EVALUATION OF CORPORATE GOVERNACE IN THE NIGERIAN BANKING INDUSTRY

ABSTRACT

Research into corporate governance in Nigerian Bank was born out of necessity to investigate the frequent collapse of some banks ever since the post-independence period. Bank failure is so disturbing because it sits at the centre of the economy. Upon further enquiry, this study arrived at the conclusion that central to the causes of bank failure is the poor management in institutions. The first chapter succinctly discussed the issues of bank failure and faults, centralization of management, misreporting, insider abuses and fraud, violation and non-compliance of internal controls put in place, etc. Causes of bank failures is the locus standi of the discussion of corporate governance in chapter one. Several definition of corporate governance coming from different schools of thought was attempted, analyzed and common position identified. Summarily, corporate governance was defined as the way and manner corporate organizations  are  directed  and  controlled  by  the  board  for  the interest of the stakeholders. Wealth distributions to the stakeholders which is one of the poignant issues corporate governance addressed was central to this study. Review of literature historically traced back bank distress in Nigeria from pre-independence to date. Reasons for the recorded failures were also identified. Aims, principles and provisions of corporate governance were discussed in chapter two. Legal perspective was given to the study by the highlighting on the provisions of OECD, Bank for international settlements, peterside’s Committee, Bankers Committee, King’s reports on corporate governance. The procedures adopted in data generations, data collection, measurement criteria, analysis and interpretations were highlighted in chapter three. The empirical approach adopted in the research gave the work a scientific outlook. Sufficient data  generated  were  tabulated  so  as  to  aid  analysis. Pictorial analytic tools –graphs were employed in analyzing the data. In data analysis, a comparative study of the values given to various stakeholders of Banks was done so as to determine their fairness or otherwise. Before arriving at a result data of  various companies under review as contained in Value added statement in the past five years were carefully spooled and analyzed. The analyzed data presented in graph simplified the analysis. Conclusively, the study criticized the returns given to shareholders of banks and recommended a comparative review.

CHAPTER ONE

INTRODUCTION

1.1      BACKGROUND OF THE STUDY

The increasing number of high profile corporate failures around the world has sparked off a lot of enquiry as to the reasons why well-established and respected companies failed. Corporate failure today is a global issue. On the international scence we saw the  overlaps  of  large  companies  like  Enron,  Worldcom,  Rank, Xerox,  Rarmalat,  Bank  of  Credit  and  Commerce  International (BCCI) and large-scale crisis that rocked the Asian financial institutions. In Nigeria, corporate failure is very rampant in the financial services sector some years back and even at present.

Cases  of  corporate  debacle  abound  in  the  death  of  Abacus Merchant Bank Nigeria Limited, Royal Merchant Bank Limited, Rims Merchant Bank Limited, Financial Merchant Bank Nigeria Limited, Progress Bank Plc to mention but a few (Al-Faki;2006). Soludo: 2005 hinted that by 1998 a total of 26 banks have been liquidated and at the time of consolidation in 2005, eleven banks were  already  dead  literally.  Outside  the  banking  institution, creative accounts of African petroleum where its concealed debts in excess of N20 billion, over valuation of shares of involving Bonkolans securities and others are signals of impending doom for these companies. What then is the cause of corporate failure in local and international, listed and unlisted, quoted and unquoted, public and private companies?

John   Clutterback   in   Al-Faki   (2006)   highlighted   that companies that failed shares some common characteristics and they are: –

                    Leadership of the company is vested in an individual who combines the  office  of  chairman  and  chief  executive with domineering tendency.

                    Persistent  violation  and  non-compliance  with  internal control of the company by the chief executive.

                    Optimistic  or   even   distorted  rather  than   prudential financing reporting.

                    Irregular   board   meetings,   often   without   adequate information given in advance.

             Minimal disclosure in the accounts of the company.

It is the combination of these factors that undermine the ability of companies to withstand economic downturns turns leading to a collapse.

In  the Nigerian Banking Industry, issues such as lack of probity, transparency, integrity and accountability, inflation of balance sheet with unearned income, weak capital base, unskilled and  inefficient management also  contributed to  death  of  many banks. Uche, 2001 identified the reasons of early indigenous banks failures as mismanagement and accounting incompetence. These are the issues today’s legislation need to combat with since yester years’ provision seemed to be adequate.

What then is adequacy of bank legislation and controlling and regulating the banking practices in the industry? The question is pertinent, because in spite of the existing legislations, a number of failures and distresses have been recorded in the industry. In an attempt to design codes, that will be appropriate to quell these irregularities, a global phenomenon termed “Corporate Governance” came into existence. Today, it has become a contemporary issue, which has dominated the interest of all  business,  legal  and  government  circles  worldwide.  In  the

Nigerian scene, the provisions in the code of Corporate Governance was designed to augment the provisions of Company and Allied Matters Act 1990 (CAMA), Bank and other Financial Institution Act (BOFID) 2004, Failed banks (Recovery of Debts) and financial malpractices in Bank Act 2004, Nigeria Deposit Insurance Corporation Act, 2006, Money Laundering (prohibition) Act 2004, Economic and Financial Crimes Commission (Establishment) Act

2004, Prudential Guidelines and other relevant banking codes and prudential guidelines for Deposit Money Banks in Nigeria.(2010)

1.2   STATEMENT OF THE PROBLEM

Banks in Nigeria over since the emergence of the early indigenous bank in 1927 have witnessed series of systemic distress and failures. The collapse is quite particular with indigenous owned banks while foreign banks established in the colonial days have all survived the turbulent of Nigerian economy. Examples of these banks of foreign origin are of Bank of British West Africa (BBWA) now First Bank of Nigeria Plc, Barclays Bank (Now Union Bank Plc) and British   and French Bank of Commerce and Industry (Later become United bank for Africa), were established in 1894, 1925 and 1948 respectively (Uche: 2001a).

So why did more indigenous banks fail in spite of the recipes of G. Paton in 1958, SAP induced bank deregulation, BOFIA of 2004 and other related regulated policies. Uche: 2001b summarily insinuated that incidence of fraud and unethical practices were behind the debacle of these banks. Persistent fraud and unethical issues are then the indices of weak corporate governance.

Weak   corporate   governance   has   been   a   hydra-headed problem to the industry ever since the emergence of indigenous bank. Many recipes have also failed to strengthen the integrity and enthrone ethical practices. More still, poor banking cultures, lax ethnical practices, centralized ownership (though practically addressed by  consolidation), and  incompetence in  management culminate into weak corporate governance. Weak corporate governance is the most disturbing issues in the banking industry today. Due to N25billion recapitalization exercises by central bank of Nigeria, new mega banks have emerged thereby more challenges are posed to corporate governance because failure of a large bank could cause systemic problems.

The tension is high because failure of the industry is tantamount  to  the  collapse  of  the  entire  economy.  This  is  so because banking industry is the driver of the economy. Failures of the industry could mar the perception of the banking by public and international investors.

1.3   OBJECTIVES OF THE STUDY

The objectives of this study include:

(i)          To determine the fairness of returns given to shareholders of Nigerian banks.

(ii)         To perform a comparative study of how value added is distributed to the various stakeholders.

(iii)        To compare returns given to banks shareholders and share holders of other industries so as to establish fairness.

1.4    RESEARCH QUESTIONS

The research question for this study is a simple one that addressed the poignant issues in the wealth distributions to the various stakeholders with particular emphasis on the shareholders. (i)    How equitable is the returns given to shareholders of Nigerian

banks over the years?

(ii)   How  equitable  is  the  value  added  distributed  to  various stakeholders?

(iii)  How equitable are the returns given to banks shareholders and shareholders of other industries?

1.5    RESEARCH HYPOTHESES

The hypotheses of this study are as follows:

(i) H0:  Profit earned by the commercial bank is not related to the amount of dividend paid to shareholders

(ii) H0: Value added by the commercial bank is not related to the amount distributed to various stakeholders.

(iii) H0: Returns given to shareholders in commercial banks are not same with shareholders in other industries.

1.6    SIGNIFICANCE OF THE STUDY

Corporate Governance in Nigerian Banks is a pertinent issue especially in the post-consolidation period where mega banks have emerged and strict compliance to the code is mandatory to shield against persistent systematic distress. Sound corporate governance is not an end in itself but a means. It is not about strict policing of the managers who are the company agents; the bottom line is about superior corporate performance based on a reasonable cost. This study celebrates the spirit of corporate governance instead of the letter of corporate governance.

When   managers   and   board   members   understand   the relevance of their positions towards the promotion of corporate governance, the enforcement of the code becomes easier.

(a)    A  study such  as  this  will  go  a  long  way  appraising and consolidating the revised code of corporate governance for banks in the post consolidation period.

(b)   This study will positively change the banking attitude of Nigerians   and   improve   the   international   perception   of Nigerian banks.

(c)     The whole width and depth of corporate governance will be x- rayed in this study.

1.7   SCOPE OF THE STUDY

This study will research and analyze into colonial and post- colonial periods and the present time to ascertain the challenges and practices of corporate governance in Nigerian Banks.

The study will draw its conclusion based on five (5) years comparative analysis of sample drawn from Nigerian banks. The criteria for the selection will be discussed in chapter three of this study.

In answering research questions, this study will not employ judgmental approach instead it will adopt a more pragmatic approach of financial and situational analysis.

1.8   LIMITATION OF THE STUDY

Corporate governance in the Nigerian is a contemporary issue in the industry and as such, not much has been written about the topic in the Nigerian perspective sourcing of relevant literature was an onerous job.

More thorough analysis of the subject matter will require the availability of undiluted financial and non-financial details about the industry. In the Nigerian case, banks are known for misrepresenting facts and figures so as to conceal abuses and

unprofessional practices inherent in some banks. Therefore, total reliance of the published facts may limit the chances of optimism result in the research.

Time  constraints  and  financial  bottleneck  were  important limiting factors to this research.

19.   OPERATIONAL DEFINITION OF TERMS

Executive Director This is a director involved in the day-to-day management and or in the full time employee of the company and  or  any  of  its  subsidiaries (King  11  of South Africa).

Non-Executive Director A director not involved in the day-to-day management  of  the  company  and  not  a  full  time salaried employee of the company or any of its subsidiaries.

Non-Executive Independent Directors: Directors who do not represent any particular shareholders interest and hold no special business interest with the bank and are appointed by the bank on merit (CBN: 2006).

Also  defined  by  the  Banker’s  committee  as  such directors who have other relationship with management which could materially interfere with the exercise of no significant financial or personal ties to management, is free   from   any   business   or   his/her   independent

judgment and receives no compensation from institutions other than directors remuneration or shareholders dividends.

King II defined a Non-executive director as director who is not a representative of a shareholder and who has not been  employed  by  the  company  in  any  executive capacity for the preceding three financial years and has no significant contractual relationship or interest in the company or group.

Extended  Family:  It   refers   to   members  of   nuclear   family comprising the wife and husband, siblings and parents. (CBN: 2006).

Shadow Directors: Individuals  who  are  not  directors  but  who instruct direct and guide the directors in their decision making.  They  work  at  the  background  while  the directors are at the forefront (Aniemena: 2005).

The New Code/CBN Code of Corporate Governance: This thesis recognized the recently released code of corporate governance in Nigerian Banks in the post consolidation period by the Central Bank of Nigeria as the new code.

₦5,000.00 – DOWNLOAD FULL PROJECT DOWNLOAD FULL PROJECT Added to cart

---

---

---

---

Related Project Topics :