Factors affecting competition in the commercial banking industry in Nigeria

Complete chapter one


The main objective of this study is to determine the factors that affect competition in commercial banks. Competition as a market situation which holds where there are a large number of business firms that are capable of supplying the same or similar services (McKenna and Eleming, 1995).
A subsidiary objective for this study was on the effect of environmental factor on competition in commercial banks, the effect of financial factor on competition in commercial banks and the effect of customer service on competition in commercial banks. Based on this subsidiary objectives, a questionnaire was developed and a total of 60 respondents were administered the questionnaires. 58 respondents of a total of 60 agreed that environmental factor affects competition in commercial banks, 59 respondents of the total respondents was of the opinion that financial factor affects competition in commercial banks and 60 respondents of the total agreed with customer service as a factor that affects competition in commercial banks with percentages of total respondents of 96.7%, 98.3% and 100% respectively for Yes.
However, it was observed that these factors that affect competition in commercial banks are independent of each other, based on the findings from respondents and data collection.

Title Page i
Declaration ii
Certification iii
Dedication iv
Acknowledgement v
Abstract vi
Table of Contents vii – ix
1.1 Background of the Study 1
1.2 Statement of Research Problem 4
1.3 The objective of the Study 5
1.4 Research Questions 6
1.5 Significance of the Study 6
1.6 Research Hypotheses 7
1.7 Scope of the Study 7
1.8 Limitation of the Study 8
2.1 Introduction 10
2.2 An Overview of Commercial Banking Industry in
Nigeria 10
Environmental Factors as it affect competition
Commercial banks 15
Financial factors affecting competition in commercial
Bank (assets and liabilities, loan and advances) 25
2.5 Customer Service 29
2.6 Theoretical Framework 42

Introduction 50
Research Design 50
3.3 Population & Sampling 50
3.4 Operationalization & Measurement of variables 51
3.5 Sources of data 52
3.6 Data analysis 52
3.7 Description of Data Analysis 53
4.1 Introduction 56
Data Presentation and Analysis 56
Cross Tabulated Analysis 63
Introduction 69
Summary of Findings 69
Discussion of Findings 70
Conclusion 72
Recommendations 72
Bibliography 73
Appendix (Questionnaire) 76
The name bank is derived from the Italian word banco desk/bench used during the renaissance by Florentine bankers who used to make this transaction above desk covered by a green table cloth. However, there are traces of banking activities even in ancient time.
In fact, the word traces its origin back to the ancient Roman Empire, where money lenders would set up their stalls in the middle of enclosed country and called macella on a long bench called bancu, from which the word banco and bank are derived.
Mckenna & Fleming (1995) described competition as a market condition which exist when there are large number of business enterprise, all able to supply the same or similar products or service to a large number of purchase/buyers.
In this last decade there has been a high competition within the banking industry in Nigeria, with the licensing and establishment of more banks bringing the total number of commercial and merchant bank in the country to about eight – seven , there has been high tendency for various banks in the industry to fend for themselves for survival.
A commercial bank is defined as an establishment which accepts deposit from customers that are prepared which loans an advances and general financial business concerning all forms of trade are made. Examples of such trade are retail, wholesale, import and export trade.
The 1991 banking decree defines a commercial bank as any institution which carries out banking business in Nigeria, which includes a commercial bank, a discount house, financial institution and an acceptance house. (Federal Republic of Nigeria 1991).
The commercial banking industry in Nigeria has been positively affected by competition. In attempt by commercial banks to fend for themselves many method have been adopted to improve corporate efficiency and maximize profit. This method led the Nigeria banking into scientific approach and investigation into better ways to achieve corporate goals and objective. Some suggested method includes expansion of existing operational facilities to area of wider market, Improving corporate efficiency, diversification of port-folio and investment banking, appropriate marketing, application of combined branch and little degree of unitary banking, good publicity, employment and development of capable staff and carrying out research for onward positive development and growth.
Also each day competition in the industry is heightened by emergence of new brand in commercial banks, many of the older commercial banks have been force to change in their operation due to the competition. It is interesting to watch older commercial banks paying as much as 14 – 19% same deposit before the 1986 deregulation in the commercial banking industry has been highly regulated. Economic regulation in general, embraces controls which government imposes on economic and business activities reaching the maximum regulation. The government can be said in participating in some non-traditional public sectors activities in order to foster competition and improve economic Efficiency. When regulation fails as it often does the process of deregulation is inevitable begins in a bid to avoid collapsed whole systems.
Economic deregulation is defined as deliberate and systematic removal of regulating controls. Structure and operational guideline in the administration and pricing system in the economy. The underlined philosophy of the deregulation of an economy or its component segment is the belief that factors of production, good services are optimally priced and allocated when their prices are freely determined in a competitive environment. The aim of the study is to determine four factors affecting competition in the commercial banking industry in Nigeria.
The relevance of commercial bank in the economy of any nation cannot be over emphasized.
They are the cornerstone, the linchpin of the economy of a country.
The financial deregulation in Nigeria started in 1987 and the associated financial innovation have generated an unprecedented degree of competition in the banking industry. The deregulation initially pivoted powerful incentives for the expansion of both size and number of banking and non-banking institutions.
The consequent phenomenal increase on the number of banking and non-banking institutions provide financial services which led to increased in competitions among various banking institution and banking and non-banking financial intermediaries. Apart from the competition with the range of financial activities, commercial banks have also faced problem associated with a persistence show down in economic activities, several political instability, virulent inflation, worsening economic financial condition of their corporate borrowers and increased incidence of fraud and embezzlement of funds. All these factors of deregulation, competition , innovation, economic recession political, instability escalating inflation and frequent reversal in monetary policy hence combined to create a challenging and precautions financial environment for banks. Consequent of new financial environment has been rapidly dealing profitability of the traditional banking activities. This in a bid to survive and maintain adequate profit level in this highly competitive environment banks have tended to take excessive risk.
But then the increasing tendency for greater risk taking has resulted to insolating and failure of a large number of banks. Hence the sole aim of the study is to determine how some of these factors affect commercial banking industry either positively or negatively.
The main objective of the study is to determine the factors that affect competition in commercial banking industry.
The other objective includes:
To determine how financial factors affect competition in commercial banking industry.
To determine how the environment affect competition in commercial baking industry.
To determine how customers services affect competition in commercial bank.
To determine the characteristics relevant to the banking industry in a perfectly competition market.

The Research work then attempt to answer the following research questions.
Can we determine the factors that affect competition in the commercial banking industry.
Can we determine how environment affects competition in the banking industry,
Can we correlate the number of commercial banks and each of the financial functions namely: deposit, total assets, loan and advances that affect competition in commercial banks.
Can we determine how customers service affect competition in the banking industry.
This study is significant because of the following reasons.
It will generate information in the new millennium on environment, customer service, financial and marketing factors that will make commercial banks in Nigeria to cope well with the competition.
It will provide information in the various factions of competition as it would be useful to economic policy makers bank managers and financial institution, management, banking and finance
It will be useful to the public in general
Ho: There are competition factors affecting commercial banks.
H1: There are no competition factors in commercial banks.
Ho: There are environmental factors in competition of commercial banks.
H1: There are no environmental factors in commercial banks.
Ho: There are financial factors affecting competition in commercial bank.
H1: There are no financial factors in commercial banks.
Ho: Customer services affect competition in commercial banks.
H1: Customer services do not affect competition in commercial banks.
This research work is to be structured in five Chapters as follows:
An overview of commercial banking industry in Nigeria
Research Methodology
Data presentation and analysis of data
Summary of findings, conclusion and recommendation.

The use of the secondary data has the limitation that the data may be obsolete or it is unit of analysis may be different from one used in the study. Also because the researcher is not the original collector of the data any mistake, colouring or brake may not be discovered by the researcher. The cross sectional survey has the limitation that it is one short or almost two shout and as a result it’s capacity for collecting data with which to test the causal relationship of variable is minimized unlike what is the situation when the panel research design is used . Also there is a limitation of an increased unwillingness of the respondent to respond to survey problem,
The questionnaire is limited to the use of verbalized answers to pre-determine question. In the fixed answers formal if a particular answer is missing. This may lead to errors, if a respondent gives his or her answers in a baffling manner there is usually not much that can be done to redress the situation.
The structured and standardized format of the questionnaire may compel the respondent to give answers that they do not fully endorse.
A contain level of education is needed for a respondent to fully understand the questions. There is the limitation that the researcher is not a police man or woman and cannot force the respondent to give answers.
The rigidity of the research instrument may limit the amount of information that can be got. There is also the problem of memory or beyond it when people are expected to remember past facts.
There is also the problem that the respondent may need to be motivated to enable them contribute willingly to the completion of the questionnaire. The assumption that there is uniformity from one interview. There is also the limitation of high cost in the administration of the research instrument especially due to high personnel and travel cost. There are also the limitations of the scarcity of time and money resources.

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