THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIA BANKING INDUSTRY [A CASE STUDY OF THE FIRST CITY MONUMENT BANK (FCMB)]
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 crisis.
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.
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 cards.
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 spread poverty.
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
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 global
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 financial crisis.
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 developing
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
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.
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 following;
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. What are the possible causes of the
global financial crisis?
2. How has the crisis affected the global
economy at large?
are the implications of the global financial crisis on Nigeria economy?
the global financial crisis have any effect on the capital market, banking
sector, foreign reserve, crude oil prices, investment, and the ICT sector?
What has been the major problem encountered in solving the problem?
1.5 RESEARCH HYPOTHESES.
There is no significant relationship between the Global Financial Crisis and
the Financial Sector.
There is a significant relationship between the Global Financial Crisis and the Financial Sector.
The Global Financial Crisis does not affect the Real Sector.
The Global Financial Crisis affects the Real Sector.
There is no significant relationship between global financial crisis and foreign direct investment (FDI).
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
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: questionnaire, Observation, experimentation,
survey, interview, and so on.
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.
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.
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.
AND LIMITATIONS OF THE STUDY.
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
However the entire
research work will concentrate on the impact of the crisis on the following
sector of the economy;
1. The Capital market.
The Banking Sector.
Crude oil prices.
Domestic Product (GDP).
of Basic food commodities.
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:
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;
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;
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.
researcher will make use of available time and data at its disposal that will
give a reliable and dependable result.
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 things.
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 analyzed.
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.
The Guardian [Monday, Sept 29, 2008];
Sustaining Market Economy and Global Financial Crisis; by Strauss-Kahn.
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.
ICAN STUDY PACK ; Business
Communication And Research Methodology VI Publishing Limited.
Homby A.S Oxford Advanced Learner’s
Dictionary of Current English [7th Ed]. Oxford University Press
http//:www.ft.com. An article on the Effect
on the Global Financial Crisis on the Global Economy [July, 2008] by Michael.