This chapter deals with the background of the study statement of problem, objective of study, research questions, significance of the study, hypothesis, scope, limitation of the study and definition of terms.
1.1 BACKGROUND OF THE STUDY
The era of oil boom in 1970’s in Nigeria economy lead to the nations over reliance on oil as its main source of revenue and there by ignoring other sectors of the economy hence a mono-product economy. Because of this, most of the industries established during this period depended on imported components and raw materials for their operations, and the upsurge in oil revenue during the period in question and structural distortions, it engendered assumed crisis proportions in 1986 because of the severe decline in crude oil price of that year.
A number of measures were taken by the various governments to correct the situation, but unfortunately these measures failed because the country was on mono-product economy where there are heavy dependence on oil exports and other sectors of the economy were neglected. It would also be recalled that monetary policies within this period were designed for short term crises control management, but by 1986 till date, the situation has been getting out of control which necessitated a long term crises management of the structural adjustment programme (SAP). The policy was to facilitate attainment of a lost objectives and to correct various distortions in the economy, (SAP) sought within a two year-period to correct the distortation and imbalance inherent in the economy by de-emphasing the unhealthy reliance of the country economy on oil as its main source of revenue.
The banks were chosen as main avenue through which the objectives of SAP and second tier foreign exchange market (SFEM) operation could be met, the effect of this was an unprecedented growth in the Nigeria financial sector. SAP bough to eliminate all the complex administrative both necks and this encourages reliance on market force in all sectors of the national economy.
The financial sector being very strategic for progress and development was given the latitude and encouragement to grow. This was aimed at inducing competition so that it’s full potentials particularly in areas of credit expansion and general overall good of the economy. Prior to this period, banking institution was characterized by the arm chair banking and true to their conservative tradition inherited the clearing banks of London, made modest effort, offered limited traditional product rate of growth and in order to this, deregulation has changed permanently the face of the banking industry, and has been characterized by a number of developments which sparked off stiff competition among banks which were the principal actors in the foreign exchange market operation made pretentious profit in their transactions and theirs rose significantly as a result of the boost in the naira hoping of financial institution when their foreign balance were converted to naira.
Because of the heavy turnover in the transactions, the outside investors were motivated into investing in the industry and there was motivated into investing in the industry and there was corresponding proliferation of application for banking license, this subsequently led to the registration of many new banks in the economy which was a welcome development. With this new development of multiple registrations of more banks, all those old grant banks that monopolized the business have to be alert and were ready to scramble for resources that were previously taken for granted. This lead to constant movements of staff, management and boards, in and out, new banks opening almost everyday, frequently destabilizing struggles in board rooms, the potential guidance and frequent change in regulation by the central Bank of Nigeria.
The general deregulation permitted banks to do a lot more business and particularly the distraction between Merchant and commercial Banking became very thin. Other subsequent issues are the guidelines like the increase in the statutory deposit of banks (N25 billion recapitalization) at the CBN, rough cash and liquid ratios, abolition of foreign guarantees as collateral for naira denominated loan, stabilization securities, increase in capital adequacy ratio and the prevention guidelines went further to aggravation and the cash squeeze thereby tightening the already stiff competition.
In addition to the competition between Banks and individual, the industry as a whole has been competing with non-Banks financial institutions have now become similar to those provided by commercial Banks. As a result of the competitive environment, Banks have been scrambling for deposits, which formed the main raw materials for their operations.
Banks traditionally perform the function of intermediary between savers and investors, the mobilize depositors from the surplus sector which is made up of those with many investment projects requiring more funds than they have. They also act as catalyst in capital formation which is regarded as the major policy governing the rate of economic growth and self reliance. In addition they occupy a prime and sensitive position in accelerating the development of other units in the system.
The resultant effect of licensing more Bank, monetary measures and deregulation in that the Banks are forced out to look for other avenue for deposit hence the craving to introduce new financial products to win more client and increased deposit base to enable them survive the rest of time. The growth in the number of financial products being offered by banks has been of the most striking development in the industry over the years and which has been associated with deregulation of the system in the wake of SAP.
The number of such products has grown to a far reaching competitive level and many more products are still to come, the ones in circulation now includes, weekend services , farmers guide to agricultural lending vigor, money transfer, western union money transfer, value card, smart card, UBA save for school, UBA money gram, Diamond paycard. All these products have been introduced as a result of the increased competition within the environment to enable the commercial Banks survive the stiff situation.
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(2014, 11). An Evaluation Of The Nigerian Commercial Banks.. Afribary.com. Retrieved 11, 2014, from https://afribary.com/read/4742/an-evaluation-of-the-nigerian-commercial-banks-1243
"An Evaluation Of The Nigerian Commercial Banks." Afribary.com. 11 2014. 2014. 11 2014 <https://afribary.com/read/4742/an-evaluation-of-the-nigerian-commercial-banks-1243>.
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