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OGBONNAYA CHUKWUDI S.

PG/MBA/08/47642

THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE

NIGERIAN BANKING SECTOR (A CASE STUDY OF UBA PLC,

UBN PLC AND OCEANIC BANK PLC)

Management

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS

ADMINISTRATION (MBA) IN MANAGEMENT

Webmaster

Digitally Signed by Webmaster‘s Name

DN : CN = Webmaster‘s name O= University of Nigeria, Nsukka

OU = Innovation Centre

2010

UNIVERSITY OF NIGERIA

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NIGERIAN BANKING SECTOR

(A CASE STUDY OF UBA PLC, UBN PLC AND OCEANIC BANK

PLC)

BY


PG/MBA/08/47642

DEPARTMENT OF MANAGEMENT

FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA, ENUGU CAMPUS

JUNE, 2010

3


NIGERIAN BANKING SECTOR

(A CASE STUDY OF UBA PLC, UBN PLC AND OCEANIC BANK

PLC)

BY


PG/MBA/08/47642

A PROJECT REPORT SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENT FOR THE AWARD

OF MASTER OF BUSINESS ADMINISTRATION (MBA) IN

MANAGEMENT

TO

THE DEPARTMENT OF MANAGEMENT, FACULTY OF

BUSINESS ADMINISTRATION, UNIVERSITY OF NIGERIA,

ENUGU CAMPUS

SUPERVISOR: DR. E. K. AGBEZE

JUNE, 2010

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CERTIFICATION

I, Ogbonnaya Chukwu S., a Postgraduate student in the Department of

Management, University of Nigeria, Enugu Campus with registration number

PG/MBA/08/47647 has satisfactorily completed the requirements for research

work for the Degree of Master of Business Administration (MBA) in Management.

The work embodied in this report is original and has not been submitted in part or

full for any other diploma or degree of this or any other University.

Ogbonna Chuwkudi S. …………………. ……………………

(Student) Signature Date

Dr. E. K. Agbeze ……………………. ……………………

(Supervisor) Signature Date

Prof. U. J. F. Ewurum ………………. ……………………

(H.O.D) Signature Date

DEDICATION

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This work is wholly dedicated to the Lord Almighty for his divine provision and

protection all the days of my life. May His name be glorified and lifted above

every other name, amen.

ACKNOWLEDGEMENT

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I wish to use this opportunity to acknowledge those whose contributions made it possible

for me to successfully complete this work.

Foremost is the Almighty God for his abundant and infinite mercies. My able and

dynamic lecturer and supervisor, Dr. E. K. Agbeze, for his guide and motivatory

supervision. He was always ready to listen and had time to go through the work with

definite corrections and suggestions inspite of his crowded schedule. My Head of

Department Prof. U. J. F. Ewurum, and my other lecturers for their inspiratory lectures. I

am not forgetting the non academic staff of the Department for their unquantifiable

assistance and encouragement especially my aunty, Mrs. Nnennaya Okoronkwo.

It will be a serious oversight if I fail to acknowledge the encouragement of my dear and

beloved parents Mr. & Mrs. Ogbonnaya whose advise and assistance inspired me the

more. My siblings and family members are not left out.

My colleagues in the MBA programme were special and serious source of

encouragement to me throughout the programme. We discussed pertinent issues relating

to the programme which motivated me the more. This positive and scholarly

interactions gave me the zeal to forge ahead.

I also express my gratitude to the staff and management of the Enugu State University of

Science and Technology Library, University of Nigeria, Enugu Campus Library and

that of the Department of Management, UNEC for their kind assistance.

I say may God bless you all in Jesus Name Amen.

ABSTRACT

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The aim of this study was to investigate the Impact of Global Financial Crisis on

the Nigerian Banking Sector – A Case study of UBA PLC, UBN PLC and

OCEANIC Bank PLC, respectively. The global financial crisis is occasioned by

banks imprudence, too high/excessive compensation packages to banks executives,

reckless bank lending, lose regulatory regimes and several unregulated financial

markets and products. The global financial crisis affects depositors funds and

confidence in the Nigerian banking sector. The effect negatively impacts on the

credit quality of commercial banks. The work is divided into five chapters.

Chapter one is the introduction which treats the background of the study, statement

of problem, objectives of the study, research questions and hypothesis and

significance of the study. Chapter two is the literature review of related works

done on the area of Global Financial Crisis. Chapter three is the research

methodology which explains the research design, the methodology for collecting

and analyzing data. Chapter four centers on data presentation and analysis while

the last, but not the least, which is chapter five is on summary of findings,

conclusion and recommendations. The sample size was determined using the Taro

Yemeni‘s formula and data from the field analysed in percentages using tabular

format. The work recommends that the governments of various countries should

put up stringent monitoring policies to avert the occurrence of the global financial

crisis.

T

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ABLE OF CONTENTS

Page

Topic i

Title page ii

Certification iii

Dedication iv

Acknowledgement v

Abstract vi

Table of contents vii

CHAPTER ONE: INTRODUCTION

1.1 Background of the study 1

1.2 Problem of the study 4

1.3 Objectives of the study 4

1.4 Research Questions 5

1.5 Statement of Hypothesis 5

1.6 Significance of the study 7

1.7 Scope of the study 7

1.8 Limitations of the study 8

1.9 Background of the Study Area 8

1.10 Definition of terms 13

References 15

CHAPTER TWO: LITERATURE REVIEW

2.1 The Concept of Financial Crisis 17

2.2 Causes of the Global Financial Crisis (GFC) 18

2.3 Effect of the GFC on the Global Economy 22

2.4 Africa and the Global Financial Crisis 24

2.5 The Nigerian Perspective of the GFC 27

2.6 Responses to Financial Crisis 34

2.6.1 Emergence and Short time responses 35

2.7. Regulatory and Long Time Responses 36

References 41

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CHAPTER THREE: RESEARCH DESIGN AND

METHODOLOGY

3.1 Research Design 43

3.2 Sources of Data for this study 43

3.2.1 Primary Source of Data 43

3.2.2 Secondary Source of Data 44

3.3 Population of the study 44

3.4 Determination of the sample size 44

3.5 Sampling Procedure 46

3.6 Description of Research Instrument 47

3.7 Method of data Presentation and Analysis 47

3.8 Reliability of the Research Instrument 48

3.9 Validity of the Research Instrument 48

References 49

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.1 Introduction 50

4.2 Distribution and Retrieval of Questionnaire 50

4.3 Analysis of Research Questions (Tabular Analysis) 51

References 62

CHAPTER FIVE: SUMMARY OF FINDINGS,

CONCLUSION AND RECOMMENDATIONS 63

5.1 Introduction 63

5.2 Summary of findings 63

5.3 Conclusion and Recommendations 65

Bibliography 67

Appendices 69

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CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The global financial crisis began in the United States of America and the United

Kingdom when the global credit market came to a standstill in July 2007

(Avgouleas, 2008:24). The crisis brewing for a while, really started to show its

effects in the middle of 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 crisis later spread to Europe and now has become a global phenomenon. The

financial crisis at the early stage manifested strongly in the sub-prime mortgages

because households faced difficulties in making higher payments on adjusted

mortgages (Olowe, 2008:11). This development led to the use of credit contraction

by financial institutions in the US to tighten their standards in the light of their

deteriorating balance sheets. In addition, financial institutions stopped lending and

recalled their credit lines to ensure capital adequacy (Aluko, 2009:32).

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According to Baker (2008:31), the original root of the current financial mess is in

the US- the world‘s largest Industrial-Military complex. With an estimated GDP of

$14 trillion, the US contributes about 25% of world output. If, as is being forecast,

the US economy contracts by just 1%, this will imply a direct output loss of

approximately $140 billion- equivalent to the GDP of Pakistan, the 47th largest

economy in the world! And the crises are not restricted to the US. Cyprian

(2008:44) notes that financial markets have tumbled and slumped the world over:

from London to Tokyo, Seoul to Sydney, Sao Paulo to Moscow, Bombay to

Frankfurt etc. Avey (1998;12) asserts that no economy - whether developed,

emerging or developing is, so far, insulated from what Greenspan refers to as

„once-in-a-century credit tsunami‟.

The initial response of the policy makers in Nigeria was meek. Either they did not

understand the crises or underestimated its magnitude. In general, they thought of

the crisis as only a ‗storm in a tea cup‘, an aberration, a ‗hiccup‘. They insisted that

the ‗fundamentals of the

financial system look impressively strong‘ even when the capital market has been

bleeding uncontrollably. The Minister of Planning stated, rather insensitively,

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‗there is no problem in the Nation‘s capital market. What we have presently is just

corrections and

adjustments …. Shareholders are getting dividends and bonuses and they are

happy…‘ This was at a time when market capitalization had dropped from N12

trillion to less than N9 trillion. When they finally accepted there was a crisis, they

promised to take some unspecified ‗drastic and unusual action‘ to stem the global

financial crises from causing havoc in the Nigerian financial system

(www.thisday.com).

According to Aluko (2009:38), the country‘s dependence on the export sector is

very significant: 99% of foreign exchange and 85% of local revenues are directly

derived from activities related to export of a single commodity, which is at the

center of the current financial crises, oil. It is estimated that 58.4% of Nigeria‘s

exports are US bound and up to 25% to the Euro zone. 67% of our non-oil exports

go to Western Europe, 20% to Asia, while ECOWAS accounted for only 11% in

2007. The stock of our foreign exchange reserves is kept in European capitals

where financial markets have tumbled and banks distressed. Indeed the world‘s

economies are integrated financially; a little shake-up in one area of the world

affects the other (Aluko, 2009:42).

http://www.thisday.com/

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1.2 STATEMENT OF PROBLEM

The global financial and economic crisis have presented significant challenges to

African countries, especially Nigeria. The direct effect of this crisis have been felt

mostly through the banking sector. There is depression of the capital market 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 outflow 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.

1.3 OBJECTIVES OF THE STUDY

The primary objective of this study is to identify the impacts of the global financial

crisis on the Nigeria Banking industry. The following specific objectives were also

deduced.

1. To assess the impact of global financial crisis on Commercial Banks in

Nigeria.

2. To examine the causes of global financial crisis.

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3. To determine the solutions to global financial crisis.

4. To identify how Nigerian banks can avoid/withstand the adverse impact of

Global financial crisis in the future

1.4 RESEARCH QUESTIONS

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

1. What is the impact of global financial crisis on Commercial Banks in

Nigeria?

2. What are the causes of global financial crisis?

3. What are the solutions to global financial crisis?

4. How can Nigerian banks withstand the effects of the global financial crisis

in the future?

1.5 RESEARCH HYPOTHESES

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

formulated.

Hypothesis 1

Ho The global financial crisis does not affect profitability of Nigerian

Banks.

H1 The global financial crisis affects the profitability of Nigerian

Banks.

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Hypothesis 2

Ho Global financial crisis is not caused by global stock market

crashes.

H1 Global financial crisis is caused by global stock market

crashes.

Hypothesis 3

Ho 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

Ho 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.

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1.6 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 as 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

researchers who would wish to carry out related studies in future.

1.7 SCOPE OF STUDY

The study focuses on the impact of Global Financial Crisis on the Nigerian

Banking Sector with a case study of United Bank for Africa Plc, Union Bank

Nigeria Plc and Oceanic Bank Plc.

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1.8 LIMITATIONS OF THE STUDY

In the process of carrying out this research work, some problems were

encountered. The problems include the following:

1. Time Constraint: The short time frame given for the programme made it

impossible for the researcher to have enough time to get all the required

information needed.

2. Financial Constraint: Due to limited resources at the disposal of the

researcher, he encountered financial constraint which militated against

possible access to all the required information for the study.

3. Attitude of Respondents

The evasive attitude of the respondents affected the research work. Some of

the respondents were unwilling to co-operate with the researcher because

they felt they have nothing to benefit from the research.

1.9.1 BRIEF HISTORY OF UNITED BANK FOR AFRICA PLC

Today‘s United Bank for Africa Plc (UBA) is the product of the merger of

Nigeria‘s third (3rd) and fifth (5th) largest banks, namely the old UBA and the

erstwhile Standard Trust Bank Plc (STB) respectively, and a subsequent

acquisition of the erstwhile Continental Trust Bank Limited (CTB). The union

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emerged as the first successful corporate combination in the history of Nigerian

banking.

UBA‘s history dates back to 1948 when the British and French Bank Limited

(―BFB‖) commenced business in Nigeria and the erstwhile STB and CTB both in

1990. Following Nigeria‘s independence from Britain, UBA was incorporated in

1961 to take over the business of BFB. Although today‘s UBA emerged at a time

of industry consolidation induced by regulation, the consolidated UBA was borne

out of a desire to lead the domestic sector to a new era of global relevance by

championing the creation of the Nigerian consumer finance market, leading a

private/public sector partnership at supporting the acceleration of Nigeria‘s

economic development, and growing the institution from a banking to a one-stop

financial services institution, while spreading its footprints across Africa to earn

the reputation as the face of banking in the continent.

Today, United Bank for Africa Plc is one of Africa‘s leading financial institutions

offering universal banking to more than 7 million customers across 750 branches

in 16 African countries; with presence in New York, London and Paris and assets

in excess of $19bn.

1.9.2 BRIEF HISTORY OF UNION BANK NIGERIA PLC

Union Bank of Nigeria Plc was established in 1917 as a Colonial Bank with its first

branch in Lagos. In 1925, Barclays Bank acquired the Colonial Bank, which

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resulted in the change of the Bank's name to Barclays Bank (Dominion, Colonial

and Overseas). Following the enactment of the Companies Act 1968 and the legal

requirement for all foreign subsidiaries to be incorporated locally, Barclays Bank

(D C O) in 1969 was incorporated as Barclays Bank of Nigeria Limited. The

ownership structure of Barclays Bank remained un-changed until 1971 when

8.33% of the Bank‘s shares were offered to Nigerians. In the same year, the Bank

was listed on the Nigerian Stock Exchange. As a result of the Nigeria Enterprises

Promotion Act of 1972, the Federal Government of Nigeria acquired 51.67% of the

Bank‘s shares, which left Barclays Bank Plc, London with only 40%. By the

enactment of the 1972 and 1977 Nigeria Enterprises Promotion Acts, Barclays

Bank International disposed its shareholding to Nigerians in 1979. To reflect the

new ownership structure and in compliance with the Companies and Allied Matters

Act of 1990, it assumed the name Union Bank of Nigeria Plc.

In consonance with the government's program of privatization and

commercialization of public enterprises, the Federal Government in 1993 sold its

shares in Union Bank to private individuals. Thus, Union Bank became fully

owned by Nigerian citizens and organizations.

In line with the Central Bank of Nigeria's banking sector consolidation policy,

Union Bank of Nigeria Plc acquired the former Universal Trust Bank Plc and

Broad Bank Ltd and absorbed its erstwhile subsidiary Union Merchant Bank Ltd.

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The Bank also increased its shareholders' funds through a Public Offer/Rights Issue

in the last quarter of 2005. With these developments, Union Bank remains one of

the most capitalized banks in Nigeria. It has shareholders‘ funds of

N119.160billion and operates through 405 network of branches that are well

spread across the country, all of which are on-line, real time.

Subsidiaries:

(a) Union Homes Savings and Loans Plc

(b) Union Trustees Limited

(c) Union Assurance Company Limited

(d) Union Bank UK Plc.

(e) Banque Internationale du Benin , Cotonou

(f) UTL Communications Services Limited

(g) UBN Property Company Limited

(h) Union Capital Markets Limited

(i) Union Registrars Limited

Associated Companies:

(a) Consolidated Discounts Ltd.

(b) HFC Bank Ghana Limited.

(c) Unique Venture Capital Management Co. Ltd.

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Union Bank Group operates an interlocking organizational structure whereby some

board members of Union Bank of Nigeria Plc act as external directors in the

subsidiaries and associated companies. This arrangement ensures effective

oversight and participation in the decision-making process of these companies,

thereby safeguarding the Bank‘s investments.

1.9.3 BRIEF HISTORY OF OCEANIC BANK PLC

Oceanic Bank International Plc is one of Nigeria‘s foremost financial services

institutions. The Bank was incorporated on March 26, 1990 under the Companies

& Allied Matters Act (1990) of Nigeria as a private limited liability company and

was granted a commercial banking license on April 10 1990.

It commenced business on June 12, 1990. Fourteen years later, on June 4, 2004,

Oceanic Bank converted to a public liability company. Its shares were listed on the

Nigerian Stock Exchange on June 25, 2004.

Over the years, Oceanic Bank has built its success on excellent service, delivered

in a friendly environment through professional staff, leveraging on world-class

technology.

Today, Oceanic Bank serves customers spread across all tiers of government,

corporate organizations, small & medium enterprises and individuals. The Bank‘s

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commitment to value creation for all its stakeholders has earned it a solid

reputation as a responsible corporate citizen and employer of choice.

With a strong presence in asset management, commercial banking, health

management, insurance, investment banking, pensions, registrar services, savings

& loans and trustee services, as well as over 370 business offices spread across

Nigeria, Cameroun, the Gambia and São Tomé & Príncipe, Oceanic Bank is one of

the most recognized financial services brands in West Africa.

1.10 DEFINITION OF TERMS

For better understanding of some technical terms used in the study, this section

defines such terms as used in the study.

Impact: This means the strong impression or effect of an action on something,

somebody, matter or issue under consideration.

Global: This means world wide or embracing the whole of a group of items etc.

Financial Crisis: This means the problems associated with banks performances

and profitability manifested through depression of the capital market and drop in

the quality of part of the credit extended to banks for trading in the capital market.

Bank: This is a financial institution that specializes in the receiving of money

deposits, safeguarding of valuables, paying money deposited on customers‘

demand and handling of other financial transactions.

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Banking Sector: This is a segment of a national economy that is established for

transacting in the receipt and safe custody of money

and valuables.

Credit Squeeze: The reduction in lending rate to the real sector by financial

institutions.

Assets: This means anything owned by a company having a monetary value e.g.

fixed assets like buildings, plant and machinery, vehicles etc and intangibles like

trademarks and brand names, current assets are such items as stock, debtors and

cash.

Stock Market: This is a market for the trading of both short term and long term

stock, securities and investments.

Balance Sheet: The balance sheet is one of the three essential measurement

reports for the performance of a company along with the profit and loss account

and the cashflow statement. The Balance sheet is a ‗snapshot‘ in time of who

owns what in the company, and what assets and debts represent the value of the

company.

Gross Domestic Product: This is the total money value of alleconomic goods and

services produced in a country over a given period of time, usually a year.

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REFERENCES

Books

Olakunori, O.K (2000) Successful Research Theory and Practice, Enugu, Revised

Edition, Computer Edge Publishers.

Olowe, R. A. (2008) Financial Management Concepts, Analysis and Capital

Investments, Lagos, Brierly Jones.

Osuala, E.C. (2001) Introduction to Research Methodology, Onitsha,

3rd

Edition; Africa Fep Publishing Company Limited.

Journals Avery, C. Z. (1998), ' Multidimensional Uncertainty and Herd Behavior

in Financial Markets' American Economic Review 88, pp.

724-748.

Avgouleas, E. (2008) ‗Financial Regulation, Behavior Finance, and

the Financial Credit Crisis in Search of a New Regulatory Model‟

Retrieved from http;//papers.ssrn.com

Baker, D. (2008) “The Housing Bubble and the Financial Crisis,‖

Center for Economic and Policy Research.

Chari, V., and Kehoe, P. (2004), 'Financial Crises as Herds:

Overturning the Critiques' Journal of Economic Theory 119, pp.

128-150.

Cipriani, M., and Guarino, A. (2008) 'Herd Behavior and Contagion in

Financial Markets' The B.E. Journal of Theoretical Economics

8(1) (Contributions), Article 24, pp. 1-54.

Crotty, J. (2008) “Structural Causes of the Global Financial Crisis:

A Critical Assessment of the „New Financial Architecture‘‖ Political

Economy Research Institute (PERI) University of

Massachusetts Amherst Working paper no. 180 September.

Dell‘Ariccia, G. I. (2008) ‗The Relationship Between the Recent Boom

and the Current Delinquencies in Subprime Mortgage‟ CEPR

Discussion paper, London

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Internet Websites

http://en.wikipedia.org/wiki/subprimemortgage.crisis

http://www.cnn.com/2008/POLITICS/09/17/stiglitz.crisis/index.html

http://www.odi.org.uk/

http://www.bbc.co.uk/

www.thisday.com

www.ubagroup.com

www.ubnplc.om

www.oceanicbankplc.com





http://www.ubagroup.com/

http://www.ubnplc.om/

http://www.oceanicbankplc.com/

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CHAPTER TWO

REVIEW OF RELATED LITERATURE

2.1 THE CONCEPT OF FINANCIAL CRISIS

According to Chari (2004:18), the term financial crisis is applied broadly to a

variety of situations in which some financial institutions or assets suddenly lose a

large part of their value. In the 19th and early 20th 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 (Kindleberger, 2005:10).

Some economic theories that explained financial crises includes the World systems

theory which explained the dangers and perils, which leading industrial nations

will be facing (and are now facing) at the end of the long economic cycle, which

began after the oil crisis of

1973. While Coordination games, a mathematical approach to modelling financial

crises have emphasized that there is often positive feedback between market

participants' decisions

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(Krugman, 2008:23). Positive feedback implies that there may be dramatic changes

in asset values in response to small changes in economic fundamentals, Minsky‘s

theorised that financial fragility is a typical feature of any capitalist economy and

financial fragility levels move together with the business cycle, but the Herding

and Learning models explained that asset purchases by a few agents encourage

others to buy too, not because the true value of the asset increases when many buy

(which is called "strategic complementarity"), but because investors come to

believe the true asset value is high when they observe others buying (Avery,

1998;30).

2.2 CAUSES OF THE GLOBAL FINANCIAL CRISIS

The reasons for this crisis are varied and complex, but largely it can be attributed

to a number of factors in both the housing and credit markets, which developed

over an extended period of time. Some of these include: the inability of

homeowner to make their mortgage payments, poor judgment by the borrower

and/or lender, speculation and overbuilding during the boom period, risky

mortgage products, high personal and corporate debt levels, financial innovation

that distributed and concealed default risks, central bank policies, and regulation

(Stiglitz, 2008:40).

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Avgouleas (2008:19) enumerated the causes of the crisis as: breakdown in

underwriting standards for subprime mortgages; flaws in credit rating agencies‘

assessments of subprime Residential Mortgage Backed Securities (RMBS) and

other complex structured credit

products especially Collaterized Debt Obligations (CDOs) and other Asset-Backed

Securities (ABS); risk management weaknesses at some large at US and European

financial institutions; and regulatory policies, including capital and disclosure

requirements that failed to mitigate risk management weaknesses. Taking the

views of the various commentators into consideration, the current financial crisis

among other things is caused by Liberalization of Global Financial Regulations.

This is one reason for the crisis. The regulatory model adopted by banks in the US

emerged as a result of liberalization of banking business in the early 1990s and

international consensus reached within the Basle Committee of Banking

Supervision as regards the acceptable model of prudential supervision of banking

institutions (Scott, 2008:19)

This liberalization facilitates the global abolition of restrictions on capital flow in

the 1990s and caused the operation of international investment funds to be largely

unregulated. Another cause is the Boom and Bust in the housing market. A

combination of low interest rates and large inflows of foreign funds help create

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easy credit conditions for many years leading up to the crisis. Due to low interest

rates and large inflow of foreign fund, subprime lending/borrowing for investment

became very attractive in both US and the UK. Since the demand for housing was

rapidly rising in the US, most investors and homeowners took mortgaged loans and

invested in housings. The overall US home ownership rate increased from 64% in

1994 (about where it was since 1980) to peak in 2004 with an all-time high of

69.2%.

Secondly, Speculations is also one of the causes of the crisis. Traditionally, homes

were not treated as investment like stocks, but this behaviour changed during the

housing boom as it attracted speculative buyers. This makes speculation in real

estate a contributing factor. During 2006, 22% of homes purchased (1.65 million

units) were for investment purposes – it means that nearly 40% of home purchases

were not primary residences (wikipedia, 2008:4).

This speculative buying makes housing prices to fall drastically.

New Financial Architecture (NFA) – according to Crotty (2008:42), NFA is ―a

globally integrated system of giant bank conglomerates and the so-called ‗shadow

banking system‘ of investment banks, hedge funds and bank-created Special

Investment Vehicles.‖ This makes excessive risk to build up in giant banks during

the boom; and the NFA generated high leverage and high systemic risk, with

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channels of contagion that transmitted problems in the US subprime mortgage

market around the world.

Poor credit rating - due to securitization practices, credit rating agencies have the

tendency to assign investment-grade rating to Mortgage-Backed Securities (MBS),

and this makes loans with high default rate to originate, packaged and transferred

to others. Quoting Black‘s Law Dictionary (7th ed.) in Wikipedia (2008:3),

“securitization” is a structured finance process in which assets, receivables or

financial instruments are acquired, classified into pools, and offered as collateral

for third-party investment.‖

High-risk loans - There appears to be widespread agreement that periods of rapid

credit growth tend to be accompanied by loosening lending standards (Dell,

2008:26). For instance, in a speech delivered before the Independent Community

Bankers of America on 7 March 2001, the then Federal Reserve chairman, Alan

Greenspan, pointed to ‗an unfortunate tendency‘ among bankers to lend

aggressively at the peak of a cycle and argued that most bad loans were made

through this aggressive type of lending (IMF, 2008). Without considering high risk

borrowers, lenders give ‗Ninja loans‘ - high-risk loans to those with No income,

No job, and no Assets. They also give home loans to immigrants that are

undocumented (Wikipedia, 2008:3).

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Government policies - some critics believed that the crisis was fuelled by US

government mortgage policies which encouraged trends towards issuing risky

loans. For instance, Fannie Mae Corporation eases credit requirements on loans

and this encourages banks to extend home mortgages to people that do not have

good enough credit rating.

2.3 EFFECTS OF THE GLOBAL FINANCIAL CRISIS ON THE GLOBAL

ECONOMY

A number of commentators have suggested that if the liquidity crisis continues,

there could be an extended recession or worse (Sagagi, 2008:40). The continuing

development of the crisis has prompted in some quarters fears of a global

economic collapse although there are now many cautiously optimistic forecasters

in addition to some prominent sources who remain negative. The financial crisis is

likely to yield the biggest banking shakeout since the savings-and-loan meltdown.

Investment bank UBS stated on October 6 that 2008 would see a clear global

recession, with recovery unlikely for at least two years.] Three days later UBS

economists announced that the "beginning of the end" of the crisis had begun, with

the world starting to make the necessary actions to fix the crisis: capital injection

by governments; injection made systemically; interest rate cuts to help borrowers.

The United Kingdom had started systemic injection, and the world's central banks

were now cutting interest rates. UBS emphasized the United States needed to

http://en.wikipedia.org/wiki/Recession

http://en.wikipedia.org/wiki/Economic_collapse

http://en.wikipedia.org/wiki/UBS_AG

http://en.wikipedia.org/wiki/Financial_capital

http://en.wikipedia.org/wiki/Systemic

32

implement systemic injection. UBS further emphasized that this fixes only the

financial crisis, but that in economic terms "the worst is still to come". ]UBS

quantified their expected recession durations on October 16: the Eurozone's would

last two quarters, the United States' would last three quarters, and the United

Kingdom's would last four quarters.]The economic crisis in Iceland involved all

three of the country's major banks. Relative to the size of its economy, Iceland‘s

banking collapse is the largest suffered by any country in economic history.

At the end of October UBS revised its outlook downwards: the forthcoming

recession would be the worst since the early 1980s recession with negative 2009

growth for the U.S., Eurozone, UK; very limited recovery in 2010; but not as bad

as the Great Depression (Sagagi, 2008:11).

The Brookings Institution reported in June 2009 that U.S. consumption accounted

for more than a third of the growth in global consumption between 2000 and 2007.

"The US economy has been spending too much and borrowing too much for years

and the rest of the world depended on the U.S. consumer as a source of global

demand." With a recession in the U.S. and the increased savings rate of U.S.

consumers, declines in growth elsewhere have been dramatic. For the first quarter

of 2009, the annualized rate of decline in GDP was 14.4% in Germany, 15.2% in

Japan, 7.4% in the UK, 18% in Latvia, 9.8% in the Euro area and 21.5% for

http://en.wikipedia.org/wiki/2008%E2%80%932009_Icelandic_financial_crisis

http://en.wikipedia.org/wiki/Iceland

http://en.wikipedia.org/wiki/Early_1980s_recession

http://en.wikipedia.org/wiki/Great_Depression

http://en.wikipedia.org/wiki/Brookings_Institution

33

Mexico. Some developing countries that had seen strong economic growth saw

significant slowdowns. For example, growth forecasts in Cambodia show a fall

from more than 10% in 2007 to close to zero in 2009, and Kenya may achieve only

3-4% growth in 2009, down from 7% in 2007. According to the research by the

Overseas Development Institute, reductions in growth can be attributed to falls in

trade, commodity prices, investment and remittances sent from migrant workers

(which reached a record $251 billion in 2007, but have fallen in many countries

since). It has stark implications and has led to a dramatic rise in the number of

households living below the poverty line, be it 300,000 in Bangladesh or 230,000

in Ghana.

By March 2009, the Arab world had lost $3 trillion due to the crisis. In April 2009,

unemployment in the Arab world is said to be a 'time bomb'. In May 2009, the

United Nations reported a drop in foreign investment in Middle-Eastern economies

due to a slower rise in demand for oil. In June 2009, the World Bank predicted a

tough year for Arab states. In September 2009, Arab banks reported losses of

nearly $4 billion since the onset of the global financial crisis (Sagagi, 2008:14).

2.4 AFRICA AND THE GLOBAL FINANCIAL CRISIS

The direct impact of the financial crisis on the African economies has thus far been

limited as most commercial banks in the region refrained from investing in the

http://en.wikipedia.org/wiki/Developing_countries

http://en.wikipedia.org/wiki/Economic_growth

http://en.wikipedia.org/wiki/Cambodia

http://en.wikipedia.org/wiki/Overseas_Development_Institute

http://en.wikipedia.org/wiki/Remittances

http://en.wikipedia.org/wiki/Arab_world

34

troubled assets from the US and other part of the world. This is why most

commentators initially argued that Africa is so far insulated from the direct effects

of the financial crisis. The current financial crisis affects Africa and other

developing countries in two possible ways; First, there could be financial

contagion and spillovers for stock markets in Africa. Stock markets in the region

showed some volatility, driven by a sell-off by foreign investors. The Nigerian

stock market for instance has been experiencing a continuous downward trend in

prices of stocks for over one year now. The India stock market dropped by 8% in

one day at the same time as stock markets in the USA and Brazil plunged. Stock

markets across the world – developed and developing – have all dropped

substantially since May 2008. Share prices have tumble between 12 and 19% in the

USA, UK and Japan in just one week, while the MSCI emerging market index fell

23%. This includes stock markets in Brazil, South Africa, India and China (Odi,

2008:21). We need to better understand the nature of the financial linkages, how

they occur (as they do appear to occur) and whether anything can be done to

minimize contagion.

Second, the economic downturn in developed countries may also have significant

impact on developing countries particularly Africa. The channels of impact

include; the indirect effect of volatile and falling commodity prices, particularly

crude oil, on export revenue and the inflow of capital into the region, low

35

remittance from abroad, decline in foreign aids, low foreign direct investment and

portfolio investment.

The financial crisis came as African economies were turning the corner. However,

the effect is to the economies of African countries, in general. African Banks are

not suffering from credit crisis as such since they are less exposed to the global

credit system. Effect of global financial crisis is already being felt; e.g. Tanzania

downgraded growth forecast to 7.5% down from 7.8%. AFDB forecast average

growth of 5% down from 6.5%. (Mtango, 2008:19).

According to the World Bank (2008:22), the effects of financial crisis on the continent

could manifest through drying up of liquidity and capital inflows, aids programs and

trade. This is because:

(i) Many African banks that may be planning to seek funds from the developed

economies would not be able to source capital;

(ii) Most African countries through their central banks have their foreign reserves

stashed out in Dollars and Pounds in the United States of America (USA) and

Western Europe, portending low income in subsequent years because of the

low interest rates following governments and central banks interventions;

(iii) Strong likelihood of decline in revenue from exports in African countries;

36

(iv) Low commitment by African governments to rural development agreements

under the Millennium Development Goals (MDGs) and the New Partnership for

Africa‘s Development (NEPAD); and

(v) That the Crisis of the four Fs (fuel, fertilizer, finance and food) still faces the

continent, especially given that in Togo and Liberia, food inflation is still 25 per

cent while in Ethiopia it is 92 per cent and (vi) poor response of African

governments to the global financial crisis. The World Bank has in respect of the

developments forecasted for 2009, that commodity prices will nosedive to

between 20-25 per cent compared. An overlay of the above facets of the global

financial crises therefore portends that, should Africa remains complacent, the

effects of the financial crunch will be very considerable for the continent.

2.5 THE NIGERIAN PERSPECTIVES OF THE GLOBAL FINANCIAL

CRISIS

Like other African countries, the Central Bank of Nigeria, the Finance Ministry as

well as other government commentators initially argued that Nigeria economy is

partially insulated from the direct effects of the financial crisis. But, as our

economy is integrated with that of the US and the UK to some extent, we are

feeling some indirect impacts of the crisis.

37

The effects on Nigerian economy are specifically discussed as follows by Abdul

(2008:22).

(i) Foreign direct investment (FDI) and equity investment; these will

come under pressure. While 2007 was a record year for FDI to Nigeria and

other developing countries, equity finance is under pressure and corporate

and project finance is already weakening. The fall of inward investments

will affect important sectors such as agriculture, infrastructure development,

health and education (Mtango, 2008:26). Withdrawals of portfolio

investment as a result of contagion effects have been causing a reduction in

stock prices for over two months.

(ii) Downward trend in oil price; The deteriorating global economic outlook is likely

to put further downward pressure on crude oil prices, which are expected to

remain highly volatile. The indirect effect of volatile and falling commodity

prices, particularly crude oil, on export revenue and the inflow of capital into

Nigeria cannot be over emphasized. This is because the country depends on

revenue from oil to finance its budget and the countries that are mostly hit

by the crisis are the primary market for our oil. For instance, about 45% of

our oil is exported to the US; therefore, this crisis is leading to fall in oil

prices. To stabilize and pushes the price of oil up, OPEC have recently met

and cut output by 2.2 million barrel per day (BBC.co.uk). In a precautionary

38

move, the Federal Government of Nigeria reduced the 2009 budget revenue

estimate to $45 per barrel from over $60 per barrel.

(iii) Remittances; Remittances to Nigeria and other developing countries will

decline. There will be fewer economic migrants coming to developed

countries when they are in a recession, so fewer remittances and also

probably lower volumes of remittances per migrant. This will affect the calls

by government on Nigeria in Diaspora to invest in the country.

(iv) Aid; Aid budgets are under pressure because of debt problems and weak

fiscal positions, e.g. in the UK and other European countries and in the USA.

While the promises of increased aid at the Gleneagles summit in 2005 were

already off track just three years later, aid budgets are now likely to be under

increased pressure (Odi, 2008:29). This will affect the Millennium

Development Goals (MDG) of most developing countries as well as Nigeria.

(v) Commercial lending; Banks under pressure in developed countries may not be able

to lend as much as they have done in the past. This would limit investment

in the country as investors will find it difficult to borrow from these banks.

(vi) Countries with liberalized capital accounts (Nigeria, South Africa and

Kenya) will be the first to suffer due to the tendency for investors to

withdraw to safer markets.

39

(vii) Losses in other financial assets by banks and other financial institutions in

Nigeria (e.g. those deposited with foreign correspondent banks). Banks with

high foreign currency exposure will also be affected.

(viii) Other official flows; Capital adequacy ratios of development finance

institutions will be under pressure (Odi, 2008:32). However these have been

relatively high recently, so there is scope for taking on more risks.

(ix) Capital repatriation by private banks which are usually foreign-owned. For

instance, Standard Chartered Bank, Citigroup (Nigeria International Bank).

(x) Countries‘ foreign reserves usually invested abroad will most likely be affected.

This is because most big banks in Europe and the US are affected in one way

or the other.

(xi) Slow down of economic growth, foreign currency income slump,

unemployment increase, reduced Oversea Development Aid (ODA),

depreciation of local currency, etc. will result in a setback in achieving the

MDGs. While the effects will vary from country to country, the economic

impacts could include: Weaker export revenues; further pressures on current

accounts and balance of payment; Lower investment and growth rates; and

lost employment. There could also be social effects: Lower growth

translating into higher poverty; more crime, weaker health systems and even

more difficulties meeting the Millennium Development Goals.

40

According to the World Development Report (2007/2008), Nigeria is the largest

territorial unit in West Africa with an estimated 140million people (based on 2006

headcount). It is an agrarian, oil producing country with a gender population ratio of

51.2 and 48.8 per cent for male and female respectively, an annual growth rate of 3.2

per cent and a low human development rating, HIV/AIDS prevalence rate of 3.9 per

cent, infant mortality at 100 per 1,000 births and mortality of 1,100 per 100,000 live

births. The country placed 158 among 177 countries in terms of Human Development

Index (HDI) as at 2005 and is considered poor with a life expectancy of about 54

years and per capita income of $1,128 (US) or $3.00 per day, depicting that 70.8 per

cent of her population live below the poverty line of $1.00 per day or 92.4 per cent

living below the $2.0 per day. Nigeria has a high degree of inequality in income

distribution with only a small fraction of the population earning the bulk of its

national income.

The unprecedented fall by 40.0 per cent in the international prices of oil, attendant of

the global financial crunch compounded by the persistent Niger Delta Crisis of

Nigeria, signals that, if the global financial meltdown persists, Nigeria could suffer a

major setback. For instance, its 2009 budget has been benchmarked against the $62.0

per barrel oil earnings. The contributions of agriculture and crude petroleum to the

41

country‘s GDP averaged, 41.40 and 23.50 per cent between 2003 and 2007

respectively. The contributions by mining and quarrying, manufacturing, building and

construction, wholesale and trade services averaged 0.29, 3.80, 1.50, 14.1 and 15.4 per

cent respectively between 2003 and 2007. The effects of the crises on agricultural and

rural development and the economy of Nigeria at large are as follows:

(i) Dis-incentive to foreign investors arising from the cash crunch;

(ii) Decaying infrastructures likely to weaken the supply side of the nation‘s food

market, food un-availability, low rate of domestic food supplies and

imports;

(iii) Bearish features of the capital market (23 per cent or N2.9 trillion in market

capitalization has already been lost since March, 2008 resulting in the CBN

granting reprieve to banks that has large portfolio of margin facilities to re-

structure for longer periods);

(iv) Panic withdrawal of deposited funds from banks by entrepreneurs and

industrialists in the country in apprehension of future uncertainties;

(v) Threat of food insecurity – with reduced foreign exchange earnings from oil,

the prospects of the government to invest N950.00billion in agricultural

programs within the next four years is bleak;

42

(vi) Nigeria‘s Oil and Gas Projects is at risk – the projects may now take longer

time to be completed. This is because all the recent successes of the sector

have been driven by increased foreign direct investment;

(vii) Poor implementation of some major national priority development initiatives, e.

g. The 7-point Agenda of the current administration, The Financial Sector

Strategy (FSS) 2020 and the National Economic Empowerment

Development Strategy (NEEDS) arising from reduced capital for funding;

(viii) Possible non-realization of the stipulations/mandates under some key national

programs focused at poverty reduction like the National Microfinance

Policy & Regulatory Framework, Small & Medium Enterprises

Development Agency (SMEDAN) and the National Poverty Eradication

Program (NAPEP) meant to fast track the economy;

(ix) Inability of the government of Nigeria to fund its Joint Venture Commitments

under the upstream oil and gas sector arrangements;

(x) More challenges for the CBN to stem the effects of the crisis. Currently, the

Bank had had to increase liquidity by over N1.0 trillion, permitted deposit

money banks (DMBs) to buy back their securities (and extended the

window to 365days as opposed to overnight lending), it reduced interest rate

by 50 basis point from 10.25 to 9.75 per cent, cash reserve ratio from 4 to 2

43

per cent; minimum liquidity ratio (MLR) from 40 to 30 per cent and has

reflected the economy by N1.2 trillion; and

(xi) Collapse of infrastructures (energy, water, communication and transportation)

due to funding inadequacy.

2.6 RESPONSES TO FINANCIAL CRISIS

2.6.1 Emergency and short-term responses

The U.S. Federal Reserve and central banks around the world have taken steps to

expand money supplies to avoid the risk of a deflationary spiral, in which lower

wages and higher unemployment lead to a self-reinforcing decline in global

consumption. In addition, governments have enacted large fiscal stimulus

packages, by borrowing and spending to offset the reduction in private sector

demand caused by the crisis. The U.S. executed two stimulus packages, totaling

nearly $1 trillion during 2008 and 2009.

This credit freeze brought the global financial system to the brink of collapse. The

response of the U.S. Federal Reserve, the European Central Bank, and other central

banks was immediate and dramatic. During the last quarter of 2008, these central

banks purchased US$2.5 trillion of government debt and troubled private assets

from banks. This was the largest liquidity injection into the credit market, and the

largest monetary policy action, in world history. The governments of European

http://en.wikipedia.org/wiki/Federal_Reserve

http://en.wikipedia.org/wiki/Deflationary_spiral


http://en.wikipedia.org/wiki/European_Central_Bank

44

nations and the USA also raised the capital of their national banking systems by

$1.5 trillion, by purchasing newly issued preferred stock in their major banks.

(Rogers, Retrieved from http://www.foreignaffairs.org on Oct.15, 2010).

Governments have also bailed out a variety of firms as discussed above, incurring

large financial obligations. To date, various U.S. government agencies have

committed or spent trillions of dollars in loans, asset purchases, guarantees, and

direct spending. For a summary of U.S. government financial commitments and

investments related to the crisis, see CNN - Bailout Scorecard. Significant

controversy has accompanied the bailout, leading to the development of a variety

of "decision making frameworks", to help balance competing policy interests

during times of financial crisis.

2.7 REGULATORY PROPOSALS AND LONG-TERM RESPONSES

United States President Barack Obama and key advisers introduced a series of

regulatory proposals in June 2009. The proposals address consumer protection,

executive pay, bank financial cushions or capital requirements, expanded

regulation of the shadow banking system and derivatives, and enhanced authority

for the Federal Reserve to safely wind-down systemically important institutions,

among others. In January 2010, Obama proposed additional regulations limiting

the ability of banks to engage in proprietary trading. The proposals were dubbed

http://en.wikipedia.org/wiki/Preferred_stock

http://en.wikipedia.org/wiki/Bailout

http://money.cnn.com/news/specials/storysupplement/bailout_scorecard/index.html

http://en.wikipedia.org/wiki/Barack_Obama

http://en.wikipedia.org/wiki/Shadow_banking_system

http://en.wikipedia.org/wiki/Derivative_(finance)


http://en.wikipedia.org/wiki/Proprietary_trading

45

"The Volcker Rule", in recognition of Paul Volcker, who has publicly argued for

the proposed changes (Uchitelle, 2010:39).

The U.S. Senate passed a regulatory reform bill in May 2010, following the House

which passed a bill in December 2009. These bills must now be reconciled. The

New York Times provided a comparative summary of the features of the two bills,

which address to varying extent the principles enumerated by the Obama

administration. For instance, the Volcker Rule against proprietary trading is not

part of the legislation, though in the Senate bill regulators have the discretion but

not the obligation to prohibit these trades.

A variety of other regulatory changes have been proposed by economists,

politicians, journalists, and business leaders to minimize the impact of the current

crisis and prevent recurrence. None of the proposed solutions have yet been

implemented. These include:

Ben Bernanke: Establish resolution procedures for closing troubled financial

institutions in the shadow banking system, such as investment banks and

hedge funds.

Nassim Nicholas Taleb: "Black Swan Robustness" i.e. Robustness against

High Impact Rare Events("Fat Tails").

http://en.wikipedia.org/wiki/Volcker_Rule

http://en.wikipedia.org/wiki/Paul_Volcker

http://en.wikipedia.org/wiki/New_York_Times

http://en.wikipedia.org/wiki/Ben_Bernanke

http://en.wikipedia.org/wiki/Shadow_banking_system

http://en.wikipedia.org/wiki/Nassim_Nicholas_Taleb

46

Joseph Stiglitz: Restrict the leverage that financial institutions can assume.

Require executive compensation to be more related to long-term

performance. Re-instate the separation of commercial (depository) and

investment banking established by the Glass-Steagall Act in 1933 and

repealed in 1999 by the Gramm-Leach-Bliley Act.

Simon Johnson: Break-up institutions that are "too big to fail" to limit

systemic risk.

Paul Krugman: Regulate institutions that "act like banks" similarly to banks.

Alan Greenspan: Banks should have a stronger capital cushion, with

graduated regulatory capital requirements (i.e., capital ratios that increase

with bank size), to "discourage them from becoming too big and to offset

their competitive advantage.

Warren Buffett: Require minimum down payments for home mortgages of at

least 10% and income verification.

Eric Dinallo: Ensure any financial institution has the necessary capital to

support its financial commitments. Regulate credit derivatives and ensure

they are traded on well-capitalized exchanges to limit counterparty risk.

Raghuram Rajan: Require financial institutions to maintain sufficient

"contingent capital" (i.e., pay insurance premiums to the government during

boom periods, in exchange for payments during a downturn.).

http://en.wikipedia.org/wiki/Joseph_Stiglitz

http://en.wikipedia.org/wiki/Financial_leverage

http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act

http://en.wikipedia.org/wiki/Simon_Johnson_(economist)

http://en.wikipedia.org/wiki/Systemic_risk

http://en.wikipedia.org/wiki/Paul_Krugman

http://en.wikipedia.org/wiki/Alan_Greenspan

http://en.wikipedia.org/wiki/Warren_Buffett

http://en.wikipedia.org/wiki/Eric_Dinallo

http://en.wikipedia.org/wiki/Counterparty_risk

http://en.wikipedia.org/wiki/Raghuram_Rajan

47

HM Treasury: Contingent capital or capital insurance held by the private

sector could supplement common equity in times of crisis. There are a

variety of proposals (e.g. Raviv 2004:22, and Flannery 2009:11) under

which banks would issue fixed income debt that would convert into capital

according to a predetermined mechanism, either bank-specific (related to

levels of regulatory capital) or a more general measure of crisis.

Alternatively, under capital insurance, an insurer would receive a premium

for agreeing to provide an amount of capital to the bank in case of systemic

crisis. Following Raviv (2004) proposal, on November 3 Lloyds Banking

Group (LBG), Britain‘s biggest retail bank, said it would convert existing

debt into about £7.5 billion ($12.3 billion) of ―contingent core Tier-1

capital‖ (dubbed CoCos). This is a kind of debt that will automatically

convert into shares if the bank‘s cushion of equity capital falls below 5%.

A. Michael Spence and Gordon Brown: Establish an early-warning system

to help detect systemic risk.

Niall Ferguson and Jeffrey Sachs: Impose haircuts on bondholders and

counterparties prior to using taxpayer money in bailouts. In other words,

bondholders with a claim of $100 would have their claim reduced to $80,

creating $20 in equity. This is also called a debt for equity swap. This is

frequently done in bankruptcies, where the current shareholders are wiped

http://en.wikipedia.org/wiki/HM_Treasury

http://en.wikipedia.org/wiki/A._Michael_Spence

http://en.wikipedia.org/wiki/Gordon_Brown

http://en.wikipedia.org/wiki/Systemic_risk

http://en.wikipedia.org/wiki/Niall_Ferguson

http://en.wikipedia.org/wiki/Jeffrey_Sachs

http://en.wikipedia.org/wiki/Haircut_(finance)

48

out and the bondholders become the new stockholders, agreeing to reduce

the company's debt burden in the process. This is being done with General

Motors, for example.

Nouriel Roubini: Nationalize insolvent banks. Reduce mortgage balances to

assist homeowners, giving the lender a share in any future home

appreciation.

Adair Turner: In August 2009 in a roundtable interview in Prospect Adair

Turner supported the idea of new global taxes on financial transactions,

warning that a ―swollen‖ financial sector paying excessive salaries has

grown too big for society.[193]

Lord Turner‘s suggestion that a ―Tobin tax‖ –

named after the economist James Tobin – should be considered for financial

transactions reverberated around the world.

Let Wall Street Pay for the Restoration of Main Street Bill - in the US only

(not international) - Proposed legislation introduced December 3, 2009 -

Contained in the US House of Representatives bill entitled "H.R. 4191: Let

Wall Street Pay for the Restoration of Main Street Act of 2009" It is a

proposed piece of legislation that was introduced into the United States

House of Representatives to assess a minuscule tax on US Financial market

("Wall Street") securities transactions. If passed, the money it generates will

http://en.wikipedia.org/wiki/Nouriel_Roubini

http://en.wikipedia.org/wiki/Adair_Turner

http://en.wikipedia.org/wiki/Prospect_(magazine)

http://en.wikipedia.org/wiki/Financial_transaction_tax

http://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932010#cite_note-192

http://en.wikipedia.org/wiki/Tobin_tax

http://en.wikipedia.org/wiki/James_Tobin

http://en.wikipedia.org/wiki/Let_Wall_Street_Pay_for_the_Restoration_of_Main_Street_Bill

http://en.wikipedia.org/wiki/United_States_House_of_Representatives



http://en.wikipedia.org/wiki/Financial_market

http://en.wikipedia.org/wiki/Wall_Street

http://en.wikipedia.org/wiki/Securities

49

be used to rebuild "Main Street." On the day it was introduced, it had the

support of 22 representatives.

Volcker Rule - (in US) - Endorsed by President Barack Obama on January

21, 2010. At its heart, it is a proposal by US economist Paul Volcker to

restrict banks from making speculative investments that do not benefit their

customers. Volcker has argued that such speculative activity played a key

role in the financial crisis of 2007–2010.

On April 16, 2010, the IMF proposed two types of global taxes on banks:

The "Financial Activities Tax" comes in two varieties. The simple version is

a straight tax on a bank's gross profits—before deducting compensation. A

"financial stability contribution", would initially be at a flat rate, this would

eventually be refined so that riskier businesses paid more. The second, more

complex tax aims directly at excess bank profit and pay.

Maximum wage is an idea which has been enacted in early 2009 in the

United States, where they capped executive pay at $500,000 per year for

companies receiving extraordinary financial assistance from the US

Taxpayers. The argument is to place a cap on the amount that any person

may legally make, in the same way as there is a floor of a minimum wage so

that people can not earn too little.

http://en.wikipedia.org/wiki/Main_Street

http://en.wikipedia.org/wiki/Volcker_Rule

http://en.wikipedia.org/wiki/Paul_Volcker

http://en.wikipedia.org/wiki/Speculation

http://en.wikipedia.org/wiki/IMF

http://en.wikipedia.org/wiki/Bank_tax#IMF_responds_to_G20_request

http://en.wikipedia.org/wiki/Maximum_wage

http://en.wikipedia.org/wiki/Minimum_wage

50

REFERENCES

Books

Kindleberger.C.P., and Aliber, R. (2005), Manias, Panics, and Crashes:

A History of Financial Crises, 5th ed. Wiley, ISBN 0471467146.






3rd


Journals

Avery, C. Z. (1998), ' Multidimensional Uncertainty and Herd Behavior


724-748.








128-150.





51




David Cho, and Binyamin Appelbaum (January 22). The Washington

Post."Obama's 'Volcker Rule' shifts power away from Geithner".

http://www.washingtonpost.com/wpdyn/content/article/2010/01/21/AR2010

012104935.html. Retrieved October 13th , 2010.

Dell A. G. (2008) ‗The Relationship Between the Recent Boom and

the Current Delinquencies in Subprime Mortgage‘ CEPR Discussion paper,

London.

Dymski, G. (2007) ―From Financial Exploitation to Global Banking

Instability: Two Overlooked Roots of the Subprime Crisis,‖

Mtango, E. E. E. (2008) ―African Growth, Financial Crisis and

Implications for TICAD IV‖ GRIPS-ODI-JICA joint seminar: African

Roger C. Altman. "Altman - The Great Crash". Foreign Affairs.

http://www.foreignaffairs.org/20090101faessay88101/roger-c-altman/the-

great-crash- 2008.html. Retrieved 13/10/10.

Sagagi, M. (2008) ‗A budget of despair? Perspective on the

International Financial Crisis and the Federal Government 2009

Budget‘ paper Presented at: Policy Support and Advisory Forum.

Wray, Randall (2007) ―Lessons from the Subprime Meltdown,‖ Levy

Institute Working Paper No. 522.

Internet Websites





www.thisday.com

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/21/AR2010012104935.html

http://www.washingtonpost.com/wpdyn/content/article/2010/01/21/AR2010012104935.html


http://www.foreignaffairs.org/20090101faessay88101/roger-c-altman/the-great-crash-2008.html

http://www.foreignaffairs.org/20090101faessay88101/roger-c-altman/the-great-crash-%202008.html.%20Retrieved%2013/10/10




52

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1 RESEARCH DESIGN

This chapter deals with the systematic process or procedure designed for

generating, collecting and analyzing the data required for solving this research

problem.

Accordingly, descriptive research design which investigates the nature or

characteristics of phenomena will be used in this research work, i.e. survey

research method.

3.2.0 SOURCES OF DATA

In carrying out the research, the researcher gathered information from two main

sources which are primary and secondary sources.

3.2.1 PRIMARY DATA

Primary data is a first hand information gathered from the respondents. The data

were originated by the researcher for the purpose of the study. The primary

sources of data include interview, questionnaire and observation.

53

3.2.2 SECONDARY DATA

Secondary data are facts that the researcher collected from already existing

sources relevant to the study. The secondary sources from which data were

generated include text books, journals, periodicals, magazines and internet

websites that have relevant information to the study.

3.3 POPULATION OF THE STUDY

The population of this study is 203 whichl include all senior and junior staff of

United Bank for Africa Plc, Union Bank Nigeria Plc and Oceanic Bank Plc in

Enugu Metropolis distributed as follows:

UBA 95

UBN 68

Oceanic 40

Total 203

3.4 SAMPLE SIZE DETERMINATION

To determine the sample size of the proposed study, the researcher intends to use

Taro Yaname‘s statistical technique with a normal confidence level of 95% and an

error tolerance of 5%. The sample size is determined as follows:

N

n = -----------

1+ N (e)2

54

Where n = sample Size

N = population size

e = tolerable error margin (5%)

1 = constant

Based on the above and substituting the formula, the sample size for the study is:

N

n = -----------

1+ N (e)2

203

n = -------------------

1+ 203 (0.05)2

203

n = ------------

1+ 203 (0.0025)

203

n = ------------

1+ 0.5075

203

n = ------------

1.5075

n = 134.66

Sample size = 135 approx.

55

3.5 SAMPLING PROCEDURE

The researcher will stratify the sample size by allocating the sample to the banks

according to their population using the proportionality formula.

Q = A x n

N 1

Q = No of questionnaire

A = Population of each bank

N = Total Population of all banks

n = Sample Size

Substitution:

UBA

Q = 95 x 135 = 63.00

203 1

UBN

Q = 68 x 135 = 45

203 1

Oceanic Bank

Q = 40 x 135 = 27

203 1

Based on the calculation above, we will allocate our sample of 135 to the selected

banks in the following order.

UBA 63

UBN 45

56

Oceanic 27

Total 135

3.6 DESCRIPTION OF RESEARCH INSTRUMENT

The instrument for data collection was 156 questionnaires made up of 20 close-

ended questions each in likert scale format, designed to answer the research

questions. The items of the questionnaire were drawn from the objectives of the

study and directed towards answering the research questions. A total of 135

questionnaires would be distributed to the respondents in the following order, UBA

63, UBN 45 and Oceanic Bank 27.

3.7 METHOD OF DATA PRESENTATION AND ANALYSIS

The data collected will be analysed, using tables and percentages. The chi-square

(X2) test statistics will be used to test the hypotheses. The chi-square formula is

shows below;

X2

(r – 1) (c – 1) = ∑ (01 – 0e)2

0e

Where 01 = observed frequency

Oe = expected frequency

∑ = Summation

57

The calculated X2 will be compared with the critical value of X

2, the difference

will form the basis for accepting or rejecting the null hypothesis.

The rule is to reject Ho: (null hypothesis) if the calculated X2 is greater than the

critical value of X2. This means that if the Ho (null hypothesis) is rejected, the

alternative hypothesis (H1) will be accepted.

3.8 RELIABILTY OF THE RESEARCH INSTRUMENT

The reliability of the instrument will be established through test-retest procedure;

i.e the questionnaire will first be administered to a part of the sample and necessary

corrections made, before the main study. The researcher observed from the pre-

tested questionnaire that most of the responses on the questionnaire were

consistent, showing the reliability of the research instrument.

3.9 VALIDITY OF THE RESEARCH INSTRUMENT

The researcher was convinced that the research instrument was valid after pre-

testing the questionnaire for the study and the responses on the questionnaire

showed that it measured and provided answers to achieve the purpose of the

research study.

58

REFERENCES

Books

Hair, J. F. B. and Ortinau, D.J (2000) Research,

USA; McGraw Hills.

Olakunori, O.k. (2000) Successful Research Theory and Practice,

Enugu, Revised Ed; Computer Edge Publishers.

Osuala, E.C. (2001) Introduction to Research Methodology Onitsha,

3rd

Ed; Africana Fep Publishers Ltd.

59

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION

The data collected from the field are presented, analyzed and interpreted here. This

is aimed at bringing out the true situation of the similar and diverse options of the

respondents toward achieving the objective of the study.

4.2 DISTRIBUTION AND RETRIEVAL OF QUESTIONNAIRE

The table below shows the number of questionnaire distributed, duly completed

and returned and the percentage of the questionnaire received by the researcher.

Name of Company No. of

Questionnaire

Distributed

No. of

Questionnaire

completed and

returned

Percentage of

received

Questionnaire

UBA 63 56 46%

UBN 45 42 34%

OCEANIC BANK 27 24 20%

TOTAL 135 122 100%

60

TABLE 1: Responses on sex of Respondents

Responses No. Of Questionnaire Percentage (%)

Male 54 44

Female 68 56

Total 122 100

Source: Field Survey

From the table 1 above, majority of the respondents which represents 68 or 56%

are female while the remaining 54 or 44% are males. This indicates that the

establishments employs more female than their male counterparts.

Table 2: Responses on Marital Status of Respondents


Married 34 28

Single 58 48

Others 30 24

Total 122 100


The table 2 above indicates that most of the respondents which represents 58 or

48% are single, 34 or 28% of them are married, while the remaining 30 or 24% of

them are divorced or widowed.

61

Table 3: Responses on Years of Service of the Respondents


Below 5 years 20 16

5 – 10 years 60 49

10 years and above 42 35

Total 122 100


From the above table, majority of the respondents which represents 60 or 49%

have been with their organization for between 5 to 10 years. This is followed by

those that have worked for 10 years and above which represents 42 or 35%. The

remaining 20 or 16% have worked below 5 years.

Table 4: Responses on level of Education of Respondents


WAEC/SSCE 15 12

OND/NCE 25 20

B.Sc/HND 48 39

M.Sc/MBA 26 22

Ph.D 8 7

Total 122 100


The table 4 above shows that majority of the respondents which represents 48 or

39% possesses B.Sc and HND academic qualifications. This shows that the

employees are mainly graduates.

62

Table 5: Responses on whether the global financial crisis affects depositors

funds and confidence in Nigeria’s banking sector.


Agree 35 29

Strongly Agree 60 49

Disagree 15 12

Strongly Disagree 12 10

Total 122 100


Table 5 shows that 60 or 49% of the respondents strongly agree that global

financial crisis (GFC) affects depositors funds and confidence in Nigeria‘s banking

sector.

Table 6: Responses on whether the GFC negatively affected the credit quality

of commercial banks in Nigeria.


Agree 25 20


Disagree 18 15


Total 122 100


Responses on whether the global financial crisis negatively affects the credit

quality of commercial banks in Nigeria, 55 or 45% of the respondents strongly

agree to it. This is evidenced in the table 6 above.

63

Table 7: Responses on whether the GFC negatively affects the availability of

credit lines from banks in western world.


Agree 30 25


Disagree 27 22


Total 122 100


The table 7 above shows that 48 or 39% of the respondents strongly agree that the

GFC negatively affects the availability of credit lines from banks in western world.

This is followed by the other 30 respondents or 25% which agrees with the highest

population.

Table 8: Responses on whether the GFC led to greater loan-loss provisioning

due to capital market exposure and decline in growth of economic activities.


Agree 42 34


Disagree 20 16


Total 122 100


64

From the responses in table 8 above, majority of the respondents representing 45 or

38% strongly agree that GFC led to loan loss provisioning and decline in growth of

economic activities.

Table 9: Responses on whether slower growth rate of banks’ balance sheet

leads to lower profitability.


Agree 27 22


Disagree 38 32


Total 122 100


The table 9 above shows that majority of the respondents which represents 38 of

them or 32% disagree that slower growth rate of bank‘s balance sheet leads to

lower profitability. The other group close to the first category of respondents

which are 32 or 26% strongly disagree.

65

Table 10: Responses on whether the inability of insurance companies to pay

for claims on banks delinquent loans leads to global financial crisis.


Agree 27 22


Disagree 52 43


Total 122 100


The responses above, as shown in table 10, indicates that 52 of the respondents,

representing 43% disagrees that the inability of insurance companies to pay for

claims on bank‘s delinquent loans leads to global financial crisis.

Table 11: Responses on whether Banks imprudence led to the global financial

crisis.


Agree 42 34


Disagree 28 24


Total 122 100


From the above table, it can be deduced that most of the respondents which

represents 42 or 34% agree that bank‘s imprudence led to the global financial

crisis.

66

Table 12: Responses on whether too high/excessive compensation package of

banks executives led to the global financial crisis.


Agree 28 23


Disagree 48 39


Total 122 100


Responses on whether too high/excessive compensation package of banks

executives led to the global financial crisis, 45 or 29% disagree to that. This means

that the remuneration of bank executives cannot affect the profitability index and

performance of banks to the extent of contributing to the global financial crisis.

This is as indicated in the table 12 above.

Table 13: Responses on whether reckless bank lending led to the global financial

crisis.


Agree 26 22


Disagree 30 24


Total 122 100


The table 13 above shows that reckless bank lending led to the global financial

crisis. This is buttressed by the responses of 46 or 38% of the respondents who

strongly agree to the assertion.

67

Table 14: Responses on whether loose regulatory regimes and several

unregulated financial markets and products (sub-prime lending) led to the



Agree 28 23


Disagree 30 24.5

Strongly Disagree 29 23.5

Total 122 100


The responses in table 14 above shows that loose regulatory regimes and several

unregulated financial markets and products (sub-prime lending) led to the global

financial crisis. This is manifested by the responses of majority of the respondents

represented by 35 or 29% of them who strongly agree to it.

Table 15: Responses on whether Government’s intervention will alleviate

the impact of the global financial crisis in Nigeria Banking Sector.


Agree 38 31


Disagree 27 22


Total 122 100


68

The table 15 above shows that government‘s intervention alleviates the impact of

global financial crisis in the Nigerian banking sector. This is sufficed by the

responses of 38 or 31% of the respondents who agrees to the above assertion.

Table 16: Responses on whether understanding of Nigeria’s banking sector

can minimise financial crisis contagion.


Agree 20 16


Disagree 48 40


Total 122 100


Responses on whether understanding of Nigeria‘s banking sector can minimise

financial crisis contagion, majority of the respondents which represents 48 or 40%

of them disagree to it. This shows that understanding Nigeria‘s banking sector

cannot minimise financial crisis contagion. This is as indicated in table 16 above.

Table 17: Responses on whether prudence and cost management will alleviate

the impact of the global financial crisis in Nigeria Banking sector.


Agree 35 29


Disagree 30 24


Total 122 100


69

The table 17 above shows that prudence and cost management will alleviate the

impact of the global financial crisis in Nigeria Banking sector. This is as shown by

the responses of majority of the respondents which represents 46 or 38% of them

that strongly agree.

Table 18: Responses on whether stringent financial and regulatory policies

can help to withstand the adverse effect of financial crisis.


Agree 25 20


Disagree 20 16


Total 122 100


Responses on whether stringent financial and regulatory policies can help to

withstand the adverse effect of financial crisis, majority of the respondents which

represents 48 or 40% of them strongly agree that stringent financial and regulatory

policies have adverse effect on financial crisis.

70

Table 19: Responses on whether feasible time frame for debt repayment can

assist in withstanding the global financial crisis.


Agree 20

Strongly Agree 35

Disagree 40

Strongly Disagree 27

Total 122 100


Responses on the table 19 above shows that feasible time frame for debt repayment

cannot assist in withstanding the global financial crisis. This is evidenced by the

responses of 40 respondents representing 33% which disagree to that.

71

REFERENCES

Books


USA; McGraw Hills.

Olakunori, O.k. (2000) Successful Research Theory and Practice,

Enugu, Revised Ed; Computer Edge Publishers.

Osuala, E.C. (2001) Introduction to Research Methodology Onitsha,

3rd

Ed; Africana Fep Publishers Ltd.

72

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS

5.1 INTRODUCTION

This chapter deals on the summary of the research findings, conclusion and

recommendations for further research on the studied area. All the items discussed

and the findings are summarized in this chapter as stated below.

5.2 SUMMARY OF FINDINGS

The global financial crisis affects depositors funds and confidence in the Nigerian

banking sector. The effect negatively impacts on the credit quality of commercial

banks. This is evidenced on the responses in table 5 and 6 with 60 or 49% and 55

or 45% of the respondents strongly agreeing to it.

The study noted slower growth rate of banks balance sheet in response to the crisis

with higher provisioning, leading to lower profitability. This in effect led to

greater loan loss provisions due to capital market exposures and decline in growth

of economic activities. This is buttressed by responses on tables 8 and 7 where

73

majority of the respondents, represented by 45 or 38% and 48 or 39% respectively,

strongly agreed to that.

On the causes of the global financial crisis, the study noted that inability of

insurance companies to pay for claims on banks delinquent loan does not

contribute to the global financial crisis. This is shown by the responses of majority

of the respondents representing 52 or 43% disagreeing to that as stated on table 10.

The study further notes that the global financial crisis is occasioned by banks

imprudence, too high/excessive compensation packages to banks executives,

reckless bank lending, lose regulatory regimes and several unregulated financial

markets and products. This is evidenced on the responses as stated in tables 11,

12, 13 and 14 with majority of the respondents agreeing/strongly agreeing to that.

In determining the solutions to the global financial crisis, the study observer that

sound regulatory framework, interventions by the government, prudence and cost

management initiatives, drastic reduction of compensation packages for banks

executives and constant monitoring of operations would contribute in finding

solutions to the global financial crisis. This assertion is as indicated on tables 15,

16 and 17, respectively.

74

5.3 CONCLUSION AND RECOMMENDATIONS

The study concludes and recommends that the U.S. Federal Reserve and Central

banks around the world should take steps to expand money supplies to avoid the

risk of a deflationary spiral, in which lower wages and higher unemployment lead

to a self-reinforcing decline in global consumption. In addition, governments

should enacte large fiscal stimulus packages, by borrowing and spending to offset

the reduction in private sector demand caused by the crisis. The U.S. should

execute two stimulus packages, totaling nearly $1 trillion or over that during 2011

and 2015.

The response of the U.S. Federal Reserve, the European Central Bank, and other

Central Banks should take immediate and dramatic effect. During the last quarter

of 2011, these central banks should purchase over US$2.5 trillion of government

debt and troubled private assets from banks. This will be the largest liquidity

injection into the credit market, and the largest monetary policy action, in world

history. The governments of European nations and the USA also should raise the

capital of their national banking systems by $1.5 trillion, by purchasing newly

issued preferred stock in their major banks.


http://en.wikipedia.org/wiki/Deflationary_spiral


http://en.wikipedia.org/wiki/European_Central_Bank

http://en.wikipedia.org/wiki/Preferred_stock

75

Governments should also bail out a variety of firms as discussed above, incurring

large financial obligations. Various U.S. government agencies and other world

agencies should be committed or spend trillions of dollars in loans, asset

purchases, guarantees, and direct spending. For a summary of U.S. government

financial commitments and investments related to the crisis, see CNN - Bailout

Scorecard. Significant controversy has accompanied the bailout, leading to the

development of a variety of "decision making frameworks", to help balance

competing policy interests during times of financial crisis.

http://en.wikipedia.org/wiki/Bailout



76

BIBLIOGRPHY

Books


USA; McGraw Hills.

Kindleberger.C.P., and Aliber, R. (2005), Manias, Panics, and Crashes:

A History of Financial Crises, 5th ed. Wiley, ISBN 0471467146.






3rd


Journals

Avery, C. Z. (1998), ' Multidimensional Uncertainty and Herd Behavior


724-748.








128-150.




77





David Cho, and Binyamin Appelbaum (January 22). The Washington

Post."Obama's 'Volcker Rule' shifts power away from Geithner".

http://www.washingtonpost.com/wpdyn/content/article/2010/01/21/AR2010

012104935.html. Retrieved October 13th , 2010.

Dell A. G. (2008) ‗The Relationship Between the Recent Boom and

the Current Delinquencies in Subprime Mortgage‘ CEPR Discussion paper,

London.

Dymski, G. (2007) ―From Financial Exploitation to Global Banking

Instability: Two Overlooked Roots of the Subprime Crisis,‖

Mtango, E. E. E. (2008) ―African Growth, Financial Crisis and

Implications for TICAD IV‖ GRIPS-ODI-JICA joint seminar: African

Roger C. Altman. "Altman - The Great Crash". Foreign Affairs.

http://www.foreignaffairs.org/20090101faessay88101/roger-c-altman/the-

great-crash- 2008.html. Retrieved 13/10/10.

Sagagi, M. (2008) ‗A budget of despair? Perspective on the

International Financial Crisis and the Federal Government 2009

Budget‘ paper Presented at: Policy Support and Advisory Forum.

Wray, Randall (2007) ―Lessons from the Subprime Meltdown,‖ Levy

Institute Working Paper No. 522.

Internet Websites





www.thisday.com

http://www.washingtonpost.com/wp-dyn/content/article/2010/01/21/AR2010012104935.html



http://www.foreignaffairs.org/20090101faessay88101/roger-c-altman/the-great-crash-2008.html





78

APPENDIX A

Department of Management

University of Nigeria,

Enugu Campus

Enugu

15th June, 2010

Dear Respondent

I am an MBA Student of Management Department, University of Nigeria, Enugu

Campus; carrying out a research work on the topic ―The Impact of Global

Financial Crisis on the Nigerian Banking Sector (A Study of UBA Plc, UBN Plc

and Oceanic Bank Plc)‘‘.

Please, we request you to supply us some information as contained in the

questionnaire. This work is purely for academic purpose and any information

supplied to the researcher will be treated with utmost confidentiality.

Thanks for your co-operation.

Yours faithfully

Chukwudi Ogbonnaya

PG/MBA/08/47642

79

APPENDIX B

RESEARCH QUESTIONNAIRE

Instruction – please tick, ( ) where appropriate

Section A

1. What is your sex?

A. Male B. Female

2. What is your marital status?

A. Married B. Single

3. How long have you been with your present employer?

A. Below 5 years

B. 5 - 10 years

C. 10 years and above

4. What is your educational background?

A. OND / NCE

B. B.Sc / HND

C. M.Sc / MBA

D. Ph.D

81

To identify how Nigerian banks can avoid/withstand adverse impact of global

financial crisis in future.

S/No Items A SA D SD UNDECIDED

16 Financial prudence can assist

Nigerian banks avert the

consequences of global financial

crisis

17 Reduction in level of corporate

debt can save banks from financial

crisis

18 Stringent financial and regulatory

policies can help to withstand the

adverse effect of financial crisis

19 Liberalization of global financial

regulations if effectively reviewed

can curtail adverse effect of financial

crisis

20 Feasible time frame for debt

repayment can assist in

withstanding the global financial

crisis.

82

1. The global financial crisis affected depositors funds and confidence in

Nigeria‘s banking sector.


Agree 60

Strongly Agree 84

Disagree 26


Total 192 100

2. The global financial crisis negatively affected the credit quality of

commercial banks in Nigeria.


Agree 40

Strongly Agree 96

Disagree 22


83

Total 192 100

3. The global financial crisis negatively affected the availability of credit lines

from banks in western world.


Agree 45

Strongly Agree 88

Disagree 42


Total 192 100

4. The global financial crisis led to greater loan-loss provisioning due to

capital market exposure and decline in growth of economic activities.


Agree 74

Strongly Agree 55

Disagree 40


Total 192 100

5. Slower growth rate of banks‘ balance sheet in response to the crisis and

higher provisioning, led to lower profitability.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

6. Inability of insurance companies to pay for claims on banks delinquent loans

led to the global financial crisis.


Agree

84

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

7. Banks imprudence led to the global financial crisis.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

8. Too high/excessive compensation package of banks executives led to the



Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

9. Reckless bank lending led to the global financial crisis.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

10. Loose regulatory regimes and several unregulated financial markets and

products (sub-prime lending) led to the global financial crisis.


Agree

Strongly Agree

Disagree

85

Strongly Disagree

Total 192 100

11. Sound regulatory framework interventions by Governments and Central

Banks will ease the impact of the global financial crisis in Nigeria banking

sector.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

12. Government‘s intervention will alleviate the impact of the global financial

crisis in Nigeria Banking Sector.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

13. Understanding of Nigeria‘s banking sector can minimise financial crisis

contagion.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

14. Drastic reduction and constant monitoring of compensation package of

banks executives will alleviate the impact of the global financial crisis.


Agree

86

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

15. Prudence and cost management will alleviate the impact of the global

financial crisis in Nigeria Banking sector.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

16. Financial prudence can assist Nigerian banks avert the consequences of



Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

17. Reduction in level of corporate debt can save banks from financial crisis.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

18. Stringent financial and regulatory policies can help to withstand the adverse

effect of financial crisis.

87


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

19. Liberalization of global financial regulations if effectively reviewed can

curtail adverse effect of financial crisis.


Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

20. Feasible time frame for debt repayment can assist in withstanding the



Agree

Strongly Agree

Disagree

Strongly Disagree

Total 192 100

88

THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIAN

BANKING SECTOR

(A CASE STUDY OF UBA PLC, UBN PLC AND OCEANIC BANK PLC)

BY


PG/MBA/08/47642

A PROJECT REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE

REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS

ADMINISTRATION IN MANAGEMENT

TO

89

THE DEPARTMENT OF MANAGEMENT, FACULTY OF BUSINESS

ADMINISTRATION, UNIVERSITY OF NIGERIA, ENUGU CAMPUS

JUNE, 2010

a project report submitted in ... - university of nigeria chukwudi … · pg/mba/08/47647 has...

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