An appraisal of the performance of nigeria banking industry in post consolidation era

Project Abstract

The Nigerian banking industry has undergone significant changes in the post-consolidation era following the banking sector consolidation exercise of 2004. This study aims to appraise the performance of the Nigerian banking industry in the post-consolidation era by examining key indicators such as profitability, asset quality, liquidity, and capital adequacy. The research will utilize a mixed-methods approach, combining quantitative analysis of financial data with qualitative assessments through interviews with industry experts and stakeholders. The study will analyze financial performance metrics such as return on assets (ROA) and return on equity (ROE) to assess the profitability of Nigerian banks post-consolidation. Additionally, the research will evaluate asset quality indicators, including non-performing loan ratios and loan loss provisions, to determine the overall health of banks' loan portfolios. Liquidity ratios such as the current ratio and the loan-to-deposit ratio will be examined to gauge the ability of banks to meet short-term obligations. Furthermore, the study will assess capital adequacy ratios, such as the capital adequacy ratio (CAR) and Tier 1 capital ratio, to determine the banks' capacity to absorb potential losses and maintain financial stability. By analyzing these key performance indicators, the research aims to provide a comprehensive evaluation of the Nigerian banking industry's performance in the post-consolidation era. In addition to quantitative analysis, the study will incorporate qualitative insights from interviews with banking industry experts, regulators, and other stakeholders. These interviews will provide a deeper understanding of the factors influencing the performance of Nigerian banks in the post-consolidation era, including regulatory changes, market dynamics, and competitive pressures. Overall, this research seeks to contribute to the existing literature on the Nigerian banking industry by offering a thorough appraisal of the industry's performance in the post-consolidation era. By examining a range of financial indicators and incorporating qualitative perspectives from industry experts, the study aims to provide valuable insights for policymakers, regulators, investors, and other stakeholders interested in the Nigerian banking sector.

Project Overview

<p> </p><p><strong>INTRODUCTION</strong></p><p><strong>1.1 &nbsp; BACKGROUND OF STUDY</strong></p><p>Banks serve vital intermediary role in a market-oriented economy and have been seen as the key to investment and growth. Falegan (1987) and Bashir and Kadir (2007) observed that commercial banks play a crucial role in the nation’s economy, by using various financial instruments to obtain surplus funds from those that forgo current consumption for the future. They also make same funds available to the deficit spending unit (borrowers) for investment purposes. In this way, they make available the much need investible funds required for investment as well as for the development of the nation’s economy.</p><p>It is important to note that the business of banking is service-oriented, that is, banks render services to their customers. This is why Adekanye (1986) traced the origin of banking to the Italian merchants. The term “bank” is from an Italian language that simply means ‘Bench or Benco’, it is a process that developed out of the ingenuity of the then Italian blacksmith who specialized in the act of building boxes for safe keeping of jewelries and ornaments. This process was further expanded to numbers of banks in the economy, especially the Bank Consolidation of 2005 which brought the number of banks to 24. This has completely reshaped the face of the financial services industry as we include the safe keeping of other valuables, including money.</p><p>The fundamental changes in the industry in the last few years have brought a reduction in the industry now have more enlightened investors that are keen on a higher return on their investment (Pandy, 2004). With more people now becoming shareholders in the banking sector, it is apparent that more dividends will be paid out to these new shareholders.</p><p>As such dividend decision is one of the three main financial decisions of any firm and it involves the determination of the proportion of a company’s earnings to be paid-out or retained earnings (Olowe, 1998, ICAN, 2006). Consequently, investors are keenly interested in the outcome of their investment, that is, the value of their shares (capital appreciation) and the returns on their shares (dividend). These two values are affected by the quality of policy put in place by management, which directly influenced the returns on such investment or the value of the stocks of the firm (ICAN, 2006).</p><p>A dividend policy therefore is the tradeoff between retained earnings, on one hand, and paying out cash as dividend, on the other hand (ICAN, 2006). Olowe (1998) opined that dividends are distributions, made out of a company’s earnings after the obligations of all fixed income holders have been met. The objective of this study therefore is to assess the factors that could be responsible for the performance of banks in the post consolidation era in Nigeria, where performance is determined through the level of profitability.</p><p><strong>1.2 &nbsp; STATEMENT OF THE PROBLEM</strong></p><p>The problem which this study seeks to solve is to ascertain the reasons for banks poor performance in the post consolidation era in Nigeria. Improvement in individuals, groups or organizations cannot be guaranteed except or unless there is a process of evaluation. Evaluation as a concept is therefore a process by which an organization or firm obtains a feedback on the ways it has carried out its activities over time. Performance links an organization’s goals and objectives with organization’s decisions (Abdulkadir, 2007). It is important to note that before we can declare that an activity has improved, it must have been measured so that the extent of improvement can be determined and/or quantified. Measurement is therefore the first step in achieving improvement.</p><p><strong>1.3 &nbsp; RESEARCH QUESTIONS</strong></p><p>This study is being guided by the following research questions:</p><ol><li>To what extent does capital base influence the savings mobilization performance of a bank in the post consolidation era?</li><li>What is the relationship between banks poor performance and supervision in the post consolidation era?</li><li>To see if there is a positive impact between shareholders funds and NIM (Net Interest Margin).</li></ol><p><strong>1.4 &nbsp; OBJECTIVES OF THE STUDY</strong></p><p>The objectives of the study are highlighted below:</p><ol><li>To evaluate the influence of capital base on the savings mobilization performance of Nigeria banks in the post consolidation era.</li><li>To determine the relationship between banks poor performance and supervision in the post consolidation era.</li><li>To state that shareholders fund does not have positive significant impact on NIM.</li></ol><p>&nbsp;</p><p><strong>1.5 &nbsp; HYPOTHESES OF THE STUDY</strong></p><p><strong>HYPOTHESES I</strong></p><p>Ho: &nbsp; That there is no relationship between the capital base and savings mobilization performance of banks in Nigeria.</p><p><strong>HYPOTHESES II</strong></p><p>Ho: &nbsp; That there is no relationship between banks poor performance and supervision in the post consolidation era.</p><p>&nbsp;</p><p><strong>HYPOTHESES III</strong></p><p>Ho: &nbsp; That there is no positive impact between shareholders funds and NIM.</p><p>&nbsp;</p><p><strong>1.6 &nbsp; SCOPE AND LIMITATION OF THE STUDY</strong></p><p>The scope of this study should be limited to 25 (twenty-five) commercial banks in Nigeria who survived the 2004/2005 bank consolidation exercise. The study covers a period of eight years, (1999-2006). This is in order to ascertain the performance of banks pre/post consolidation.</p><p>A major limitation was data lag and paucity of bank data with reference to the contribution of the various commercial banks who survived the consolidation. Another is the financial stress which the researcher encountered during the course of the research work.</p><p><strong>1.7 &nbsp; SIGNIFICANCE OF THE STUDY</strong></p><p>Therefore, the significance of this study lies in the fact that it would provide an empirical evaluation of the success of the recent recapitalization and consolidation exercise. Besides, it will put to rest the argument stated above between the proponents and opponents of the relationship between banks performance and supervision in the post consolidation era.</p><p>The findings of this study would be beneficial to the regulators of the Nigerian banking sector as they would serve as a yardstick for appraising the banks post consolidation so far. It would also be beneficial to the management of Nigeria banks as it intends to reveal the extent to which</p> <br><p></p>