ABSTRACT
The banking sector is the bedrock of the Nigerian economy, and this industry is known to
have contributed in no small measure to the development of the economy. This industry
is the enabling hub of national and global payment systems, which facilitates trade
transactions within and amongst numerous national, regional and international economic
units and by so doing; it enhances commerce, industry and exchange. In performing
these various functions in the enabling environment provided by the government through
various fiscal, and monetary policies and reforms, this industry has been experiencing a
phenomenal distress whereby the banking institutions could not meet their financial
obligations to their customers and stakeholders, which led to the liquidation of many
banking institutions, lost of deposits by depositors, lost of investments by many
investors and the crisis of confidence by the general public. Various researchers and
bodies including the Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance
Corporation (NDIC) have done some works to solve this problem. The Central Bank of
Nigeria (CBN) has introduced various reforms, yet this problem persists. The objective of
this work is to evaluate financial strategy as determinant for sustainable performance
growth and an antidote to distress in the Nigerian banking industry. The research method
is empirical, and descriptive with the use of primary and secondary data from 1998-2007.
Primary data were obtained from a sampled population through the use of a corporate
questionnaire, and for the secondary, macro data were obtained from Central Bank and
Nigerian Stock Exchange. Multivariate Analysis of variance method (MANOVA) was
applied in analyzing the primary data. The results revealed the homogeneity, co linearity,
and strong interrelationship between the dependent variables and the independent
variables to solve distress in the three types of banks analyzed. With the results obtained,
all the five null hypotheses were nullified. Multiple regression analysis was used to
analyze the secondary data in conjunction with change in growth model. The results from
the two statistical methods revealed a co-movement and correlation between Gross
Domestic Product and Bank performance indices in the banking industry. A change in
bank performance will have the same directional change in Gross Domestic Product as
other sectors of the economy are also affected. The Bank performance indices are strong
predictors of Gross Domestic Product. The work recommended a transformational
financial strategy model in the work for implementation in the banking industry so that
distress can be avoided and totally resolved. The model contains the following indices:
sound corporate governance, good investment policy, effective capital budgeting,
corporate planning, effective tax planning, effective budgetary control and economic
profit of investment. An implementation of the model will give birth to sustainable
performance growth which contains the following growth variables: adequate capital,
quality earning assets, stable profitability, sustainable liquidity, enhanced dividend paid,
and equitable tax liability. Other recommendations are: effective risk assets management,
sound training of credit analyst, quality supervision from the industry regulators, and
independence of EFCC for effectiveness. However, all stakeholders must be committed
to the model and other recommendations.
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TABLE OF CONTENTS
Title page i
Declaration ii
Certification iii
Dedication iv
Acknowledgements v
Abstract viii
List of Tables xiii
List of Figures xv
Chapter one: Introduction
1.1 Background to the Study 1
1.2 Statement of the problem 8
1.3 Objectives of the study 12
1.4 Research Questions 13
1.5 Statement of Hypotheses 13
1.6 Scope of Study 14
1.7 Significance of Study 16
1.8 Preview of Research Methodology 18
1.9 Operational Definition of Terms 19
Chapter Two
Literature Review
2.1 Introduction 23
2.2 The Evolution of Banking in Nigeria 24
2.2.1The Colonial Era (1892-1957) 24
2.2.2The Independence Era (1957-1970) 28
2.2.3The Indigenous Era (1970-1985) 29
2.2.4 The Privatization and Commercialization Era (1986-1992) 32
2.2.5Bank Rehabilitation and Restructuring Era (1992-date) 35
2.2.6The Nature of Bank Reforms in Nigeria 36
2.3 Review of Literature relating to Financial Strategy and Sustainable
Performance Growth 44
2.3.1 Competing for the future 44
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2.3.2 Central Bank of Nigeria (CBN) and Nigeria Deposit Insurance
Corporation (NDIC) definition of distress and analytical framework 46
2.3.3 Strategic Planning and Sustainable Performance Growth 52
2.3.4 Financial Strategy in the Banking Industry 55
2.4 Review of Literature relating to Strategic Planning and Bank
Performance for Sustainability and Growth in Nigerian Banking Industry 58
2.4.1 Strategic planning: Financial performance relations in Banks: A causal
examination 58
2.4.2 Corporate Governance and Sustainable Performance Growth 63
Cases of Poor Corporate Governance in Banks
1. The Rumbles in Spring Bank 67
2. Development in Wema Bank Plc 68
3. CBN Replaces Five Bank MDs, Directors 69
2.4.3 Budgetary Control and Performance Evaluation 70
2.4.4 Capital Budgeting and Sustainable Performance Growth 72
2.4.5 Tax Planning and liquidity 76
2.4.6 Leadership and Sustainable Performance Growth 81
2.5 Review of Literature relating to Investment Policies and
Management of Assets and Liabilities in Nigeria Banking Industry 86
2.5.1 A case study of distress banks in Nigeria by Central Bank of Nigeria 86
2.5.2 Banking crisis: causes, early warning signals and resolutions 93
2.5.3 The causes of financial distress in local banks in Africa and
Prudential policy 104
2.5.4 Incentives and Resolution of Bank Distress 106
2.6 Review of Literature relating to Bank Performance and Gross Domestic
Product to Determine their Co-movement 108
2. 6.1 Economic Profit and Performance Measurement in the Banking Industry 109
2.6.2 Banking practice and the Nigerian economy 113
2.6.3 Micro and Macro Determinant of bank fragility in North Cyprus
Economy 114
2.7 Justification of study 117
2.8 Theoretical Framework 121
2.9.Framework Proposal:Causal Link between Model and Research Work 124
Chapter Three
Research Methodology
3.1 Introduction 128
3.2 Study Area 128
3.3 Research Design 128
3.4 Population, Sample Representatives and Sampling Techniques 130
3.5 Performance Indices 133
3.6 Restatement of Hypotheses 138
3.7 Data Collection Techniques 138
3.8 Reliability and Validity Test 140
3.9 Data Administration 142
3.10 Method of Data Analysis 143
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3.11 Expected Results 148
3.13 Chapterization 150
Chapter Four
Analysis and Interpretation of Data
4.1 Introduction 151
4.2.Response to Questionnaire 151
4.3 Frequency Analysis of response to Questionnaire items 156
4.3.1 Section1 Relationship between Financial strategy and Sustainable
Performance 156
4.3.2 Section2 Relationship between Strategic Planning and Performance
For Sustainability of Growth of Business 167
4.3.3 Section 3Assessment of Investment Policy for Better Management of
Assets and Liabilities in banks 173
4.3.4 Section 4Evaluation of Relationship between Bank Performance and Gross
Domestic Product (GDP) 181
4:4 Descriptive Analysis of response to Questionnaire items 186
4.4.1Evaluation of the relationship between Financial Strategy and Sustainable
Performance Growth 186
4.4.2 Evaluation of the relationship between Strategic Planning and Performance
For Sustainability of Business Growth 189
4.4.3 Assessment of the relationship Investment Policy and Management of Assets
and Liabilities for Sustainable Performance Growth in the Banking Industry 191
4.4.4 Evaluating the relationship between Bank Performance and GDP 195
4.5.0 Statistical Testing Model 198
4.5.1 Testing of Hypothesis 1 199
4.5.2 Testing of Hypothesis 2 207
4.5.3 Testing of Hypothesis 3 215
4.5.4 Testing of Hypothesis 4 225
4.5.5 Testing of Hypothesis 5 236
4.6 Analysis of Secondary Data 245
4.6.1 Multiple Regression 245
4.6.2 Analysis and Comparison of Growth Change in GDP and Bank
Performance Indices 252
Chapter Five
Summary of Findings, Conclusion and Recommendations
5.1 Research Findings: Empirical Findings 258
5.2 Conclusion 265
5.3 Recommendations 266
5.4 Suggestions for Further Studies 275
5.5 Contribution to knowledge 275
References 281