IMPACT OF FOREIGN
EXCHANGE CONTROL ON BANK PERFORMANCE IN NIGERIA
( A CASE STUDY OF FIRST BANK OF NIGERIA)
BY
A
RESEARCH PROJECT SUBMITTED TO THE
DEPARTMENT OF ACCOUNTING FACULTY OF EDUCATION, EKITI STATE UNIVERSITY, ADO EKITI.
IN
PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR
OF SCIENCE (ED) IN ACCOUNTING
DECEMBER,
2017
CERTIFICATION
This
is to certify that this study was carried out under my supervision by Mr. Akano
and has been approved as meeting the requirements of the faculty of Education,
Department of Accounting, University of Ado-Ekiti Nigeria.
`
________________ _______________
Mr.
Akano K. Date
Supervisor
________________ _______________
Mr.
Adebosin W.G Date
________________ _______________
Dr.
O.A. Viatonu Date
Directorate of Degree Programmes
________________ _______________
External
Examiner Date
ii
DEDICATION
This research work is dedicated to God
the Almighty for His grace, strength, the ability and most importantly the
direction during my period of study.
Also,
in memory of my late father, Mr. Ekpe. May his soul rest in perfect peace
(Amen).
iii
ACKNOWLEDGEMENTS
I
express enormous appreciation to Almighty God, the protector for spearing my
life and making my degree programme a successful one. Am very grateful and
appreciative of those who contributed in no small measure either directly or
indirectly to the successful completion of the research project.
Firstly,
I thank my supervisor, Mr. Akano for his support and good suggestion, fatherly
advice, and kindness in reading this paper before final presentation. Kudos to
you sir, Heaven is your reward.
I
also appreciate my departmental lecturers Mr Adebosin W.G, Mr Ayanwole A.A, Mr
Oyewole, Mr Oluwo, Mr Adeyemi A.P etc for their love, reasonable advice, sound
academic, moral teaching and assistance.
Heartily,
I appreciate my parent, Mrs Ekpe Rosemary Ginka for her full support in the success
of my education, an enormous thanks to you (mum). I pray you will eat the fruit
of your labour.
My
sincere appreciation goes to my elder brother, Adebola Ogunlana, a great thanks
to you sir for your moral advice and correction and unending support toward my
educational career.
My
special thanks goes to my closest friends; David Eucharia, Alelamole Precious,
Tunde, Ebunu Blessing for their support and assistance toward my education.
I
will not forget to appreciate my hostel mates; Akpan Nsikak, Oguntunwase
Oluwabunmi, Adigun, Kemi, Wunmi, Dami, Lolade, Tilewa and Biggy,
I
also appreciate the efforts of Omotoprecious Ventures in the typesetting of
this research study.
iv
ABSTRACT
The objective of this study was to establish the
control and implication of foreign exchange transaction on bank performance in
Nigeria using First Bank Plc as a case study. To achieve this, the study was
analyzed in five chapters. It made use of both primary and secondary data
obtained from articles, journals, magazines of First Bank Plc. To data was
analyzed using both descriptive inferential statistics such as questionnaires.
The study revealed that most of the banks in the Nigeria have related problem
in control which has heavy implications on foreign exchange transaction. The
study provided empirical evidence to support that foreign exchange transaction
has impact on banks net earnings in Nigeria.
v
TABLE OF CONTENT
TITLE PAGE
CERTIFICATION
DEDICATION
ACKNOWLEDGEMENT
ABSTRACT
TABLE OF CONTENT
CHAPTER
ONE: INTRODUCTION
1.1 background
to the study 1
1.2 statement
of the problem 5
1.3 Scope
and Limitation of the Study 5
1.4 Research
Questions 6
1.5 research
Hypotheses 6
1.6 significance
of the study 7
1.7 Definition
of Terms 7
CHAPTER
TWO: LITERATURE REVIEW
2.1 Introduction 9
2.2 Capital
Market and Economic Growth 19
2.3 Conceptual
Framework 31
2.4 Empirical
Framework 35
vi
2.5 The
measure and Types of Banking Risk 41
2.6 Exchange
Rates 44
2.7 empirical
framework 25
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1 Research
design 48
3.2
Population of the Study 48
3.3 Sample
and sampling techniques 49
3.4 Sources
of Data Collected 49
3.5 Research
Instrument 50
CHAPTER
FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Returns
of Questionnaire 51
4.2 Data
Presentation 51
CHAPTER
FIVE: SUMMARY OF FINDINGS, CONCLUSIONS AND RECOMMENDATION
5.1 summary
of Findings 65
5.2 conclusions 65
5.3 recommendations 66
REFERENCES 68
vii
APPENDIX
I 72
APPENDIX II 74
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
Foreign can be defined as the means of
payment for international transaction. Foreign exchange is a monetary asset
used on a daily basis to settle international transaction and to finance deficit
in a country’s balance of payments. It is therefore a very important of a
country’s stock of external reserves.
Foreign exchange market is the medium
of interaction between the sellers and the buyers of foreign exchange in a bid
to negotiate a mutually acceptable \price for the settlement of international
transactions. It is made up of obligation lawfully entered into. Since currencies
include those of the group of seven industrialized countries comprising the
United States (Dollars), British (Pounds Sterling), Deutsche (Mark), Japanese
(Yen), French (Franc), Italian (Lira), and Canadian (Dollar). The role of
banking industry towards the economic growth and development of a particular
country cannot be overemphasized. This is obviously reflected in its functions
as an asset of financial intermediation between savers and borrowers of
investible fund. Banking in Nigeria is more than a century old now, with the
earliest indigenous bank being the First Bank of Nigeria PLC established in
1984. One major function that has greatly contributed to the relative
importance of the notable industry is its ability to make investible fund
available to the customers. In Dr. Herber Hurt’s book, law of banking, he
defined bank as a person or company carrying on the business of receiving
monies and collecting draft from time to time by customers to the extent of the
amount available in their current account. The Nigeria Banking Act of 1969
(herein after referred to in the Chapter as the Act) adopted the same approach
when in its section 41, it defined a bank as any person who carries on banking
business and include commercial bank, discount houses and merchant banks. The
same section include the receiving of monies from outside sources as deposit
irrespective of the payment of interest of thr granting of money loans
securities for account and others of the incurring of the obligation to acquire
claims in respects of loans on the assumption of guarantees and other
warranties for others or the effecting of transfer and clearing and such other
transactions a s commissioner may, on th recommendation of Central Bank by
other published in the gazette, designated as banking business.
FIRST
Bank of Nigeria Plc, is a full banking group, headquarter in Lagos, Nigeria
with the vision to be the premier financial service group of Africa origin. From
it early origin in investment banking a at securities limited in 1977, First
Bank of Nigeria established in 1980, has emerged as one of the leading
financial services institution in Nigeria and one of the top eight leaders in
the country with subsidiaries that are market leaders in their respective
limited liability company on 20th April 1983. On 15th
July 2004, the bank changed its status from a private limited liability company
to a public limited liability company and was listed on the Nigeria stock
exchange. By introduction, on 21st December 2004, as at assets, 2000
employess over 270 branches in Nigeria had a licensed banking subsidiary in the
United Kingdom First Bank of Nigeria UK and a representative office in the
republic of South Africa. It was the first Bank to be established in Nigeria
without government or foreign support. On 15th july 2004, First Bank
of Nigeria changed its status from a private limited liability company was listed
on the Nigeria stock exchange (NSE) by introduction on 21st December
2004. The bank started as a merchant bank lending among the top two until it
converted to a universal bank in 2001. First Bank of Nigeria Plc shares were
listed on the Nigeria stock exchange by 2004 and afterwards successfully raised
additional capital in excess of 20 billion through private and public offers.
First Bank of Nigeria also has subsidiary called First Bank of Nigeria capital
markets which is an investment bank with a good history of serving the
financial need of the government and other clients. The entity from which the
bank was founded city securities limited, which was established in 1977 First
Bank of Nigeria PLC was in corporation as a private limited liability company
on 20 April 1982 and granted banking license on 11th of August 1983.
It was the first bank to be established in Nigeria without government or
foreign support on 15th July 2004, FBN changed its status from
private limited liability company to public limited liability company and was
listed on the Nigeria stock exchange (NSE) by introduction on 21st
December 2004. In November 2010, both first bank and first city monument bank
announced that First Bank of Nigeria has expressed interest in acquiring
shareholding and became the strategic investor in first city monument bank;
another Nigerian commercial bank that was undercapitalized in February 2012,
following regulatory approval FBN acquired 100% shareholding and began
integration of FCMB in its existing operation. FBN is a large financial
services provider in Nigeria offering retail banking, corporate banking and
investment banking services to large corporations, small and medium scale
enterprises, as well as individual. First Bank of Nigeria has a number of active
non-bank subsidiaries, which together with the bank, form the first Bank group
member of the group. same section include the receiving of monies from outside
sources as deposit irrespective of the payment of interest of the granting of
money loans, securities for account and others of the incurring of the
obligation to acquire claims in respects of loans prior to the assumption of
guarantees and other warranties for others or the effecting of transfer and
clearing and such other r\transactions as commissioner may, on the
recommendation of Central Bank by other published in the Gazette as banking
business.
1.2 STATEMENT OF THE PROBLEM
Nigeria suffers from the preliminaries
of foreign exchange shortage and a constantly depreciating naira and all sort
of share practice by players in the foreign exchange market. Several time the
federal government resorted to dipping into the foreign reserve to bridge the
gap between demand and supply. Yet government has experimented with different
foreign exchange system from the second tier foreign exchange market (SFEM)
used during the Babaginda era to the current Dutch Auction system (DAS) being
used now.
1.3 SCOPE AND LIMITATION OF THE STUDY
This study is intended to determine
the impact of foreign exchange as a strategy for banks survival in a depressed
economy.
The study covers foreign exchange
transaction control on bank performance in Nigeria with a case study of First
Bank of Nigeria. The major constraint of this research work is time and
finances.
1.4 RESEARCH QUESTION
i. What are the roles of the
foreign exchange market operation in implementing foreign exchange regulation?
ii. To what extent has
policies on foreign exchange control enhanced the stability of the Nigerian economy?
1.5 RESEARCH HYPOTHESIS
Hypotheses are tentative statements that
need to be tested for rejection or acceptance and it is divided into null
hypothesis (H0) and alternative Hypothesis (H1).
H01: Foreign exchange transactions have no significant impact
on the earning of Nigerian banks.
Ha1: Foreign exchange
transaction has significant impact on the earning of Nigerian banks.
Ho2: Foreign Exchange policy control has no significant effect
on the stability of the Nigerian Economy
Ha2: Foreign Exchange
policy control has significant effect on the stability of the Nigerian Economy
1.6 SIGNIFICANCE OF THE STUDY
The findings of this study
will throw more light into some confusing issues about foreign exchange
transaction in the banking industry. The aftermaths of this study will disclose
the practicality and the adoptability of foreign exchange transaction and
control in Nigeria.
1.7 DEFINITION OF TERMS
I. Foreign exchange: It is the operation
carried out in currency other than the country own base currency.
ii. Research: It is the systematic
investigation and study of material source etc in order to establish facts and
reach conclusion.
iii. Money: It is anything which is generally
acceptable in exchange for goods and services or in settlement of debts.
iv. Exchange Control: It includes Government
measure which result in interference with the normal force of supply and demand
for foreign exchange.
v. currency: it is the note and coins issued
by the central bank of a country or issued for the country as a legal tender.
vi. Exchange rate: It is a rate at which a
country “A” will thus have to exchange part of his product for part of country
“B” services.
vii. Foreign exchange market: It is a medium of
interaction between the sellers and buyers of foreign exchange in a bid to negotiate
a multiculinary acceptance price for the settlement of international
transactions.
vii. Black Market: The illegal business of
buying and selling of currency in violation of restriction such as price
controls or rationing.
viii. Second tier foreign exchange market: it is
the determination of the naira exchange rate and allocation of foreign exchange
which is based on market forces.
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