THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIAN BANKING SECTOR.

THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIAN BANKING SECTOR.

TABLE OF CONTENTS

Title Page

Approval Page

Certification

Dedication

Acknowledgements

Table of Contents

Abstract

CHAPTER ONE: INTRODUCTION

Background of the Study

Statement of the Research Problem

Research Questions

Objectives of the Study

Research Hypothesis

Significance of the Study

Scope of the Study

CHAPTER TWO: LITERATURE REVIEW

Conceptual Framework

Theoretical Literature

Empirical Studies

Summary of Review of Literature

CHAPTER THREE: METHODOLOGY

Introduction

Research Design

Population Sample

Sample and Sampling Techniques

Research Instrument

Validity of the Instrument

Administration of Instrument

Method of Data Analysis

CHAPTER FOUR: RESULTS AND DISCUSSION

Introduction

Presentation of Results

Discussion of Findings

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

Summary

Conclusion

Recommendations

References

Appendix

ABSTRACT

This study examined the impact of global financial crisis on the Nigerian banking sector. (A case study of Unity, GT bank, Union, First, Wema, Access, Sterling, Heritage, Skye and UBA bank).

A descriptive research design was adopted for this study. Data collected from a sample of 80 respondents through questionnaire were analyzed using Chi-square statistic techniques.

Findings revealed that there is no significant relationship between the impact of global financial crisis on commercial banks in Nigeria, it also reveal that there is no significant difference in the cause of global financial crisis, finding of the study also reveal that there is no significant difference in the solutions to the global financial crisis, again this study reveal that there is no significant differences on how Nigerian banks can withstand the effect of global financial crisis in future.

From the findings and conclusion of the study, it is recommended that banks should regulate issue of foreign exchange to companies during the time of crisis to avoid creating a deep in foreign reserve and that government’s financial intervention should be made alleviate the impact of the global financial crisis in Nigeria banking sector.

CHAPTER ONE

INTRODCUTION

Background of the Study.

The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19^th and early 20^th Centuries, many financial crises were associated with banking panics and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy.

Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time.

When a bank suffers a sudden rush of withdrawals by deposits, it is called a bank run. Since banks lend out most of the cash they receive in deposits, it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run renders the bank insolvent, causing customers to lose their deposits, to the extent that they are not covered by deposit insurance. An event in which bank runs are wide spread is called a banking panic.

There is no widely accepted definition of a currency crisis, which is normally considered as part of a financial crisis. Kaminsky et-al (1998), for instance, define currency crises as when a weighted average of monthly percentage depreciations in the exchange rate and monthly percentage declines in exchange reserves exceeds its mean by more than three standard deviations. Frankel and Rose (1996) define a currency crisis as a nominal depreciation of a currency of act least 25% but it is also defined at least 10% increase in the rate of depreciation. In general, a currency crisis can be defined as a situation when the participants in a an exchange market come to recognize that a pegged exchange rate is about to fail, causing speculation against the peg that hastens the failure and forces a devaluation or appreciation.

The global economy has witnessed several financial crises in the past. Some of it was experienced in 1830s, 1930s, and recently, 2008. The most severe was the great inactivity of the 1930s. And the Nigerian financial crises in the latter part of 1990s, all these recessionary trends had been accompanied by shocks to the economies of one or more markets. The 1830 depression affected land speculations in us where farmers lost their farms through mortgage, many construction works stopped, banks faced crises, unemployment rose and prices due to wave of speculations rose. The 1930minactivity was very vicious where securities sold fifty times their earning power with dividend earning rising from $4o to $50 per share. Before 1930 from 1925-1929 the market value of US securities tripled from $ 27 billion to $ 87 billion as a result of high wave of speculations. But by the end of 1929 the market began to weaken resulting in the 1930 great inactivity. The recent, 2007 – 2008 financial crisis can be said to be subject matters.

The 2008 financial disruption triggered by the US Sub-prime mortgage market led to a global financial crisis, which at such time affected major economics such as United States of America, European and Nigerian. This global crisis threw all the economies and many more into reduced by the end of 2008.

Statement of Research Problem

The global financial and economic crises have presented significant challenges to Africa countries, especially Nigeria. The direct effect of this crisis has been felt mostly through the banking sector. There is depression of the capital and drop in the quality of part of the credit extended by banks for trading in the capital market. The global credit crunch and re-pricing of risks push up interest rates on lines of credit for Nigerian banks. High exchange rate risks on foreign lines slows growth rate of bank’s balance sheet in response to the crisis leading to lower profitability. Banks tighten up liquidity out flow due to high foreign exchange outflows and lower monetization of oil earnings.

It is the existence of these factors that the global financial crisis impacts on the Nigerian Banking sector. The global financial crisis, brewing for a while, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.

The problem undertaken by this research include the following;

There is depression on capital and drop in quality of the credit (financial crises) extended by commercial banks for trading in the capital
The direct effect of this crisis have be felt mostly through the banking sector
The global credit crunch and re-pricing of risks push up interest rate on lines of credit for Nigerian bank.
High exchange rate risks on foreign lines shows growth rate of bank’s balance sheet in response to the crisis leading to lower profitability

Research Questions

From the above objectives, the following research questions were formulated.

What is the impact of global financial crisis on Commercial Banking in Nigeria?
What are the solution to global financial crisis?
What are the solutions to global financial crisis?
How can Nigerian banks with stand the effects of the global financial crisis in the future?

Objectives of the Study

The broad objective of this study is to identify the impacts of the global financial crisis on the Nigerian Banking industry. Specific objectives are;

To assess the impact of global financial crisis on commercial Banks in Nigeria.
To examine the causes of global financial crisis
To determine the causes of global financial crisis.
To identify how Nigerian banks can avoid or withstand the adverse impact of global financial crisis in the future

Research Hypotheses

For the purpose of the study, the following null and alternate hypotheses are formulated.

Hypothesis 1

H₀: The global financial crisis does not affect profitability of Nigerian Banks

H₁: The global financial crisis affects the profitability of Nigerian Banks

Hypotheses 2

H₀: Global financial crisis is not caused by global stock market crashes

H₁: Global financial crisis is caused by global stock market crashes

Hypothesis 3

H₀: Efficient financial management cannot solve the problem of global financial crisis.

H₁: Efficient financial management can significantly solve the problem of global financial crisis.

Hypothesis 4

H₀: Nigerian banks cannot withstand global financial crisis through improved stock market activities.

H₁: Nigerian Banks can withstand global financial crisis through improved stock market activities.

Significance of the Study

The study will provide information that will help both the financial managers and policy formulators on the causes, effects and possible remedies to the endemic global financial crisis at it affects Nigerian Banks and the economy.

Commercial Banks will derive great benefits from this research work, since the recommendations of the research work will suggest ways the banks can manage the impact of the global financial crisis and thereby contribute more to the Nigerian economy.

The study will serve as a reference material or data bank to students and research material or data bank to students and researchers who would wish to carryout related studies in future.

Scope of the Study

The study focuses on the impact of global financial crisis on the Nigerian banking sector with a case study of Unity, GT Bank, Union, First, Wema, Access, Sterling, Heritage, Skye and UBA Bank.