THE IMPACT OF GLOBALIZATION ON THE NIGERIAN BANKING INDUSTRY

ABSTRACT

          This study examines the nature and impact of globalization or the Nigerian banking industry.

          It is important to note that globalization and its major propellant such as information technology have profound opportunities and implication for developing nations, apart from the growing international integration of markets for goods services and capital, it has become a major measuring rod of the new economic order with technological innovation sewing as a social force.

          The research work gives a background study and information as to what the nature and impact of globalization on the Nigerian banking industry means.

          It is also made up of the literature review, this includes what various authors have suggested and published as regards the problems and solutions to these problems of globalization on the Nigerian banking industry.

          Furthermore, the work comprises of the theoretical framework and model specification. This section highlight the various independent or explanatory variables whose changes affects the dependent variable (Bank Liquidity) and their apriori expectation in a given economy.

          Similarly, it tries to determine how these variables affect bank liquidity, that is positively or negatively and at what level of significance. This section tackles this problem by employing a liner model, which will be computed using the ordinary least square (ols) variant of the applied econometric or the cocharanc-orcult method. It also details the policy implications as well as recommendations which will be drawn from the results of the model adopted.

          Finally, it gives the summary and conclusion of this project work. 

CHAPTER ONE

INTRODUCTION

1.1     BACKGROUND OF THE STUDY

          Globalization, the intensification of worldwide social relations which link distant location in such a way that local happening are shaped by events occurring many miles away seems to be a historic opportunity that present itself to and the scourge of underdevelopment, poverty, poor GDP growth, under developed financial market and poor capacity utilization which Africa, particularly Nigeria is facing. Nigeria is faced with the financial system problems particularly the banking sector. Capital market plays a critical role in lubricating a country’s beneficial participation in the dynamics of globalization. This is particularly so in relation to international private capital flows. Which are key driving, forces in the globalization process. Thus, globalization is multifaceted with many important dimensions such as economic and social political and environmental, cultural and regions (Obadan, 2001). However, economic globalization which is the focus of this study in the ongoing process of change towards greater economic integration of economics throughout the world, through trade, movement of people. It has remained a powerful force sloping the world economies in recent decades. Not even the emerging market financial crisis, reflected in the Asia financial crises of 1997/1998 and Mexican spread of globalization across the world.

          Globalization and its major propellant such as information technology have profound opportunities and implications for developing nations, apart from the growing international integration of markets for goods, services and capital, it has become a major measuring rod of New Economic Order (NIEO) with technological innovation sewing as a crucial force despite the promotion of human freedom through spreading of information and increasing choices, it also reduces the possibility of credit which due to diversify of funding sources as well as offer borrower and investors better terms on their financial activities. Thus, advances in nation computer technologies have made it equally more easier terms on their financial market participation and national monetary authorities to collect the manage information they need to measure, monitor and manage financial risk, to price and trade newly adopted but complex financial instrument, and to manage vast financial instrument spread across the international market (Hausler, 2002).

          Globalization which has economic liberalization especially in the areas of foreign trade and international finance as it centerpiece is strongly and aggressively canvassed by the World Trade Organization (WTO) the World Bank (IBRD) and the International Monetary Fund (IMF). This is the cause, liberalization of trade and capital account will eventually increase the openness of an economy with increased openness tends to facilitate greater integration into the global economy. Thus it is often suggested that integration and globalization over beneficial to developing nations and that they would promote rapid growth, economic growth, through the channels of expanded markets, acquisition of new technologies and ideas, better resources allocation, greater competition, more rapid innovation increased transfer of technology and free access to foreign savings Iyoha, (2002). This therefore suggests numerous benefits to increased capital inflows, increased investment, enhanced growth better economic performance and rising standard of living yet there are also risk and potential changes from greater integration into the world economy. Among these risks are the potential instability in small open economies from the vicissitude of the international trade cycle, changes from negative external shocks especially declining terms of trade and volatile commodity prices, rising unemployment increasing marginalization and greater economic insecurity. Above all there is the danger that problem in one country can spill over mere easily to affect other countries. In particular, there is the risk of financial contagion such as that which acquired during the Asian financial crises of 1997/98.

          With financial globalization there is palpable risk that excessive volatile capital market would trigger financial crises that can much more easily ricochet from one country to another, spreading devastation mayhem and Melancholy in their wake. This is acknowledged even by the IMF which has issued this warning note. The increasing openness and interdependence of our economies, with deep trade linkage and ever greater flows of private capital means that problems in one country can spill over more easily to affect the rest. Unemployment and economic insecurity pose further challenges. Sound economic policies and the structural reforms necessary to allow markets to function properly are essential IMF (1997).

          The World Bank (2001) and IMF (1999) have presented trade liberalization, openness and globalization as antidotes to underdevelopment and poverty and as to rapid economic growth. Yet inspite of structural reforming countries especially those in many developing countries especially those in sub-saharan Africa, export performance has been on the increase and economic growth quite feeble.

          Nigeria is a case in point for example, the deregulation of the economy often viewed as Structural Adjustment Programme (Sap) was expected to user in among other things, increased investment, foreign capital inflow, improved standard of living and high rate of economic growth. But inspite of a fairly consistent programme of trade liberalization and deregulation in 1956, there has been little improvement in the performance of the banking sector and capital market which are supposed to play a crucial role in lubricating the country’s beneficial participation in the dynamic of globalization.

1. STATEMENT OF THE PROBLEM

Over the years, the banking sector has been growing thus making the Nigerian financial market on underdevelopment on reflected in declining financial trend.

Meaning of Globalization

          Globalization is a two-edged sword, it has brought benefits to some but misery to an increasing many, with the increasing monopoly, the policy of privatization, liberalization of the national economy and removal of protective measures having in place to an open trade regime that take cognizance  of orderliness and proper sequencing cumulative development and improvements in information technology etc. the financial systems either made or marred.

          The literature is replete with significant contributions of globalization to the vicissitude of the financial system, of the newly industrializing countries to Thailand, Malaysia and Taiway (Mordhang, 2002). This recognizing the fact that with globalization, most countries have become more vulnerable to financial crisis through financial contagion and exposure to continuous technological up-grading, the problem therefore lies on its challenges on the banking sector in Nigeria. That is how it affect the efficient management of the country’s banking industry, it is against this background that the present study examined globalization and its effect on the banking industry.

1.3     OBJECTIVES OF THE STUDY

          The primary objectives of this study are to examine empirically the impact of globalization on the banking sector in Nigeria.

          Other objectives include:-

• An examination of the challenges of globalization for the Nigeria financial system.
• To examine how the Nigerian economy can plan for integration into the global economy, how to avoid the risk of being marginalized by the forces of this new economic order, raise growth rate as need as engaging in cumulation development and improvement information technology which in any case would lead to a continued reform of the domestic sector.
• To examine how the financial sector must be prepared to withstand the stresses arising from volatile capital flows.

1.4     HYPOTHESIS OF THE STUDY

          This study is essentially an examination of the impact of globalization on the Nigeria Banking sector. On this platform therefore, the following hypothesis have been designed to enable us carryout an empirical investments.

H_o: That the trend towards integration into the world market and globalization of the world economies does not have a significant potential for greater growth of the Nigerian banking sector.

H_i: That the trend towards integration into the world market and globalization of the world economies has significant potential for greater growth of the Nigerian banking sector.

1. SCOPE/LIMITATION OF THE STUDY

Globalization is multifaceted with many important dimensions such as economic and social political, and environmental, cultural and religious. However, economic globalization remains the focus of this study. It manifestation in the economy and financial activities of nation has draw out most interest and this has been advised to the fact that trade investment and financial flows are the channel through which globalization completely affect human welfare it is against this backdrop that economic globalization becomes as an on-going process to change tower greater economic integration of economies through trade. Financial flows exchange of technology and information and the movement of people.

For empirical purposes, a period of 27 years is covered that is (1980-2006) from the era of increased liberalization and deregulation till date. A major limitation of the study is the dart of statistical information on the financial and other relevant aspect of operation of the banks. This may be due to the fact that, the financial system and the banking sector in particular has not given much attention it needs. Another limitation has in the fact that, the study will not examine the cultural, political and religious impact of globalization but would rather on the economic aspect. Thus, the study, capture globalization and its operation in totality.

Moreover, the study has been limited only to cover the period of 27 years from 19980 to 2006. This is again due to the following

1. Lack of time
2. Lack of adequate resources
3. Inaccessibility of academic materials
4. Paucity of statistical data.
   1. SIGNIFICANCE OF THE STUDY

The focus of this study is highly justified especially when aimed at examining the significance of globalization, increased openness and integration into the globalization of the national economy and the Nigerian banking sector. In particular and the financial system in general, Globalization can thwart or promote the attainment of a virile financial system from example, countries can become more vulnerable to financial crisis, through financial contagion but also globalization provides a partway to continous technological innovation. This study is therefore justified on the ground that is provides a basis for examining both the positive and negative impact of the new economic order on the various aspects of the economy with the financial system as focus.

Another significance of this study lies in the fact that the study will provide policy recommendations that are germane addressing the risks and challenges of globalization pose to the operations of the Nigerian financial system given the fact that successive government are aware of the implied effects of excessive volatility, financial crisis as well as distorting allocation of funds, identified panning for integration into the global economy as major target on the economic policy.

1.7     DEFINITION OF TERMS

          In order to facilitate easy comprehension, this study is organized and structural into five chapters, this introduction which concentrates on laminating the background information, statement of the problem, the objectives of the study, the research hypothesis, scope and limitation of the study, the significance of the study as the definition of terms of the study makes up chapter one. Chapter two is devoted to the literature where a conceptive review is made, while chapter three is a theoretical framework, methodology and model specification is given. In this chapter, a model capturing the impact of globalization as well as it various policy measure including trade openness, foreign private investment exchange rate, gross domestic product, inflation rate etc. on the banking sector is made, and this in turn form the basis of analysis of data in chapter four. In this chapter an economic analysis of the relationship between profitability of the Nigerian banking sector and globalization is made, while chapter five is the summary conclusion and recommendations.

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