ABSTRACT
The performance of any business firm not only plays the role to improve the market value of that specific firm but also leads towards the growth of the whole sector which ultimately leads towards the overall prosperity of the economy. Assessing the determinants of the performance of organizations has gained importance in the corporate finance literature; however,this study examines the determinants of financial performance listed mega banks in Nigeria for a period of seven years. The population of this study comprises the 11 listed mega banks in Nigeria as at 31 December, 2013. A total of 8 banks that meet the criteria were duly selected as sample for the study. The audited annual reports (Balance sheet and Profit/Loss account) were obtained from Central Bank of Nigeria (CBN) and from selected mega banks’ annual publication reports.The result of random effect regression provides evidence that capital adequacy, bank size, cost income ratio and income diversification have significant impact on financial performance of the banks under study.Based on the findings, the study recommends among others that a policy that will encourages banks to engage in non-interest income activities should be put in place since non- interest income has positive impact on financial performance.
DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED MEGA BANKS IN NIGERIA
Department: Accounting and Finance (M.Sc)
The performance of any business firm not only plays the role to improve the market value of that specific firm but also leads towards the growth of the whole sector which ultimately leads towards the overall prosperity of the economy. Assessing the determinants of the performance of organizations has gained importance in the corporate finance literature; however,this study examines the determinants of financial performance listed mega banks in Nigeria for a period of seven years. The population of this study comprises the 11 listed mega banks in Nigeria as at 31 December, 2013. A total of 8 banks that meet the criteria were duly selected as sample for the study. The audited annual reports (Balance sheet and Profit/Loss account) were obtained from Central Bank of Nigeria (CBN) and from selected mega banks’ annual publication reports.The result of random effect regression provides evidence that capital adequacy, bank size, cost income ratio and income diversification have significant impact on financial performance of the banks under study.Based on the findings, the study recommends among others that a policy that will encourages banks to engage in non-interest income activities should be put in place since non- interest income has positive impact on financial performance.
CHAPTER ONE
INTRODUCTION
1.1 Background to the study
As a key component of the
financial system, banks play an important role in the operation of an economy.
They channel funds from savers to borrowers for investment which increases
economic growth rate and development of a country. The Central bank of Nigerian’s
resolve to carry out reforms in the banking sector was borne out of the past of
the nation’s banking industry. Between 1994 and 2003 due to insolvency problem,
no fewer than 36 banks were closed. In 1995 and 1998, 4 and 26 banks were
closed down respectively. Also in 2000, three ill banks were closed. In 2002
and 2003 at least one bank collapsed. The failed banks had two things in common
– small size and unethical practices. Of the 89 banks that were in existence as
at July 2004, when the banking sector reforms were announced, no fewer than 11
of them were in a state of distress. According to the CBN, between 69 and 79 of
the banks were marginal or fringe players (Soludo, 2004).
The decade 1995 to 2005 were
particularly traumatic for the Nigerian banking industry; with the magnitude of
distress reaching an unprecedented level, thereby making it an issue of concern
not only to the regulatory institutions but also to the policy analysts and the
general public. Thus the need for a drastic overhaul of the industry was quite
apparent. In furtherance of this general overhauling of the financial system,
the Central Bank of Nigeria introduced major reform programmes that changed the
banking landscape of the country in 2004. The main thrust of the reform agenda
was the prescription of minimum shareholders' funds of 25 billion for Nigerian
Deposit money bank not later than December 31, 2005. In view of the low
financial base of these banks, they were encouraged to merge. Out of the 89
banks that were in operation before the reform, more than 80 percent (75) of
them merged into 25 banks while 14 that could not finalize their consolidation
before the expiration of the deadline were liquidated (Elumilade,2010; Afolabi,
2004). Following the increase in minimum capital requirements from 2 billion
Naira ($17 million) to 25 billion Naira ($210 million), the Nigerian banking
system consolidated and the number of banks dropped from 89 in 2003 to 24 by
December, 2013. The total assets of the banking sector increased from NGN 2,767
billion ($23 billion) in 2003 to NGN 14,932 billion ($127 billion) in 2008. By
the end of 2008, more than half of the 20 domestically owned Nigerian banks had
subsidiaries in at least one other African country, compared to only two in
2002 (Alade, 2014). However, an assessment of the level of capitalization of an
average bank prior to consolidation exercise indicates an equity base (Net
worth) of N7.71 billion (US$0.06168 billion) rising to N38.83 billion
(US$0.31064 billion) in2006, indicating a growth rate of 404 percent. The
leverage ratio measured in terms of equity to total asset also declined from
18.28 per cent in 2004 to 14.52 per cent in 2006 for an average bank. This
ratio compares favorably with the CBN minimum level of 10 per cent. The post
consolidation ratio is also better in term of its distribution among the banks
compared with the pre-consolidation ratio where more than 70 per cent of the
equity and assets were concentrated in (the largest five banks) less than 5
percent of the existing banks. However, the intermediation activities of an
average bank improved significantly by about 1,690 per cent from an average
deposit base of N10.48 billion (US$0.08384) in 2004 to N188.48 billion
(US$1.50784) in 2006 (Somoye, 2008).
As part of its ongoing
banking industry reforms, the CBN reviewed the universal banking model which
permitted banks to act as financial supermarkets. The implementation of the
universal banking model was characterized by a number of worrisome features,
including the following: inadequate capital and capacity to manage the wide
range of business and products; excessive risk appetite and exposure,
particularly to affiliate transactions (contagion risk); weak group corporate
governance; complexity and opaque structures and processes; and inadequate
regulatory/ supervisory capacity. The new banking model which is aimed at
addressing these weaknesses categorized deposit money banks license to operate
as regional, national or international (Mega) bank; their minimum capital
requirements were specified as N10 billion, N25 billion and N50 billion for
regional, national and international respectively. The regional banks are
entitled to carry on banking operations within a minimum of 6 and maximum of 12
contiguous states, lying within not more than 2 geo-political zones of the
federation and the Federal Capital Territory; national banks are authorized to
carry on banking operations within every states of the federation, including
the Federal Capital Territory while the international banks are permitted to
carry on banking operations in all the states of the federation, as well as
establishing offshore subsidiaries.A Mega bank (MB)is a bank that meet a
minimum capital requirement of N50 billion and with a commercial presence
outside its home country, by way of at least one branch or subsidiary. The
failure of some DMBs to meet up with anticipated financial performance after
consolidation requires a rethink to evaluate their performance thus this study
is designed to evaluate the performance of Mega banks (MBs) using financial
measures.
According to Hifza Malik,
(2011), profitability is one of the most important objectives of financial
management since one goal of financial management is to maximize the owners‟
wealth, and profitability is very important determinant of performance. A business
that is not profitable cannot survive. Conversely, a business that is highly
profitable has the ability to reward its owners with a large return on their
investment. Hence, the ultimate goal of a business entity is to earn profit in
order to make sure the sustainability of the business in prevailing market
conditions. The determinants of banks profitability have attracted the interest
of academic researchers, bank management, financial markets as well as bank
regulators. There have been several studies on determinants of bank
profitability which started with the early work by Short (1979). While the
study of Smirlock (1985), Berger (1995), Kosmidou, Tanna, & pasiouras
(2005), Dietrich and Wanzenried (2009) centered on individual countries, the
works of Moulyneux and Thornton (1992), Goddard, Molyneux, & Wilson (2004),
Al Hashimi (2007), Demirguc – Kunt and Huizinga (2000) and Heffernan and Fu
(2008) focused on panel of countries. According to their studies, the factors
determining the profitability of banks fall into two main groups. First, there
is a group of determinants of profitability that is specific to each bank and
that in many cases, are the direct result of managerial decisions (asset
structure, asset quality, capitalization, financial structure, efficiency,
size, and revenue diversification). The second group of determinants includes
factors relating profitability to the industry structure and to the
macroeconomic environment within which the banking system operates, such as
industry concentration, economic growth, inflation, and interest rates
(Almumani, 2013). Even though different studies were conducted on the
determinants of banks performance, their results is not conclusive as far as
the impacts of the factors are concerned.
In Nigeria, different
studies were conducted on the determinants of deposit money banks (DMBs)
performance such as Ani, Ugwunta, Ezeudu and Ugwuanyi (2012), Aremu, Ekpo and
Moustapha (2013), and Aminu (2013) but the authors did not include important
variables like income diversification. This study examines the determinants of
MBs financial performance in Nigeria, taking into cognizance income
diversification, this is due to the fact that the profitability of banks which
depends solely on interest income may be highly affected by interest
fluctuation and loan default risk. But, banks which diversify their income
source can increase their profit since non-interest income may not be affected
by interest fluctuation and loan default. In view of the aforementioned and
ongoing performance determinants debate around the globe, a study on the
performance determinants on MBs in Nigeria is desirable. This study dwells on
Internal factors that affect MBs financial performance because our purpose is
to test the impact of capital adequacy, credit risk, bank size, cost income
ratio, and income diversification on MBs financial performance.
MSC Project Topics in Accounting and Finance
DETERMINANTS OF FINANCIAL PERFORMANCE OF LISTED MEGA BANKS IN NIGERIA
Department: Accounting and Finance (M.Sc)
Format: MS Word
Chapters: 1 - 5, Preliminary Pages, Abstract, References, Appendix.
Delivery: Email
Delivery: Email
No. of Pages: 93
NB: The Complete Thesis is well written and ready to use.
NB: The Complete Thesis is well written and ready to use.
Price: 10,000 NGN
In Stock
Our Customers are Happy!!!
No comments:
Post a Comment
Add Comment