1.1BACKGROUND OF THE STUDY
The Nigerian banking system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as depth and breadth of operations. These changes have been influenced largely by challenges posed by deregulation of the financial sector, globalization of operations, technological innovations and adoption of supervisory and prudential requirements that conform to international standards (Elumelu, 2005) As at the end of June, 2004, there were 89 deposit money banks operating in the country, comprising institutions of various sizes and degrees of soundness. Structurally, the banking sector was highly concentrated, as the ten largest banks accounted for about 50 percent of the industry’s total assets and liabilities. Most banks in Nigeria had a capitalization of less than $10 million. Even the largest bank in Nigeria had a capital base of about US$240 million compared to US$526 million for the smallest bank in Malaysia. The small size of most of the banks, each with expensive headquarters, separate investment in software and hardware, heavy fixed costs and operating expenses, and with bunching of branches in few commercial centres lead to very high average cost for the industry. This in turn had implications for the cost of intermediation, the spread between deposit and lending rates, and puts undue pressures on banks to engage in sharp practices as means of survival (Soludo, 2004). At the same time, a lot of structural reforms were observed in the Nigerian banking market. First in the pre-Soludo era of Sanusi, there were a number of significant bank closures, takeover of management and control by the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) as well as an ongoing process of partial consolidation (see Table 1.1.1). Charles Soludo (CBN Governor) announced a consolidation plan designed to reform and grow capacity in the Nigerian banking industry in July 2004. The implementation of this consolidation plan brought to an end the kind of banking services rendered by the first generation banks known as “armchair” banking which is premised on the belief that customers will keep on coming irrespective of quality and quantity of services. Table 1.1.1Structural characteristics of the Banking Industry
YearNo. of banksNo. of branchesNew bank entriesBank closuresConsolidated (Partial)CRDCRA
CRD: Deposit concentration ratio
CRA: Asset concentration ratio
Source: NDIC Quarterly, Vol. 7 March, No. 1 pp 53-57
Pressure of the Soludo consolidation reforms and other factors such as globalization, deregulation and rapidly changing technology has made it necessary for banks that want to survive to re-examine their service and delivery systems in order to be well positioned within the framework of the dictates of the dynamism of Information and Communications Technology.
Banks now began to institute an ICT-driven culture, aimed at being competitive in today’s globalizing world. Woherem (2004) states that the breakthrough in Information and Communications Technology brought about by the advent of the computer began to witness a great deal of success when deliberate efforts were made to apply it to commercial transactions especially in the banking industry. Its application continues to change the way banks and their corporate relationships are organized worldwide. Information and Communications Technology has been considered as an important part of a firm’s effort to sustain competitive advantage or competitive parity based on the assumption that it adds...