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CORPORATE GOVERNANCE PRACTICE IN THE NIGERIAN BANKING SECTOR

CHAPTER ONE

INTRODUCTION

1.1   BACKGROUND TO STUDY

There has been renewed interest in the corporate governance practices of modern corporations since 2001, particularly due to the high profile collapses of a number of large U.S firms such as Enron Corporation and World Com. the existence of corporate governance is as long as entities exist. Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals through mechanisms that try to reduce or eliminate the principal-agent problem. Corporate is derived from the word ‘corporation’ which is defined by the Oxford Advanced Learners’ Dictionary as ‘a group of people having authority to operate in a single unit with a separate legal existence’. However, the corporate body even though it is legally authorized to act, is incapacitated. Consequently, its acts have to be delegated to human beings who could be regarded as governors or managers. Governance is an act of governing. It then follows that corporate governance is concerned with ways in which all parties interested in the well-being of the firm (stakeholders) attempt to ensure that managers take measures or adopt mechanisms that safeguards the interest of the stakeholders.

Corporate governance regulates the contractual relationship between stakeholder groups, in particular, the principal-agent relationship between shareholders and management. In a paper presented at a conference on corporate governance in Accra, Ghana, Oyejide and Sayibo (2001) opined that managers in some unforeseen circumstances assume contingent control that produce them with potentials to operate against investors best interest and as such conceal some pieces of information from external investors. This therefore calls for corporate governance in order to align the interest of the managers with that of the stakeholders. As reported by the Central Bank of Nigeria in code of Corporate Governance for Banks in Nigeria (2006: 1), “specifically for financial sector, poor corporate governance was identified as one of the major factors in virtually all known instances of a financial institution’s distress in the country”. Banking in Nigeria cannot function as well if there is no sound corporate governance practice, consequently, this research is done in order to assist the banking sector in promoting the adoption of sound corporate governance in Nigeria. Recognizing that different structural approaches to corporate governance exists across countries, this research encourage practices, which can strengthen corporate governance under diverse structures.

1.2   STATEMENT OF THE PROBLEM

Banking supervision cannot function as well if sound corporate governance practice is not in place and consequently, banking supervisors have a strong interest in ensuring that there is efficient, transparent and effective corporate governance at every banking sector. There is need for banks to set strategies for their operations and establish accountability for executing these strategies. Corporate governance structure spells out the rules which directly affects the performance of a bank by having effect on the managing and technical effectiveness of the bank. Therefore, through influence on bank decisions and plans with regards to innovations, markets and output, the governance arrangements should have an impact on the performance of banks. Consequently, an attempt is made in this work to proffer solutions to the following research questions: Does corporate governance intend to improve banks efficiency, effectiveness and transparency? Corporate governance practices intend to increase banks investors and stakeholders? Does corporate governance have any link with the performance of banks in Nigeria? Should other stakeholders, such as customers and employees have a say concerning corporate governance?

1.3   OBJECTIVES OF STUDY

Corporate governance of banks would build up the trust and confidence of both local and foreign investors and also attract long-term capital. To benefit maximally from capital markets, globally, good governance practices must be put in place.

However, the basic objectives of this study are:

To determine the extent to which corporate governance practice affects the Nigerian banking sector.

To ascertain to what extent corporate governance practices has helped to reduce risk and promote performance in the Nigerian banking sector.

To determine whether the shareholders or owners of the banking business are informed of corporate governance developments or practices that affect the banking sectors.

To determine the extent to which corporate governance has helped to prevent systemic crisis in the Nigerian banking sector.

To find out if the banking sector is efficiently and effectively managed due to corporate governance practices.

1.4   SCOPE OF STUDY

The scope emphasizes the spread of the study. The study is centered on examining the role of corporate governance practices in the Nigerian banking sector. The study is intended to cover all banks across the country but will however be restricted to 1 bank in Edo State (Benin City) United Bank of Africa Plc.

1.5   RELEVANCE OF STUDY

Corporate governance is the mechanism by which individuals are motivated to align their behaviour with overall corporate goals. The benefits to be derived from corporate governance in the Nigerian banking sector cannot be overemphasized and thus this study could serve as a suggestion to Nigerian banks that they can improve their bank performance through a determined effort to improve their corporate governance. This study could also help in the enlightenment of existing and potential investors of matters concerning corporate governance of banks in Nigeria. It will afford the general public an insight into the importance of effective and transparent corporate governance practices. Also, this research would serve as an addition to the existing materials on corporate governance practices in the Nigerian banking sector. Lastly, this research will enable students to gain proper understanding of corporate governance in the Nigerian banking sector, thereby increasing and improving the awareness and knowledge of students.

1.6   HYPOTHESES OF STUDY

Hypothesis is an indispensable research tool which provides the relationship between research problems and location empirical evidence that may provide the solution to the problem, which could either be true or false. Consequently, the use of hypothesis will be employed here in this research work. In each of the hypothesis, we shall have the Null hypothesis represented by H0 and the Alternative hypothesis represented by H1.

The following will be the research hypothesis:

1. H0: Corporate Governance does not help to improve Banks’ efficiency, effectiveness and transparency.

H1: Corporate Governance helps to improve Banks’ efficiency, effectiveness and transparency.

2. H0: Corporate Governance does not help to increase Banks’ investors and stakeholders.

H1: Corporate Governance helps to increase Banks’ investors and stakeholders.

3. H0: There is no link between Corporate Governance and performance of Banks’ in Nigeria.

H1: There is a link between Corporate Governance and performance of banks in Nigeria.

1.7  LIMITATION OF STUDY

Co-operation from respondents to supply enough information in the questionnaire created problem of inadequate data for analysis. Inadequate resources was also a limitating factor as a result of the fact that ethics is a guide for behaviour and a set of principles that govern the operation of a bank and thus information released to the researcher were not in detailed form. Lack of funds and time was also a limitation and as a result the geographical coverage of the research was restricted to Edo State (Benin City).

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