AN EVALUATION OF PERFORMANCE OF BANKING SECTOR IN MANAGEMENT OF LONG AND SHORT TERM FUNDS

AN EVALUATION OF PERFORMANCE OF BANKING SECTOR IN MANAGEMENT OF LONG AND SHORT TERM FUNDS

CHAPTER ONE

INTRODUCTION

1.1       Background of the Study

Financial crisis has not only rocked big economies of the world but developing economies have been badly affected. Many financial institutions have either collapsed and or are facing near collapse because of badly functioned subprime mortgage lending to firms and people with bad and unreliable credit. Banking crises in Nigeria have shown that not only do banks often take excessive risks but the risks differ across banks. Most banks quality of assets have deteriorated as a result of significant dip in equity market indices. The CBN governor in 2009 maintained that some banks were faced with liquidity constraints. Thus their activities were reduced because of their response to the perceived risk of lending to each other making profits and returns to suffer. This led not only to liquidity and credit shortages and a significance loss of public confidence in banks; but also contaging the entire financial system and the economy. The fact is that banks have a dominant position in developing economic financial systems and are engines of economic growth (King and Levine, 1993; Levine, 1997).

The lessons leant from financial crisis are to open awareness of the government and business etc. People on the important role of implementing good risk management in Nigeria. Thus, as a way out of the tide, the CBN on July 6 2004 introduced measures to make the entire banking system a safe, sound and stable environment that could sustain public confidence in it (Owojori et al, 2011). According to the then CBN Governor, it is now time to set up a structure that creates a strong base relative to the kind of economy we are operating where banks become channels to do proper intermediation (The Obasanjo Economic Reforms on the Banking sector, 2005).

Though, the Nigerian banking sector has been undergoing continuous reform process since 1999 directed at improving the capacity and health of the Nigeria banks. The first major exercise was the assessment of the risk asset quality of banks which led to the removal of eight CEOs and the injection of N600 billion into the banks (BGL 2010) in order to get the banks to lend again. However, this economic bail out provide the banks with cash and capital, the banks need to strengthen themselves for future success and a way out is an entrenchment of sound risk management framework. In Nigeria, the financial sector is at its infancy undergoing series of reforms because many of the bank have not been able to establish firm risk management framework particularly credit risk management in order to prevent unfavourable events.

However, the study tends to  examine the evaluation of performance of banking sector in management of long and short term funds.

1.2       Statement of the Problem

In the history of development of the