A Critical Assessment Of Surviving Strategies For Money Deposit Banks In A Depressed Economy

Project and Seminar Material for Business Administration and Management BAM

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

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In different economic periods, banks and businesses may see the need to sanitize their operations for survival and growth in response to the uncertain macroeconomic environment. Mergers, takeovers, re-engineering and corporate-turn-around issues have become the central public and corporate policy issues in Nigeria banking.Corporate-turn-around issues come into play when the top management team of a bank undertakes restoration of an ailing corporate business portfolio to good health, or to improve on the already performing portfolio or repositioning and redefinition of the business focus for future market changes. The chief executive of the management team and every staff in the firm must resolve to make a firm resolution, that is, a firm’s commitment to re-evaluation the current belief in the light of new evidence. The management team should be courageous to carry on the project to conclusion, adopting all the recommended strategies in the face of surmounting challenges. Management actions and decisions should be such that will optimize the available resources. That is why Drucker (1994:26) sees managerial action as having synergistic effect in which they should create a productive entry that turns out more than it receives as input.The first task here is always the diagnosis of the underlying reasons for poor corporate performance, and curative strategies will immediately be large losses in some units like poor and non-performing portfolio, unattractive and improper or in some cases, non existing products, ineffective products/services system etc. These factors pull together with unfriendly operative environment to result in poor performance of the organization.

Depending on the roots and urgency of any problem, some of the following approaches can be used either singly or combined to achieve sanitizing objectives of banks; according to Drucker.

Focus mainly on restoring profitability in the money leasing units.
Implement harvest /divest strategies in the poorly performing units and allocate money and resources to expansion of better performing units.
Institute across the board, economies in all business units.
Revamp the composition of the business portfolio by selling off weak businesses and replacing them with new acquisition in attractive investments (investment strategy).
Replace key management personnel at the corporate level.
Launch profit improvement product in all units.
Go into a combination (merger and take over) arrangement.
In this chapter, the researcher seeks to review the related literature to seek out what is involved in banks survival through sanitizing, how and to what extent they are done. Hence, the literature review is to go into relevant works to find out what and how banks achieve economic survival and growth through sanitizing strategies. To this end, the relevant and related works of various authors in the subject matter shall be reviewed. However, the operating environment for banks in Nigeria shall first be discussed.

2.2 AN OVERVIEW OF THE OPERATING ENVIRONMENT FOR NIGERIAN DEPOSIT MONEY BANKS

An environment can be defined as those factors that are largely or totally outside the managements control. It refers to certain uncontrollable variables that impact on an organization and therefore, must be taken into consideration in management decision making. The nature, quality and type of decision in a business organization is directed towards adapting to the environment.

Nigeria banks operate in a dynamic environment and must therefore adapt to survive, because the environment creates opportunities and imposes constraints on their activities. The continual profitability and the survival of banks is therefore dependent to a large extent on managements ingenuity in making decision that will enhance the earnings of a bank.

However, for the purpose of clarity, this study would review operating environment for banks from three perspectives.