ABSTRACT
Many
developing countries that are experiencing deepening crisis of confidence,
manifested increase incidence of bad debts, large number of technically
insolvent institutions, liquidity problems, accumulated losses and technically
distressed institutions have now resorted to their financial sector reforms.
These policies are usually carried out in the form of comprehensive Structural
Adjustment Programmes. Thus the object of this study is to analyse the effect
of financial sector reforms on the performance of the banking institutions in
Nigeria.
In
carrying out this research work, data were obtained through the use of
secondary data. This data comprises of information collected through uses of relevant
journals, newspaper, internet, seminar papers, CBN Annual Reports, CBN
statistical bulletin. Besides, multiple regression analysis method was used to
test the hypothesis in order to arrive at a logical conclusion.
The
findings of the study depicts that market capitalization was influenced by
total credit, total investment, total deposit, bank loans and advances and
number of bank branches in operation.
However,
recommendations were given to both the government and the banks on how best to
improve the financial sector. Such recommendations may include strengthening
the supervisory agency and the attitude of banks to customers in general. With
implementation of the aforementioned recommendations, there is an assurance
that banking sub-sector of the Nigerian financial sector will experience a
positive performance in the economy growth. The study has been subdivided
into five parts with each aspect dealing with different aspects of the subject
matter to follow a sequence.
The
first part deals with the introductory aspect, the second part embodied a
review of related literature. The methodology of the study is dealt with in
part three. Part four incorporates the presentation, analysis and
interpretation of data collected from the field while the final part dealt with
conclusion and recommendations.
TABLE OF CONTENTS
CHAPTER ONE:
INTRODUCTION
1.0 Background
of the Study
1.1 Statement
of Problem
1.2 Research
Question
1.3 Research
Hypothesis
1.4 Relevance
of the Study
1.5 Methodology
1.6 Organization
of the Study
Definitions of Terms
References
CHAPTER TWO:
LITERATURE REVIEW
2.0 Introduction
2.1 Concept of
Financial Reforms
2.2 The
Regulation of supervision of the financial sector and their Rationale
2.3 Institutional
Framework for Regulation and Supervision in Nigeria
2.3.1 The Nigerian
Deposit Insurance Corporation
2.3.2 The
Securities and Exchange Commission
2.3.3 The Nigeria
Insurance Supervisory
2.3.4 The
Financial Services Regulatory Coordinating Committee
2.4 Appraisal
of Performance and Challenges for the Bank Financial Sector
2.5 Broad
Objectives of Banking Reforms
2.6 Grand
Performance of the Banking Institution (2002-2004)
CHAPTER ONE
INTRODUCTION
1.0 THE BACKGROUND TO THE STUDY
Reforms
are predicated upon the need for re-orientation and repositioning of an
existing quo in order to attain an effective and efficient state. There could
be fundamental bottlenecks that may hinder the appropriate functioning of
institutions for growth and the achievement of core objective in the quest of
enhancing and sustaining the economic and social imperatives of human endeavor
carried out through Government Institutions or private enterprises, Reforms
become inevitable in the light of global dynamic exigencies and emerging
landscape.
Consequently,
the Financial Sector as an important sector needs to be reformed in order to
enhance its competitive investments. As already established, financial sector
Reforms has been an integral part of the economic reforms which began in
Nigeria in the Mid 1980s with the adoption of the Structural Adjustment
Programmes. Four phases of banking sector reforms are easily discernable in
Nigeria since 1986.
The
first is the financial system Reforms which led to deregulation of the banking
Institution, in addition to credit, interest rate and foreign exchange policy
reforms. Thu~, culminated to rapid expansion of the banking institutions from
about 40 commercial and merchant banks with a combined branches network of about
1,655 in 1986 to 121 and about 2,385 branches in 1992. {CBN 1993}.
The
second phase began in the late 1993-1998, with the reintroduction of regulations. During this period, the
banking institution suffered deep financial distress which necessitated another
around of reforms, designed to manage the distr5ess. The Third phase began with
the advent of civilian democracy in .1999 which saw the reform return to
liberalization of the financial sector, accompanied with the adoption of
distress resolution programmes. While some of the bankrupt banks were
liquidation about 89 of them survived and had about 3,382 branches
predominantly in the urban centre as at June 2004. {Soludo 2007}. sestdes, universal Banking was introduced during this time and
which avail our banks the opportunity to diversify their portfolio to cover all
aspect of retail banking. Upon assumption of duty as CBN Governor {Soludo
2007}, asserted that the financial system was saddled with structural and
operational weaknesses and that their utmost role in promoting private sector
led growth could be further enhanced through a more pragmatic
reform which began since then.
The
Nigeria Financial System {NFS} has over the years, undergone remarkable changes
in terms of the number of institutions established, ownership structure, the
depth and breath of the financial markets subject to the economic environment
under which it operates and the regulatory framework. Apart from the regulatory
and supervisory bodies, we can group institutions operating in the system under
the Money Market, Capital Market, Finance Institution, Banks, Non-Banks
Financial Institutions etc.
Many
developing economies, including Nigeria that are experiencing large debt burden
and dwindling foreign exchange earnings have now resorted the deregulation of
their financial institutions. These policies are usually carried out in form of
a comprehensive structural adjustment programme, Nigeria has already embarked
on the deregulation of her financial system.
According
to {Omoruyi, 1994}, CBN {2004} - That the objectives of Financial Sector
reforms are mostly the same in most countries of sub-Sarah Africa. Broad
objectives of financial sector reforms in Nigeria include:
i.
To ensure efficient allocation of resources
to the real sector economy to promote domestic economy.
ii. To
reduce excess liquidity in the financial system so as to curb inflationary
trend.
iii.
To establish a realistic and
sustainable rate for the naira.
iv. Expanding
the saving mobilization I based
in support of investment and growth through market based interest rate.
v.
Improving the regulatory frame work and
procedures so as to forestall distress.
vi.
Fostering competitive in the provision
of banking services
Among
the policy instruments often employed to attain these objectives are:
i.
Foreign exchange markets and interest rate
deregulation.
ii.
Adoption of market based approach to credit
allocation.
iii.
Pursuit of sustainable fiscal and monetary
policy.
iv.
Active use of prudential restructuring and
enforcement of capital adequacy requirements.
v.
Reforms or restructuring of financial
markets via legislature changes.
In
general, the extent of economic reforms is often guided by the severity of
internal economic distortions and the adversity of the disincentives created
especially for a private sector led growth.
By
the end of 1985, it became apparent that nothing less than a comprehensive
Structural Adjustment Programme would salvage our economy. This therefore led
to the introduction of Structural Adjustment Programme in the second Quarter of
1986, following the nationwide public rejected {through public debate} of the
loan from international Monetary Fund {IMF} according to {Ojo, 1983}.
The
objectives of Structural Adjustment Programme include the following:
i.
Improved efficiency of the public sector.
ii.
Improved fiscal discipline and balance of
payment.
iii.
Restrictive and diversity of the productive
base of the economy in order to reduce dependence on the oil sector and
imports.
iv.
Reduce the dominance of unproductive
investment in the public sector.
v.
Stimulate domestic financial and efficient
resource allocation.
vi.
Intensifying the growth potential of the
private sector.
1.1 STATEMENT OF THE PROBLEM
Prior
to the introduction of Structural Adjustment Programme, the Nigerian Financial
System had been characterized with immense Structural and operational weakness
and which have made the banking institutions not attaining the limelight.
However, the wake of Structural Adjustment Proqramrne tend to set the landmark
for a virile financial system in Nigeria. In the pursuit of financial sector
reform, focus have been shifted to address some impediment to the growth of the
Nigerian financial system. Amongst are:
i.
Attending to the problem of inability to
cope with changes of the policy measure.
ii. Ineffective
monitoring of the expansion In size of the banking institution brought about by
the deregulation authorities {CBN and NDIC}.
iii. Problem of mismanagement and which resulted into bank
distress.
However,
In attending to the plight mentioned, measures have been taken to consolidate
the banking institutions, achieving a foreign exchange market stabilization,
restructuring of the interest rate, currency restructuring and pursuit of
stabilization for monetary and inflation controls
The
assumption is that the effect of financial sector reform on the performance of
banks in Nigeria has been commendable, Some of the indicators are supply and
improved access to credit, increased returns to investor, reduced distress
ratios and above all, improved profit earnings.
1.2 OBJECTIVE OF THE STUDY
The
major objective of this study is to analyze the effect of the financial sector
reforms on the performance of the banking institutions in Nigeria. Besides, it
tends to achieve the following:
i.
To appraise what constitute the financial
sector in Nigeria.
ii. To
identify how financial sector reforms have improved the performance of banking
institution in Nigeria.
iii. To
examine how financial sector reforms have brought competition among banks in
the industry
1.3
RESEARCH QUESTIONS
Relevant
research questions that will, be addressed by the research
include:
i.
Does the financial sector reform lead to
an. increase in the number of depositors?
ii. Does
the financial sector reform enable the banks to increase their earnings and
profitability?
iii. Has the overall size of banks expanded as a
result of financial sector reforms?
iv. Does
financial sector reforms leads to competition among banks?
v.
Does the financial sector has any negative
effect on bank performance?
vi. Has
the financial sector' reforms ensured efficient allocation of resources to the
productive sector of the economy?
vii. Should
Government continue with the exercise?
viii. What
is the effect of financial sector reforms on the level of depositors?
Ix Is
the financial sector reform responsible for bank distress?
1.4 RESEARCH HYPOTHESIS
HYPOTHESIS
1
Hi: That financial sector reforms have improved the performance of
Banking Institution in Nigeria.
H0: That Financial sector reforms have not improved the performance
of Banking Institution in Nigeria.
Hi: That Financial sector reforms have brought competition among
banks in the industry.
H0: That Financial sector reforms have not brought competition
among banks in the industry.
1.5 RELEVANCE OF THE STUDY
The
research work is expected to be of immense benefit to various interest groups
such as Government policy formulators Mangers, Students and General Public.
In
the first place, thus work will be of great use to Bank Managers, as it will
stand as a guide to various officials of banking policies
and
bring to light, the effectiveness survival strategies that are available in a
reformed financial system.
In
addition, it would enable the government policy formulators to examine the
effect of financial sector reforms on the performance of banking institutions
in Nigeria.
Moreover, the study would avail students and other individuals the
opportunities to enrich their knowledge on the topic.
Finally,
it would expose to the general public, the various banking policies adopted by
the regulatory authorities during the period.
1.6 METHODOLOGY
SOURCE
OF DATA AND METHOD OF COLLECTION
Data
for this study will be based on secondary data collected from the Central Sank
of Nigeria, Federal office of Statistics, Financial Journals, Nigeria Deposit
Insurance Corporation, Securities and Exchange Commission, from the interaction
and discussion with officials of Nigeria Stock Exchange as well as'
publications by authors who are authorities in their various field.
METHOD
OF DATA ANALYSIS
The
method to be used in analyzing the data collection shall be descriptive
statistic to test the hypothesis that financial sector reforms has contributed
significantly on the performance of the banking institution.
In
order to ascertain the relative efficiency of the financial sector reforms, we
posit that financial sector reforms will lead to an increase in profit before
tax {PST}.
ANALYSIS
OF DATA
Analysis
of data will be done using regression techniques. The variables to be used are
defined below:
β0 =Constant Term
β1 =Coefficient of total credit (X1)
β2 =Coefficient of total deposit
(X2)
β3 =Coefficient of total
investment (X3)
β4 =Coefficient of bank loans and
advances (X4)
β5 =Coefficient of branch network
(X5)
Which
is an index of Total Deposit of banks, Loans and advances, Number of bank
branches Market Capitalization and Asset base of banks?
1.7 ORGANIZATION OF THE STUDY
The
purpose of the study is to analyze the effect of financial sector reform on the
performance of the banking institution in Nigeria. This study will be carried
out in five {S} chapters.
CHAPTER
ONE: This will principally be' an introduction to the study.
It will give a view of the background of the study and at the same time unfolds
a run-down on all that is entailed in the study.
CHAPTER
TWO: A review
of literatures of past work done by other researchers will be made. The
framework of the body of study shall be outlined in progression.
CHAPTER
THREE: This will describe the procedure and methodology to be
used in this study. It will also unveil a detailed view of the main issues of
this work.
CHAPTER
FOUR: This will entail the analysis of the data collected and
the interpretation of results, statistical text will be employed to determine
relations of variables.
CHAPTER
FIVE: This will be a summary of the work based on the
findings.
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