EFFECT OF GLOBALIZATION ON THE NIGERIAN BANKING PERFORMANCE (A Case Study of First Bank Plc)
TABLE OF CONTENT PAGES Title page i
Table of contents vi
CHAPTER ONE: Introduction
1.1 Background to the Study 1-3
1.2 Objective of study 3
1.3 Statement of the Problem 3
1.4 Research Questions 3
1.5 Research Hypothesis 3-4
1.6 Significance of Study 5-6
1.7 Scope and Limitations of Study 7
1.8 Definition of Difficult Terms 8
1.9 Plan of Study 8
CHAPTER TWO: Literature Review and Theoretical Framework
2.1 Introduction 10-11
2.2 Globalization Historical Perspective 11-12
2.3 Concept of Global 12-13
2.4 Nigeria in the Global Economy 13-16
2.5 Globalization and the Nigerian Banking Performance 16-20
2.6 Effects of Globalization on the Financial Sector. 20-21
2.7 Challenges of Globalization and the Nigerian Banking
2.8 Implication Of Globalization For Nigerian Banks And
2.9 Consequences of Globalization on the Nigerian Banking
2.10 Conclusion 27
CHAPTER THREE: Research Methodology and Design
3.1 Introduction 34
3.2 Sampling Techniques 34
3.3 Sources of Data Collection 34-35
3.4 Population of Study 35
3.5 Questionnaire Design 35
3.6 Restatement of Hypotheses 36
3.7 Method Of Data Analysis 36
CHAPTER FOUR: Data Analysis and Discussion
4.1 Introduction 44
4.2 Presentation of Data 44
4.3 Hypotheses Testing 45
CHAPTER FIVE: Summary of Findings, Conclusions and
5.1 Summary of Findings 54-55
5.2 Recommendation 55
5.3 Conclusion 55-56
1.1 BACKGROUND OF THE STUDY
There have been different deductions about what globalization depicts. Some related it to the scientist perspective, economic and social-political perspective while some view globalization from the information technology aspect, but globalization under this research work or study, is viewed from the banking perspective.
On this note, there are so many definitions given to globalization by different authors or scholars. Globalization can be seen as a process of integrating economic decisions making such as consumption, investment, and savings all across the world. It is a process of creating a global market in which all nations are forced to participate.
In other words, globalization is a process of expanding economic cooperation among states and this does not necessarily imply a future breakdown of borders.
Globalization can also be defined as the integration of national economies through trade and financial transactions. It is a process that has tended to reduce the ability of microeconomic policy to achieve its objectives without the due consideration of countervailing effects of competing policies adopted by other nations. The effect of globalization on the Nigerian banking performance has been the outcome of several factors among which are the increase in the volume of international trade and capital flows, technological improvement in the communication and data processing, and the deregulation of the domestic market for international financial transactions. The advance in information and technology, telecommunication technology tends towards the building of a strong Nigerian banking system, in order to aid its efficient and effective performance, especially with the new reform of recapitalization of twenty-five, billion naira (#25,000,000,000)
All over the globe, foreign banks have entered into countries and added another dimension to stiff domestic competition and in the process, significantly affecting the structure of domestic banking markets. This is particularly evident in the United States, central Europe, Latin America, and Asia, where foreign old banks have captured a growing share of key markets (Rose, 1999). The profiles of the foreign banks that have entered into joint ventures with Nigerian banks are intimidating. They have the capacity and potentials to restructure the banking system of any country. The strategic alliances between the Nigerian banking system and foreign banks and the increasing resources of Nigerian banks to foreign markets to raise capital funds are signs of movement towards globalization and the Nigerian banking industry. This has to a large extent aid a magnitude level of great performance in the industry and of course tending it to a greater height.
Furthermore, globalization has transformed Nigerian banking performance in a profound way by altering the size and structure of the firms that comprise it. Major banks can now extend their branches network beyond national frontiers or built a strategic base in foreign financial centers by acquiring either local banks or subsidiary banks. The network of financial connections, among banks and other financial institutions, is now embracing the global world.
Globalization has not only transformed the Nigerian banking system and or aid its performance, but also has a positive impact on wholesale financial markets as evidence by blurring-off the traditional barrier between commercial banking and investment banking and asset management motivated by the boom in equity and bond market, in high yielding instruments and the wave of merger and acquisition, the Nigerian banks have expanded or introduced into the field of investment banking by engaging in security operations.
Also, globalization is simply viewed as the gradual evolution of markets and institutions such that geographical boundaries do not restrict financial transactions. Globalization of banking in any economy means that domestic banks have opportunities to engage in banking operations (accepting deposits, lending, borrowing, or investing) in foreign markets. They can issue or transact in foreign financial instruments denominated in foreign currencies. Foreign banks can also perform similar functions in the domestic economy. The impetus for globalizing the financial market initially came from the deregulation of the foreign exchange and capital markets by governments of the developed countries, especially the united states, the United Kingdom, and Japan. Perhaps the most celebrated of all these was the deregulation of the London stock exchange in 1986, Which made London be the most open and competitive capital market in the world (Eunamd Resnick, 2001). This was followed by the widespread Liberalization of financial markets in both developed and developing economies.
Advances in telecommunication contributed in no small measure to the emergence of global financial markets. This technological advancement, especially internet-based information technologies, gives investors around the world immediate access to the most recent news and information affecting their investments, sharply reducing information costs. Another force that drives globalization is the increasing desire of institutional investors and portfolio managers to diversify their investment portfolio behind geographical boundaries. Finance theory holds that international diversified portfolios are more efficient than domestic portfolios.
Moreover, the stabilization of finance and financial risk has been attributed to an increase in the financial capability for engaging precision finance, the integration of national financial institutions and the activities of the markets they engage in, and the emergence of the global banks and the international financial conglomerate, each providing a mix of financial products and services in a broad range of market and countries. Financial and bank globalization has resulted in two distinct development in the global bank;
The traditional banking institutions have evolved into financial services of creating new accounts. Additionally, non-bank financial institutions now actively compete with banks both on the asset and liability sides of the balance sheet thereby blurring the distinctions between banks and non-bank institutions. Also, the rapid growth in the share of other earning assets in the total asset and relative growth in the off-balance sheet items has unprecedented.
1.2 STATEMENT OF PROBLEMS
The problems which this project work is interested in finding answers to are centered on the following:
That globalization has doubtfully performed up to the task of positively affecting the Nigerian banking industry performance through its role of financial liberalization. That is the presence of the foreign banks in a particular country and the establishment of the local bank's subsidiaries in foreign countries to aid international financial transactions. To view how foreign bank participation is associated with a reduction in profitability, non-interest income, and overhead expenses of domestic banks. Also to view how foreign banks bring greater efficiency and competition into the domestic banking industry. Another problem to be analyzed in this paper is to examine how increased participation of foreign banks in the domestic banking system has served as an instrument of macro-economic reform to recapitalize and rehabilitate troubled banks outside the boost in efficiency and competitiveness of market operators. Also, foreign banks' entry into the domestic market remains a contentious issue. Domestic banks fear the heightened competition this might result in and worry that foreign banks will take away their business. But financial globalization has made it possible for innovation to spread quickly around the world. Those who skillfully adopt international best practices to local conditions are most likely to succeed. Those that are unable to adapt to a changing world will not serve their customers properly. And to know how globalization aids or facilitates integration between both foreign and domestic financial institutions in the world and in particular, how the globalization of banking in Nigerian has aided the domestic banks in raising capital in the international markets.
1.3 OBJECTIVES OF THE STUDY
The major objective of this research work examined the role of globalization on the performance of the Nigerian Banking industry.
It also strived at the following:
To examine how globalization has widened domestic banks' marketability. To examine the effectiveness of the Nigerian banking system strategies in coping with the world competition. To examine critically, the impact of globalization the Nigerian banking performance
IV To compare and contrast the experiences of the advanced countries' financial performance under globalization with that of domestic financial performance, i.e. Nigeria.
1.4. RESEARCH QUESTION
For some of the objectives of this study to be realized, certain hypotheses must be stated and tested and these must be prelude by some questions which are otherwise called research questions. The following questions will be addressed in the course of this research work:
What will be the implication of globalization and Nigerian banking performance on the Nigerian economy? What is the Apex bank (CBN) doing in order to blur off the problems of poor infrastructural facilities in the Nigerian banking system? What are the factors responsible for the unimpressive performance of globalization with the recent reforms on the Nigerian banking system? What are the benefits of globalization on Nigerian banking performance? What can be done to make Nigerian banking performance among the best in the other global world?
1.5 RESEARCH HYPOTHESIS
The conjectural statement for this research work in respect of the research questions are as follows:
Ho1: Globalization and the Nigerian Banking Performance will not enhance economic growth.
HA1: Globalization and the Nigerian Banking Performance will enhance economic growth.
II. Ho2: Globalization has no impact on Nigerian Banking Performance.
HA2: Globalization has an impact on Nigerian Banking Performance.
III. Ho3: Globalization has not facilitated the management of the Country’s foreign reserve by the local banks.
HA3: Globalization has facilitated the management of the Country’s foreign reserve by the local banks.
1.6 SIGNIFICANT OF THE STUDY
At the successful completion of this work, it is expected that the entire stated objective should be realized, failure to achieve these, this research becomes insignificance. Therefore this significance is for the simple reasons, that it will be of help for the attainment of the objectives stated earlier.
This research work will also reveal the conformity of globalization in the banking sector to the prevailing economic policy of the countries under study i.e. (Nigeria). At the same time, it showcases the in-depth knowledge the students are expected to have concerning the research work. Furthermore, the end result of this research work would be germane and or imperative to academicians, investors, financial institutions as well as the government who may be interested in making use of the information available therein. However, it will as well widened the knowledge and or the understanding of the generality of the people on how globalization policies positively or negatively influence their day-to-day business operation and management.
Finally, it is as well important to note that, at the end of this study, reasons for the prevailing attitude of banks in Nigeria towards globalization through their performance appraisal would be known.
1.7 SCOPE AND LIMITATION OF THE STUDY
This study was carried out in First Bank PLC This research is limited by the distribution of questionnaires to fifty (50) bank workers of the first bank of Nigeria PLC. This research work is intended to restrict its activity in the banking sector as regard globalization and the Nigerian banking performance. The finding may not be generalized to all banks in the country (Nigeria). The cost of financing this study may hinder further progress in the research.
1.8 DEFINITION OF TERM GLOBALIZATION:
In this context, it means the integration of national economies through trade and financial transactions, consumption, investment, and savings, all across the world.
This implies combining parts into a whole. In this study, integration means the combination of globalization and the Nigerian banking system to aid efficient performance.
This refers to the freeing of trade, investment, and capital flow between countries.
A bank is being defined as an institution that is carrying on the business of banking like, taking a deposit, making payment,s, and lending.
This is a composition of institutional arrangement that facilitates the intermediation of funds.
In this study, it is defined as the study of the way in which national resources are used and how the wealth they produced are divided, and the application of the principles to the need and prosperity of the society (LEZSON WEBSTER)
1.9 PLAN OF THE STUDY
The research study on the effect of globalization on Nigerian banking performance will be divided into five (5) different chapters on the following patterns
i. Chapter one: Introduction
ii. Chapter Two: A literature review
iii. Chapter Three: Research Methodology
iv. Chapter Four: Data analysis, results and discussions
v. Chapter Five: Summary, Recommendations, and Conclusions.