THE CRITICAL ANALYSIS OF BANKS PERFORMANCE IN NIGERIA

ABSTRACT

The sound financial health of financial institutions especially banks is often seen as a guarantee not only to its depositors but also it enhances shareholders wealth, ensures employees’ commitment as well assist in growing the economy. As a sequel to this maxim, efforts have been made over time by regulatory authorities at ensuring a stable financial position of bank. It was against this background that this study evaluates the performance of banks in Nigeria for the period of 2001 to 2010. The study adopted the ex-post research design and data were collated from annual statement and accounts of the banks under review. While, Return on Asset (ROA), Return on Equity (ROE) and Net Interest Margin (NIM) were used as the dependent variables Shareholders fund was used as the independent variable for the three hypotheses stated and the Ordinary Least Square (OLS) regression model was used to test the hypotheses stated. The result showed indicates that Shareholders’ Fund (SHF) have positive but insignificant impact on Return on Assets (ROA), Return On Equity (ROA) and Net Interest Margin (NIM) of these banks. It was therefore concluded from the results that financial structure of banks in Nigeria does not have significant impact on profitability of banks in Nigeria. We thus recommend that management of banks in Nigeria should ensure the utilization of optimal financial structure of their banks as regards the use of external financing that will enhance profitability of their banks thereby enhancing shareholders’ wealth maximization.

CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF STUDY

Performance failure among Nigerian banks has resulted in loss of public confidence in the banking sector. Performance links an organization’s goal and objectives with organization decisions. Public confidence on the banking industry in Nigeria depends greatly on the profitability of the participating banks in Nigeria. This explains why the call for the critical assessment of the performance of the banking system in Nigeria. The efficiency of the banking system has been one of the major issues, in the new monetary and financial environment of the world today. The efficiency and competitiveness of financial institutions cannot easily be measured, since their products and services are of an intangible nature. Many researchers had attempted to measure the productivity and efficiency of the banking industry using outputs, size, costs, efficiency and performance. This is because the scale and scope of economies of banking have been one of the issues relating to the competitiveness, efficiency and survival. The outcome of this issue of performance is the existence of many reforms aimed at reorienting, repositioning and revitalizing an existing status quo bedecked with bottlenecks that inhibits against institutional smooth running and growth. The dynamic nature and uncertainties in human endeavors, also added to call for innovations and reforms aimed at addressing weak corporate governance, risk management, operational inefficiencies and undercapitalization and so on in order to meet the going-concern aims and objectives of profit maximization and the requirements of the economy and the globe at large. Banks promote economic growth by pooling savings together from the surplus units and supplying some to the deficit units requiring short and medium term funds for their investment. The proportion of deposits mobilized by banks constitutes the bulk of bank liabilities. The shareholders’ fund is relatively a small proportion of the financial resources available to banks. Also banks are medium through which the country’s monetary policy is discharged. The achievement of the nation’s macroeconomic objectives cannot be facilitated in the absence of the banking system acting as a semi-permeable membrane. This accounts for the government interest in banking.

Apart from rigid regulations guiding entry into the banking system, Government all over the world through the central bank influences monetary policy and the operations of the banking system which is known to impact remarkably on the economy. Thus, the monetary policy transmission mechanism and economic growth mechanism permeate through the banking sector. In the light of the role of banks in the financial landscape, it becomes imperative that technical and technological innovations meant for positive adjustment be introduced at any little porous signal of anomaly.

Therefore, there was need for regulations and reforms to ensure stability in banking system. Giddy (1984) and Sheng (1999) provide four major reasons why banks should be regulated. The first relates to monetary policy – the ability of banks to create money. Second, as channels of credit or investments, banks are involved in credit allocation. Third, banks are regulated to ensure healthy competition and innovation by preventing the formation of cartels. The fourth is for prudential regulation reasons and to mitigate the problem of information. This view is supported by Howells and Bain (2004) who stated that the reason for bank regulation originates from the existence of asymmetric information – the fact that customers of the institutions (banks) are less informed and thus more at a disadvantage about the affairs of the banks and not the banks as perceived by opinions. This justified the fact that reforms in the banking sector are necessary to ensure the safety of depositors’ money, deepen the financial system for soundness and efficiency of the system in order to engender growth of the economy. Okpara (2011) observed that a feeble banking system is repressive, discretionary and discounts the intermediation process thereby precipitating macroeconomic instability. Therefore to ensure normalcy in any financial economy, reforms are necessary.....

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Item Type: Postgraduate Material  |  Attribute: 97 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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