The global financial crisis is a
contemporary economic issue prevailing in the world today both in the
developed and emerging economy and has affected almost all sectors of
the economy. In the wake of the world been a global village, Nigeria is
not immune to the effect of the crisis. This has an impact on some
sector including the banking industry.
The study conducted and assessed the
impact of the Global Financial Crisis in the Nigeria banking industry
using First City Monument Bank (FCMB) as a case study. And to show the
relationship that exists between the Global Financial Crisis and the
Nigeria Banking Industry.
The project reviewed the nature, causes,
effect of the crisis on the Nigerian banking industry as well as the
possible action taking by the government to curb the effect of the
Data were predominantly gathered, using
the questionnaire administered on the workers at different cadre of the
first city monument bank (FCMB).
The data collected were analyzed using
the descriptive and inferential statistical analysis, Chi-Square
statistic was precisely employed in the analyzing of the data collected.
The study revealed that the global
financial crisis affects the banking industry in all ramifications to
include the share prices of the Nigerian banks, the performance and
profitability of the banks and the banks’ credit policy.
However, this study concluded that the
government should profer solution to the ongoing crisis. Hence, it
recommends that effective and immediate actions should be taken to solve
the problem of the crisis.
TABLE OF CONTENT
Title page i
Acknowledgement iv –v
vi – vii
Table of content viii - ix
1.1 Background of the study 1- 4
1.2 Statement of the research problem 4 - 5
1.3 The aims and objectives of the study 5
1.4 Research question 5 - 6
1.5 Research hypothesis 6
1.6 Research methodology 6 - 7
1.7 Significance of the study 7 - 8
1.8 The scope and limitations of the study 8 -9
1.9 Organisation of the study 9 – 10
CHAPTER TWO (literature review)
2.0 Introduction 11 – 13
2.1 Meaning and concept of global financial crisis 13 – 16
2.2 Causes of the global financial crisis 16 – 18
2.3 The build-up to the crisis 18 – 20
2.4 The onset of the crisis 20 – 24
2.5 Consequence of the crisis 24 – 25
2.6 What is the outlook for Africa 25 – 32
2.7 policy responses to the crisis 32 – 36
CHAPTER THREE (structural composition)
3.0 Introduction 37 – 38
3.1 overview of the Nigerian economy prior to the crisis 38 – 40
3.2 Shocks in the Nigerian capital market 41 – 43
3.3 Shocks in the banking system 43 – 46
3.4 Impact on federal government medium to long term bonds 46
3.5 Global financial crisis and the Nigerian oil sector 46 – 49
3.6 Global financial crisis and the non-oil sector in Nigeria 49 – 51
3.7 Impact on foreign exchange earnings 51 – 52
3.8 Impact on the current (2009) budget 52 – 53
3.9 impact on the national debt 53
3.10 impact on net capital flows 53 – 56
3.11 emerging fact from the economy since the advent of the crisis 56 – 57
3.12 policy response to the crisis in Nigeria so far 57- 61
CHAPTER FOUR (research methodology, data presentation, analysis and interpretation of results)
4.0 Introduction 62
4.1 Research methodology 62
4.2 Research design 62 – 63
4.3 Sampling techniques and procedures 63 – 65
4.4 Sampling size and Sampling techniques 65
4.5 Data sources 65
4.6 methods of data analysis 66 – 67
4.7 Data presentation 67 – 72
4.8 test of hypothesis 72 – 79
CHAPTER FIVE (summary, conclusion and recommendations)
5.1 Summary Of Finding 80 – 81
5.2 Conclusions 81 – 82
5.3 Recommendations 83 - 84
85 - 87
1.1 BACKGROUND OF THE STUDY
The global economy has witnessed one of
the most drastic downturns in its financial system since the great
depression of the 1930s and the stock market crash in late 1980s. The
world economy is on the slowdown again due to the credit that engulfed
the United State and its fallout on the economies of the United Kingdom,
the European zone and the rest of the world. The global financial
crisis has affected the domestic economy and has implication on
different sector including the today’s business.
The last quarter of the year 2007 when
it all started what some expert describe as the worst global financial
crisis in decades, the worst of its kind since the Great Depression.
Alan Greenspan, the former head of the United States reserve system
described it as “an event that occurs once in 100years”. From the Wall
Street financial headquarters in the United States, across to Europe,
Japan and China, the Global Financial system around which the modern
free market economy and capitalism is built is crashing like the pack of
Authorities across the globe are alarmed
at the spate of the meltdown in major stocks. Financial authorities are
bemused as there seems to be no handy solution to the crisis. Could
this be an historical imperative that must be full course before
correcting itself? If as Alan Greenspan opined it were an event that
most occur, then it would naturally correct itself after the turmoil.
On the other hand, was the crisis
fallout of the rapacious and uncontrolled global capitalism that
boomeranged with never anticipated consequences? Many think the latter
is the case. This group of people attribute the crisis to the “law of
jungle capitalism” or what is known as “casino capitalism” that pervades
the global financial system.
What is the meaning of all this? We are
in a system where capitalism no longer invest in production and job
creation but invest money in stocks in a totally unfettered manner.
Money is used to chase money artificially to amass stupendous profit,
line the pockets without commensurate work or productivity. It is akin
to high-stake gambling, it could flourish for a long time during which
time the gamblers lose recorded huge profits could wiped out in one
flash. This form of capitalism is destroying the world economy. Whereas,
the west has the capacity to absorb the shock, the developing world is
particularly imperiled because of lack of solid productive base and wide
The current global financial crisis has
been described by many economists a as great challenge to the world
economy. They are of the opinion that the current crisis is largely
different from past crisis which are usually region-based. As a result
of the current financial turmoil this is rapidly spreading across the
continents. Concerned parties such as the economist, financial analyst
have been pointing to the need to take serious actions to shore up
faltering economies and restore confidence in the global economy.
The reason for the crisis are varied and
complex. The crisis can attributed to a number of factors pervasive in
both the housing credit market, which was developed over an extended
period of time. There are many different views on the causes including
the inability of homeowners to make payments, poor judgment by the
borrowers and/or the lenders, speculation and over building during the
boom period, risky mortgage products, high personal and corporate debt
levels, complex financial innovations that distributes perhaps concealed
default risk, central policies and government regulations. The
significant decline in housing prices led to delinquencies in mortgage
payments and foreclosures which cause a ripple effect across the
financial market and global banking systems, as investments related to
housing prices declined significantly in value, placing the health of
key financial institution and government sponsored enterprises at risk.
Reputable organizations in the United
States such as Dow Jones have been witnessing cyclical bear market since
July 2 2008 coupled with series of panics related to financial
instability caused by the failure and/or Sub-prime mortgage lending
difficult to the investment banking industry. It is however noteworthy
that this wild financial period is not confined to the United States.
According to a Time Magazine essay, the global stock market lost a
whooping $8.5 trillion as measured by standard and BMI Global (an index
of major market worldwide) on October 6 and 7, 2008 alone. The world as
become a global village sewn together through telecommunications and
technological advancements. Financial products particularly mortgaged
backed securities (MBS) are traded across boarders online, hence one
This is a clear indication that the
global economy is inter-related, hence, what affects the one country
directly or indirectly affects the others. Here in Nigeria, how are we
affected by the ravaging economic depressions? What measures are needed
to cushion the impact on the economy and the people? The economy of
Nigeria, as a developing country, largely depends on the economies of
various foreign developed countries that are being plagued by the global
1.2 STATEMENT OF THE PROBLEM
The financial turmoil has justified a
modest reduction in the baseline forecast for the global growth, but
will not by itself prevent a gradual recovery in the future. Advanced
and emerging economies are moving in the same direction, that is, growth
is slowing everywhere effectively ending earlier hopes of a growth
decoupling the marked the slowdown in global activities is been led by
major advanced economies, which are either close to recession or
experiencing growth far below potentials. In the United States housing
and credit market remain at the core of slowdown. The growth slowdown as
spread to Europe, Japan, amid weak business and consumer sediment,
terms of trade losses, the impact of strong currency on trade and
tightening credit condition. Activity also is decelerating in the
At the same time energy and commodity
prices have receded. Inflation pressure as risen around the world to the
fastest since the 1990. In advance economies, inflation have
accelerated to around 4.5% in July, driven mainly oil prices rises.
However, core inflation has remained contained. The recent resurgence
has gone much further in developing economies, although risks have
receded recently. Inflation climb to 9% in the aggregate mid year and a
lot of countries are experiencing double digit inflation.
Having identified that the Nigeria
economy as a system which operates within an environment that is greatly
influenced by other actors broader system (global economy). The impact
of the financial crisis on the Nigerian economy cannot be overemphasized
as this manifest in the performance of the capital market by the
drastic fall in price of stocks since early 2008 and still finding it
difficult to rise till date.
1.3 OBJECTIVES OF THE STUDY
Since the commencement of the current
global financial crisis, fears have been expressed on its likely
implication on the Nigerian economy. Without prejudice to the assurance
given by those who should know that the Nigerian economy is immune to
the global financial crisis, there is the need to look at the wider
implications of our economy. It is imperative therefore to consider how
the global financial crisis affects the Nigerian economy; this will be
the main objective of this study. The specific objectives include the
- To know the implication of the global financial crisis on the price of crude oil.
- To ascertain how the global financial crisis have affected the capital market.
- To examine the effect of global financial crisis on the Nigerian foreign reserves.
- To know how the global financial crisis has actually affected the banking sector.
- To determine possible ways which the Nigeria can be bailed out of the crisis.
1.4 RESEARCH QUESTIONS.
1. What are the possible causes of the global financial crisis?
2. How has the crisis affected the global economy at large?
3. What are the implications of the global financial crisis on Nigeria economy?
4. Does the global financial crisis
have any effect on the capital market, banking sector, foreign reserve,
crude oil prices, investment, and the ICT sector?
5. What has been the major problem encountered in solving the problem?
1.5 RESEARCH HYPOTHESES.
1. Ho: There is no significant relationship between the Global Financial Crisis and the Financial Sector.
Ha: There is a significant relationship between the Global Financial Crisis and the Financial Sector.
2 Ho: The Global Financial Crisis does not affect the Real Sector.
Ha: The Global Financial Crisis affects the Real Sector.
3 Ho: There is no significant relationship between global financial crisis and foreign direct investment (FDI).
Ha: There is significant relationship between global financial crisis and foreign direct investment (FDI).
1.6 RESEARCH METHODOLOGY
This area of the research work will explain in details, the mode of data Collection, Analysis and Interpretation.
1.6.1 Methods Of Data Collection.
For this purpose, therefore, two major sources shall be explored. They are as follows:
a) Primary Sources:
These sources of data will help the researcher to generate primary data.
Primary data are those data that will originate from the researcher
himself through various means such as: Observation, experimentation,
survey, interview, and so on.
b) Secondary Sources:
These are those sources of data that do not originate from the
researcher himself. In order to obtain the relevant variables for the
purpose of answering the research questions, testing the hypothesis, and
achieving the research objectives, the researcher will explore
secondary sources of data like: Textbooks, Magazines, journals, News
Papers, CBN research library, National Bureau of Statistics (NBS),
Electronic Archives among others.
1.6.2 Method of data analysis.
All relevant variables will be gotten
through the methods highlighted above and will be analyze with the use
of statistical package for social sciences(SPSS) with the Chi-square
technique being used to examine the extent to which the crisis affect
some sectors of the economy and the whole economy at large.
1.7 SIGNIFICANCE OF THE STUDY.
This study is justified since it is an
exploratory one. The global economic depression is a global phenomenon
in every economy and that of the developing nation is no exception. This
study hopes to determine the areas which the crisis has affected the
economy and possible steps to be taken to solve the problem.
The report of this study would be
adopted by policy planners, government agencies, financial analysts and
the masses. Apart from contributing new knowledge to academic
discipline, the study serve as a good secondary data for other
researchers who might be interested in conducting a further similar
research in the area of the impact of the Global Financial Crisis.
1.8 SCOPE AND LIMITATIONS OF THE STUDY.
The global financial crisis is a current
issue in the world today. Perhaps ironically, because of the developing
nation generally weak integration with the rest of the global economic
system, as reported by Reuters, it is believed that many of the
developing nations will not be affected with the crisis, at least not
initially. The wealthier ones in which Nigeria is included who do have
some exposure to the rest of the world, however may face some problems
with her economy.
However the entire research work will concentrate on the impact of the crisis on the following sector of the economy;
1. The Capital market.
2. The Banking Sector.
3. Crude oil prices.
4. Foreign Reserve.
5. Foreign Exchange.
7. The ICT sector.
8. Gross Domestic Product (GDP).
9. Prices of Basic food commodities.
10. Per capital income.
11. Wage levels.
Because the topic is a contemporary
issue in the world which has been mentioned earlier, the research will
make use of data and information available from the genesis of the
crisis (2007) to date for all relevant variables being studied.
Nevertheless, findings of this research will consider the peculiar circumstances of the study area.
It would be fallacious to claim that the
research will be constraint-free. The research project will be limited
to several constraints, chief amongst which are:
- Time Factor: The time duration will not be enough
to collect and collate more past studies on the topic for evaluation so
as to give more information on the topic;
- Financial constraint: The high cost of materials
will definitely restrain the researcher from testing more models, which
will further enhance the result to be derived from the study;
- Information: Another limitation likely to be faced
by the researcher is the sensitivity and unavailability of certain data
required for the purpose of this research. As such, this might lead to
the dearth of relevant statistical information.
However, the researcher will make use of
available time and data at its disposal that will give a reliable and
1.9 ORGANIZATION OF STUDY
This study is divided into five
chapters. In the first chapter, which the introduction, various
objectives intended to be achieved in carrying out this research work is
looked at. More so, the significance of the research study was
highlighted. In addition, research methodology, research question,
research hypothesis, justification of the study were stated among others
Chapter two, which is the literature
review, examined the theory and concept of the topic in question. In
chapter three, which is the structural composition the various
instrument and techniques of analysis to be adopted was extensively
Chapter four contains data analysis. The
data analyzed was gotten from primary sources and the result was
analyzed through the use of statistical package for social sciences
(SPSS) with the chi-square technique being used and the Summary,
Conclusion, and Recommendation are presented in Chapter Five.
1 The Guardian [Monday, Sept 29, 2008]; Sustaining Market Economy and Global Financial Crisis; by Strauss-Kahn.
2 Asaolu, F ; The
Global Financial Crisis as if affect Nigerian Economy; a Speech
Felicitous during a Seminar in the Faculty of Management Science,
University of Lagos.
3 ICAN STUDY PACK ; Business Communication And Research Methodology VI Publishing Limited.
4 Homby A.S Oxford Advanced Learner’s Dictionary of Current English [7th Ed]. Oxford University Press
5 http//:www.ft.com. An
article on the Effect on the Global Financial Crisis on the Global
Economy [July, 2008] by Michael. A.