THE EFFECT OF DEREGULATION IN THE BANKING SECTOR

TABLE OF CONTENTS

CHAPTER ONE

1.1          AN OVERVIEW

1.2          PROBLEM ANALYSIS

1.3          PURPOSE OF THE STUDY

1.4          SCOPE AND LIMITATION OF THE STUDY

1.5          RELEVANCE OF STUDY

1.6          DEFINITION OF KEY TERMS

CHAPTER TWO

2.0    BRIEF HISTORY OF BANK OPERATION IN NIGERIA

2.1          MEANING OF DEREGULATION

2.2          REASONS FOR BANKING REGULATION

2.3          BENEFITS OF REGULATION OF BANKING INDUSTRY

2.4          PROBLEMS OF REGULATION ON BANKING SECTOR

2.5          INSTRUMENTS OF BANKING REGULATION

2.6          CONCEPTUALIZATION OF DEREGULATION OF BANKING SECTOR 

2.7          UNIVERSAL BANKING – A DEREGULATION CONCEPT

2.8          AFTERMATH OF DEREGULATION OF BANKING SYSTEM

CHAPTER THREE

3.1          SUMMARY

3.2          CONCUSSION

3.3          RECOMMENDATIONS

CHAPTER ONE

1.1       AN OVERVIEW

For the past decades, the Nigeria economy ha undergone remarkable changes from an agrarian economy in the sixties to oil-dominated economy in the seventies and eighties.

During the oil boom of 1970s, which induced rapid growth in the manufacturing, transportation, construction and services sector of the economy. There was an overwhelming dominance of oil in the Nigeria economy since 1973 with petroleum accounting for over 90% of our earnings. This results on the economy caused distortion which led to inadequate pricing of agricultural produces and other local products Deen (1992).

The slump in the world in 1981 and the rise in real interest rate in the international capital market (ICM) from where Nigeria had acquired a jumbo loan in the 70’s triggered off the economic crisis in the economy as real output decline virtually in all sectors of the economy. The slump in the oil market was wrongly assumed to be temporary; hence; appropriate policy measures only encourage the setting up of manufacturing ventures based on wholesome import inputs.  

Domestic and external debts were accumulated with a budget deficit of between 20% and 30% yearly. Not until lately when our debts were written off, government put in place a tight budgetary control, intensified payment, trade controls and other combination of austerity and stabilization measures in order to respond to the problem of budget deficit. Deen (1992).

Despite the fact that these measures (i.e. Austerity and Stabilization) were successful in reducing the expenditure and correction of balance of payment position, they led to the following:

·                    Drastic short supply of industrial output.

·                    Declined aggregate investment.

·                    Widespread temporary and/ore permanent plant closure.

·                    Deterioration in the stock of infrastructural capital.

·                    Declined per capital income.

·                    Large scale retrenchment of workers.

·                    General reduction in the capital utilization by shortage of goods.

·                    Worsened unemployment situation.

·                    Declined production level in almost all sectors of the economy.

·                    Persistent inflationary pressures.

·                    Rapidly increased external debts through an indiscriminate resource to external borrowing.

·                    An increase debt service burden.

The foreign creditors became more inpatient and so reversed to grant us further credit and exceptionally when they were provided, they were given at a prohibitive cost of the economy.

Following the nation wide pubic rejection (from public debates) of the proposed loan from the International Monetary Fund (IMF) in 1985, the government’s response to economic crisis was to formulate a broad range of policy package designed to that the adverse trend and bring the economy to the path of steady growth and development.

The policy packaged was a self imposed and reliant Structural Adjustment Programme (SAP) which was launched on the 27th June 1986, by General Babagida’s Administration. SAP was aimed at deregulating the economy specifically to achieve the following objectives:

i.             Restructure and diversify the productive base of the economy to reduce dependence on the oil sector sand diversify to banking sectors.

ii.           Achieved fiscal and balance of payment viability over the period on banks.

iii.          Lessen the dominance of unproductive investment in the public sector of the economy.

iv.          Lay the basis for sustainable non-inflationary or minimum inflationary growth on banks.

v.            Intensified growth of the potentials of the private sectors especially banking sector.

vi.          Stimulate domestic financial and efficient resources allocation on banks.

1.2       PROBLEM ANALYSIS

Deregulation of financial system in Nigeria has brought about many changes into the banking industry. Some of these changes are volatile and revolutionary in nature. Such changes which affected the financial system in many dimensions included:

·                    The size and structure of the industry as well as the mode of operations.

·                    Inability of the regulatory authorities (i.e. CBN and NDIC) to effectively monitor the expansion in size and the banking industry bought about by deregulation.          

·                    There existed the problem of adequate coping with change of the policy measures.

·                    Lack of human and material resources to analyse the changes and their effects on the operations of banking institutions was also a major problem.

·                    Adoption of inappropriate and irrelevant strategies for a given change in the banking industry.

The result of these is that some banks became financially distressed or technically unhealthy while some had their licences revoked. Therefore, to make adequate recommendation for better strategies to banks in a deregulation environment, it has to be ascertained to what extent the deregulation of financial system affects the banking sector in Nigeria especially.

1.3       PURPOSE OF THE STUDY

This topic is with the aim of finding out the impact or effects of deregulation on banking sector this topics also is meant to achieve the following purposes:

1.           To find out the impact of deregulation on the efficiency of the banning industry in Nigeria

2.           To identify the survival strategies of bank in a deregulation economy.

3.           To examine the effects of various banking policy measures on the banks.

4.           To offer suggestions and recommendation for the survival of the banks in a deregulation economy.

1.4       SCOPE AND LIMITATION OF THE STUDY

In order to achieve the laid down objective of this study and to ensure the completion, data is being sourced from the central bank of Nigeria publication.

The study also discusses the various official policy measures as well as their impact on the operations of the banks. The study does not include the discussion of financial system before the introduction of Structural Adjustment Programme (SAP). It only mentions various financial schemes in existence as at the time of writing.

1.5       RELEVANCE OF STUDY

Like common saying, no knowledge is a waste, and in like manners, a worthy venture yields certain benefits in the long runs. At the end of the study, the researcher expects that the findings will serve as materials to students of Business Administration and Management it would help bank executive to examine their survive. It is believe that this study would be found relevant particularly in sourcing for materials for inclusion in related assignment, term paper and seminar papers.

1.6       DEFINITION OF KEY TERMS

A fore knowledge of the unfamiliar terms and key terms in this work as related and used in this research would place the prospective reader(s) in a better position to understand the information contained therein such terms are presented as follows:

a.       Banking Policies: These are the rules, regulation, directives, order and procedures from government (through CBN) to guide and control the operations, activities and transaction in the banking and other financial industries.

b.      Management Policies: These are rules, regulation, directives and procedures emanating from the management of the organisation to guide and control the activities of the establishment concerned.

c.       Offshore Banking: This refers to the banking activities of a bank outside the geographical boundary of its nation.

d.      Arm-chair Banking: This is a banking system where the bank employees stay comfortably within the premises expecting the depositors to come. This is opposed to the new system where public relations and/ore marketing sectors source for depositors.

e.       Universal Banking: The implies the authority allowed a bank to decide its own portfolio of business and appropriate service delivery channels and infrastructure yet within an applicable regulatory framework. It is therefore defined as the conduct of a range of financial services comprising depositor taking and lending, trading of financial instruments and foreign exchange (and other derivatives) under writing of new debts and equity issues.

f.        Venture Capital: This is the financing of relatively young potentially high net-worth companies at their gestation stages.

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