-square test. The researcher, based on the data collected and analyzed, found that poor liquidity is a salient factor affecting the viability of Nigerian Banks; incompetent and inefficient management gives rise to poor performance of banks in Nigeria: Diversion of credit by clients of commercial banks does not necessarily contribute to bank distress; and undercapitalization of commercial Banks does not only militate against the development of Nigerian banking sector. Finally, the findings were summarized, conclusions reached and recommendations made.

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

The first phase of the Bank consolidation initiated by Central Bank of Nigeria in 2005 was in order to provide a strong and reliable banking sector that would guarantee the safety of depositors' money. The consolidated Banks were expected to playa very active role in the economic growth and development of Nigeria. The consolidation exercise was remarkable as some of the banks merged while others went for outright takeover of the assets and liabilities of the weak banks. Within the short period of consolidation, there were positive changes in the entire system, as interest and lending rates became stabilized and some of the consolidated banks became partners and correspondent Banks to some Foreign Banks.

Before the consolidation exercise started in 2005, the Nigerian Banking Industry witnessed a lot of stress, uncertainty and anxiety. This eroded the confidence of the general public which used to be a great asset of banking sector in the past. In addition, investors and depositors funds were not guaranteed, hereby making most of the Banks to come under stress due to capital inadequacy. These problems greatly. impaired the quality of Banks assets as non-performing assets became bearable and became huge burden on most of the Banks. The financial intermediation role of the Banks became heavily impaired while the micro economic activities seriously slowed down. It was against this background that the Central Bank of Nigeria (CBN) announced a major reform in the entire Nigeria Banking industry. The recapitalization of the capital based of banks constituted the first phase of the reform policy in the entire banking sector of the Nigeria economy. The major issues in the consolidation exercise, according to Adeyemi (2005) include;

·      A minimum· capital base of 25 Billion naira with a deadline of 31^st December 2005.

·      Consolidation of banking institution through merger and acquisitions.

·      Phase withdrawal of public sector fund from banks, beginning from July 2004.

·      Adoption of a risk-focused and role-based regulation framework.

·      Zero tolerance for weak corporate governance, misconduct and lack of transparency.

·      Accelerated completion of the electronic financial surveillance system (E-fass).

·      The establishment of assets Management Company.

·      Promotion of the enforcement of dormant law.

·      Revision and updating of relevant laws

·      Closer collaboration with the Economic and Financial Crime Commission (EFCC) and establishment of the financial intelligence unit. The two outstanding issues in the reform initiatives that have attracted a lot of concern and reaction because of its peculiarities are:

·      The recapitalization requirement of 25 Billion by banks before the end of 31^st December 2005.

·      Consolidation of banks through merger and acquisitions.

The primary objective of the reform initiative was to have an efficient and effective banking industry that could guarantee rapid economic growth and development for the entire nation. Unfortunately, the current global economic crisis which has its root in the United State of America and Europe has spread to other parts of world. The crisis has eroded the confidence of the Public in Nigeria banking industry despite their consolidation. Even the Nigeria Stock Market (NSM) which is expected to act as buffer of fund is not left out of the financial crisis. It is against this backdrop that the research study seeks to examine the causes and effects of financial crisis in the Nigeria Banking Sector and possible solution......

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Item Type: Project Material  |  Size: 67 pages  |  Chapters: 1-5

Format: MS Word  |  Delivery: Within 30Mins.

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