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A CRITICAL ASSESSMENT OF THE SURVIVAL STRATEGIES OF

DEPOSIT MONEY BANKS IN A DEPRESSED ECONOMY WITH
SPECIAL REFERENCE TO THE FIRST BANK OF NIGERIA PLC

BY

www.projects.page4.me

(08034883821 08024168333)



ABSTRACT
Banking is in the midst of change that has arisen due to economic
depression. As government seek to improve economic efficiency and better
allocation of resources to solve the problem of economic depression, policy
makers are shifting towards openness, competitiveness and market
discipline.
In response to the developments, Deposit Money Banks in Nigeria engaged
in financial sanitizing, management strengthening, corporate refocusing,
Business Process Reengineering (BPR), mergers and acquisitions in order to
survive the depressed economy. This whole process is called survival
strategies through corporate restructurings.
The writer made efforts to discuss issues, facts and environmental factors
surrounding the wave of deposit money banks survival in a depressed
economy like Nigeria.
The impact of this research in banks was gleaned from five performance
indicators namely total assets, total deposits, loans and advances, profit
before tax and shareholders funds, of First Bank of Nigeria Plc. The
research looked at the position of these indicators before and after the
sanitizing exercise undertaken by the banks for survival and also, its impact
on the entire banking system bearing in mind the effect of globalization on
the financial market in particular and the economy at large.
Chapter four shows the presentation and analysis of First Banks financial
statement with the use of chart, tables, bar chart and graph.
Chapter five summarizes all that was discussed from chapter one to four and
gave suggestions on how deposit money banks can survive in a depressed
economy.


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Finally, this researcher leaves this work open to constructive criticisms and
expects future scholars to delve into further research and improve on this
work.










TABLE OF CONTENTS

Page

Title Page - - - - - - - i
Approval Page - - - - - - ii
Certification Page - - - - - - iii
Dedication - - - - - - - iv
Acknowledgement - - - - - v
Abstract - - - - - - - vii
Table of Contents - - - - - - viii
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study - - - - 1
1.2 Statement of the Problem - - - - 9
1.3 Objectives of the Study - - - - 11
1.4 Research Questions - - - - 12
1.5 Scope of the Study - - - - - 12
1.6 Significance of the Study - - - - 13
1.7 Limitations of the Study - - - - 14


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1.8 Definition of Terms - - - - 15
CHAPTER TWO:
2.0 Review of Related Literature - - - 1
2.1 Issues in Bank Survival - - - - 17
2.2 An Overview of the Operating Environment for
Nigerian Deposit Money Banks - - - 19
2.2.1 The Macro-Economic Environment - - 20
2.2.2 Industry Environment - - - - 29
2.2.3 The Regulatory Environment/Legal Framework - 32
2.3 The Business Process Re-Engineering (BPR) Option - - 35
2.3.1 Origin and Meaning of the BPR Concept - - - 35
2.3.2 Fundamental Breakthrough Required for Reengineering
Services in Banks - - - - - - - - 36
2.3.3 Key and Methodology for Carrying Out a BPR Project in Banks 42
2.3.4 The Role of BPR in the Survival and Sanitizing of the Nigerian
Deposit Money Banks - - - - - - 47
2.3.5 Positive Effects of BPR To the Banking Sector - - 50
2.4 The Merger and Acquisition Option - - - - 52
2.4.1 Meaning of the Concept Merger and Acquisition - - 52
2.4.2 Legal Issues in Merger and Acquisition - - - 55
2.5 Synergy: An Efficiency Indicator in Bank Sanitizing - - 56
2.6 Nature of Deposit Money Bank in Nigeria - - - 59
2.7 A Historical Overview of First Bank of Nigeria Plc - - 60
2.8 Depressed Economy - - - - - - 62
2.8.1 Causes of Economic Depression - - - - - 63
CHAPTER THREE:
3.0 Research Methodology - - - - - - - 65


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3.1 Research Method - - - - - - - 65
3.2 Determination of Population size of the Study - - 65
3.3 Determination of Sample size - - - - - 67
3.4 Method of Data Collection - - - - - 68
3.5 Method of Data Analysis/Interpretations - - - 69
CHAPTER FOUR
4.0 Data Presentation and Analysis- - - - - 71
4.1 Financial Statement of First Bank
Plc for the Month ended 31st March - - - - 71
4.2 Analysis of Total Assets - - - - - - 73
4.3 Analysis of Total Deposits- - - - - - 77
4.4 Analysis of Loans and Advances- - - - - 80
4.5 Analysis of Profit Before Tax - - - - - 86
4.6 Analysis of Shareholders Funds- - - - - 89
CHAPTER FIVE
5.0 Summary, Conclusion and Recommendation- - - 93
5.1 Summary - - - - - - - - - 93
5.1.1 Total Assets - - - - - - - - 93
5.1.2 Total Deposits - - - - - - - 93
5.1.3 Loans and Advances - - - - - - 94
5.1.4 Profit Before Tax (PBT) - - - - - - 95
5.1.5 Shareholders Funds - - - - - - 95
5.2 Conclusion - - - - - - - - 96
5.3 Recommendation - - - - - - - 96

Bibliography - - - - - - - - 99




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CHAPTER ONE

INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Nigerian economy is faced with national and global economic challenges
and as such, the financial institutions, especially the banking sector has an
option of sanitizing and restructuring its operational processes in order to
survive the depressed economy, as well as embarking on a consolidation
exercise which would have some wider structural effects on the industry
and on the economy as a whole.
Basically, banking is a service industry operated by human beings for the
benefit of the general public while making returns to the shareholders.
As such, it is natural that the services provided thereof by the industry
cannot be 100% efficient; however, there is always a room for
improvement. It is on this statement that the index of our further
discussion on this study is based.
The banking sector in the third world economies has been grossly under
managed when compared with their counterparts in the developed
countries of the world. This has made it imperative for Nigerian banks to
sanitize and restructure their operational processes so as to be in line with
the global trends, and to survive the depressed economy.
Before the introduction of Structural Adjustment Programme (SAP) in
1986, the banking sector was characterized by few banks. The operators


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of these banks had almost total control of the business of banking as
customers had to look for their services which most of the times were of
poor quality. The managers, because of the pressure to provide banking
services, had little time to market their bank services or design new
products to improve their customers service and at the same time, they
received changes based on the approved tariff. Competition was minimal
and customers could spend long hours trying to obtain service in the
banking hall due to long queues.
The quality of the bank staff was poor. They were rude to their
customers and most of the time; they felt they were doing a favour to
their customers. As at that time, no Nigerian bank had neither a simple
computer nor a network of computers for online banking. In the area of
credit appraisal, Ezeikpe (1993) observed that they were two
conservative in extending credit facilities. The system was highly under
banked while the payment mechanism was filled with imperfection such
that locally drawn cheques took more than one week to clear.
However, with the introduction of Structural Adjustment Programme
(SAP) and its policy of deregulation and liberalization, some structural
reforms were ushered into the banking sector. By this policy, direct
management and rigid controls in banking and security business by the
government were de-emphasized for a broad based and private sector


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driven process. Laws inhibiting competition were removed to ensure that
banks are reasonably sound, competitive and efficient.
The traditional reforms were aimed towards achieving the following
objectives:
1. A strategy for competition.
2. A sound organizational structure and effective management to
support the strategy.
3. To ensure management of critical financial and operating risks in
banking.
4. A system for planning, budgeting and measuring performance.
5. Entrenching a programme for human resource management.
6. Ensuring a strong and effective internal control.
7. Putting in place the most appropriate Information Technology (IT)
to automate the process. Without any doubt, this policy was geared
towards enabling banks to respond flexibly to monetary conditions
and to facilitate an effective mechanism for transmitting the effect
of monetary policy to the real sector.
The policy of liberalization ushered in an era of bank proliferation
and reduction in professionalism. Investors rushed into banking
business with about the same zeal with which they embraced
contracts during the oil boom era of the 1970s. In no distant time,
signals of distress started manifesting in the banking sector by way


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of liquidation. Some factors were identified as the causes of the
distress that besieged the banking system. These factors included:
1. Under capitalization which made the capital structure of some of
the banks to be inconsistent with their risk asset profile.
2. No clearly defined lending policies and credit appraisal techniques.
3. Unprofessionalism in the conduct of bank staff.
4. High incidence of bad debts and non-performing facilities.
5. Boardroom squabbles and undue interference of the board in the
day-to-day management of the bank.
6. Poor staff quality which arose due to the absence of retraining, and
giving lip service attention to human premium.
7. Incompetent management.
8. Conflict of interest and insider abuse.
9. Policy problem or delay and inadequate institutional arrangement
and structures on the part of the regulatory authority before
implementing policy changes thereby creating unhealthy and
avoidable suspense and uncertainties.
10. Inadequate prudential regulation and framework for credit
classification.
11. The sudden withdrawal of public sector deposit from the banking
system to Central Bank in June, 1989.


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12. The epileptic stabilization securities and their lack of clear
guidelines or modalities with respect to timing, mode of
computation and amount
The list is almost unending but one can observe from the above
that apart from the last four (4) points which are externally induced
stock, the rest are problems that can be controlled with appropriate
in-built mechanism of internal control in the individual banks.
In the face of all these problems and uncertainties, the option
available for the system to have a better control of these factors is
to sanitize the bank internally and externally for survival.
Aderingbe (1997) observed that for Nigerian banks to remain
relevant in the next century with the current incursion of
technology and globalization of the world market, they have to
learn how to sanitize their operations for survival. Also Elumelu
(1998: 26-27) observed that the recent N25 billion recapitalization
of Nigerian banks has made banks to go into several arrangements
for its continued relevance. This has resulted into arrangements
like mergers, acquisitions, take-overs, re-engineering etc.
The issue of bank survival through restructuring and sanitizing
does not exist only as a failure resolution strategy. However, it
can be adopted in solving so many operational problems of
corporate organizations. The financial service industry has applied


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it in many operational problems. In acknowledging the strategies
and its impacts in the banking sector, a world bank report in the
United States of America shows that for the year 1992-96, the
banking industry accounted for 13% of mergers, acquisitions and
other survival activities by number of institutions and 12% by
dollar amount and ranked first among other industries survival
through sanitizing activities. However, certain global factors have
been identified as haven contributed to the result in an upward
trend in survival and sanitizing activities; these included:
1. The dismantling of regulatory barriers and regional economic
groupings which jerked up the pace of globalization.
2. The recent advancement Information Technology (IT) and the new
rate of interest in banking.
3. Continued institutionalization of the market participants as opposed
to individualization.
4. The need for an enhanced payment mechanism.
5. The increase competition in the financial services delivery. The
survival strategies and the impact of sanitizing the Nigerian banks
have resulted in emergence of strong new local banks fully 100%
owned foreign banks or both local and foreign participation in
owners such as Citibank and NBM, Stanbic Merchant bank within
the limited availability of component manpower.


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Mike Hunder (1997:12) in his crusade for re-engineering, restructuring,
sanitizing and survival, opined that, as competition among banks
become keener in the face of declining market margins, banks
management have to manage the hard way of re-engineering.
As the banks are devising ways of improving efficiency and ensuring the
optimization of the available resources, policy makers and regulatory
authorities are moving towards openness, competiveness, and at the same
time ensuring market discipline. This is in tandem with the trend in the
banking sector globally. Ahmed (2000:33) described this development as
a magic one which caused quite a substantial number of Nigerian banks
to be sick while some became healthier. In his view, he contended that
growth in the banking sector should be transmitted easily into growth of
the real sector. But as banks continued to record impressive growth in all
economics, indices show a declining margin of economic growth. This
makes one begin to wonder where the impacts of the impressive
performance of the banks as reported in the financial reports are being
felt. Even the NDIC which is established to insure the deposit liabilities
of licensed banks has liquidated some distressed banks. The action,
Ezeikpe (1993: 36-38) commended while arguing that some distressed
banks should be liquidated as a way of survival for the banking system.
It is on this argument that this work lies to assess the survival strategies of
deposit money banks in a critically depressed economy with special


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reference to the First Bank of Nigeria Plc, paying attention to its
performance, growth and stability.

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