ABSTRACT

This project is primarily concerned with the structural Adjustment Programme (SAP) with all its deregulation measures which has always been generally believed to have been very beneficial to the banking sector.

 

The deregulation measures whose impact was examined included the deregulation of interest rate and exchange rate structure as well as the liberalization of entry conditions into the banking industry.

 

Two commercial banks – United Bank for Africa (UBA) Plc and Union Bank of Nigeria Plc were used for the study. The branches of these two banks are located in Benin City. Primary and Secondary sources of data were employed for the project.

 

Hypothesis were formulated and tested with the aid of responses obtained by the use of questionnaires. The hypotheses sought to establish the impact of the various deregulation measures on the financial performance of commercial banks.

 

The research however, reveal that the objectives of deregulation were poorly defined and that some of its key objectives such as the elimination of the parallel market, were not achieved.

Therefore, the need for the proper definition of the objectives of deregulation were poorly defined and that some of its key objectives such as the elimination of the parallel market, were not achieved.

 

Therefore, the need for the proper definition of the objectives of deregulation was advocated. It was also recommend that the implications and mechanisms of banking regulation be well thought out with minimum interference from both Government and Government agencies.

TABLE  OF CONTENT

 

                                                                                Page

Title page                                                                         i

Certification                                                             ii

Dedication                                                               iii

Acknowledgement                                                    iv

Abstract                                                                   v

Table of contents                                                     vi

List of tables                                                            vii

List of Diagrams                                                       viii

CHAPTER ONE

1.0      Background of study

1.1  Statements of research problem

1.2      Objectives of study

1.3      The scope of study

1.4      Significance of study

1.5      Statement of research hypotheses

1.6      Methodology of research

1.7      Limitation of study

1.8      Background information of the Organisation

1.9      Organization of study/definitions of terms.

References

CHAPTER TWO

2.0      Literature Review

2.1  The Evolution of Commercial Banking in Nigeria

2.2      A brief history of banking regulations

2.3      The structural adjustment programme (SAP) and Deregulation

2.4      Deregulation of the Foreign Exchange Structure

2.5      Liberalization of Entry Condition into the Banking Industry

2.6      Interest rate deregulation

2.7      The commercial bank in this study

References

 

CHAPTER THREE

3.0   Research methodology

3.1      Introduction

3.2      Sampling

3.3      Source and Method of Data collection

3.4      Research instruments

3.5      Method of analysis of data

3.6      Data presentation

3.7      Methodology limitation

References.

CHAPTER FOUR

3.0      Data Analysis and interpretation

4.1      Data presentation and analysis

4.2      Analysis of secondary data

4.3      Test of hypothesis

4.4      Interpretation of results

 

CHAPTER FIVE

5.0   Findings recommendation and conclusion

5.1      Summary of major findings

5.2      Recommendations

5.3      Conclusion

 

APPENDIX

 

1.     United Bank for Africa Plc Annual Report

        Five year financial summaries

2.     Union  Bank of Nigeria Plc Annual Report

        Five year financial summaries

3.     Questionnaire administered to bank staff

 

        Bibliography

 

LIST OF TABLES

                                                                                          Page

Table

1.           Breakdown of individuals tested

2.           Indigenous commercial banks registered between 1929 and 1959 (some of them).

3.           Average naira exchange rates.

4.           Commercial banks branches in Nigeria and Abroad.

5.           Predominant interest rates (selected).

6.           Position of union bank plc and UB Plc in the Nigeria banking industry.

7.           Analysis of response

8.           Length of service in the banking industry

9.           Length of service in the banks in the study

10.       How beneficial was the increased number of banks to the commercial banking industry

11.       Impact of the increased number of banks on the financial performance of the banks.

12.       Impact of interest rate structure on financial performance of banks.

13.       Influence of interest rate structure on deposits.

14.       Influence of interest rate on advances to customer.

15.       The deregulation of the exchange rate and the depreciation of the  naira

16.       Effect of exchange rate deregulation of projects on the bank.

17.       Success of the deregulation of the exchange rate in eliminating the parallel (black) market.

18.       Was a realistic exchange rate achieved for the naira.

19.       (a)          Which deregulation measure was most

beneficial?

   (b)            Which deregulation measure was least

beneficial?

20.       How well were the objectives of deregulation of defined?

21.       How efficient were the monitoring devices and implementation strategies put in place?

22.       Did the supervision of the CBN relax with deregulation?

23.       Do you prefer a deregulated banking industry to a regulated one?

24.       (a)          Performance table for UBA PLc

(b)          Performance table for Union bank Plc

    25.   (a)            table of improvement for UBA PLc

(b)                   Taste of improvement for Union Bank Plc.

LIST OF DIAGRAMS

  Title

1.          A multiple Bar Chart showing the rating of the success of deregulation in eliminating the parallel (Black) market.

2.          A multiple bar chart showing how well the objectives of deregulation were defined in the opinion of the bankers.

3.          A multiple bar chart showing efficiency of the monitoring devices and implementation strategies.

4.          Pie chart showing the preference of Nigeria commercial bankers.

CHAPTER ONE

INTRODUCTION

1.0   BACKGROUND OF STUDY

The downward slide of the Nigeria economy in the early 1980s such as stagnant growth, rising inflation, unemployment, food shortages and mounting external debt, called for definite recuperation measures to be taken to put the economy back on course. Hence, the introduction of the structural adjustment programme (SAP) by the general Ibrahim Babangida’s Administration in 1986.

 

Deregulation which was the central policy action in SAP package was introduced to carried the overvalued naira to achieve a realistic exchange rate through, the introduction of second tier foreign Exchange Market (SFEM), which became operational after the promulgation of the SFEM Decree in August 1986 by the sitting government.

Deregulation was also manifested by the number of licensed banks issued to individual or group of individual who had the wherewithal to float banks thus lead to the liberalization of entry conditions into the banking industry. The ease with which this was achieved enhanced the competition in the banking industry.

Deregulation of the interest rate structure followed foreign exchange market deregulation in April 1989, when the central bank removed the lid on the interests motion the process of deregulation which was extended to cover interbank market operations which later had undesirable consequences and forced the central bank of Nigeria to re-introduced a maximum spread between banks lending and saving deposit rate. This measure brought a lot of money to the commercial banks in the deregulation era. However, it should not be forgotten that by then, the naira exchange rate had greatly depreciated. What effect had this on the commercial banks? Were things really as rosy as the regulators and operators of the banking industries would have us to believe? Was deregulation the best thing ever to have happened to the commercial banking sector? These are a few of the question this study seeks to answer.

 

1.1      STATEMENT OF RESEARCH PROBLEM

Since deregulation started in 1986, the nations economic woes are being attributed in part, to the functional nature of the banking sector. Some problems associated with deregulation in the banking sector have been enumerated to include an ineffective international approach, imperfections in the economy, lack of policy coordination between the regulator (Central bank of Nigeria) and the operators (Banks).

 

The Major Research Problem Include:

·                    To evaluate whether interest rate structure has effect on the financial performance of the commercial bank in Nigeria.

·                     To determine problems associated with SFEM and its efforts to eliminate the parallel market as well as its impact on commercial banks profitability.

·                    To determine the length to which the financial performance of the commercial banks can be attributed to deregulation.

·                    To evaluate the level of foreign exchange demand among the Nigeria populace and the impact of such demand on the exchange rate structure.

 

1.2      OBJECTIVES OF STUDY

 The main aims and purposed of this study is to determine the impact of deregulation on the financial performance of commercial banks in Nigeria by examining the interest rate structure before deregulation (1986) and after deregulation from (1987 to 1993) as its affect not only the profitability but also the productivity and survival of the commercial banks.

 

Apart from the above stated main objectives others are as follows:

·                    To ascertain other deregulation measures and their effects on commercial banks so far.

·                    To make policy recommendation within the frame work of this study which when applied will be useful in the further analysis of regulation and deregulation in the banking industry.

1.3      THE SCOPE OF STUDY

The study was limited to two commercial banks viz: Union Bank Nigeria and United Bank for Africa (Nigeria) Plc the decision to use the above commercial banks was predicted upon the fact that they are commercial banks long standing with stable performance. They also rank among the leading commercial banking in Nigeria.

 

1.4      SIGNIFICANCE OF STUDY

This work is essentially relevant to the commercial banks, the researcher and other interest parties who want to know abut the deregulation era. To the commercial banks it will enable them evaluate their financial performance during the deregulation era. The impact the policy has on their performance and efficiency during this period.

 

This work also shows the part played by the central bank of Nigeria during this period. To the research, it has helped in the upliftmnet of his/her knowledge about the banking sector and the impact deregulation has on it.

To other parties, it would broaden their knowledge on deregulation and also to add other ideas in use of further research to be carried out on this topic.

 

1.5      METHODOLOGY OF RESEARCH

Both primary and secondary source of data were employed for the purpose of this study. The primary sources of data consisted of:

1.          Questionnaires

2.          Personal interviews

 

The questionnaire (which were structure are hundred in number) were used to elicit valuable information.

 

The nature of the study and hence the hypothesis necessitated that only bank officials who have acquired over 10 years experiences in the industry were selected. My decision to limit myself to these class of people was premised in the fact that, they would have witnessed changes in various policies over the years both during the pre and post deregulation era. Hence the chance of getting a fairer opinion on the subject matter. Personal interview were also conducted to validate the consistency of the questionnaires.

 

The secondary data consisted of annual reports and other records kept by the banks.

 

1.6      LIMITATION OF STUDY

1.          Financial Constraint: Among the limitations which prevented a wider area of the study being used, include the branches of the two banks added up to just two each and money constraints prevented a much wider are being undertaken as we would have loved to do our research in other states of the federation.

2.          Time They say is never a friend to man. Due to the constraint of time face as full-time students we have not work to the best of our abilities. It also took time for the banks officials to fill and return questionnaires given to then as they are notorious for their “extreme caution” when it comes to divulging information about their bank.

 

1.7      BACKGROUND INFORMATION OF THE ORGANISATION

1.7.1Their aims and objectives: Union Bank and United Bank for Africa have similar aims and objectives which include the following:-

To carry on in Nigeria and in any part of the world the business of commercial banking in all its branches established and to do all matters and things incidental there to which may at any time hereafter at any place where the company shall carry on business of dealing in money or securities rates duly authorized by an Act of Law. To carry on business for discounting delay in exchange.  Species and securities.

 

To receive deposits, other monies, documents of title, with chattels and all other goods or materials convenient to be deposited with a bank to carry on the business of increasing monies from outside sources as deposits, irrespective of the payment of interest and the granting overdraft, loans acceptance of or the purchase or dale or securities and other transaction as the minister may on the recommendation of the central Bank order. Publish in the Government official gazette designated as banking business.  

 

1.7.2               A Brief History of Union Bank of Nigeria Plc

Union Bank of Nigeria Plc was established in the year 1917. It was then known as the colonial bank. The bank’s first office was located at the old 55 Maria, Lagos. The other branches were opened in Jos and port Harcourt during the same  years.

 

As a result of the Nigeria enterprises promotion Decrees of 1972 and 1977 which put the force law behind government indigenisation policy the federal government of Nigeria acquired 51.67% of the Banks shares while Barclay’s Bank Plc. was left with 40% and the remaining 8.33% with the Nigeria public on 21^st March 1978, Federal Government ordered sanctions of Barclays’ bank as a result of the pronouncement of Barclays banks international limited of London on its activities in South Africa. The sanctions of Barclays Bank as a result of the  pronouncement of Barclays bank international limited London on  its activities is south Africa. The sanctions included the immediate withdrawal of the public sector fund from the bank and the reduction of the expatriate quota by one – third. 

 

Barclays bank decided to sell 20% of its shares holding in the bank to Nigeria in 1979, thus reducing their equity holding, the name of the bank was changed from Barclays bank of Nigeria limited to union bank of Nigeria limited to reflect the new image and new ownership structure of the bank.

 

The performance of the bank has been very impressive inspite of the setback suffered as a result of the sanctions of 1978. Between 1981 and 1984, the bank made the highest level of profit in the banking sector in Nigeria. In 1985, the bankers Almanac year book rated the ban in terms of total assets as the299th among the 2000 major international banks in the world.

 

In 1986, the bank was the first to hit the N1.00 billion mark in its savings deposit. The bank also won the Nigerian stock exchange market award in the financial sector for six consecutive years from 1979-1984.

 

Presently, the bank has over 212 functional branches spread throughout, the country and a branch in the city of London.

 

1.7.3               Brief History of Union Bank of Nigeria Plc and United Bank for Africa Plc.

Union Bank of Nigeria Plc was established in the year 1917 as colonial bank. The bank first office was located at old 55, Maria Lagos, while other branches were later opened in Jos and Port Harcourt during the same year.

 

In 1971, 8.33% of the shares were offered to Nigeria citizens and associations and was listed on the Nigeria stock exchange (NSE).

 

As a result of the Nigeria enterprises promotion decree of 1972 which put the force law behind government indegenization  policy the federal government of Nigeria  was able to acquired 51.67% of  the banks shares while Barclay’s Bank Plc was left with 405 later Backay’s Bank  decided to sell 20% of its shares holding in the bank to Nigerian in 1979 due to sanction order slammed on it by the federal government which reduced their equity holding which was latter followed by changing the name of the bank from Barclay’s bank of Nigeria limited to Union Banks of Nigeria  Ltd to reflect the new image and ownership. Structure of the bank.

 

Inspite of this set back, the performance of the bank has been increasingly impressive up to this present time. Presently the bank has over 400 branches across the country with capital base in excess N50 billion.

 

In the same vein, United Bank for Africa (UBA) was established in 1949, as the British and French Bank Ltd which was an offshoot of Bank Nationale Pour Le Commerce et, L’ Industries), Pans, established in 1932.

 

In accordance with the policy and intention of the French owners, U.B.A. Ltd was incorporated to take over the British and French Bank Ltd in October 1961, with the registered address at 127/129 Broad street, Lagos. By 1970, the bank undertook a voluntary public issue placing 6% of its shares in favour of Nigeria participation, thus by 1980, the First Indigenous Managing Director, Alhaji U.A. Matallo was appointed. Consequently, the ownership of the bank was changed to what it is today.

Ministry of finance           45.76%

Nigeria citizens                14.24%

Others                              40%

Urged to diversity its capital base, the bank in 1982 obtain through the capital market preference share liability.

 

Due to the reform and recapitalization going on the banking industry, U.B.A. has decided to punch tent with the defunct standard Trust Bank to form what people called Mega Bank which presumably is the largest in the sub-Africa region with the capital base of over N55 billion. U.B.A. presently has over 460 branches online real time all over the world.

 

1.8      ORGANISATION OF STUDY/DEFINITIONS OF TERMS

UBA:                United Bank for Africa Plc

NSA:        Nigeria Stock Exchange

SAP:         Structural Adjustment Programme

 

SFEM: This refers to the second-tier foreign exchange market established by the General Babangida administration in September 1986 for a competitive market oriented allocation of foreign exchange with its downward adjustment of the Naira exchange rate.