IMPACT OF GLOBALIZATION ON THE NIGERIA BANKING SYSTEM
ABSTRACT
The study examines the impact of globalization on banks performance in Nigeria. The current high integrations in the banking and entire financial sector have generated a lot of discourse on the interactions of these factors in Nigeria. Using data covering the period 1980 to 2010, both statistical and econometric tools were employed in the empirical analysis of the study. The findings show that financial openness has a significant positive impact on banks’ capital base changes in Nigeria, foreign direct investment inflows has positive and significant impact on bank capital base in Nigeria. As the foreign investment flows into the country, the share into the capital base of the banks tends to improve the overall performance of the banks and exchange rate on the other hand, has a negative and significant impact on bank capital base in Nigeria. Deterioration in the exchange rate therefore slows down the pace of banking performance in Nigeria.
The recommends that banks should prepare to be geared towards obtaining better operational results so that profitability may be the basic element for measuring the efficiency of performance. To achieve these broad objectives, authorities must first among other things identify the banking strategy and then seek for sectors in which the bank has a comparative advantage, and those in which these advantages may develop so that they become relative later on.
TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of the Research Problem
1.3 Objective of the Study
1.4 Research Hypothesis
1.5 Significance of the Study
1.6 Scope of the Study
1.7 Limitation of the Study
CHAPTER TWO: LITERATURE REVIEW
2.1 The Concept of Financial Globalization
2.1.1 The Internationalization Process
2.2 Globalization and the Banking System
2.3 Pre-Conditions for Banking Sector Globalization
2.4 The Impact of Globalization on the Nigerian
Banking System
2.4.1 Benefit of Banking Globalization
2.4.2 Cost of Banking Globalization
2.5 Globalization and Foreign Banks Penetration
in Nigeria
2.5.1 General Growth Trend in the Banking Industry
2.5.2 Changes in the Market Structure
2.5.3 Performance
2.6 The Channels of Globalization and
Banking Sector Growth
2.6.1 Institutional Channel
2.6.2 Economic Channel
2.7 Issues in Banking Sector Globalization in Nigeria
2.7.1 Foreign Banks Control
2.7.2 Diversity and Proportion of Foreign Bank Presence
2.7.3 Efficiency Gains from Globalization
2.7.4 New Global Bank Regulation
2.7.5 Continued Reform of the Domestic Banking Sector
2.7.6 Banks and Foreign Direct Investment (FDI)
2.8 How Can Nigeria Best Globalized the
Banking Sector
CHAPTER THREE: METHODOLOGY OF THE STUDY
3.1 Introduction
3.2 Research Instrument and Data Sources
3.3 Data Analysis
3.4 Model Specification
3.5 Sources of Data
CHAPTER FOUR: EMPIRICAL ANALYSIS
4.1 Introduction
4.2 Statistical Analysis
4.3 Regression Analysis
CHAPTER FIVE: SUMMARY, RECOMMENDATIONS AND CONCLUSION
5.1 Summary of Findings
5.2 Recommendations
5.3 Conclusion
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The role of Banking system as an engine of economic growth is appreciated by the functions it performs. The Banking sector provides liquidity that sources the needs of the economy, facilitates the mobilization of surplus funds from both domestic and foreign sources and optimally allocates such mobilized resources to deficit economic units for productive investment (Akinboyo, 2003). The banking system also provides infrastructure for monetary policy transmission among other things. In recent years the Nigerian Banking sector has been hit by three major trends namely deregulation and privatization the introduction of the new technologies and new product, and the entry of new competitors. These were the outcomes of globalization.
According to Fajingbei and Ozughalu, 2003), globalizatioin, like universal Banking offers many prospects to the Nigerian Banking sector, and also posses some challenges as well. Globalization implies massive presence of foreign Banks in Nigeria, and with the influx of foreign bank, there with be tremendous increase in the degree of competition in the Nigerian Banking sector. Indeed, the banking sector in Nigeria is bound to face increasing competitive pressure emanating from the global financial system. The survival of banks in Nigeria with, to a large extent depend on how well they understand the intricacies of globalization and how they prepare to operate within the new system (Kohawohe, 2003).
Until recently, Nigerian Banking system has not performed impressively when compared to those in other countries. However, Nigerian Banking sector experienced significant gains in the current re-capitalization of Nigeria Banks. These changes took place within the context of globalization and reflect in part effort by Nigerian government to integrate Nigerian Banks into the global financial market (Sohude, 2005).
The recent concern about the growth of Nigeria Banking sector is the impact of globalization on the sector, as revealed by Obadan (2003). The banking sector plays a critical robe in lubrically a country’s wheel for beneficial participation in the dynamics of globalization. Undoubtedly, globalization has impacted on most factors identified in the literature to be detriments of changes in the Banking sector. The natures of this relationship need to be ascertained. The study of this nature is very important as it with focus on examining empirically, the impact of globalization on the Nigerian Banking system.
1.2 STATEMENT OF THE RESEARCH PROBLEM
The basic reason behind the choice of this research subject matter is to examine the impact of globalization on the Nigerian Banking system, the Nigerian banking system has gone through a lot of failures before globalization came into place and also looking at the wealth robes bank play in ensuring adequate and productive bank credit for developmental purposes.
The statement of research problem for this study therefore arises from the following research questions:
1. What are the globalization factor that affect the Nigerian Banking system?
2. What are the cost and benefits of globalization to Nigerian banking system?
3. To what extent has foreign banks penetrated Nigerian banking system?
4. What are the preconditions for banking sector globalization?
5. Does foreign and domestic banks behave in the same way?
6. How can the Banking system be prepared for the challenges of globalization?
Answering the questions above is the first step towards understanding the concept of globalization and how globalization affects the Nigerian Banking System.
1.3 OBJECTIVE OF THE STUDY
The objective of this study are:
1) To identify the major globalization indicators that affect Nigerian banking system.
2) To identify the cost and benefit of banking system globalization.
3) To find out the pre-conditions for globalization of the Nigerian Banking system.
4) To evaluate the impact of foreign Banks on the Nigerian Banking system.
1.4 RESEARCH HYPOTHESIS
In the right of the broad and specific objective of study, the hypothesis below are formulated:
1) Ho: There is no significant relationship between Banks capital base and openness.
Hi: There is a significant relationship between Bank capital base and openness.
2) Ho: There is no significant relationship between Banks capital base and foreign private investment.
Hi: There is a significant relationship between banks capital base and foreign private investment.
3) Ho: There is no significant relationship between Banks capital base and foreign exchange rate.
Hi: There is a significant relationship between banks capital base and foreign exchange rate.
4) Ho: There is no significant relationship between banks capital base and inflation rate.
Hi: There is a significant relationship between banks capital base and inflation rate.
1.5 SIGNIFICANCE OF THE STUDY
The importance of globalization and its impact on the Nigerian banking system cannot be over emphasized. This study is very important as it would examine the what extent certain global variable explains what happens to Nigerian Banking system.
This study will be useful to bankers and policy markers in making decision on how to influences Banking sector development by benefiting from the outcome of globalization. Student in Nigeria and in other developing countries intending to broaden their knowledge about the nexus of globalization and Banking system development.
1.6 SCOPE OF THE STUDY
This study focuses on the impact of globalization on the Nigerian Banking system, various theoretical and literature issues were discussed as regards to globalization on the Nigerian Banking System. An empirical analysis was undertaken to investigate how some globalization forces the Nigerian Banking system, over the 1980-2005. The study suggest that policy measures and strategies are needed to reposition Nigerian Banking sector in other to minimize the risk and optimize the gains of globalization.
1.7 LIMITATION OF THE STUDY
This study is constrained by a lot of factors such as getting relevant data, the time spent on sorting and organizing the work, combined with normal academic activities and other logistic.
