ABTRACT
Deposit Money Banks are the
backbone of the economy of any country. They are the institutions specifically
designed to further the capital formation process through the attraction of
deposits and the extension of credit (Dhanuskodi, Thangavelu, Venkatachalam
& Sudalaimuthn, 2007). Despite these important roles, deposit
money banks are exposed to financial risks among many other risks.
Financial risks reflect possibility of loss associated with liquidity, capital
adequacy, credit, profitability and market. These risks, if not properly
identified, evaluated, monitored and controlled could jeopardize a bank’s
operations or undermine its financial conditions. In extreme cases, it could
lead to a distressed or failed bank with its ripple effects on all bank stakeholders
such as loss of deposits, investments, employment, credibility by depositors,
shareholders, banks staff, and bank regulators, examiners, supervisors and
auditors respectively. This Project uses growth models, capital adequacy model,
assets quality models, earnings quality models, liquidity models, charts and
tables to analyze and evaluate the trend and comparative financial performance
of Oceanic Bank International Plc, First Bank Plc and Access Bank Plc for the
financial periods spanning 2003 to 2007. Based on the results of the analytical
models applied on the ratio type of data collected from the case studied banks,
it is discovered that the three reviewed banks are well capitalized. They
exhibited a stable trend in the quality of their earning assets and are highly
liquid. However, the earnings quality of these banks have been a disturbing one
as it continuously moved downwards year-wise. To reverse this declining
earnings quality trend, various cost reduction and cost control measures are
recommended given the fact that the quality of these banks assets are in good
shape.
CHAPTER
ONE
INTRODUCTION
1.1 Background of the Study
Deposit
Money Banks are the backbone of the economy of
any country. They are the determinant factors to bring the development
of the country; They serve as bridges between savings and investments.
Furthermore, deposit money bank
are the institutions specifically designed to further the capital formation
process through the attraction of deposits and the extension of credit ( see
Dhanuskodi, Thangavelu, Venkatachalam & Sudalaimuthn, 2007:2).
Various work
have been conducted to recognize the pivotal role of deposit money banks, then
referred to as commercial banks, in development of a country. Salvage
(1979), Kanu (2005), Adekanye (1986), Ekezie (1997) and Rose & Hudgins
(2008); highlight the important roles of deposit money banks
to include: acceptance of deposits, granting of credit facilities, financing
foreign transactions, offering of trust services, discounting services,
financing e-commerce, safe keeping of valuables, managing investments,
implementation of monetary policies and foreign reserve management.
Despite
these important roles, deposit money banks are exposed to a wide array of risks:
financial operations, business and events risks (see figure below).
Financial risks reflect possibility of loss associated with liquidity,
capital adequacy, credit, profitability and market. While operational risks reflect
uncertainty of earnings due to failures in computer systems, management
errors, and employee misconduct. Business risks are associated
with a bank’s business environment, including macroeconomic policy
concerns, legal and regulatory factors, and the overall financial sector
infrastructure and lastly, event risks are exogenous risk like political
crisis, that could affect bank’s operations.
These risks,
if not properly identified, evaluated, monitored and controlled could
jeopardize a bank’s operations or undermine its financial conditions. In
extreme cases, it could lead to a distressed or failed bank with its ripple
effects on all bank stakeholders such as loss of deposits, investments,
employment, credibility by depositors, shareholders, banks staff, and bank
regulators, examiners, supervisors and auditors respectively.
In view of
the dynamic nature of deposit money banking system soundness and its
susceptibility to financial risks, various evaluative approaches have been
developed by different scholars to provide early warning signs about the health
of banks.
Dick
(2003) evaluated the capital adequacy impact on banking operation
of Societal General Bank Limited using chi-square technique of analysis. This
technique suffers from objectivity as data analyzed were from questionnaire and
interview (which are subjective opinions of individuals)
and not from the bank financial statements.
Anyanwu
(2002), in his research, evaluated the impacted of credit and
management on the commercial bank profitability using regression analysis. This
technique though appropriate for test of relations or impact, is however dumb
on the over all financial performance of the selected banks he studied.
Dhanuskodi,
Thangavelu, Verkatachalam & Sudalaimuthu (2007) compared the profitability
performance of commercial banks in Ethiopia using profitability ratios and
percentage growth ranking. Their work focus on profitability to the detriment
of capital ratios, liquidity and assets quality ratios which are measures of
capital adequacy, liquidity sufficiency and assets quality. Besides, foreign
banks were used which did not relate to the Nigeria environment.
Pak
& Huh (1993), compared Korean banks’ performance
with Asian and American banks using financial ratios. The study made use
of aggregate ratios as against individual bank ratios and hence do not reflect
the individual performance of those banks.
Other bank
evaluation model is stock valuation model. This tied to market price of bank’s
stock as against the operating performance as disclosed in bank’s financial
statements.
Having
reviewed the shortcomings of various banks performance evaluation models used
by different scholars, the purpose of this study is to analyze the trend and
comparative financial performance of three selected Nigerian deposit money
banks for the financial periods spanning 2003-2007 using Uniform Financial
Institutions Rating System (also known as CAMELs Rating). CAMELs
rating involves rating the overall financial performance of banks based its
capital adequacy, asset quality, management efficiency, earnings Quality,
liquidity sufficiency, and sensitivity to market risks. The First Bank of
Nigeria Plc, Oceanic Bank International Plc and Access Bank Plc are cases under
review.
To assure the tentativeness and credibility of this
study, the follows tools will be employed: textbooks, various annual reports of
selected banks, journals, Central Banks of Nigeria publications, World Bank
Publications....
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Item Type: Postgraduate Material | Attribute: 125 pages | Chapters: 1-5
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