Factors Affecting Competition In The Commercial Banking Industry In Nigeria

Project and Seminar Material for Business Administration and Management BAM

Factors Affecting Competition In The Commercial Banking Industry In Nigeria


Abstract


The main objective of this study is to determine the factors that affects competition in commercial banks. competition as a market situation which holds where there are a large number of business firms that are capable of supplying the same or similar services (McKenna and Fleming, 1995).

A subsidiary objective for this study was on the effect of environmental factor on competition in commercial banks, the effect of financial factor on competition in commercial banks, and the effect of customer service on competition in commercial banks. Based on this subsidiary objectives, a questionnaire was developed and a total of 60 respondents were administered the questionnaires. 58 respondents of a total of 60 agreed that environmental factor affects competition in commercial banks, 59 respondents of the total respondents was of the opinion that financial factor affects competition in commercial banks and 60 respondents of the total agreed with customer service as a factor that affects competition in commercial banks with percentages of total respondents of 96.7%, 98.3% and 100% respectively for Yes.

However, it was observed that these factors that affects competition in commercial banks are independent of each other, based on the findings from respondents and data collection.


Table Of Contents


Preliminary Page(s)

  • Title
  • Declaration
  • Approval
  • Dedication
  • Acknowledgement
  • Abstract
  • Table of Content

Chapter One:

Introduction

  • 1.1 Background of the Study
  • 1.2 Statement of Research Problem
  • 1.3 The objective of the Study
  • 1.4 Research Questions
  • 1.5 Significance of the Study
  • 1.6 Research Hypotheses
  • 1.7 Scope of the Study
  • 1.8 Limitation of the Study

Chapter Two:

Literature Review

  • 2.1 Introduction
  • 2.2 An Overview of Commercial Banking Industry in Nigeria
  • 2.3 Environmental Factors as it affect competition Commercial banks
  • 2.4 Financial factors affecting competition in commercial Bank (assets and liabilities, loan and advances)
  • 2.5 Customer Service
  • 2.6 Theoretical Framework

Chapter Three:

Research Methodology

  • 3.1 Introduction
  • 3.2 Research Design
  • 3.3 Population & Sampling
  • 3.4 Operationalization & Measurement of variables
  • 3.5 Sources of data
  • 3.6 Data analysis
  • 3.7 Description of Data Analysis

Chapter Four:

Data Presentation and Data Analysis

  • 4.1 Introduction
  • 4.2 Data Presentation and Analysis
  • 4.3 Cross Tabulated Analysis 6

Chapter Five:

Summary of Finding, Conclusion and Recommendations

  • 5.1 Introduction
  • 5.2 Summary of Findings
  • 5.3 Discussion of Findings
  • 5.4 Conclusion
  • 5.5 Recommendations
  • Bibliography
  • Appendix (Questionnaire)

Chapter One


Introduction

1.1 Background Of The Study

The name bank is derived from the Italian word banco desk/bench used during the renaissance by Florentine bankers who used to make this transaction above desk covered by a green table cloth. However, there are traces of banking activities even in ancient time.

In fact, the word traces its origin back to the ancient Roman Empire, where money lenders would set up their stalls in the middle of enclosed country and called macella on a long bench called bancu, from which the word banco and bank are derived.

Mckenna & Fleming (1995) described competition as a market condition which exist when there are large number of business enterprise, all able to supply the same or similar products or service to a large number of purchase/buyers.
In this last decade there has been a high competition within the banking industry in Nigeria, with the licensing and establishment of more banks bringing the total number of commercial and merchant bank in the country to about eight – seven , there has been high tendency for various banks in the industry to fend for themselves for survival.
A commercial bank is defined as an establishment which accepts deposit from customers that are prepared which loans an advances and general financial business concerning all forms of trade are made. Examples of such trade are retail, wholesale, import and export trade.

The 1991 banking decree defines a commercial bank as any institution which carries out banking business in Nigeria, which includes a commercial bank, a discount house, financial institution and an acceptance house. (Federal Republic of Nigeria 1991).

The commercial banking industry in Nigeria has been positively affected by competition. In attempt by commercial banks to fend for themselves many method have been adopted to improve corporate efficiency and maximize profit. This method led the Nigeria banking into scientific approach and investigation into better ways to achieve corporate goals and objective. Some suggested method includes expansion of existing operational facilities to area of wider market, Improving corporate efficiency, diversification of port-folio and investment banking, appropriate marketing, application of combined branch and little degree of unitary banking, good publicity, employment and development of capable staff and carrying out research for onward positive development and growth.

Also each day competition in the industry is heightened by emergence of new brand in commercial banks, many of the older commercial banks have been force to change in their operation due to the competition. It is interesting to watch older commercial banks paying as much as 14 – 19% same deposit before the 1986 deregulation in the commercial banking industry has been highly regulated. Economic regulation in general, embraces controls which government imposes on economic and business activities reaching the maximum regulation. The government can be said in participating in some non-traditional public sectors activities in order to foster competition and improve economic Efficiency. When regulation fails as it often does the process of deregulation is inevitable begins in a bid to avoid collapsed whole systems.

Economic deregulation is defined as deliberate and systematic removal of regulating controls. Structure and operational guideline in the administration and pricing system in the economy. The underlined philosophy of the deregulation of an economy or its component segment is the belief that factors of production, good services are optimally priced and allocated when their prices are freely determined in a competitive environment. The aim of the study is to determine four factors affecting competition in the commercial banking industry in Nigeria.


1.2 Statement of the Research Problem

The relevance of commercial bank in the economy of any nation cannot be over emphasized.

They are the cornerstone, the linchpin of the economy of a country.

The financial deregulation in Nigeria started in 1987 and the associated financial innovation have generated an unprecedented degree of competition in the banking industry. The deregulation initially pivoted powerful incentives for the expansion of both size and number of banking and non-banking institutions.

The consequent phenomenal increase on the number of banking and non-banking institutions provide financial services which led to increased in competitions among various banking institution and banking and non-banking financial intermediaries. Apart from the competition with the range of financial activities, commercial banks have also faced problem associated with a persistence show down in economic activities, several political instability, virulent inflation, worsening economic financial condition of their corporate borrowers and increased incidence of fraud and embezzlement of funds. All these factors of deregulation, competition , innovation, economic recession political, instability escalating inflation and frequent reversal in monetary policy hence combined to create a challenging and precautions financial environment for banks. Consequent of new financial environment has been rapidly dealing profitability of the traditional banking activities. This in a bid to survive and maintain adequate profit level in this highly competitive environment banks have tended to take excessive risk.

But then the increasing tendency for greater risk taking has resulted to insolating and failure of a large number of banks. Hence the sole aim of the study is to determine how some of these factors affect commercial banking industry either positively or negatively.


1.3 The Objectives of the Study

The main objective of the study is to determine the factors that affect competition in commercial banking industry.

The other objective includes:

  1. To determine how financial factors affect competition in commercial banking industry.
  2. To determine how the environment affect competition in commercial baking industry.
  3. To determine how customers services affect competition in commercial bank.
  4. To determine the characteristics relevant to the banking industry in a perfectly competition market.

1.4 Research Questions

The Research work then attempt to answer the following research questions.

  1. Can we determine the factors that affect competition in the commercial banking industry.
  2. Can we determine how environment affects competition in the banking industry,
  3. Can we correlate the number of commercial banks and each of the financial functions namely: deposit, total assets, loan and advances that affect competition in commercial banks.
  4. Can we determine how customers service affect competition in the banking industry.

1.5 Significance of the Study

This study is significant because of the following reasons.

  1. It will generate information in the new millennium on environment, customer service, financial and marketing factors that will make commercial banks in Nigeria to cope well with the competition.
  2. It will provide information in the various factions of competition as it would be useful to economic policy makers bank managers and financial institution, management, banking and finance
  3. It will be useful to the public in general

1.6 Research of Hypotheses

  1. Ho: There are competition factors affecting commercial banks.
    H1: There are no competition factors in commercial banks.
  2. Ho: There are environmental factors in competition of commercial banks.
    H1: There are no environmental factors in commercial banks.
  3. Ho: There are financial factors affecting competition in commercial bank.
    H1: There are no financial factors in commercial banks.
  4. Ho: Customer services affect competition in commercial banks.
    H1: Customer services do not affect competition in commercial banks.

1.7 Scope of the Study

This research work is to be structured in five Chapters as follows:

  1. Introduction
  2. An overview of commercial banking industry in Nigeria
  3. Research Methodology
  4. Data presentation and analysis of data
  5. Summary of findings, conclusion and recommendation.

1.8 Limitation of the Study

The use of the secondary data has the limitation that the data may be obsolete or it is unit of analysis may be different from one used in the study. Also because the researcher is not the original collector of the data any mistake, colouring or brake may not be discovered by the researcher. The cross sectional survey has the limitation that it is one short or almost two shout and as a result it’s capacity for collecting data with which to test the causal relationship of variable is minimized unlike what is the situation when the panel research design is used . Also there is a limitation of an increased unwillingness of the respondent to respond to survey problem.

The questionnaire is limited to the use of verbalized answers to pre-determine question. In the fixed answers formal if a particular answer is missing. This may lead to errors, if a respondent gives his or her answers in a baffling manner there is usually not much that can be done to redress the situation.

The structured and standardized format of the questionnaire may compel the respondent to give answers that they do not fully endorse.

A contain level of education is needed for a respondent to fully understand the questions. There is the limitation that the researcher is not a police man or woman and cannot force the respondent to give answers.

The rigidity of the research instrument may limit the amount of information that can be got. There is also the problem of memory or beyond it when people are expected to remember past facts.

There is also the problem that the respondent may need to be motivated to enable them contribute willingly to the completion of the questionnaire. The assumption that there is uniformity from one interview. There is also the limitation of high cost in the administration of the research instrument especially due to high personnel and travel cost. There are also the limitations of the scarcity of time and money resources.


Chapter Five


Summary of Findings, Conclusion and Recommendations

5.1 Introduction

The objective of the study was determined whether there were factors affecting competition in the banks:

  1. To determine whether there were financial factors affecting competition in the banks.
  2. To determine whether environmental factors affects competition in commercial banks.
  3. To determine the factors that affects competition in commercial banks.
  4. To determine whether there are customers service affecting competition in commercial bank.
  5. To test whether the proportion of the respondents that agreed that there were factors causing competition in the bank using 90% at 5% level of significance.

5.2 Summary of Findings

Based on the analysis of the information obtained:

100% of the total respondents agreed that there are factors that affect competition in commercial banks making a total of 60 respondents for Yes.

58 of the total respondents of 60 making the total of 96.7% of the total respondents agreed that environmental factors affect competition in commercial banks, while 2 for No, making a total of 3.3% of the total respondents for No.

98.3% of the total respondent said that financial factors affect competition in commercial banks, while 1.7% of the respondents said No, giving 1 respondent for No.

100% of the total percentage of respondents agreed that customer service is a factor that affects competition in commercial banks and with a respondent of 60 for Yes.

At 5% level of significance, 90% of the proportion agreed that the various factors stated in this study affect competition in commercial banks.


5.3 Discussion of Findings

The various respondents encountered in the course of the research work led to the generation of the data used in the calculation of the study.

The respondents agreed that there were various factors that affect competition in commercial banks and that these factors cannot be measured equally due to the fact that the various factors affect competition in commercial banks in various degrees.

Due to the findings, it was observed that 58 respondents out of 60 said that environmental factors affect competitors in commercial banks and that this factors cannot be neglected in the running of commercial banks operations. This gave a total of 95.7% of the total respondents for YES as observed in the data collection from the questionnaire and 3.3% for No.

Also, from the data obtained from the questionnaire, 59 of the total respondents of 60 agreed to the fact that financial factors affects competition in commercial banks. Thus they said was viewed as in areas of loans and advances, assets and liability. This gave a total of 98.3% of the total respondent for YES and 1.7% of the total respondent for No.

Customer services as a factor that affects competition in commercial banks was viewed by the respondents of 60. They all agreed that customers services affect competition in commercial banks and that this fact in competition of commercial bank have led to the acceptance of preferred banks by customers over other commercial banks. They also agreed that for high patronage in the banking sector, customer service remains very crucial to the organization, if it has to achieve set objectives.

From these facts and data obtained, statistical calculation was made using the z-score at 5% level of significance; the null hypothesis was rejected, while other alternative hypothesis was accepted that more than 90% of the total respondents agree with the various factors that affects competition in commercial banks.


5.4 Conclusion

From the objective of the study obtained, the questionnaire calculated and value obtained with comparison made with tabulated values, it was observed that there are factors that affects competition in commercial banks. That these factors cannot be undermined in the competition of commercial banks in their operation.

Also, from the calculation made with the rejection of Ho and accepting H1, which showed that more than 90% of the total respondents agreed that environmental factor, financial factor, and customers’ services factor are factors that can affect competition in commercial banks. This implies that more than 9 of every 10 respondent agreed with the various factors that affect competition in commercial banks.


5.5 Recommendations

From the study of the objectives, banks regulation helps to protect depositor, money laundering, protect banking confidentiality and credit allocation. Hence banks regulation should be uphold in commercial banks operations. Also, consolidation of commercial banks should be encouraged as it helps to reduce the competition in the banking industry. Furthermore, the level of customers service that commercial banks render to their prospective customers should be improved and is a major tool of competition.


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