1.1 BACKGROUND OF THE STUDY
The name Bank is derived from the
Italian word banco “desk/bench” used during the Renaissance by
Florentine bankers, who used to make this transaction above a desk
covered by a green tablecloth. However there are traces of banking
activity even in ancient time.
In fact, the word traces its origins
back to the ancient Roman Empire, where money lenders would set up their
stalls in the middle of enclosed courtyards called Macella on a long
bench called Bancu, from which the word Banco and bank are derived.
As a money changer, the merchant at the
Bancu did not so much invest money as merely convert the foreign
currency into the only legal tender in Rome that of the imperial mint. .
McKenna and Fleming in 1995 described
competition as a market condition which exist when there are large
number of business enterprise, all able to supply the same or similar
products or service to a large number of purchase/buyers.
In this last decade there has been a
high competition within the banking industry in Nigeria, with the
licensing and establishment of more banks bringing the total number of
commercial and merchant bank in the country to about eight-seven, there
has been high tendency for various banks in the industry to fend for
themselves for survival.
A commercial bank is defined as an
establishment which accepts deposit from customers that are prepared
where loans and advances and general financial business concerning all
forms of trade are made. Example of such trade are retail, wholesale,
import and export trade.
The 1991 banking decree defines a
commercial bank as any institution which carries out banking business in
Nigeria which includes a commercial banks, a discount house, financial
institution and an acceptance house (Federal Republic of Nigeria 1991).
The banking industry in Nigeria has been
positively and negatively affected by competition. In attempt by banks
to fend for themselves, many method have being adopted to improve
corporate efficiency and maximize profit. This method led the Nigeria
banking into scientific approach and investigation into better ways to
achieve corporate goals and objective. Some suggested method include
expansion of existing operational facilities to area of wider market,
improving corporate efficiency, diversification of port folio and
investment banking, appropriate marketing, application of combined
branch and a little degree of unitary banking, good publicity,
employment and development of capable staff and carrying out research
for onward positive development and growth.
Also, each day competition in the
industry is heightened by emergence of new brand in banks, many of the
older banks have bring forced to change in their operation due to the
competition. It is interesting to watch older banks paying as much as
14-19% same deposit. Before the 1986 deregulation in the banking
industry has been highly regulated.
Economic regulation in general, embraces
controls, which government imposes on economic and business activities
reaching the maximum regulation, the government can be said to be
participating in some non-traditional public sectors activities in order
to foster competition and improve economic efficiency. When regulation
fails, as it often does the process of deregulation inevitable begins in
a bid to avoid a collapse of the whole system. Economic deregulation
is defined as deliberate and systematic removal of regulatory controls,
structures and operational guideline in the administration and pricing
system in the economy.
The underline philosophy of the
deregulation of an economy or its component segment is the belief that
factors of production, goods and services are optimally priced and
allocated when their prices are freely determined in a competitive
environment. The aim of the study is to determine competitive strategies
and changes in Nigeria banking industry.
1.2 THE PURPOSE OF THE STUDY
The relevance of banks in the economy of
any nation cannot be over emphasized. They are the cornerstones, the
linchpin of the economy of a country.
The financial deregulation in Nigeria
started in 1987 and the associated financial innovation have generated
an unprecedented degree of competition in the banking industry. The
deregulation initially pivoted powerful incentives for the expansion of
both size and number of banking and non-banking institutions.
The consequent phenomenal increase in
the number of banking and non-banking institutions provide financial
services which led to increased in competition amongst various banking
institution and banking and non-banking financial intermediaries.
Apart from the keen competition with the
range of financial activities banks have also faced problem associated
with a persistence slow down in economic activities, severe political
instability, virulent inflation, worsening economic financial condition
of their corporate borrowers and increase incidence of fraud and
embezzlement of funds. All these factors of deregulation, competition,
innovation economic recession political instability, escalating
inflation and frequent reversal in monetary policy have combined to
create a challenging and precautious financial environment for banks.
Consequence of new financial environment has been rapidly declining
profitability of the traditional banking activities. Thus, in a bid to
survive and maintain adequate profit level in this highly competitive
environment banks have tended to take excessive risk. But, then the
increasing tendency for greater risk taking has resulted to insolvency
and failure of a large number of banks.
Hence the sole aim of the study is to determine how competition affects the banking industry either positively or negatively
1.3 STATEMENT OF RESEARCH PROBLEM
This research work is an attempt to answer the following research questions
- Can we determine the strategies that affect competition in the banking industry?
- Can we determine how environment affects competition in the banking industry?
- Can we correlate the number of banks and each of the financial strategies namely deposits, total assets, loans and advances?
- Can we determine how customers service affect competition in the banking industry?
1.4 THE OBJECTIVES OF THE STUDY
The main objective of the study is to determine the competitive strategies and changes in Nigeria banking industry.
The subsidiary objectives include:
- To determine the various strategies that affects competition in Nigeria banking industries.
- To determine how financial strategies affect competition in Nigeria banking industry.
- To determine how the environment affect competition in the banking industry.
- To determine how customers services affect competition in the banking industry.
- To determine the characteristics relevant to the banking industry in a perfectly/imperfectly competition market
1.5 SIGNIFICANCE OF THE STUDY
This study is significant because of the following reasons:
- It will generate information in the new millennium on environment,
customer service, financial and marketing strategies that will make
banks in Nigeria to cope well with the competition.
- It will provide information on the various strategies of competition
as it would be useful to economic policy makers. Banks manager and
- It will be useful to the researcher, student in business management, banking and finances.
- It will be useful to the public in general.
1.6 RESEARCH HYPOTHESES
Spiegel (1992) observed that in an
attempt to reach decisions, it is useful to make assumption or guesses
about the populations involved. Such assumptions which may or may not be
true are called statistical hypothesis and in general are statements
about the probability distribution of the populations. In this research
work four hypotheses will be tested that the proportion of the
respondents who agreed that:
- There are financial strategies that affect the competition of the banks.
- There is freedom of entry and exit of firms in the banking industry.
- The better bank is the one that is capable of offering that little extra service over and above what other competition offer.
- There are some artificial interference’s with the activities of banks and their customers.
1.7 LIMITATION OF THE STUDY
The use of secondary data has the
limitations that the data may be obsolete or its unit of analysis may be
different from the one used in the study. Also because the researcher
is not the original collector of the data any mistakes or colouring or
brake may not be discovered by the research.
The Cross-sectional survey has the
limitation that it is “one shot” or almost “two shot” and as a result
its capacity for collecting data with which to test the causal
relationship of variables is minimized unlike what is the situation
when the panel research design is used. Also there is a limitation
of an increased unwillingness of the respondents to respond to survey
The questionnaire is limited to the
use of verbalished answers to pre-determined question. In the fixed
answer format, if a particular answer is missing, this may lead to
errors, if a respondent gives his or her answers in a baffling manner
there is usually not much that can be done to redress the situation.
The structured and standardized format
of the questionnaire may compel the respondents to give answer that
they do not fully endorse. A certain level of education is needed for a
respondent to fully understand the questions. There is the limitation
that the researcher is not a policeman or woman and cannot force the
respondents to give answers.
The rigidity of the research instrument
may limit the amount of information that can be got. There is also a
problem of memory or beyond it when people are expected to remember past
facts. There is also the problem that the respondent may need to be
motivated to enable them contribute willingly to the completion of the
questionnaire. The assumption that there is uniformity from one
interviewing situation another may not hold especially in a situation
where there are more than one interviewers. There is also the limitation
of high cost in the administration of the research instrument
especially due to high personnel and travel cost. There are also the
limitations of the scarcity of time and money resources.
1.7 STRUCTURE OF WORK
This research work is to be structured in five chapters as follows:
- An overview of banking industry in Nigeria
- Research methodology
- Data presentation and Analysis of data
Summary of finding, conclusion and recommendations.