ABSTRACT
The global financial crisis is a
contemporary economic issue prevailing in the world today both in the developed
and emerging economy and has affected almost all sectors
of the economy. In the wake of the world been a global village, Nigeria is not
immune to the effect of the crisis. This has an impact on some sector including
the banking industry.
The study conducted and assessed the impact
of the Global
Financial Crisis in the Nigeria
banking industry using First City Monument Bank (FCMB) as a case study. And to show the relationship that exists between the
Global Financial Crisis and the Nigeria Banking Industry.
The project reviewed the nature,
causes, effect of the crisis on the Nigerian banking industry as well as the
possible action taking by the government to curb the effect of the crisis.
Data were predominantly gathered,
using the questionnaire administered on the workers at different cadre of the
first city monument bank (FCMB).
The data collected were analyzed
using the descriptive and inferential statistical analysis, Chi-Square
statistic was precisely employed in the analyzing of the data collected.
The study revealed that the global
financial crisis affects the banking industry in all ramifications to include
the share prices of the Nigerian banks, the performance and profitability of
the banks and the banks’ credit policy.
However, this study concluded that the
government should profer solution to the ongoing crisis. Hence, it recommends
that effective and immediate actions should be taken to solve the problem of
the crisis.
TABLE OF CONTENT
PAGE
Title
page
i
Certification
ii
Dedication
iii
Acknowledgement
iv –v
Abstract
vi – vii
Table
of content
viii - ix
CHAPTER ONE
1.0 Introduction 1
1.1 Background of the study
1- 4
1.2 Statement of the research problem
4 - 5
1.3 The aims and objectives of the study
5
1.4 Research question 5
- 6
1.5 Research hypothesis
6
1.6 Research methodology 6
- 7
1.7 Significance of the study
7 - 8
1.8 The scope and limitations of the
study 8 -9
1.9 Organisation of the study
9 – 10
CHAPTER TWO (literature review)
2.0 Introduction 11
– 13
2.1 Meaning and concept of global financial
crisis 13 – 16
2.2 Causes of the global financial crisis 16 – 18
2.3 The build-up to the crisis 18 – 20
2.4 The onset of the crisis 20 – 24
2.5 Consequence of the crisis 24 – 25
2.6 What is the outlook for Africa 25 – 32
2.7 policy responses to the crisis 32 – 36
CHAPTER THREE (structural composition)
3.0 Introduction 37 – 38
3.1 overview of the Nigerian economy prior to
the crisis 38
– 40
3.2 Shocks in the Nigerian capital market 41 – 43
3.3 Shocks in the banking system 43
– 46
3.4 Impact on federal government medium to
long term bonds 46
3.5 Global financial crisis and the Nigerian
oil sector 46 – 49
3.6 Global financial crisis and the non-oil
sector in Nigeria 49 – 51
3.7 Impact on foreign exchange earnings 51 – 52
3.8 Impact on the current (2009) budget 52
– 53
3.9 impact on the national debt 53
3.10 impact on net capital flows 53 – 56
3.11 emerging fact from the economy since the
advent of the crisis 56 – 57
3.12 policy response to the crisis in Nigeria so
far 57- 61
CHAPTER FOUR (research methodology, data presentation,
analysis and interpretation of results)
4.0 Introduction 62
4.1 Research methodology 62
4.2 Research design
62 – 63
4.3 Sampling techniques and procedures
63 – 65
4.4 Sampling size and Sampling techniques
65
4.5 Data sources
65
4.6 methods of data analysis
66 – 67
4.7 Data presentation
67 – 72
4.8 test of hypothesis 72
– 79
CHAPTER FIVE (summary, conclusion and recommendations)
5.1 Summary Of Finding 80 – 81
5.2 Conclusions 81 – 82
5.3 Recommendations 83 - 84
References 85 - 87
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND
OF THE STUDY
The global economy has witnessed one of the
most drastic downturns in its financial system since the great depression of
the 1930s and the stock market crash in late 1980s. The world economy is on the
slowdown again due to the credit that engulfed the United State and its fallout
on the economies of the United Kingdom, the European zone and the rest of the
world. The global financial crisis has affected the domestic economy and has
implication on different sector including the today’s business.
The last quarter of the year 2007 when it all
started what some expert describe as the worst global financial crisis in
decades, the worst of its kind since the Great Depression. Alan Greenspan, the
former head of the United States reserve system described it as “an event that
occurs once in 100years”. From the Wall Street financial headquarters in the
United States, across to Europe, Japan and China, the Global Financial system
around which the modern free market economy and capitalism is built is crashing
like the pack of cards.
Authorities across the globe are alarmed at
the spate of the meltdown in major stocks. Financial authorities are bemused as
there seems to be no handy solution to the crisis. Could this be an historical
imperative that must be full course before correcting itself? If as Alan
Greenspan opined it were an event that most occur, then it would naturally
correct itself after the turmoil.
On the other hand, was the crisis fallout of
the rapacious and uncontrolled global capitalism that boomeranged with never
anticipated consequences? Many think the latter is the case. This group of
people attribute the crisis to the “law of jungle capitalism” or what is known
as “casino capitalism” that pervades the global financial system.
What is the meaning of all this? We are in a
system where capitalism no longer invest in production and job creation but
invest money in stocks in a totally unfettered manner. Money is used to chase
money artificially to amass stupendous profit, line the pockets without
commensurate work or productivity. It is akin to high-stake gambling, it could
flourish for a long time during which time the gamblers lose recorded huge
profits could wiped out in one flash. This form of capitalism is destroying the
world economy. Whereas, the west has the capacity to absorb the shock, the
developing world is particularly imperiled because of lack of solid productive
base and wide spread poverty.
The current global financial crisis has been
described by many economists a as great challenge to the world economy. They
are of the opinion that the current crisis is largely different from past
crisis which are usually region-based. As a result of the current financial
turmoil this is rapidly spreading across the continents. Concerned parties such
as the economist, financial analyst have been pointing to the need to take
serious actions to shore up faltering economies and restore confidence in the
global economy.
The reason for the crisis are varied and
complex. The crisis can attributed to a number of factors pervasive in both the
housing credit market, which was developed over an extended period of time.
There are many different views on the causes including the inability of
homeowners to make payments, poor judgment by the borrowers and/or the lenders,
speculation and over building during the boom period, risky mortgage products,
high personal and corporate debt levels, complex financial innovations that
distributes perhaps concealed default risk, central policies and government
regulations. The significant decline in housing prices led to delinquencies in
mortgage payments and foreclosures which cause a ripple effect across the
financial market and global banking systems, as investments related to housing
prices declined significantly in value, placing the health of key financial
institution and government sponsored enterprises at risk.
Reputable organizations in the United States
such as Dow Jones have been witnessing cyclical bear market since July 2 2008
coupled with series of panics related to financial instability caused by the
failure and/or Sub-prime mortgage lending difficult to the investment banking
industry. It is however noteworthy that this wild financial period is not
confined to the United States. According to a Time Magazine essay, the global
stock market lost a whooping $8.5 trillion as measured by standard and BMI
Global (an index of major market worldwide) on October 6 and 7, 2008 alone. The
world as become a global village sewn together through telecommunications and
technological advancements. Financial products particularly mortgaged backed
securities (MBS) are traded across boarders online, hence one global market.
This is a clear indication that the global
economy is inter-related, hence, what affects the one country directly or
indirectly affects the others. Here in Nigeria, how are we affected by the
ravaging economic depressions? What measures are needed to cushion the impact
on the economy and the people? The economy of Nigeria, as a developing country,
largely depends on the economies of various foreign developed countries that
are being plagued by the global financial crisis.
1.2 STATEMENT
OF THE PROBLEM
The financial turmoil has justified a modest
reduction in the baseline forecast for the global growth, but will not by
itself prevent a gradual recovery in the future. Advanced and emerging
economies are moving in the same direction, that is, growth is slowing
everywhere effectively ending earlier hopes of a growth decoupling the marked
the slowdown in global activities is been led by major advanced economies,
which are either close to recession or experiencing growth far below
potentials. In the United States housing and credit market remain at the core
of slowdown. The growth slowdown as spread to Europe, Japan, amid weak business
and consumer sediment, terms of trade losses, the impact of strong currency on
trade and tightening credit condition. Activity also is decelerating in the
developing economy.
At the same time energy and commodity prices
have receded. Inflation pressure as risen around the world to the fastest since
the 1990. In advance economies, inflation have accelerated to around 4.5% in
July, driven mainly oil prices rises. However, core inflation has remained
contained. The recent resurgence has gone much further in developing economies,
although risks have receded recently. Inflation climb to 9% in the aggregate
mid year and a lot of countries are experiencing double digit inflation.
Having identified that the Nigeria economy as
a system which operates within an environment that is greatly influenced by
other actors broader system (global economy). The impact of the financial
crisis on the Nigerian economy cannot be overemphasized as this manifest in the
performance of the capital market by the drastic fall in price of stocks since
early 2008 and still finding it difficult to rise till date.
1.3 OBJECTIVES
OF THE STUDY
Since the commencement of the current global
financial crisis, fears have been expressed on its likely implication on the
Nigerian economy. Without prejudice to the assurance given by those who should
know that the Nigerian economy is immune to the global financial crisis, there
is the need to look at the wider implications of our economy. It is imperative
therefore to consider how the global financial crisis affects the Nigerian
economy; this will be the main objective of this study. The specific objectives
include the following;
1.
To know the implication of the global
financial crisis on the price of crude oil.
2.
To ascertain how the global financial crisis
have affected the capital market.
3.
To examine the effect of global financial
crisis on the Nigerian foreign reserves.
4.
To know how the global financial crisis has
actually affected the banking sector.
5.
To determine possible ways which the Nigeria
can be bailed out of the crisis.
1.4
RESEARCH
QUESTIONS.
1. What are the possible causes of the
global financial crisis?
2. How has the crisis affected the global
economy at large?
3. What are the implications of the global financial crisis on
Nigeria economy?
4. Does the global financial crisis have any effect on the capital
market, banking sector, foreign reserve, crude oil prices, investment, and the
ICT sector?
5.
What has been the major problem encountered in solving the problem?
1.5 RESEARCH HYPOTHESES.
1. Ho:
There is no significant relationship between the Global Financial Crisis and
the Financial Sector.
Ha:
There is a significant relationship between the Global Financial Crisis and the Financial Sector.
2 Ho:
The Global Financial Crisis does not affect the Real Sector.
Ha:
The Global Financial Crisis affects the Real Sector.
3 Ho:
There is no significant relationship between global financial crisis and foreign direct investment (FDI).
Ha:
There is significant relationship between global financial crisis and foreign
direct investment (FDI).
1.6 RESEARCH METHODOLOGY
This area of the
research work will explain in details, the mode of data Collection, Analysis
and Interpretation.
1.6.1
Methods Of Data Collection.
For this purpose,
therefore, two major sources shall be explored. They are as follows:
a) Primary Sources:
These sources of data will help the researcher to generate primary data.
Primary data are those data that will originate from the researcher himself
through various means such as: Observation, experimentation, survey, interview,
and so on.
b)
Secondary
Sources: These are those sources of data that do not originate
from the researcher himself. In order to obtain the relevant variables for the
purpose of answering the research questions, testing the hypothesis, and
achieving the research objectives, the researcher will explore secondary
sources of data like: Textbooks, Magazines, journals, News Papers, CBN research
library, National Bureau of Statistics (NBS), Electronic Archives among others.
1.6.2 Method of data analysis.
All relevant
variables will be gotten through the methods highlighted above and will be
analyze with the use of statistical package for social sciences(SPSS) with the
Chi-square technique being used to examine the extent to which the crisis
affect some sectors of the economy and the whole economy at large.
1.7 SIGNIFICANCE
OF THE STUDY.
This study is
justified since it is an exploratory one. The global economic depression is a
global phenomenon in every economy and that of the developing nation is no
exception. This study hopes to determine the areas which the crisis has
affected the economy and possible steps to be taken to solve the problem.
The report of this
study would be adopted by policy planners, government agencies, financial
analysts and the masses. Apart from contributing new knowledge to academic
discipline, the study serve as a good secondary data for other researchers who
might be interested in conducting a further similar research in the area of the
impact of the Global Financial Crisis.
1.8
SCOPE
AND LIMITATIONS OF THE STUDY.
The global financial
crisis is a current issue in the world today. Perhaps ironically, because of
the developing nation generally weak integration with the rest of the global
economic system, as reported by Reuters, it is believed that many of the
developing nations will not be affected with the crisis, at least not
initially. The wealthier ones in which Nigeria is included who do have some
exposure to the rest of the world, however may face some problems with her
economy.
However the entire
research work will concentrate on the impact of the crisis on the following
sector of the economy;
1. The Capital market.
2.
The Banking Sector.
3.
Crude oil prices.
4. Foreign
Reserve.
5. Foreign
Exchange.
6. Investment.
7. The
ICT sector.
8. Gross
Domestic Product (GDP).
9. Prices
of Basic food commodities.
10. Per
capital income.
11. Wage
levels.
Because the topic is a contemporary issue in
the world which has been mentioned earlier, the research will make use of data
and information available from the genesis of the crisis (2007) to date for all
relevant variables being studied.
Nevertheless, findings of this research will
consider the peculiar circumstances of the study area.
It would be fallacious to claim that the
research will be constraint-free. The research project will be limited to
several constraints, chief amongst which are:
1.
Time
Factor: The time duration will not be enough to collect and
collate more past studies on the topic for evaluation so as to give more
information on the topic;
2.
Financial
constraint: The high cost of materials will definitely
restrain the researcher from testing more models, which will further enhance
the result to be derived from the study;
3.
Information:
Another limitation likely to be faced by the researcher is the sensitivity and
unavailability of certain data required for the purpose of this research. As
such, this might lead to the dearth of relevant statistical information.
However, the
researcher will make use of available time and data at its disposal that will
give a reliable and dependable result.
1.9 ORGANIZATION OF STUDY
This study is divided
into five chapters. In the first chapter, which the introduction, various
objectives intended to be achieved in carrying out this research work is looked
at. More so, the significance of the research study was highlighted. In
addition, research methodology, research question, research hypothesis,
justification of the study were stated among others things.
Chapter two, which is
the literature review, examined the theory and concept of the topic in
question. In chapter three, which is the structural composition the various
instrument and techniques of analysis to be adopted was extensively analyzed.
Chapter four contains
data analysis. The data analyzed was gotten from primary sources and the result
was analyzed through the use of statistical package for social sciences (SPSS)
with the chi-square technique being used and the Summary, Conclusion, and
Recommendation are presented in Chapter Five.
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