1.0 Analysis of Banking Industry in Nigeria. 1419
The Nigerian banking industry is one of the most dynamic and competitive industries in the Country. The role of banks in economic development has been richly articulated in the literature. Pioneer contribution of Schumpeter (1934) was of the view that financial institutions are necessary condition for economic development. An industry is a group of firms producing products that are close substitutes for each other. (Johnson, G, Scholes, K & Whittington, R 2008). This view has been variously corroborated by other scholars like Goldsmith (1969), Cameron et al (19720, Patrick (1966). The major regulatory objectives of the bank as stated in the CBN act of 1958 is to: issue legal tender, maintain the external reserves of the country, promote monetary stability and a sound financial environment, and to act as a banker of last resort and financial adviser to the federal government. (cenbank.org)Guaranty Trust Bank plc is a leading Nigerian Bank with a corporate/ retail banking bias and strong service culture that has led to consistent year on year growth in its client base and financial indices. (Appendix 1) The banking industry has transformed rapidly in the last ten years, shifting from transactional and customer service-oriented to an increasingly aggressive environment in which competition for revenue is top priority. Consolidation of the Nigerian Banking sector is one of many reforms of the Gen. Obasanjo’s administration that Nigerians have to embrace happily. (Victor E, 2007)
According to the CBN (2001), only 10 banks dominate the banking system in Nigeria. The influence and power of these banks is reflected in their share of the total deposits, loans and advances and total assets put at 53.1 per cent, 46.5 per cent and 50.8 per cent of the industry in 2001. The oligopolistic structure of the Nigerian banking system has been influenced by a number of factors. These include: the extensive branch network of the old generation banks as well as the customer confidence/loyalty built over the years. The patronage of these banks also includes a substantial proportion of public sector funds being deposited. As opined by Uchendu (1998), whilst the emergence of new commercial banks in the 1980s significantly diluted the concentration of the industry, the liquidation of a larger proportion of the distressed banks in the late 1990s somehow vitiated the dilution thus reverting the industry to earlier level of concentration.
With a much higher capitalisation base, the Nigerian banking sector will be expected to play an important role in financing economic development through increased credit to the private sector. On July 6, 2004, the governor of Central Bank of Nigeria (CBN), Charles Soludo gave a directive to banks to increase their capital base from N2 billion to N25 billion or have their banking licenses withdrawn after December 31, 2005. This was coming less than six months of being appointed the CBN governor. Mr Soludo was forcing the weak and fragmented industry to consolidate; this he believes will "result in a stronger banking system that plays a more active role in economic development" . Since very few banks have such capital base, he suggested mergers and acquisitions as a strategy to surmount the challenge within the 18-month time frame. This means that banks will have to integrate their activities and operations, a process that will continue over a long period of time. (Soludo C, 2008)
Porter's 5 Forces Analysis
One of the most common methods of analyzing an industry is by the use of Porter’s Five-Forces Analysis. The five-forces framework provides a way to assess the current status of an industry as well as the likely evolution of that industry. The five forces include the threat of new entrants, power of suppliers,...