FINANCIAL PERFORMANCE EVALUATION OF THE NIGERIA DEPOSIT MONEY BANKS (2003-2007): A TIME SERIAL AND CROSS SECTIONAL CASE STUDY OF THREE SELECTED BANKS

ABSTRACT
Deposit Money Banks are the backbone of the economy of any country. They are the institutions specifically designed to further the capital formation process through the attraction of deposits and the extension of credit (Dhanuskodi, Thangavelu, Venkatachalam & Sudalaimuthn, 2007). Despite these important roles, deposit money banks are exposed to financial risks among many other risks. Financial risks reflect possibility of loss associated with liquidity, capital adequacy, credit, profitability and market. These risks, if not properly identified, evaluated, monitored and controlled could jeopardize a bank’s operations or undermine its financial conditions. In extreme cases, it could lead to a distressed or failed bank with its ripple effects on all bank stakeholders such as loss of deposits, investments, employment, credibility by depositors, shareholders, banks staff, and bank regulators, examiners, supervisors and auditors respectively. This Project uses growth models, capital adequacy model, assets quality models, earnings quality models, liquidity models, charts and tables to analyze and evaluate the trend and comparative financial performance of Oceanic Bank International Plc, First Bank Plc and Access Bank Plc for the financial periods spanning 2003 to 2007. Based on the results of the analytical models applied on the ratio type of data collected from the case studied banks, it is discovered that the three reviewed banks are well capitalized. They exhibited a stable trend in the quality of their earning assets and are highly liquid. However, the earnings quality of these banks have been a disturbing one as it continuously moved downwards year-wise. To reverse this declining earnings quality trend, various cost reduction and cost control measures are recommended given the fact that the quality of these banks assets are in good shape.

CHAPTER ONE
INTRODUCTION
1.1      Background of the Study
Deposit Money Banks are the backbone of the economy of any country. They are the determinant factors to bring the development of the country; They serve as bridges between savings and investments.
Furthermore, deposit money bank are the institutions specifically designed to further the capital formation process through the attraction of deposits and the extension of credit ( see Dhanuskodi, Thangavelu, Venkatachalam & Sudalaimuthn, 2007:2).

Various work have been conducted to recognize the pivotal role of deposit money banks, then referred to as commercial banks, in development of a country. Salvage (1979), Kanu (2005), Adekanye (1986), Ekezie (1997) and Rose & Hudgins (2008); highlight the important roles of deposit money banks to include: acceptance of deposits, granting of credit facilities, financing foreign transactions, offering of trust services, discounting services, financing e-commerce, safe keeping of valuables, managing investments, implementation of monetary policies and foreign reserve management.

Despite these important roles, deposit money banks are exposed to a wide array of risks: financial operations, business and events risks (see figure below). Financial risks reflect possibility of loss associated with liquidity, capital adequacy, credit, profitability and market. While operational risks reflect uncertainty of earnings due to failures in computer systems, management errors, and employee misconduct. Business risks are associated with a bank’s business environment, including macroeconomic policy concerns, legal and regulatory factors, and the overall financial sector infrastructure and lastly, event risks are exogenous risk like political crisis, that could affect bank’s operations.

These risks, if not properly identified, evaluated, monitored and controlled could jeopardize a bank’s operations or undermine its financial conditions. In extreme cases, it could lead to a distressed or failed bank with its ripple effects on all bank stakeholders such as loss of deposits, investments, employment, credibility by depositors, shareholders, banks staff, and bank regulators, examiners, supervisors and auditors respectively.

In view of the dynamic nature of deposit money banking system soundness and its susceptibility to financial risks, various evaluative approaches have been developed by different scholars to provide early warning signs about the health of banks.

Dick (2003) evaluated the capital adequacy impact on banking operation of Societal General Bank Limited using chi-square technique of analysis. This technique suffers from objectivity as data analyzed were from questionnaire and interview (which are subjective opinions of individuals) and not from the bank financial statements.

Anyanwu (2002), in his research, evaluated the impacted of credit and management on the commercial bank profitability using regression analysis. This technique though appropriate for test of relations or impact, is however dumb on the over all financial performance of the selected banks he studied.

Dhanuskodi, Thangavelu, Verkatachalam & Sudalaimuthu (2007) compared the profitability performance of commercial banks in Ethiopia using profitability ratios and percentage growth ranking. Their work focus on profitability to the detriment of capital ratios, liquidity and assets quality ratios which are measures of capital adequacy, liquidity sufficiency and assets quality. Besides, foreign banks were used which did not relate to the Nigeria environment.

Pak & Huh (1993), compared Korean banks’ performance with Asian and American banks using financial ratios. The study made use of aggregate ratios as against individual bank ratios and hence do not reflect the individual performance of those banks.

Other bank evaluation model is stock valuation model. This tied to market price of bank’s stock as against the operating performance as disclosed in bank’s financial statements.

Having reviewed the shortcomings of various banks performance evaluation models used by different scholars, the purpose of this study is to analyze the trend and comparative financial performance of three selected Nigerian deposit money banks for the financial periods spanning 2003-2007 using Uniform Financial Institutions Rating System (also known as CAMELs Rating). CAMELs rating involves rating the overall financial performance of banks based its capital adequacy, asset quality, management efficiency, earnings Quality, liquidity sufficiency, and sensitivity to market risks. The First Bank of Nigeria Plc, Oceanic Bank International Plc and Access Bank Plc are cases under review.

To assure the tentativeness and credibility of this study, the follows tools will be employed: textbooks, various annual reports of selected banks, journals, Central Banks of Nigeria publications, World Bank Publications....

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Item Type: Postgraduate Material  |  Attribute: 125 pages  |  Chapters: 1-5
Format: MS Word  |  Price: N3,000  |  Delivery: Within 30Mins.
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