THE EFFECT OF GLOBAL FINANCIAL CRISIS ON
NIGERIA’S BANKING SECTOR
THE ROLE OF CENTRAL BANK OF
TABLE OF CONTENTS
Table of Content
1.1 Background of the Study
1.2 Statement of the Problem
1.3 Objective of the Study
1.4 Justification of the Study
1.5 Research Question CHAPTER TWO
2.1 Literature Review and the Theoretical
2.3 Causes of Financial Crises
2.4 Effects of Financial Crises
2.5 Impact of Financial Crises on Banking Sector
2.6 Theoretical Framework
2.7 Marxist Theory on Global Financial Crises
2.8 Minsky’s Theory on Global Financial Crises
2.9 Coordination Games Theory on Global Financial
2.10 Herding and Learning Models Theory on
2.11 Monetarist View on Global Financial Crises
2.12 Debt – Reset Theory on Global Financial Crises
3.1 Data Collection Study Area
3.3 Sampling Techniques
3.4 Method of Analysis
4.0 Data Presentation, Interpretation and Analysis
4.1 Data Presentation
4.2 Data Analysis and Interpretation
4.3 Testing of Hypothesis
5.0 Summary, Conclusion and Recommendation
BACKGROUND OF THE STUDY
The Nigeria banking sector had witnessed lots of distress, uncertainty and anxiety prior the banking sector consolidation exercise that began in 2005. Investors’ and depositors’ funds were not guaranteed, eroding public confidence in many of the banks becoming distressed due to capital inadequacy. These problems greatly impaired the quality of the bank’s assets as non-performing assets become unbearable and become huge burdens on many of the banks. The financial intermediation role of the banks becomes heavily impaired while the microeconomics activities seriously slowed down. It was against this background, that the Central Bank of Nigeria (CBN) announced a major reform in the entire banking industry. The recapitalisation of the capitals base of bank consolidation process in Nigeria in 2005. The primary objective of the reform initiative was to have an efficient and effective banking industry that could guarantee rapid economic growth and sustain development. But the global finance crisis which started as financial crisis in America and Europe and letter spread to other part of the world has undermined the banks’ ability to play its development role in the Nigeria economy.
This statement is relevant in the turnout of events leading from the global financial crisis of 2007. Like the Central Bank of Nigeria (CBN), the continuous reform of the Nigeria banking sector had been necessitated from the crash which the banks experienced largely due to the effect of the global financial crisis at the end of the first quarter of 2008. Several authors have defined the financial crisis in various ways. The CBN defines it as a situation where financial institutions or assets suddenly lose a large part of their value. Eichengreen and Portes (1987) defined it as a sharp change in asset prices that leads to distress aiming financial market participant.
The crisis can be in form of a banking crisis, speculative bubble, international financial crisis and economic crisis. The financial crisis destabilized the global financial system and led to a major economic crisis in 2008. Following the reform carried out between 2003 and 2008 in the Nigeria banking sector, the capital market deepened and public awareness and involvement increased significantly. This development indicates that the relationship between CBN and banking sector cannot be understated.
The crisis has gone deep in all the sectors of the Nigeria economy, the Nigerian external reserves for instance, was pretty strong before the time of the crisis, it has now crumbled right before our very eyes within months. The exchange rate of the naira to all the currencies in the world especially its US dollars remain extremely volatile since the crisis erupted. Oil prices have gone down due to the reduced demand of oil commodities in the global market because consumer nations are trying to cut the consumption of the commodities that engulfs virtually most of the spending due to the financial crisis.
The level of poverty before the crisis and now has tripled and this is due to the fact that commodity prices are higher than before, clearly showing the rate of inflation is soaring and also that the level of consumption of goods and services has reduced, mostly due to the deficiency in demand, since people cannot afford this expensive commodities that would probably not be enough for them. Due to the reduced demand for oil in the global market, the level of revenue that was streaming in to the monocultured economy of Nigeria started dwindling.
Statement of the Problem
- It is important to note that the global financial crisis constitutes a huge problem to world economies and thus it is worth researching. The global financial crisis has affected the financial sector of all major economies in the world; in fact, most of the economies have had their financial sector totally crippled by the financial crisis.
- Another problem that is imposed by the financial crisis is the psychological effect of the crisis on the people with their banks. Nobody is confident of banks or any financial institution any more. The recent crisis in the banking sector has not boosted their confidence at all, nobody wants to invest in stocks anymore.
- The government of different countries in the world have responded in different manners to the financial crisis, while some at first lived in denial og the effects of the financial crisis in the country e.g. United States and Nigeria, but since the countries have been able to bring in different packages to help curb the effects of the crises in their economy.
Objective of the Study
The major objectives of this research is to determine the main causes of the financial crisis in Nigeria banking sector, determine the extent of the impact of the global financial crisis on the Nigeria banking sector and to look at various available options to forestalling future occurrence.
Also, the broad objective is to analyze the effect of the global crisis in Nigeria banking. The specific objectives are;
- To highlight the causes of the global and the Nigeria financial crisis.
- To determine whether there is significant difference in the selected banks before and during the global financial crisis or not.
- To identify the different strategies being adopted by Nigeria banks to cope with the financial crisis.
- To identify the various measures adopted by the Nigeria government in order to curb or reduce the effect of the financial crisis.
Justification of the Study
This research is out to provide a detailed analysis of the major effects of the global financial crisis on Nigeria banking sector. And such a research of this nature could become a good source of raw material for students, policy makers and economist who may want to know the extent that the financial crisis affected banks in some years to come. The finding of the study is going to go beyond the hearsay that global financial crisis caused the present unimpressive performance of the Nigeria bank, the study intended to express quantitatively the extent that the financial crisis affected the various banks in Nigeria.
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