AN ASSESSMENT OF CORPORATE GOVERNANCE IN NIGERIA’S BANKING INDUSTRY (A CASE STUDY OF ZENITH BANK PLC 2006-2015)

ABSTRACT

The objective of corporate governance in the strategic management of the banking industry in Nigeria is to ensure healthy financial system and economic development. This study therefore discusses the corporate governance and financial reporting in the banking sectors in Nigeria. This was embarked upon to explore the intricacies of corporate governance and financial reporting issues in the banking industry. Data were obtain from Zenith Bank of Nigeria annual report 2006-2015. Data analysis adopted is Pearson’s product moment correlation coefficient is two variable only and percentages to analyze both the primary and secondary data. It was discover during testing of hypothesis, that corporate governance is significantly related with Nigerian banking industry, measured in terms of equity capital and profitability (Total Asset Turn Over) in the period under review, it also reveals that poor administrative efficiency and weak internal control has mitigated against implementation of corporate governance in Nigerian banking industry. The findings of the study reveals answers to all the objectives of the study and possible recommendations are implemented that administration should embarked upon making application of corporate governance effective in their various banks, this recommendations are made, so that if they are adhered to, the Nigerian banking industries will be strong enough to stimulate fast development in Nigeria.

CHAPTER ONE

introduction

1.1 BACKGROUND OF THE STUDY

Corporate governance is the process and structures by which the business and affairs of an institution are directed and managed in order to improve the long term shareholder’s value by enhancing corporate performance and accountability. This can be done by taking into account the interest of other stakeholders. Retention of public confidence through the enthronement of public confidence is very essential, given the role of the industry in the mobilization of funds, the allocation of credit to the needy, the payment system, as well as the implementation of monetary policies. Corporate governance is one of the most critical issues concerning financial industry across the globe. Failure of the industry in the past has made it imperative to promote good corporate governance. Also, financial scandals around the world and the recent collapse of major corporate institutions have brought to fore the need for the practice of good corporate governance. Poor corporate governance can be said to be one of the major factors promoting financial distress in Nigeria. It is against this background that 13-point agenda was introduced during the banking sector consolidation in 2007 to enable enforcement of new codes of corporate governance for banks. The emergence of mega banks in the post-consolidation era takes as essential the skills and competencies of boards and management of banks in improving shareholders’ welfare and balance same against other stakeholder interests in corporate environment. The major area that the corporate governance code seeks to address is the enhancement of the requisite skills and competences of board and management of these banks. In view of the greatly enhanced resources of the consolidated entities, board members may lack the requisite skills and competencies in management of these banks, corporate identities, new businesses acquisition and product development. To ensure that bank directors upgrade their skills and knowledge, the Central Bank of Nigeria in collaboration with the Financial Institutions Training Centre (FITC) initiated a continuous education programme for bank directors. The programme was aimed at raising the level of corporate governance in the banking industry. The central goals which the programme seeks to serve include: creating a platform for bank directors to continuously upgrade their knowledge on corporate governance; equip the directors with the requisite skills and insights needed to discharge onerous responsibilities on the boards of their various banks; and raising the standard of governance in the sector. Good corporate governance makes for a more judicious use of resources; it serves the long-term interest of shareholders, and also delights and attracts local and international investors. Apart from serving as catalyst for economic growth, the Nigerian banking industry has acquired some unique features which attract the worldwide attention. Not surprisingly through, the sector had led the vanguard in the introduction of change and innovation in business management in Nigeria. Again the performance of our banks in the last two years has given us cause to cheer. It is therefore not surprising to note that the Nigeria banking sector is being asked to champion the efforts being proposed to make Nigeria one of the twenty leading economies of the world in the near future.The code of corporate governance stipulates that the number of non executive director should be more than that of executive directors subject to a maximum board size of directors. At least two none executive board members should be independent directors (who do not represent any particular shareholders interest with the bank) appointed on merit. The code added that there should be strict adherence to the existing code of conduct for bank directors, failing which the regulatory authorities would impose sanctions including removal of the erring directors from the board. The existence and proper functioning of securities regulators and stock exchanges to enforce rules relating to transparency and disclosure do help to strengthen market discipline in Nigeria. The Securities and Exchange Commission (SEC) and the Nigerian Stock Exchange (SEC) exercise some regulatory oversights on banks listed on the stock exchange. Corporate governance must be seen as a vehicle that countries use to attract investors, both local and foreign, and assure them that their investments will be secure and efficiently managed in a transparent and accountable manner. Zenith Bank Plc was incorporate on May 30 1990 as a private company limited by share. Since its incorporation Zenith Bank’s vision is to become the leading Nigerian, technology driven global financial institution providing a distinctively unique range of financial services. Zenith Bank Plc is a leader in the provision of financial services with headquarters in Nigeria and subsidiaries in the United Kingdom, Ghana, Sierra Leone, Gambia and South Africa. The bank has become synonymous with the development of state of the art technologies in banking. It has two (2 subsidiary companies and three (3) companies incorporated in Nigeria, these are: Zenith General Insurance Limited with 99% holdings. Zenith Securities Limited with 94% holdings. The three majority shareholding acquired are: Qubit Spectrum Limited Venue Telecom Limited, and Cyber Space Networks Limited They are under small and medium enterprise equity scheme (SMEES). Zenith Bank Plc was licensed to carry on the business of banking in June 1990, the banking name was changed from Zenith Bank limited to Zenith Bank Plc on 20 May 2004 to reflected its status as a public limited liability company. The bank’s shares were listed on the Nigerian Stock Exchange (NSE) on 21st October, 2004 following a highly successful initial public offering (IPO). Nigerian institutions and individuals numbering over a million currently hold the shares of the bank. The bank’s main service delivery channels in Nigeria are its business offices which as at 2012 had risen to about 338 branches and over 125 cash offices, these are located in prime business and commercial centre’s in all states of the federation and the federal capital territory (FCT) Abuja. Within the first decade of operation, the bank made its mark on profitability and all other performance indices and has maintained this prime position till date. From being just another bank in Nigeria, Zenith Bank Plc has grown organically to become a financial service institution of choice with presence in some African countries and United Kingdom, this is as a result of the bank’s strategic resolve to exceed the limit of the Nigerian banking industry, and bolster the strength of their brand. The impressive performances of the bank in all locations and offices within and outside Nigeria are eloquent testimonies of its passionate commitment to global best practices and consistent quality service delivery.

1.2 STATEMENT OF THE PROBLEM

Few studies undertaken on bank corporate governance normally focuses on a single aspect of governance. There is no gain saying that the present economy deserves a sound stable and better banking performance following the causative factors such as unethical and unprofessional practices poor management quality, among others which contributed to low level of bank performance and sometimes lead to failure of banks. The experiences of business failure and financial scandals around the world brought about the need for good governance practices. Also the bitter experiences of Asian financial crisis underscore the importance of effective corporate governance procedures to the survival of an economy. This crisis demonstrated in no unmistakable term that even strong economies, lacking transparent control, responsible corporate boards and shareholders right can collapse quite as investor’s confidence collapse. Other countries like United States of America, Brazil, Canada, Germany, France, Nigeria, and so on all witnessed financial failure in one form or another. Bell and Pain (2007) supported this view that the last 20 years have witnessed several bank failures throughout the world. Financial distress in most of these countries was attributed to high incidence of nonperforming loans, capital deficiencies, weak management, poor credit policies, and governance system. In the view of Bollarel (2008), the weaknesses in some of the ailing banks reflected poor management of conflicts of interest, inadequate understanding of banking risks and poor oversight by boards of the risk management system and internal audit arrangement. These problems were further compounded by poor quality of financial disclosure and ineffective external audit. This study is therefore undertaken to examine the possible relationship that exist between corporate governance and Nigeria’s banking sector performance using Zenith Bank Plc as a case study in terms of level of profitability (Return on equity) and Asset Management Measure (Total Asset turn over) for the period from 2006 to 2015.