AN EVALUATION OF THE EFFECTIVENESS OF NEW PRODUCTS IN NIGERIAN COMMERCIAL BANKSTHE ROLE OF THE NIGERIA MONEY MARKET
ABSTRACT
The primary goal of this study was to assess how well commercial banks could generalize or mobilize funds using new financial instruments. To make this study easier to read and understand, it has been divided into five chapters. The background of the current economic situation that made it necessary to introduce a program meant to balance the economy was covered in chapter one. It also provides information about the steps taken to create a sound and sustainable economic foundation for the nation’s economy, including monetary and fiscal policies. In order to support the findings, recommendations, and conclusions from this chapter, the remaining four chapters were generated from chapter one. Although the banks have benefited from their innovative product development, some of these institutions have run into issues such as weak data bases, poor communication systems, and interest rate swings brought on by market forces. In light of the aforementioned conclusions, suggestions have been made to support the banks’ efforts to develop new products. It would not be appropriate to remark here, nevertheless, that the financial industry has benefited from the trend toward new product development.
INTRODUCTION
Nigeria’s economy had an oil boom in the 1970s that resulted in an overreliance on oil as its primary source of income and, as a result, a mono-product economy. Because of this, the majority of the industries that were established during this time period relied on imported components and raw materials to run, and the structural distortions that the increase in oil revenue during this time period caused reached crisis levels in 1986 as a result of the sharp decline in crude oil prices in that year. Several governments implemented a number of attempts to improve the situation, but sadly these initiatives were unsuccessful because the nation had a mono-product economy that heavily relied on oil exports while neglecting other areas of the economy. It should also be remembered that during this time, monetary policies were intended for short-term crises management, but by 1986 and up until the present, the situation had gotten out of hand, necessitating a long-term crises management of the structural adjustment program (SAP). The goal of the policy was to make it easier to achieve lost goals and to remedy different economic distortions. SAP attempted, over a two-year period, to do this by reducing the importance of unfavorable economic factors reliance of the country economy on oil as its main source of revenue
The banks were selected as the primary channel through which the goals of SAP and the operation of the second-tier foreign exchange market (SFEM) could be achieved; the result was an extraordinary expansion of the Nigerian financial industry. SAP made the decision to get rid of all the intricate administrative red tape, which fosters reliance on market forces across the board in the national economy.
Given the freedom and incentive to expand because it is extremely important to progress and development, the financial industry. This was done to encourage competition, especially in the areas of credit expansion and general economic well-being, to reach its full potential. Prior to this time, the banking industry was characterized by armchair banking, and true to their conservative tradition, they inherited the clearing banks of London, made modest efforts, and only offered a small number of traditional products. However, deregulation has permanently changed the face of the banking industry, and has been marked by a number of developments that sparked fierce competition among banks, which were the main actors in the financial sector.Due to the high volume of transactions, outside investors were encouraged to invest in the sector and there was a corresponding increase in the number of applications for banking licenses, which ultimately resulted in the registration of numerous new banks in the economy, which was a welcome development. All those old grant banks that monopolized the market had to be on guard and prepared to compete for resources that were previously taken for granted with this new development of multiple registrations of more banks. This resulted in frequent destabilizing conflicts in board rooms, constant staff, management, and board turnover, new banks launching virtually daily, and rapid changes in regulatory requirements by the central Bank of Nigeria. The separation between commercial and merchant banking became quite thin as a result of the general deregulation, which allowed banks to conduct significantly more business. Abolition of foreign guarantees as collateral for naira-denominated loans, increase in capital adequacy ratio, stabilization securities, increase in the statutory deposit of banks (N25 billion recapitalization) at the CBN, rough cash and liquid ratios, and prevention guidelines went further to aggravation and the cash squeeze, tightening the already fierce competition. The industry as a whole has been battling with non-Bank financial institutions, which are now identical to those offered by commercial Banks, in addition to the competition between Banks and individuals. Banks have been vying for deposits, which served as the main source of raw materials for their operations, as a result of the competitive climate. Banks typically serve as a mediator between savers and investors by luring deposits from the surplus sector, which is made up of people with numerous investment projects that require more money than they currently have. They also serve as catalysts for capital formation, which is thought to be the primary factor dictating the pace of economic expansion and national independence. Also, they play a crucial and delicate role in stimulating the growth of other systemic units
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