Background of the Study (Central Bank)

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The banking industry in Nigeria has developed from having an oligarchic structure to housing the largest foreign banking community in sub-Saharan Africa (Siddiqi, 2004). Ezeoha (2005) noted that the multiple branch system is one of the features of Nigerian banks, with a total of 89 banks that accounted for about 3,017 bank branches nationwide in 2004. African Banking Corporation became the first bank of Nigeria to be established in 1892. In 1952, the number of banks increased to three, those being the Bank of British West Africa, Barclays Bank, and British and French Bank. All the banks were foreign banks and had 40 branches across Nigeria. In 1912, the British government that colonized Nigeria established the West African Currency Board, which then issued the West African currency that was convertible to British pounds sterling. In 1952, through the Nigerian members of House Assembly, Nigeria established a central bank to facilitate the Nigerian economic development. This central bank became the Central Bank of Nigeria (CBN) in 1958 and at which point the Nigerian currency known as Nigerian pound was introduced (Amobi, 2005; Ezeoha, 2005). The CBN functions as a banker’s bank by serving other banks within Nigeria and similar to the Federal Reserve, has the regulatory authority of the financial system.

Nigerian currency was devalued by 50% in 1967 and converted to a decimal currency called Naira (N) in 1973. At that time Naira was equivalent to two old Nigerian pounds (Amobi, 2005). Kobo was the smallest unit of the naira currency (100 kobo = 1 naira). At that time, the role of the CBN was clarified to also include the responsibility of carrying out the monetary decision and the economic policy of the Nigerian government (Paton, 2004).

In 1973, the Nigerian federal government acquired 40% equity ownership and an additional 20% in 1976. This brought it to a total of 60% of indigenous ownership holdings of the three foreign banks that were established in 1952 (Amobi, 2005). By 2003, due to introduction of universal banking, there were 89 commercial and merchant banks with a total of 1,500 branches all over the country (Amobi, 2005; Ayadi, Adebayo1, & Omolehinway, 1998; Toby, 1998).

Fraud peaked in 2004 and resulted in the federal government enacting a law in 2005 to raise through CBN the deposit requirement of the banks to N25 billion (about $195 million) (Odili.net, 2005; Soludo, 2006). This action reduced the number of banks from 89 to 25. According to Amobi (2005), Odili.Net (2005), Peopledaily.com (2006), and Soludo (2006), the following Nigerian banks have survived recapitalization by meeting the 25 billion-Naira requirements:

1. Access Bank
2. Afribank
3. Diamond Bank
4. EcoBank
5. Equitorial Trust Bank 6. First City Monument Bank
6. Fidelity Bank
7. First Bank Plc
8. First Inland Bank
9. Guaranty Trust Bank
10. IBTC-Chartered Bank
11. Intercontinental Bank
12. Nigeria International Bank
13. Oceanic Bank
14. Platinum Bank
15. Skye Bank
16. Spring Bank
17. Stanbic Bank
18. Standard Chartered Bank
19. United Bank of Africa
20. Sterling Bank
21. Union Bank
22. Unity Bank
23. Wema Bank
24. Zenith Bank Plc

After recapitalization, many banks were forced to consolidate or emerge in order to meet deposit requirements. This bank reform led to the emergence of strong and reliable banks in the Nigerian banking industry (Amobi, 2005). According Soludo (2006), who is the governor of CBN, the Nigerian banking industry is now the fastest growing industry in Africa. The governor noted that the size of the total 89 banks existing before the bank reform was not equal to the size of the number one bank in South Africa. Soludo also concluded that the Nigerian banks have increased their capital holdings to where today, 20 of 25 Nigerian banks are now in the top 100 banks in Africa; 17 are in the top 40, and 4 are in the top 10.

In the Nigerian Stock Exchange (NSE), the banking sector is now the key driver of its recent exchange growth (Abdullahi, 2005). According to the author, it is expected that the bank reform should be able to put the banks in a better position to assist in developing the economy, eliminate the public distrust that characterized the banking industry, bring back depositors confidence, and reposition the banks for both the global challenges and involvements. The banks are now deploying more ATMs within their branches in order to curb long queues that created a reputation for poor service delivery and more branch networks.

Today, the advances in technology and the complexity of the bank legacy system have made the Nigerian banks to move into new business areas (Agboola, 2006). The author noted that changes in technology have opened new possibilities for the banks and have resulted in the rapid spread of information technology that is helping the economy. From a review of the literature, one can generalize that banks are now better placed in a position to access more shared networks than ever before. The Internet having become the modern day significant technology reform seems to have actually triggered the development of networks and have placed the legacy system into either modernization or abandonment by some banks in the Nigerian banking industry. Although the use of debit cards (Smart cards) is gradually increasing in Nigeria because they are safer and more 7convenient, the fear of fraudulent practices and the limited number of ATM’s have resulted in a low level of usage among citizens of Nigeria (Agboola, 2006; Ezeoha, 2005) Nigeria has inadequate security measures on electronic transactions to safeguard the bank customers’ accounts (Ezeoha, 2005). There have been issues and problems of customers’ fake identification numbers and unauthorized account verification of online transactions (Ayo & Babajide, 2006). The Advance Fee Fraud known as 419 by Nigerians is the worst online fraud in the world and is believed to have its origin in Nigeria (Ezeoha, 2005). This 419 scam was code-named after Section 419 of the Nigerian Panel code and has placed Nigeria on the list of the most fraudulent nations.

Purpose of Dissertation

CBN plays a vital role in the entire financial sector of the country. In addition, it is a vital institution which helps those other important players in the sector, particularly those private or common banks, in ensuring that the in- and out-flow of money or financial resources in the country is levelled or balance, in order to ensure the continued development and improvement of the economy of the country. 

Effective management inside the bank’s structure and organization is vital, because it pertains on different factors and issues that are related to management, such as ethical factors, corporate governance, strategic movement, etc. Ethical factors and corporate governance are always considered as vital, particularly after the different scandals that have arise in the past few years about mismanagement of financial resources of different companies. It is also important in order to ensure that the rights and the concerns of all the stakeholders in a bank, such as private or personal customers, business clients, etc., were protected. In addition, it is important to take note that the entire financial sector, particularly the banking sector is considered as vital factor in the entire business activities of a country, because they are connected with local and foreign investments.

Underlying Themes

Economic progress is very evidential in Nigeria and the global economists projected to be one of the world’s largest economies in the coming decades. It is already given that the rapid growth is the train of sequence of globalization of trade. But in terms of the country’s banking sector, there is still faint development. Even the legal and the financial systems are not yet well developed. Therefore, various interesting researches were conducted to reveal the efficiency in banks of the developing countries as much as the finance-growth (Allen & Gale, 1999). This suggests that the high growth rates cannot be possible if there is no strong reform in the banking system as well as in the legal and financial sectors.  The finance growth in the developing countries proven that there is a positive relation of the efficient legal systems and better financial market development. Based on the researches, the involvement of the legal and/or financial infrastructure have important effects on the abilities of the banks to use the hard core information, reliable technologies or loans and credit stability based on the financial reports that can add to the possibility of the credit extension.

Despite of the high growth of the economy, the assessment on the banking industry of Nigeria was addressed as the most challenging sector because it has areas potential of macroeconomic instability such as capital misallocation and excessive investment. With this valuable information, it only leads to the importance of banking reforms for the continuous development or progress of Nigeria. On the other hand, in addressing the microeconomic challenges, banking sector should develop new credit and investing options, as well as developing the healthy businesses in the rural areas, communities, and aiding small and medium-sized enterprises.

The centre of development depends on the key factors such as the existing level of development, strong agricultural sector, stability in different corners of the country pertaining to their economic, political, social, and various institutions, sustainable commercialization that can be available for the foreign investors, and high level of security. Improving the access of the financial service among the consumers should adhere in most of the developing countries for this participation of the consumers will reflect in developmental activities. 

The most important action of Nigeria towards the economic development is the modernization of the financial sector which is also under a series of reforms. Ideally, Nigeria attempts to have a rational, sound, and most of all a competitive financial system that can be the heart of the market economy. With this aspiration, consumers will enjoy the benefits of the various financial services that can reflect on better savings, investment, and credit systems. Still, the reforms on the financial sector remain in critical situation in Nigeria for the sustainable economy. 

Banking industry in is sustained with the right amount of awareness, and the strong growth in revenue is based on the expansion of their customers’ bases and business scopes. In addition, the development of the financial performance of a country is identified to be characterized in domestic economic growth, active marketing, and high quality of services. The expanded opportunities of Nigeria and its openness on other possible development interventions, the banking sector leads to address and evaluate the economic constraints (Diamond, 2007). With the continuous effort to erect the policies such as the unfair trade, the market influences of the bank may seen on the exchange rates that can facilitate the broader financial reform and forge the future.

The most intriguing issue in the financial performance of Nigeria revolves in two perceptions. First is the impact of the foreign banks participation, and second is the contribution of the reforms. The challenges in determining the level of influence of banks were tracked to the past reforms and in the application of the models that promised to improve the economic value in the country. However, business analysts stated that the influence of the performance doesn’t apply in bank sizes. But indeed, the type of bank can significantly outperform the operation of the other big and monopolized banks. There is also a slight evidence evokes that the foreign investors had a little influence on the banks such as knowing on how to manage the banks, still it is probably too early for the banks to tell on how big the impact this factor in terms of their performance (Kashyap, Stein & Rajan 2008).

“Financial organisations in Nigeria are continuously evolving in order to meet the needs of its people. However, they should be cautious to the changes in order to maintain competitiveness.  Therefore, they need to have a careful review of their financial status. Overhead costs and credit rating should be also reviewed carefully.  Business companies around the globe should not rely alone on credits instead they should think of creative ideas to sustain their growth and development. Thus, if the financial crisis hit the country, they’ll be able to survive. Basically, the actual cause of the financial crisis or the emergence of financial crisis of 2008 is that both Europe and the United States were living beyond their means for too many years” (Foster, 2008). Financial organisations risks assessment should be the first thing to be considered since their stability and existence may be at stake. In addition to financial variable, financial organisations in Nigeria should also review the threats of the ever-changing legal setting for international business procedures. As stated in the threats unexpected strong industry entrants which might reduce the potentialities of financial organisations market existence in the countries which they have yet to look at.

Hypotheses

Main Hypothesis, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and the utilization of banking services.

Sub-Hypothesis1, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and customers’ educational attainment.

Sub-Hypothesis2, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and customers’ level of income.

Sub-Hypothesis3, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and the number of years of experience of using banking services.

Sub-Hypothesis4, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and cultural belief.

 

Objectives of the Study

The specific objectives of this study were:

1. To evaluate the role of central bank of Nigeria in the supervision, examination and evaluation of the overall financial sector in Nigeria
2. To analyze the influence of CBN on Guarantee Trust Bank(GTB)
3. To critically evaluate the effectiveness of the CBN’s effort and procedures in assisting GTB in managing its financial responsibilities
4. To make recommendations 

CHAPTER 2: REVIEW OF LITERATURE

Establishment of the Banking System in Nigeria

Foreigners first introduced the banks in Nigeria at the time Nigerians were not familiar with any banking system. According to Amobi (2005), “in 1892, the African Banking Corporation was the first bank established in Nigeria. By 1952, three more foreign banks (the Bank of British West Africa, Barclays Bank, and the British and French Bank) and two indigenous banks (the National Bank of Nigeria and the African Continental Bank) were established”. The indigenous banks spread to have 40 branches, and in 1957, the Nigerian Central Bank was established. It was at that point that the first Nigerian currency was introduced. The currency was then known as Nigerian pound and had the same par value with the British pound sterling until 1967, when the British pound sterling was devalued (Amobi, 2005). In 1973, the Nigerian currency was converted to a decimal currency and was called Naira (N), the equivalency of two old Nigerian pounds. Nigeria began to use Naira and kobo; kobo was the smallest unit of the currency (100 kobo = 1 naira). Today, this currency is being used.

The Central Bank of Nigeria that began its main operations on July 1, 1959, was granted authority over the banking and monetary policy. Some of its functions and roles, which are equivalent to those of the U. S. Federal Reserve Bank, include “(a) establishing the Nigerian currency, (b) regulating and controlling the banking system, (c) serving as banker to other banks in Nigeria, (d) controlling bank credit growth and distribution by sector, (e) overseeing and regulating cash reserve requirements for commercial banks, and (f) regulating interest rates and ratio of banks’ deposits in Central Bank. Indigenization of the three largest foreign banks in the Nigerian government occurred in 1976. By the end of 1988, the banking system of Nigeria consisted of the Central Bank, 42 commercial banks, and 24 merchant banks” (Amobi, 2005). The Nigerian banking system was thereafter restructured.

The restructuring was aimed at distributing banks’ operations in a market that was characterized and conglutinated by geographical locations; between 1986 and 1993 banks were concentrated in major urban cities of Nigeria. Restructuring also produced banks in geographic and product markets that led to the benefits of economic of scale and performance variability among these banks (Toby, 1998). In addition, Nigerian banks, as part of the Structural Adjustment Program in 1986, were to structure and diversify the productive base to achieve fiscal and balance of payment viability (Ayadi, Adebayo, & Omolchinwa, 1998). These authors also noted that by 1992, the Central Bank of Nigeria (CBN) imposed strict measures to use capital adequacy ratio, loans-to-deposit ratio, minimum paid-up capital and sectoral credit allocation to prevent a bank from failing or to limit the loss to depositors of a failing bank.

Changes in Nigerian Banking Industry

Nigeria is known to operate a banking system with a multiple branching system that is commercially oriented rather than being industrial oriented (Ayadi et al., 1998). Today, the banks are witnessing a change that has resulted from globalization and technological innovation (Toby, 2004). According to the author, universally and over the years, banks have changed from banknote to cashless institutions by which credit cards have taken over. Toby added that banking practice has regenerated to the level where banks are rendering all the necessary financial services required of them without attachment to any particular function. Changes in the Nigerian banking industry occurred in 2001 when there was a drastic decline in the value of naira from N113 which was equivalent to a dollar to N126. The decline in value caused Nigerian foreign exchange reserves to fall from 10.27 billion dollars to 8.29 billion dollars (Peel, 2002). However, after being dominated by the large four banks (First Bank, United Bank for Africa, Union Bank of Nigeria, and Afribank Ltd.), each Nigerian bank including the newcomers was required to maintain a minimum holding at CBN of N2 billion (Euromoney, 2006; Ezeoha, 2006). “This decision did not last because it led to the creation of many banks, making it difficult for these financial institutions to finance investment in the economy. It also made regulation more difficult and allowed corrupt businessmen to set up bogus banks with the intent to defraud the people” (Ezeoha, 2005). This undoubtedly tainted the banking industry; the greatest criticism of the Nigerian banking sector was the increased number of banks operating in the country (Ford, 2006).

In the late 1990s, the government of Nigeria instituted a law whereby no individual or group of individuals could open a bank without first of all depositing N25 billion (about $195 million) with the Central Bank of Nigeria (Odili.net, 2005; Oke; 2006; Soludo, 2006). This capital adequacy standard was designed to address the businessmen that opened banks in one year and folded in the following year. As Oke (2006) emphasized, to support the newly instituted law, “a very important function of capital in a bank is to serve as a means of absorbing losses” (p.2), thereby, providing protection for the depositors and creditors during the period of failure. Therefore, the adequate capital requirement for banks with CBN may help to restore customers’ confidence in the banking system. CBN’s action of raising the minimum financial holding from N2 billion to N25 billion was very well welcomed and has resulted in having stronger banks (Ayo, 2006). The action has also started to strengthen the lending ability of banks in terms of financing major projects in gas and oil industries as well as in other infrastructures such as telecommunications, and helping the banks in diversifying their service delivery channels (Ayo, 2006; Euromoney, 2006).

Diversification relates to the sense that more customers can now do their banking transactions online (Oke, 2006). With the minimum financial holding requirement, the number of banks in Nigeria was reduced from 89 to 25, and those banks were now able to maintain 93.5 % of the deposit liabilities of the banking system (Ayo, 2006; Euromoney, 2006; Ford; 2006). CBN, through this requirement, was able to remove the barrier that existed between the merchant and commercial banks where the banks with a license in one area of the banking business can now compete in other areas (Huang et al. 2003). The reform has therefore put the banks in a better position to develop new technology that will help them improve the way they do business as well as the banking environment. Ford (2006) observed that, “foreign investor will be more prepared to commit themselves to Nigeria” (p. 44). Okeke, 2006; Oshikoya, 2006).

The banking industry has been impacted by technology and according to Zoufaly (2002), driving the need for change is also the cost and has triggered legacy system modernization or even abandonment today. In Nigeria, because of the complexity of the legacy system that is associated with cost, it is becoming more difficult to find IT professionals that will be eager to work on them. Nevertheless, the banks that have shifted into these new technologies are now reaping the competitive advantage over their competitors, although in Nigeria the Internet infrastructure is still poorly developed (Huang et al. 2003).

The Nigerian financial services sector prior to the regulatory induced banking sub sector consolidation of 2005 had been plagued by instability and weak capacity and was considered by most to be generally unsound (structure of the Nigerian banking system, pre-consolidation, inhibited its effective performance as the system was characterized by a number of structural and operational inadequacies: a low capital base, large numbers of small banks with relatively few branches, poor ratings of some of the banks, weak corporate governance including inaccurate reporting and non-compliance with regulatory requirements, declining ethics, and huge non-performing insider-related transactions. Others included over-dependence on public sector deposits and foreign exchange trading as well as the neglect of small and medium scale enterprises (Okeke; Oshikoya). Thus handicapped, the Nigerian banking system was not in a position to meet the nation’s ideal of a strong, competitive and stable banking system (Agbakoba & Onwukwe, 2006).

The desire to remedy the inadequacies provided the reason and the impetus for the induced banking sub sector consolidation (Agbakoba & Onwukwe, 2006). In other not to allow this critical sector of the economy to remain in crises, the Central Bank of Nigeria (CBN) working on its mandate of supervisory function of banks acted to save the economy from collapse (Adedipe). Central Bank of Nigeria, which is charged with the mandate to ensure the safety and soundness of the financial system, armed further with impetus to strengthen banks. To re-focus and reposition the banks to meet the global challenges and play the pivotal role of supporting the growth of the Nigerian economy, CBN introduced a new minimum capital requirement for banks (Uzor, 2006).

The challenge of meeting this new capital requirement led some banks to surge into the stock market to raise funds to meet this requirement. The challenges led to the largest and most comprehensive financial services sector development movement ever in the Nigerian economic development history. Ever since then the face of the Nigerian financial services sector has not been the same. Within a very short time of 18 months, banks raised over 406 billion Naira representing about 4 billion U.S. dollars. The figure has quadrupled and still counting. Nigerian banks are now more than ever before positioned to finance development (Agbakoba & Onwukwe, 2006).

“The banking sector consolidation program was necessitated by the pervasive weaknesses and uncertainty of the banking system and the need to reengineer and fast track a system that will engender confidence and power a new economy. The grand objectives of the policy are being achieved, and the consolidation program was judged about the most successful in the world”. Soludo (2007, p. 1) noted the following:

The world is celebrating Nigeria’s success, and over $1 billion of foreign investment has gone into the sector within the last 12 months, and several hundred millions of dollars are still pouring in. The non-performing loans as percentage of total loans have gone down from about 23% before consolidation to less than 8% currently; total deposits have almost doubled, and credit to the private sector growing astronomically (annualized at 72% within the first four months in 2007).

 

Consolidation of the Nigerian banking and financial industry ranks as one of the most fundamental financial revolutions within the Sub-Sahara African’s financial history. The banking consolidation became the precursor of the radical savings culture and investment citizens currently witness. The public confidence and beliefs in the system returned, which was earlier eroded due to the then bank distress and failures. Financial sub-sectors such as insurance, pensions, and mortgages have all benefited and come alive as a direct consequence of the consolidation exercise in the banking sector (CBN, 2007).

Stock trading and the purchasing of bonds, and even commodity trading have all boomed. The pace of investment and the volume of transactions in the stock exchange have continued to rise as a result of the successful banking sector consolidation. Monies earlier tied in the informal sector have reintegrated into the formal system through savings and investment, which was induced by the strength of the new financial sector (CBN).

Individual banks are now, more than ever before, well positioned to finance development small and huge projects within the country and beyond (Okeke, 2006). The value of the projects could potentially be in the hundreds of millions of dollars and could be augmented by involvement in the oil and gas sector. This is a feat the banks could never have planned doing before the banking sector consolidation. Interest rates are gradually decreasing by a significant margin (Okeke).

In 2006, CBN in continuation of its reform efforts in the banking industry made remarkable progress that reflected on the banks’ earnings and profitability (see Figure 2). At the end of June 2007, “over 3,866 branches of commercial banks emerged, up from 3,200 prior to consolidation, and total employment in the sector was far higher than prior to consolidation (Soludo, 2007). At the end of 2007, approximately seven or more banks had shareholders funds in excess of $1 billion and more than 10 banks with market capitalization over $2 billion each, none existed in 2004” (Soludo).

“Nigeria has the fastest growing banking system in Africa and one of the fastest growing banking systems in the world. As seasoned commentators observed, Nigeria took fewer than 3 years to achieve success in the area of banking, whereby, South Africa achieved success in 20 years. With the impetus of the reforms, a new banking system emerged and will benefit of the Nigerian economy” (Soludo).

When the Nigerian financial services sector remains relevant and leads to a vibrant economy, the sector has potential to compete in the fast globalizing financial world (Monye, 2007). Being relevance is important, especially with the West African Monetary Zone (WAMZ) integration initiative, which has reached critical stages of implementation. Financial leaders must understand the importance of realizing that the following challenges will serve as a means of diversifying capital creation and utilization in our ever-changing financial world (Monye):

The Central Bank

Central bank is considered as the Banker’s Bank. Meaning, Central Bank is the bank for all the commercial banks in a country, which focus on monitoring and controlling them by its regulations. As a requirement, commercial banks must keep reserves with the central bank. In addition, Central bank aids commercial banks regarding their daily business operations via offering of loans, security to cash reserves and offers them advice regarding financial and economic issues (Berger, Hancock, et al, 1993). In general, CBN plays a vital role in the overall economic growth of the country.   As indicated in the website Nigeria-Planet.com, CBN plays various functions and can be divided into 3 major functions such as Traditional Functions, Regulatory Functions, and Developmental Functions.  In doing traditional functions, CBN normally issues legal tender (currencies = Naira and Kobo). CBN also act as the Banker and financial adviser of the federal government and other banks and finance institution (clearing cheques and lending last resort). CBN also manage the accounts and debts of the country and act in banking supervision and examination. As for the regulatory functions, CBN promote and maintain the monetary and price stability in the economy of the country, using various tools such as Open Market Operation (OMO), Bank Rate, Rediscount Rate, Direct Control of Bank’s Liquidity, Direct Control of Bank Credit, Special Deposits, Moral Persuasion, and Minimum Cash Ratio. With regards to Developmental Functions, CBN was responsible in promoting and accelerating the much needed growth and development in the Nigerian economy.  CBN was also responsible in promoting the growth of financial market, fostering growth of long-term funds via the annual subvention granted, promoting and assisting the development and institution, and formulating and managing viable economic policies and measures for the government (Nigeria-Planet.com, n.d.)

This shows that central bank, or CBN plays a vital role in the overall operations of the commercial banks. It is vital to take note that the procedures and processes in the bank and financial sector are considered as complicated. This is because there are different standards, laws, regulations and procedures that must be considered in order to ensure the overall performance of the bank. In addition, there are also some important government and non-government organizations which are directly and/or indirectly connected to the industry that must be considered in designing the overall structure (Sinkey, 2002). In addition, the bank sector is also affected by many economic and political changes in both local and international banking industry, as a result, it is important to focus on the process of becoming update about those changes, in order to prevent any risks or problems to be faced in the future.  This information is important in maintaining effective management of important resources of commercial banks. In that case, CBN plays a vital role in offering important information and knowledge about the current economic and political changes in Nigeria as well as the global banking and finance industry (Madura, 2008).

Issues on Transformation of Nigerian Banking System

It is a well accepted conclusion based on previous researches that one of the outstanding benefits of new technology is the increase emphasis on marketing (Chowdhury, 2003; Edwards, 2002; Nsouli & Schaechter, 2002 ;;). Banks including those in developing countries have a wide array of financial services. Continued application of new information technology to banking will encourage banks to continue changing the way they organize and manage their operations. Unfortunately this has not been very fruitful in all parts of the world, especially in developing countries (Khalfan & Alshawaf, 2004). These countries, according to the authors still lack behind in communication infrastructures, technical know-how, and information processes that deal with the economy as a whole and business environment in particular. Insofar as cultural challenges and the impact of political power have always influenced the banks in Nigeria in the adoption of product management systems.

In Nigeria, the government regulations play a big part in the operation of banks (Ezeoha, 2005). The government has limited the entry of foreign banks and restricted banks from expanding abroad or the opening of new banks. This situation has led many banks to take a step forward to develop administrative technologies in order to conduct their international as well as their local operations at manageable costs. Again, many banks that operate internationally built in their IT budget (this may be a one-time cost) the cost of learning the environment through information technology since customers transactional expectations vary from one environment to another. Tschoegl (1987) noted that the cost of learning a foreign environment by the bankers, which may be a one-time investment, will be realized by gaining the knowledge of the environment through the process of understanding the customers’ transactional expectations.

Banks in Nigeria are more dynamic in their approach to because of different cultures. Their information systems are designed to contain the impacts of the variable cultures in the country (Ugwu et al. 2000). However, banks in Nigeria are still facing other tremendous challenges. This is due to a poor information and communication technology (ICT) infrastructure, lack of awareness or knowledge on electronic business issues, low income for most citizens, inadequate legal and regulatory framework, absence of trust, inadequate network payment systems, an inadequate security transaction services (Ntoko, 2000). There are also disparities in resource allocations and Information technology (IT), unusual and different political ideologies, and intense religious beliefs (Green & Murinde, 2003).

Gross (1998) pointed out that although the e-commerce actually originated from the banking community, emphasis was not only on exchanging information, or on buying, selling, and making payments for such transactions, but on cost reductions to the customers. Nouwens and Bouwman (2003) commented that central to the conceptualization of the electronic market place is the ability of the sellers who are interconnected with networks to their customers to offer wares and services.

Economic Factors

Economic factors could impact the functionality of CBN in Nigeria. The cost of Internet facilities is a big problem to the users in developing countries such as Nigeria. According to AC&C (as cited in Adzadi, 2001), the “cost of Internet subscription in Nigeria could put the country in the back seat of the emerging e-commerce” (p. 1).

Social Factors

Social factors play a big role in the working environment of CBN in Nigeria. Since income is one of the major determinants of life style, it affects the decision to acquire a PC as well as Internet usage (Edward, 2002). This is because income is looked at to derive ownership of PCs and Internet usage, which in turn will affect e-commerce and other electronic transactions (Edward, 2002). Income distributions may reflect on how much money people are willing to spend on PCs and using online services. While there may be gaps between ethnic groups in Nigeria, the biggest adoption gap may exist between the rich and poor.

Attitudes and priorities may also play a role. For instance an individual with a higher income may choose to purchase a TV set in place of a PC because of preference. According to Benton Foundation (1999) which provided the rationale associated with attitudinal barriers it was inferred that lack of resources in low-income communities, which is an important factor in terms of measuring disparity, cannot explain the technology gap alone. However, “the less emphasis that society puts on equal access to telecommunications hardware, combined with skepticism and wrong notion among the poor people about the benefits technology might bring, also hinder deployment of new information infrastructure in impoverished neighborhoods. Any plan that will address this technology gap must include methods to achieve a more equitable distribution that will in fact lessen these attitudinal barriers as well as the surmounting financial obstacles”.

Further more, in Nigeria, people value interactions among themselves. Moreover, some areas of Nigeria are high in the number of illiterate people. Illiterates and perhaps less educated people are not comfortable dealing with technology related equipment, and as a result, would not be willing to use ATMs for deposits or their credit/debit cards over the Internet (Kamel &Hassan, 2003; Xiaoming & Kay, 2004). However, in Xiaoming and Kay’s (2004) study, the researchers discovered that the literacy level of a country is not an important factor in predicting a country’s Internet development and other electronic transactions.

Political Factors

Political factor can come in the form of regulations. In Nigeria there are many regulations and limited privatization. Sometimes these regulations are used arbitrarily and for the benefits of the politicians. They may be for political gains rather than correcting market failures (Guasch & Hahn, 1999). Politicians can take advantage of a regulation to satisfy their group or channel some wealth to them. Regulations can also result from inefficient bureaucracies and high levels of corruption instituted and managed by people in power (Guasch & Hahn, 1999).

Technological Factors

In Nigeria, there seem to be inadequate information and telecommunication technology infrastructures. Inadequate information and telecommunication technology infrastructures can negatively impact the adoption and diffusion of electronic transactions (Adzadi, 2001; Xiaoming & Kay, 2004). There is frequently an interruption of the power supply and telecommunication services in Nigeria, which are needed for effectively operating electronic channels. Additionally, an inadequate number of well-trained technicians are also a factor. Xiaoming and Kay (2004) and Kamel and Hassan (2003) suggested that countries should implement new approaches that will sustain development through information and communication technology (ICT) tools and diffusion of electronic channels, reduce barriers to connectivity, and ensure there are sufficient, well-trained technicians to support ICT industries.

Security Issues

Kilbridge (2003) concluded that viruses are a constant threat and hard to guard against, since the attackers have legitimate access to the network. The human factor also has its effect on security either positively or negatively. This is because, according to Orshesky (2003), “businesses sell services to people, people build systems, people use networks and services, people manage organizations, and yet, people, not computers or programs, attack businesses, services, and supporting infrastructures” (p. 44).

“Security threats are very much higher because of network interconnectivity and mobility” (Gellis, 2004). According to Gellis, “Cysco Systems, a company that leads in providing security services, maintains that remote users accessing corporate networks are more exposed to attackers from the outside”. It has also been noted, according to Gellis that users becoming infected through a remote Internet connection can infect the entire network.

 

CHAPTER 3: RESEARCH METHODOLOGY

CHAPTER 3: METHODOLOGY

In general, banking in Nigeria has not been fully developed to the extent seen in most developed countries. To further investigate unattractiveness of this technology which has generated this disparity, a cost effective data collection procedure for this research study was used in the form of survey methodology. The main purpose of this study was to determine the relationship between how the customers as defined in the study perceived the use of CBN based on the factors that influenced their perception in Nigeria.

Research Questions

The study was designed to answer the following questions: (a) Is there any relationship between the customers’ utilization index scores and their perceptions of CBN? (b) Is there any relationship between the level of educational attainment of bank customers and their perceptions of CBN banking? (c) Is there any relationship between the level of customers’ income and their perceptions of CBN banking? (d) Is there any relationship between the number of years customers have used CBN’s services? (e) Is there any relationship between the level of cultural beliefs of customers and their perceptions of CBN banking? To obtain answers to these questions as listed above, a survey questionnaire was cultivated and conducted to elicit responses used in the analysis.

Hypotheses

Main Hypothesis, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and the utilization of banking services.

Sub-Hypothesis1, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and customers’ educational attainment.

Sub-Hypothesis2, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and customers’ level of income.

Sub-Hypothesis3, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and the number of years of experience of using banking services.

Sub-Hypothesis4, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and cultural belief.

Research Design

To provide empirically grounded answers to these research hypotheses, the study relied on a correlation design. The design involved the development of a cross sectional survey to obtain data from a randomly selected sample of the bank customers in Nigeria. The survey yielded data that were used to analyze the pattern of relationship between the perception and utilization of CBN banking. The measurement scales that this study used are grouped into rating, categorization, and ranking. Since this research has its own merits (characteristics) in a way that it collected and analyzed data, a quantitative approach was used. This approach gave this study flexibility in the treatment of data in term of statistical analyses, independence, objective measurement, and objective determination of reliability and validity.

Description of Target Population

The target population was the bank customers who have used CBN banking services at least once a month. This research considered that customers are the backbone of any organization, and their importance in this regard determines the existence of any organization. Therefore, in selecting the customers, certain consideration was given to the geographical factors delineating the state, the cultural diversity of the population, and the gender consideration, which are crucial in developing countries.

The population number was 75, and according to the General Manager of CBN, this low number may be attributed to several factors such as the newness of this type of banking services, poverty level, and level of education. Although in terms of branch network of the banks, CBN was ranked fourth in the whole Nigeria with 156 branches (Adesida, 2007), it has not encouraged the use of CBN services. In view of this fact, a random sample of the identifiable number of this population was representative enough for the researcher to draw a meaningful conclusion. Efforts were taken to maximize the return rate. Several proven methods such as second and third mailings to the selected sample as described below were employed.

Questionnaire Distribution and Return Method

The questionnaires and instructions along with the waiver of signed consent were shipped to Nigeria and mailed from there to the random selected respondents with self-addressed envelopes. After two weeks, 60 respondents returned the completed questionnaires in the return addressed and postage envelopes via the researcher’s rented Post Office Box. The researcher returned to Nigeria mid March 2010 to retrieve the completed questionnaires. It was originally expected that at most a 75% return rate could be accomplished. Nevertheless, the expected return rate was achieved in the second mailing. The contingency plan was implemented. The workers working in GTB that were assisting the researcher sent the follow-up mailings. As a result, the acceptable response rate of 81% was achieved which decreased the chance of significant response bias.

Reliability of the Survey Instrument

For use in this study, items on the survey instrument designed to index the CBN banking usage and the perception of the CBN banking were tested for reliability and internal consistency using Cronbach’s Alpha procedures.

Data Gathering Instrument

The perceptions of the customers concerning the CBN banking in Nigeria were measured with an Electronic Utilization Questionnaire. This instrument was designed by the researcher since there was no known existing survey questionnaire on this study. The instrument involved several items divided into various sections. The sections were as follows: (a) Demographic information, (b) Utilization rate measured in months, (c) Level of educational attainment, (d) Level of income, (e) Years of experience using CBN banking, and (f) Level of cultural belief or acculturation level. The instrument contained 5-point Likert-type scaled questions in which respondents were required to indicate their reaction to each statement by circling one of the following responses: 5 (Strongly agree), 4 (Agree), 3 (Don’t know), 2 (Disagree), 1 (Strongly disagree). The statement was scored on a continuum of 5 through 1. A high score on the instrument indicated a high perception of electronic banking while a low score indicated a low perception of CBN banking.

Ethical Considerations

The study was reviewed by the Institutional Review Board of Capella University which ensures that research projects involving human subjects follow federal regulations. All information obtained during this study is private. The researcher assumed “the responsibility to protect the privacy of people by withholding personal information from all persons not connected to the study. Each person was identified using a code number rather than name. Raw data will be kept in a locked file cabinet for a period of three (3) years, as required by federal law. Although the information in this study was treated as private, it may be revealed in certain rare circumstances. Confidentiality may be broken if the information obtained reveals that the respondent intends to harm himself or herself or even another person”.

 

CHAPTER 4: RESERCH FINDIGNS

In general, banking in Nigeria has not been fully developed to the extent seen in most developed countries. To further investigate unattractiveness of this banking system which has generated this disparity, a cost effective data collection procedure for this research study was used in the form of survey methodology. The main purpose of this study was to determine the relationship between how the customers as defined in the study perceived the use of CBN banking system based on the factors that influenced their perception in Nigeria.

Data Collection

The data collection process was initiated by sending out 75 questionnaires to the randomly selected respondents in Nigeria. 60 participants responded to the survey instrument. The results showed that this segment of the respondents took their time to answer the questions in the questionnaires within three weeks of receiving them. Three respondents returned the survey questionnaires without completing them and 12 did not return the questionnaires.

Analysis and Presentation of Findings

To answer the research questions proposed in this research study, the researcher first reviewed data appropriate for answering the question that focused on the assessment of customers’ perception of CBN banking system and the influence/relationship this factor had on the utilization of banking services. Following this assessment, the researcher tested the estimated level of influence of customers’ perception on the banking system on utilization of CBN and its effect on GTB. The study also assessed the level of relationship of such factors as: educational attainment, customers’ income, number of years of customers’ experience with CBN banking system, and the influence of culture on the customers.

Research Hypothesis

The research interest was to investigate the influence level of income, educational attainment, number of years of using CBN banking services and cultural beliefs have on the customers’ perception of this banking system and the utilization of such banking services. To conduct this study, the following hypotheses were tested.

Main Hypothesis, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking services and the utilization of such banking services.

Sub-Hypothesis1, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking system and customers’ educational attainment.

Sub-Hypothesis2, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking services and customers’ level of income.

Sub-Hypothesis3, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking services and the number of years of experience of using such banking sevices.

Sub-Hypothesis 4, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking services and cultural belief.

Main Hypothesis

Main Hypothesis (null hypothesis): There is no significant relationship between customers’ perception of analyzing the impact of CBN on GTB.

A test hypothesis was conducted on the population proportion of about 65% calculated from the survey responses. Customers surveyed (64.7%) indicated that they have used the services of CBN at least once during the past one month in Nigeria. The population proportion test analysis conducted indicated that z = 4.688, which is greater than z = 1.645 corresponding to the .05 significance level established in the test. Therefore, the researcher rejected the null hypothesis at the .05 significance level and concluded that there is a significant relationship between customers’ perception of CBN and its impact on GTB. Hence the researcher used the perception factor as the dependent variable for the study.

Sub Hypotheses

Sub Ho1, (null hypothesis): There is no significant relationship between customers’ perception of CBN and customers’ educational attainment. Table A1 summarizes the results of the regression statistical analysis conducted between customers’ utilization of CBN’s services and customers’ educational attainment. The regression analysis resulted in p = .067 which is over the established significant level of .05. As a result, the null hypothesis was accepted. The researcher could not find any significant relationship between customers’ perception of CBN and customers’ educational attainment.

Table A1. ANOVA for Customers’ Perception and Educational Attainment

Model.	SS	df	MS	F	Sig
Regression	1464.458	1	1464.458	6.200	067*
Residual	944.796	4	236.199
Total	2409.253	5

 

Sub Ho2, (null hypothesis): There is no significant relationship between customers’ perception of CBN and customers’ level of income. Table B1 summarizes the results of the regression statistical analysis conducted between customers’ perception of CBN and customers’ level of income. The regression analysis resulted in p = .137, which is well over the established significant level of .05. As a result, the null hypothesis was accepted. The researcher could not find any significant relationship between customers’ perception of CBN and customers’ level of income.

Table B1. ANOVA for Customers Perception and Income Level

Model	SS	df	MS	F	Sig.
Regression	1682.416	1	1682.416	3.438	137*
Residual	1957.177	4	489.294
Total	3639.593	5

 

Sub Ho3, (null hypothesis): There is no significant relationship between customers’ perception of CBN and the number of years of using CBN’s services. Table C1 summarizes the results of the regression statistical analysis conducted between customers’ perception of CBN and number of years of using the bank’s services. The regression analysis results had a pvalue of .099, which is well over the established significant level of .05. As a result, the null hypothesis is accepted. The researcher could not find any significant relationship between customers’ perception of CBN and the number of years using the bank’s services.

Table C1. ANOVA for Customers Perception and Number of Years Using CBN’S Services (Experience)

 

Model	SS	df	MS	F	Sig.
Regression	1748.393	1	1748.393	4.598	099*
Residual	1520.920	4	380.230
Total	3269.313	5

 

Sub Ho4, (null hypothesis): There is no significant relationship between customers’ perception of CBN and cultural belief. Table D1 summarizes the results of the regression statistical analysis conducted between customers’ perception of CBN and cultural belief. The regression analysis resulted in p = .031, which is less than the established significant level of .05. As a result, the null hypothesis was rejected and it can be concluded that there is a significant relationship between customers’ perception of CBN and cultural belief. The researcher established that cultural belief of customers places a significant influence on the customers’ perception of CBN’s services and utilization.

Table D1. ANOVA for Customers’ Perception and Cultural Belief

 

Model	SS	df	MS	F	Sig.
Regression	1214.365	1	1214.365	10.607	.031*
Residual	457.929	4	114.482
Total	1672.293	5

 

Summary of Research Hypotheses Analysis

Main Research Hypothesis, (Null Hypothesis): There is no significant relationship between customers’ perception of CBN and the utilization of the bank’s services. To assess this hypothesis, the researcher evaluated the data generated from survey responses on the utilization factor (64.7%) and customer perception to see whether there is a significant relationship between customers’ perception of CBN and the utilization of the bank’s services. The test hypothesis result conducted on the population proportion indicated z-value 4.688, which is greater than z-value 1.645 corresponding to the .05 significant level used in the test. The researcher rejected the null hypothesis at.05 significance level and concluded that there is a significant relationship between customers’ perception of CBN and the utilization of the bank’s services.

Furthermore, the researcher formulated four sub hypotheses to access whether the utilization (customers’ perception of CBN and the utilization of the bank’s services) in Nigeria, is influenced by educational attainment, level of income, number of years of using (experience) and cultural belief.

In Sub-Hypothesis1, the research showed that no significant relationship exists between customers’ utilization of CBN and customers’ educational attainment. In Sub-Hypothesis2, the result also showed that there is no significant relationship between customers’ utilization and level of income. In Sub-Hypothesis3, the research showed once again no significant relationship between customers’ utilization and the number of years of using the bank’s services. Finally, in Sub-Hypothesis 4, the researcher found that there is a significant relationship between utilization of CBN and cultural belief. In this regard, there is sufficient evidence to conclude that cultural belief plays a major part in the utilization of CBN.

 

CHAPTER 5: SUMMARY, CONCLUSION, AND RECOMMENDATIONS

Summary

This chapter presents chronologically the researcher’s results of the statistical tests and analyses that were conducted in order to assess whether the factors studied support or do not support the hypotheses formulated for the research study.

In order to save the banking industry of Nigeria, the central bank formulated a directive for 89 banks to increase their paid-up share capital from 2 billion Naira (N) to N25 billion on or before December 31, 2005 (Uzor, 2006). After the exercise, 64 banks lost their licenses, and the remaining 25 experienced several leadership issues caused by major changes in the ownership of the consolidated banks (Uzor). Additionally, surviving banks were challenged to satisfy the new shareholders expectation of a maximum return on their investment.

In order to save the banking industry of Nigeria, the central bank formulated a directive for 89 banks to increase their paid-up share capital from 2 billion Naira (N) to N25 billion on or before December 31, 2005 (Uzor, 2006). After the exercise, 64 banks lost their licenses, and the remaining 25 experienced several leadership issues caused by major changes in the ownership of the consolidated banks (Uzor). Additionally, surviving banks were challenged to satisfy the new shareholders expectation of a maximum return on their investment.

Research Findings

Sub Hypotheses

Sub Ho1, (null hypothesis): There is no significant relationship between customers’ perception of electronic banking and customers’ educational attainment.

The result that was obtained from testing this hypothesis was that the null hypothesis is accepted. The researcher could not find any significant relationship between the customers’ perception of electronic banking and the customers’ educational attainment.

Sub Ho2, (null hypothesis): There is no significant relationship between customers’ perception of electronic banking and customers’ level of income.

The result that was obtained from testing this hypothesis was that the null hypothesis is accepted. The researcher could not find any significant relationship between customers’ perception of electronic banking and customers’ level of income.

Sub Ho3, (null hypothesis): There is no significant relationship between customers’ perception of electronic banking and the number of years of using electronic banking. The result that was obtained from testing this hypothesis was that the null hypothesis is accepted. The researcher could not find any significant relationship between customers’ perception of electronic banking and the number of years using electronic banking.

Sub Ho4, (null hypothesis): There is no significant relationship between customers’ perception of CBN banking and cultural belief. The regression analysis that was performed had a p-value of .031, which is less than the established significant level of .05. Based on this result, the null hypothesis is rejected and it can be inferred that there is a significant relationship between customers’ perception of CBN banking and cultural belief. The researcher, therefore, had sufficient evidence to establish that cultural belief of customers places a significant influence on the customers’ perception of CBN banking and utilization. In this regard, it can be concluded that cultural belief plays a major part in the perception of CBN banking in Nigeria. Consequently, this may be due to the fact that many bank customers in Nigeria, still prefer the old traditional way of banking. Among other things, customers still believe a hand-written signature is more genuine and acceptable than the digital signature. Subsequently, due to a high rate of fraud in Nigeria, the majority of the bank customers believe that banking in general does not ensure the legitimacy of their transactions.

Main Hypothesis

The main research hypothesis, (null hypothesis) states that there is no significant relationship between customers’ perception of CBN banking and the utilization of CBN services. In this study, the researcher was interested in investigating if utilization of CBN is influenced by customers’ perception and whether this utilization is also being affected by such factors as educational attainment, years of banking experience, income, and cultural belief. Statistical analysis performed led to the conclusion that at least one of these factors has a bearing on how CBN banking services are being perceived in Nigeria, and that this factor consequently affects utilization. The resulting significant level of .031 for cultural belief convinced the researcher that this factor has a consequential influence on perception of CBN banking in Nigeria.

Recommendations

This research study has been conducted in Nigeria and the resultant findings may differ or may not show the exact results in other countries of the world or in other African countries. However, cultural belief remains one of the impediments in the acceptance of change in the banking services and as such this behavior may be further investigated in future studies.

In this study, cultural belief emerging as an influencing factor revealed why some bank customers downplay the use of CBN banking services in Nigeria. Inadequate technologies (inadequate telecommunication infrastructures, limited personal computer ownership, and frequent interruption of power supply) have always been a big concern to Nigerians. Therefore, these concerns play a role on how Nigerians make decisions in their everyday lives. The researcher feels that further related studies are important and necessary in these areas to help investigate the extent to which these factors collectively or individually influence the use of modern banking services.

Also, from the survey responses it was observed that privacy and security issues are some of the most important concerns from the perspective of the bank customers. This result is consistent with the view of Ezeoha (2005) and Kilbridge (2003) who stressed that security and privacy problems continue to downplay the progress made in information technology – especially in the area of modern banking. Fraudulent activities such as banking frauds have been prominent concerns and have resulted in setbacks in the country, and thereby have created fears among bank customers. These fraudulent activities can complicate security and privacy issues. These concerns call for investigation. Further research studies are recommended to investigate how the utilization of modern banking services such as CBN by bank customers in Nigeria as a whole can be promoted in a country that has diversified cultural beliefs.

Moreover, based on this study, the bank management should note that this study revealed the feeling of most bank customers not knowing how to use the modern banking services are fearful of the possibility of making errors while using the banking services. In addition to not having the knowledge to use the CBN banking services, the bank customers are reluctant to utilize the modern banking services. These perceived problematic situations need to be tackled. Furthermore, researchers need to look at how much influence current technological advancements have on culture in Nigeria as a whole. Additionally, it is recommended that banking institutions consider sponsoring researchers to explore the relationships between technological advancements and culture.

The researcher also noted from the study that most bank customers superstitiously believed that touching and holding cash provides a sense of security and gives them the satisfaction and evidence of attainment of richness. These ignorant beliefs can be f rather investigated by future research. These future studies may recommend ways the Nigerian government could directly clean up the tented image of Nigerians with regards to credit card frauds. The studies can also assist the banking industry in combating these frauds which have discouraged and in most cases, have limited the use credit and debit cards in the country. Annihilating these beliefs and reducing bank card frauds will help to encourage holding credit and debit cards and using them to make payments instead of cash as are seen in other countries of the world. You may also like to read an example essay on tango songs

 

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