ABSTRACT
Research into corporate governance in Nigerian Bank was born out of necessity to investigate the frequent collapse of some banks ever since the post-independence period. Bank failure is so disturbing because it sits at the center of the economy. Upon further enquiry, this study arrived at the conclusion that central to the causes of bank failure is the poor management in institutions. The first chapter succinctly discussed the issues of bank failure and faults, centralization of management, misreporting, insider abuses and fraud, violation and non-compliance of internal controls put in place, etc. Causes of bank failures is the locus stand of the discussion of corporate governance in chapter one. Several definition of corporate governance coming from different schools of thought was attempted, analyzed and common position identified. Summarily, corporate governance was defined as the way and manner corporate organizations are directed and controlled by the board for the interest of the stakeholders. Wealth distributions to the stakeholders which is one of the poignant issues corporate governance addressed was central to this study. Review of literature historically traced back bank distress in Nigeria from pre-independence to date. Reasons for the recorded failures were also identified. Aims, principles and provisions of corporate governance were discussed in chapter two. Legal perspective was given to the study by the highlighting on the provisions of OECD, Bank for international settlements, peterside’s Committee, Bankers Committee, King’s reports on corporate governance. The procedures adopted in data generations, data collection, measurement criteria, analysis and interpretations were highlighted in chapter three. The empirical approach adopted in the research gave the work a scientific outlook. Sufficient data generated were tabulated so as to aid analysis. Pictorial analytic tools –graphs were employed in analyzing the data.
In data analysis, a comparative study of the values given to various stakeholders of Banks was done so as to determine their fairness or otherwise. Before arriving at a result data of various companies under review as contained in Value added statement in the past five years were carefully spooled and analyzed. The analyzed data presented in graph simplified the analysis. Conclusively, the study criticized the returns given to shareholders of banks and recommended a comparative review.
TABLE
OF CONTENTS
Title Page … … … … … … … … … i
Certification …… … … ii
Dedication … … … … … … … … … iii
Acknowledgement … … … … … … … … iv
Abstract … … … … … … … … … v
Table of Contents … … … … … … … … vi
List of Tables … … … … … … vii
List of Charts … … … … … … … viii
CHAPTER ONE: INTRODUCTION
1.1 Background
of the Study … … … … … … 1
1.2 Statement of Problem … … … … … … 4
1.3 Research Questions … … … … … 5
1.4
Objectives of the Study … … … … … 5
1.5
Significance of the Study … … … … … 6
1.6
Scope of the Study … … … … … … 6
1.7
Limitation of the Study … … … … … 7
1.8
Organization of the Study … … … … … 8
1.9
Definition of Terms … … … … … … 8
References … … … … … … … … 11
CHAPTER TWO: REVIEW 0F RELATED LITERATURE
Theoretical Review
2.1
An Overview of Corporate
Governance … … … 12
2.2 Distress in Nigerian Banks … … … … … 21
2.2.1 History … … … … … … … … 21
2.2.2 Causes … … … … … … … … 24
2.2.3 Ownership … … … … … … … … 25
2.2.4 Misreporting … ….
…. …. ….
…. …. … 26
2.2.5 Insider
Abuses … … … … … … … 28
2.2.6 Frauds … … … … … … … … 29
2.2.7 Regulations … … … … … … … 30
2.3 Weakness in Corporate Governance of Banks in Nigeria … 32
2.4
Principles of Corporate Governance … … … 33
Empirical Review
2.5 Issues
in the Provision of Corporate Governance … 38
2.5.1 Board
of Directors … … … … … … … 38
2.5.2 Internal
and External Auditing … … … … … 54
2.5.3 Risk Management … … … … … … 58
2.5.4 Disclosure and Transparency … … … … 61
2.6 Shareholders
and Corporate Governance … … 64
2.7 Regulations … … … … … … … 67
2.7 Challenges of Corporate Governance in Bank Post Consolidation 70
References
… … … … … … … … 72
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research
Design … … … … … … … 76
3.2 Research
Methodology … … … … … … 77
3.3
Research population and sample …
…. … … 77
3.4
Sampling Technique … …. …..
….. …. ….
… 78
3.5 Methods
of Data Collection … … … … … 79
3.6 Sources
of Data … … … … … … … 80
3.7 Method of Data Collection and Interpretation … 81 References … … … … … … … 82
CHAPTER FOUR: DATA PRESENTATION AND
ANALYSIS
4.1 Introduction … … … … … … … 84
4.2 Data
Presentation … … … … … … 84
4.3 Data
Analysis … … … … … … … 86
References
… … … … … … … 99
CHAPTER
FIVE: SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATIONS
5.1 Summary
of Findings … … … … … … 100
5.2 Conclusion … … … … … … … 102
5.3 Recommendations … … … … … … 103
Bibliography … … … … … … … 104
LIST OF TABLES
Table 1: Value Added
Statement of Banks for 2005-2009
Table
2: Computation
of Industrial Averages and Periodic Industrial Averages of Dividend values
given to shareholders
Table
3: Presentation
of total returns (dividend and retained wealth to Shareholders)
Table 4: Presentation of
aggregate returns to shareholders.
Table
5: Presentation
of Industrial and Periodic Industrial average
values given to all the stakeholders
CHAPTER ONE
INTRODUCTION
- BACKGROUND
OF THE STUDY
The
increasing number of high profile corporate failures around the world has
sparked off a lot of enquiry as to the reasons why well-established and
respected companies failed. Corporate failure today is a global issue. On the
international scence we saw the overlaps of large companies like Enron,
Worldcom, Rank, Xerox, Rarmalat, Bank of Credit and Commerce International
(BCCI) and large-scale crisis that rocked the Asian financial institutions. In
Nigeria, corporate failure is very rampant in the financial services sector
some years back and even at present. Cases of corporate debacle abound in the
death of Abacus Merchant Bank Nigeria Limited, Royal Merchant Bank Limited,
Rims Merchant Bank Limited, Financial Merchant Bank Nigeria Limited, Progress
Bank Plc to mention but a few (Al-Faki;2006). Soludo: 2005 hinted that by 1998
a total of 26 banks have been liquidated and at the time of consolidation in
2005, eleven banks were already dead literally. Outside the banking
institution, creative accounts of African petroleum where its concealed debts
in excess of N20 billion, over valuation of shares of involving Bonkolans
securities and others are signals of impending doom for these companies. What
then is the cause of corporate failure in local and international, listed and
unlisted, quoted and unquoted, public and private companies?
John
Clutterback in Al-Faki (2006) highlighted that companies that failed shares
some common characteristics and they are: –
- Leadership of the company is vested
in an individual who combines the office of chairman and chief executive with
domineering tendency.
- Persistent violation and
non-compliance with internal control of the company by the chief executive.
- Optimistic or even distorted rather
than prudential financing reporting.
- Irregular board meetings, often
without adequate information given in advance.
- Minimal disclosure in the accounts of
the company.
It
is the combination of these factors that undermine the ability of companies to
withstand economic downturns turns leading to a collapse.
In
the Nigerian Banking Industry, issues such as lack of probity, transparency,
integrity and accountability, inflation of balance sheet with unearned income,
weak capital base, unskilled and inefficient management also contributed to
death of many banks. Uche, 2001 identified the reasons of early indigenous
banks failures as mismanagement and accounting incompetence. These are the
issues today’s legislation need to combat with since yester years’ provision
seemed to be adequate.
What
then is adequacy of bank legislation and controlling and regulating the banking
practices in the industry? The question is pertinent, because in spite of the
existing legislations, a number of failures and distresses have been recorded
in the industry. In an attempt to design codes, that will be appropriate to
quell these irregularities, a global phenomenon termed “Corporate Governance”
came into existence. Today, it has become a contemporary issue, which has
dominated the interest of all business, legal and government circles worldwide.
In the Nigerian scene, the provisions in the code of Corporate Governance was
designed to augment the provisions of Company and Allied Matters Act 1990
(CAMA), Bank and other Financial Institution Act (BOFID) 2004, Failed banks
(Recovery of Debts) and financial malpractices in Bank Act 2004, Nigeria
Deposit Insurance Corporation Act, 2006, Money Laundering (prohibition) Act
2004, Economic and Financial Crimes Commission (Establishment) Act 2004,
Prudential Guidelines and other relevant banking codes and prudential
guidelines for Deposit Money Banks in Nigeria.(2010)
1.2 STATEMENT
OF THE PROBLEM
Banks
in Nigeria over since the emergence of the early indigenous bank in 1927 have
witnessed series of systemic distress and failures. The collapse is quite
particular with indigenous owned banks while foreign banks established in the
colonial days have all survived the turbulent of Nigerian economy. Examples of
these banks of foreign origin are of Bank of British West Africa (BBWA) now
First Bank of Nigeria Plc, Barclays Bank (Now Union Bank Plc) and British and French Bank of Commerce and Industry
(Later become United bank for Africa), were established in 1894, 1925 and 1948
respectively (Uche: 2001a).
So
why did more indigenous banks fail in spite of the recipes of G. Paton in 1958,
SAP induced bank deregulation, BOFIA of 2004 and other related regulated
policies. Uche: 2001b summarily insinuated that incidence of fraud and
unethical practices were behind the debacle of these banks. Persistent fraud
and unethical issues are then the indices of weak corporate governance.
Weak
corporate governance has been a hydra-headed problem to the industry ever since
the emergence of indigenous bank. Many recipes have also failed to strengthen
the integrity and enthrone ethical practices. More still, poor banking
cultures, lax ethnical practices, centralized ownership (though practically
addressed by consolidation), and incompetence in management culminate into weak
corporate governance. Weak corporate governance is the most disturbing issues
in the banking industry today. Due to N25billion recapitalization exercises by
central bank of Nigeria, new mega banks have emerged thereby more challenges
are posed to corporate governance because failure of a large bank could cause
systemic problems.
The
tension is high because failure of the industry is tantamount to the collapse
of the entire economy. This is so because banking industry is the driver of the
economy. Failures of the industry could mar the perception of the banking by
public and international investors.
1.3 OBJECTIVES
OF THE STUDY
The
objectives of this study include:
- To
determine the fairness of returns given to shareholders of Nigerian banks.
- To
perform a comparative study of how value added is distributed to the various
stakeholders.
- To
compare returns given to banks shareholders and share holders of other
industries so as to establish fairness.
- RESEARCH
QUESTIONS
The research question for this study
is a simple one that addressed the
poignant issues in the wealth distributions to the various stakeholders with
particular emphasis on the shareholders.
- How equitable is the returns given to shareholders
of Nigerian banks over the years?
- How
equitable is the value added distributed to various stakeholders?
- How
equitable are the returns given to banks shareholders and shareholders of other
industries?
- RESEARCH HYPOTHESES
The hypotheses of this study are as
follows:
(i) H0: Profit earned by the commercial bank is not related to the
amount of dividend paid to shareholders
(ii) H0: Value added by the commercial bank
is not related to the amount distributed to various stakeholders.
(iii) H0: Returns given to shareholders in
commercial banks are not same with shareholders in other industries.
- SIGNIFICANCE
OF THE STUDY
Corporate
Governance in Nigerian Banks is a pertinent issue especially in the
post-consolidation period where mega banks have emerged and strict compliance
to the code is mandatory to shield against persistent systematic distress.
Sound corporate governance is not an end in itself but a means. It is not about
strict policing of the managers who are the company agents; the bottom line is
about superior corporate performance based on a reasonable cost. This study
celebrates the spirit of corporate governance instead of the letter of
corporate governance.
When managers and board members
understand the relevance of their positions towards the promotion of corporate
governance, the enforcement of the code becomes easier.
- A
study such as this will go a long way appraising and consolidating the revised
code of corporate governance for banks in the post consolidation period.
- This
study will positively change the banking attitude of Nigerians and improve the
international perception of Nigerian banks.
- The
whole width and depth of corporate governance will be x-rayed in this study.
1.7 SCOPE
OF THE STUDY
This
study will research and analyze into colonial and post-colonial periods and the
present time to ascertain the challenges and practices of corporate governance
in Nigerian Banks.
The
study will draw its conclusion based on five (5) years comparative analysis of
sample drawn from Nigerian banks. The criteria for the selection will be
discussed in chapter three of this study.
In
answering research questions, this study will not employ judgmental approach
instead it will adopt a more pragmatic approach of financial and situational
analysis.
1.8 LIMITATION
OF THE STUDY
Corporate
governance in the Nigerian is a contemporary issue in the industry and as such,
not much has been written about the topic in the Nigerian perspective sourcing
of relevant literature was an onerous job.
More
thorough analysis of the subject matter will require the availability of
undiluted financial and non-financial details about the industry. In the
Nigerian case, banks are known for misrepresenting facts and figures so as to
conceal abuses and unprofessional practices inherent in some banks. Therefore,
total reliance of the published facts may limit the chances of optimism result
in the research.
Time constraints and financial bottleneck were important limiting factors to this research.
EVALUATION OF CORPORATE GOVERNANCE IN THE NIGERIAN BANKING INDUSTRY
