Corporate Governance Practices And Bank Performance In Nigeria

Corporate Governance Practices And Bank Performance In Nigeria

Chapter One

Background To The Study

The significance of a vibrant, transparent and healthy banking system in the rallying and intermediation of fund, for the growth and development of the frugality need not to beover-emphasized. Worthy is of the fact that the position of functioning of the fiscal sector depends on the perception and patronage of the citizens towards its services( Al- Faki, 2006). The situation where the public losses confidence in the fiscal institutions, can affect in fear and consequential fiscal and profitable straits. The absence of confidence in any association is attributable to opaque operation practices and injurious effect on its performance. The measure of performance in this case isn’t limited to the financials( development and profit) but also client satisfaction, hand weal, social commercial responsibility, indeed the whole diapason of balanced score card.

Given the fury of conditioning that have affected the sweats of banks to misbehave with the colorful connection programs and the antecedents of some drivers in the system, there are enterprises on the need to strengthen commercial governance in banks. This will boost public confidence and insure effective and effective functioning of the banking system( Soludo, 2004a). According to Heidi and Marleen( 20034), banking supervision can not serve well if sound commercial governance isn’t in place. Accordingly, banking administrators have strong interest in icing that there’s effective commercial governance at every banking association. As editorialized by Mayes, Halme and Aarno( 2001), changes in bank power during the 1990s and early 2000s mainly altered governance of the world ‟ s banking association. These changes in the commercial governance of banks raised veritably important policy exploration questions. The abecedarian question is how do these changes affect bank performance?

It’s thus necessary to point out that the conception of commercial governance of banks and veritably large enterprises have been a precedence on the policy docket in advanced request husbandry for over a decade. Further to that, the conception is gradationally warming itself as a precedence in the African mainland. Indeed, it’s believed that the Asian extremity and the relative poor performance of the commercial sector in Africa have made the issue of commercial governance a banner in the development debate( Berglof and Von- Thadden, 1999).

In developing husbandry, the banking sector among other sectors has also witnessed several cases of defeats, some of which include the nascence Merchant Bank Ltd, Savannah Bank Plc, Societe Generale Bank Ltd( each in Nigeria), The Continental Bank of Kenya Ltd, Capital Finance Ltd, Consolidated Bank of Kenya Ltd and Trust Bank of Kenya among others( Akpan, 2007).

In Nigeria, the issue of commercial governance has been given the frontal burner status by all sectors of the frugality. For case, the Securities and Exchange Commission( SEC) set up the Peterside Committee on commercial governance in public companies. The Bankers ’ Committee also set up asub-committee on commercial governance for banks and other fiscal institutions in Nigeria. This is in recognition of the critical part of commercial governance in the success or failure of companies( Ogbechie, 20066). Commercial governance thus refers to the processes and structures by which the business and affairs of institutions are directed and managed, in order to ameliorate long term shareholders ’ value by enhancing commercial performance and responsibility, while taking into account the interest of other stakeholders( Jenkinson and Mayer, 1992). Commercial governance is thus, about erecting credibility, icing translucency and responsibility as well as maintaining an effective channel of information exposure that will foster good commercial performance.

In 1929, Means set up that in only 11 of the 200 largestnon-financial pots the largest proprietor hold a maturity of the establishment’s shares. Further, establishing power of 20 of the stock as a threshold minimum for control, 44 of those enterprises had no existent who possessed that much of the stock. These 88 enterprises which were classified as operation- controlled also managed to regard for 58 of the total means held among the top 200 pots. Two trends were indicated the growing attention of power and the adding disbandment of stock power performing in a widening gulf between share power and administrative control within large pots.

In order to address these scarcities, this study examined the part of commercial governance in the fiscal performance of Nigerian banks. Unlike other previous studies, this study isn’t confined to the frame of the Organization for Economic Cooperation and Development principles, which is grounded primarily on shareholder sovereignty. It anatomized the position of compliance of law of commercial governance in Nigerian banks with the Central Bank’s post consolidated law of commercial governance.

Statement Of The Exploration Problem

Banks and other fiscal interposers are at the heart of the world’s recent fiscal extremity. The deterioration of their asset portfolios, largely due to malformed credit operation, was one of the main structural sources of the extremity( Feasts, Neven and Seabright, 2002; Kashif, 2008 and Sanusi, 2010). To a large extent, this problem was the result of poor commercial governance in countries ’ banking institutions and artificial groups. Schjoedt( 2000) observed that this poor commercial governance, in turn, was veritably important attributable to the connections among the government, banks and big businesses as well as the organizational structure of businesses.

In some countries( for illustration Iran and Kuwait), banks were part of larger family- controlled business groups and are abused as a tool of maximizing the family interests rather than the interests of all shareholders and other stakeholders. In other cases where private power attention wasn’t allowed, the banks were heavily obtruded with and controlled by the government indeed without any power share( Williamson, 1970; Zahra, 1996 and Yeung, 2000). Understandably in either case, commercial governance was veritably poor. The symbiotic connections between the government or political circle, banks and big businesses also contributed to the conservation of lax prudential regulation, weak ruin canons and poor commercial governance rules and regulations( Das and Ghosh, 2004; Bai, Liu, Lu, Song and Zhang, 2003).

In Nigeria, before the connection exercise, the banking assiduity had about 89 active players whose overall performance led to sagging of guests ’ confidence. There was moping torture in the assiduity, the administrative structures were shy and there were cases of sanctioned recklessness amongst the directors and directors, while the assiduity was notorious for ethical abuses( Akpan, 2007). Poor commercial governance was linked as one of the major factors in nearly all known cases of bank torture in the country. Weak commercial governance was seen manifesting in form of weak internal control systems, inordinate threat taking, override of internal control measures, absence of ornon-adherence to limits of authority, casualness for cannons of prudent lending, absence of threat operation processes, bigwig abuses and fraudulent practices remain a worrisome point of the banking system( Soludo, 2004b). This view is supported by the Nigeria Security and Exchange Commission( SEC) check in April 2004, which shows that commercial governance was at a rudimentary stage, as only about 40 of quoted companies including banks had recognised canons of commercial governance in place. This, as suggested by the study may hamper the public trust particularly in the Nigerian banks if proper measures aren’t put in place by nonsupervisory bodies.

The Central Bank of Nigeria( CBN) in July 2004 unveiled new banking guidelines designed to consolidate and restructure the assiduity through combinations and accession. This was to make Nigerian banks more competitive and be suitable to play in the global request. still, the successful operation in the global request requires responsibility, translucency and respect for the rule of law. In section one of the law of Commercial Governance for banks in Nigerian post connection( 2006), it was stated that the assiduity connection poses fresh commercial governance challenges arising from integration processes, Information Technology and culture.

The series of extensively publicized cases of counting familiarities recorded in the Nigerian banking assiduity in 2009( for illustration, Oceanic Bank, Intercontinental Bank, Union Bank, Afri Bank, Fin Bank and Spring Bank) were related to the lack of watchful oversight functions by the boards of directors, the board relinquishing control to commercial directors who pursue their own tone- interests and the board being lazy in its responsibility to stakeholders( Uadiale, 2010). Inan( 2009) also verified that in some cases, these bank directors ’ equity power is low in other to avoid subscribing blank share transfer forms to transfer share power to the bank for debts owed banks. He further editorialized that the applicability of non-administrative directors may be doused down if they’re bought over, since, in any case, they’re been paid by the banks they’re anticipated to oversee.

As a result, colorful commercial governance reforms have been specifically emphasized on applicable changes to be made to the board of directors in terms of its composition, size and structure( Abidin, Kamal and Jusoff, 2009).