COMMERCIAL BANKS INTERNATIONALIZATION AND BUSINESS OUTCOMES IN THE NIGERIAN BANKING INDUSTRY

CHAPTER ONE

INTRODUCTION

1.1       Background to the Study

The banking sector in Nigeria witnessed phenomenal growth following the 2004 consolidation that increased minimum capital requirement from N2billion to N25billion. The opening up of the Nigerian economy through various structural reforms, and trade liberalization led to setting up of many banks in Nigeria. These banks had inadequate capital base and were unable to play the role expected of them in economic development. In 2003 there were 89 banks and in a period of 10 years, precisely 2013, the number has reduced to 23. Over the same period, Nigerian banks automated its operations to serve their customers more effectively and efficiently and to keep pace with global technological advancement. As part of the reforms, the Central Bank of Nigeria (CBN) grouped the banks into international, national and regional banks and cancelled the universal banking policy. The reason was for banks to operate according to their capacities (Alade, 2014). Prior to that categorization, most banks developed strategies for growth that included expanding local branch networks and opening offshore branches.

In the Nigerian banking industry, Citibank, Ecobank, Stanbic IBTC, Standard Chartered and Ned bank have their roots outside the shores of Nigeria. Citibank, Ecobank, Stanbic IBTC, Standard Chartered have been  in Nigeria  since 1989, Ned bank was granted license in 2013 and only started operations in 2014. Nigerian commercial banks started their foray outside the shores of the country in 2002 with United Bank for Africa (UBA) and Guaranty Trust Bank (GTB) opening branches in two countries in Africa. Six years later, 10 Nigerian banks that scaled the hurdle of consolidation followed the footsteps of UBA and GTB thereby creating a situation in the banking sector where the number of Nigerian banks with branches in other countries especially African countries outweighs that of international banks operating in Nigeria. Internationalization refers to the process of increasing involvement in international operations (Asika, 2006). The merits of internationalization accrue to both the expanding banks and the recipient banking system. The main benefits for the parent company would be risk diversification and greater profit opportunities for shareholders. The recipient banking systems, on the other hand, would benefit through increased intermediation and improved efficiency resulting from technological advancement, reduced interest rates and efficiency improvements due to increased competition.  Internationalization has been a reservoir of   skill, equipment, efficiency and technological transfers, mainly from advanced countries to emerging markets; this is based on the premise that local firms in emerging markets gain from the foreign direct investment externalities through improved efficiency, labour, exports and global integration (Brouthers & Hennart, 2007).