A SURVEY OF NEW FINANCIAL PRODUCTS' EFFICACY IN NIGERIAN COMMERCIAL BANKS
The primary goal of this study was to evaluate the ability of New Financial Products by Commercial Banks in Fund Generalisation or Mobilisation. This study was divided into five chapters to facilitate reading and comprehension.
It also provides insight into the measures, both monetary and fiscal policies, put in place to provide a robust and viable economic foundation for the country's economy.
Other four chapters were generated from this one in order to confirm the facts, recommendations, and conclusions. Though banks have benefited from their innovativeness in product development,
some of these banks have met challenges such as poor communication systems (ie) advertising, weak data bases, and swings in interest rates caused by market forces.
Based on the findings, recommendations have been made to aid in the consolidation of the bank's work in new product development. It is worth noting, however, that the trend in new product development has been a welcome and satisfying development in the financial sector.
1.1 BACKGROUND OF THE STUDY
The 1970s oil boom in Nigeria led to the country's over-reliance on oil as its primary source of revenue, disregarding other areas of the economy and resulting in a mono-product economy. As a result, most of the industries established during this period relied on imported components and raw materials for their operations,
and the increase in oil revenue during the period in question, as well as the structural distortions it engendered, reached crisis proportions in 1986 due to the severe decline in crude oil price that year.
A variety of initiatives were taken by previous governments to address the issue, but these policies failed since the country was based on a mono-product economy that relied heavily on oil exports and disregarded other areas of the economy.
It should also be noted that monetary policies during this time period were planned for short-term crisis control management, but by 1986, the situation had spiralled out of control, necessitating long-term crisis management through the Structural Adjustment Programme (SAP).
The policy was to facilitate the attainment of lost objectives and to correct various distortions in the economy. (SAP) sought to correct the distortion and imbalance inherent in the economy over a two-year period by de-emphasizing the country's unhealthy reliance on oil as its main source of revenue.
The banks were designated as the primary channel via which the SAP and second-tier foreign exchange market (SFEM) objectives could be realised, resulting in extraordinary expansion in the Nigerian financial industry.
SAP purchased all of the cumbersome administrative bottlenecks, encouraging dependence on market forces in all sectors of the national economy.
The financial sector, which is critical to progress and development, was given leeway and encouragement to expand. This was done in order to stimulate competitiveness, notably in the areas of credit expansion and general economic well-being.
Prior to this period, banking institutions were characterised by armchair banking, and true to their conservative tradition, inherited the clearing banks of London, made modest effort,
offered limited traditional product rate of growth, and in order to this, deregulation has permanently changed the face of the banking industry, and has been characterised by a number of developments that sparked off stiff competition among banks that were the principal actors in the fo
Because of the high volume of transactions, outside investors were encouraged to invest in the industry, and there was a corresponding proliferation of applications for banking licences, which resulted in the registration of many new banks in the economy, which was a welcome development.
With the new emergence of various bank registrations, all of the old grant banks that monopolised the market had to be vigilant and ready to scramble for resources that were previously taken for granted.
This resulted in constant movement of workers, management, and boards in and out, new banks starting virtually every day, frequently destabilising boardroom conflicts, possible guidance, and regular changes in regulation by the Central Bank of Nigeria.
The general liberalisation allowed banks to undertake a lot more business, and the distinction between merchant and commercial banking became increasingly blurred. Other subsequent issues are guidelines such as the increase in the statutory deposit of banks (N25 billion recapitalization) at the CBN,
rough cash and liquid ratios, abolition of foreign guarantees as collateral for naira denominated loan, stabilisation securities, increase in capital adequacy ratio, and the prevention guidelines, which added to the aggravation and cash squeeze, thereby tightening the already tight competition.
Aside from rivalry between banks and individuals, the industry as a whole has been competing with non-bank financial institutions, which have now become equivalent to those supplied by commercial banks.
Due to the competitive climate, banks have been scrambling for deposits, which serve as the primary raw materials for their operations.
Banks have traditionally served as a mediator between savers and investors, mobilising deposits from the surplus sector, which is comprised of persons with numerous investment ideas that require more funds than they have.
They also serve as a stimulus for capital formation, which is viewed as the primary policy determining the rate of economic growth and self-sufficiency. Furthermore, they have a critical and sensitive position in accelerating the growth of other units in the system.
The impact of greater bank licencing, monetary measures, and deregulation is that banks are obliged to hunt for other avenues for deposit, resulting in the need to create new financial products to acquire more clients and build deposit base in order to survive the remainder of time.
The increase in the amount of financial products supplied by banks has been one of the most noticeable developments in the sector over the years, and it has been linked to system deregulation in the aftermath of SAP.
Weekend services, farmers guide to agricultural lending vigour, money transfer, western union money transfer, value card, smart card, UBA save for school, UBA money gramme,
Diamond paycard are among the products that have grown to a far reaching competitive level, and many more are yet to come. All of these items were launched as a result of increased competition in the environment to help commercial banks survive the difficult scenario.
1.2 STATEMENT OF THE PROBLEM
The climate in which commercial banks operate is a direct effect of the financial sector growth in the number of commercial banks and deregulation of the Nigerian economy's financial sector.
Banks and non-bank financial institutions are competing fiercely; it is now survival of the fittest. There is more competition for deposits now than ever before, because deposits are the primary raw materials for their operations.
Since 1988, a slew of new financial products have been created in the banking industry to alleviate customers' fears of losing their money to fraudsters who make their way into the industry. Banks must awaken from their slumber by devising measures that will allow them to withstand the test of time.
It would be necessary to lift a few of the regulatory measures that have shaped the industry and lengthened the competitive stake. These measures include the CBN's series of direct measures to mop up excess liquidity, sectoral credit allocation guidelines, interest payment on current accounts, and foreign exchange allocation.
There were, of course, a large number of commercial banks and financial institutions in the country, each of which should distinguish itself from others in order to plan for this. The first was to accept that the business environment had changed and would continue to change with the century
, and that only institutions capable and willing to make difficult decisions and sacrifices in order to become flexible, efficient, and productive would survive. Another factor that boosted competition was the expansion of the areas in which banks could operate.
The general deregulation enabled banks to undertake a lot more business, and the boundary between merchant and commercial banking became increasingly blurred. Other subsequent issues at the guideline, such as an increase in banks' statutory deposits to the CBN, a high cash and liquidity ratio,
the absolution of foreign guarantees as collateral for naira denominated loans, stabilisation securities, an increase in capital adequacy ratio, and the prudential guideline, exacerbated the cash squeeze, tightening the already tight competition.
In addition to competition between banks and individuals, the sector as a whole has been competing with non-bank financial intermediaries (NBFI).
As a result of this development, non-bank financial institutions' services have now become comparable to those supplied by commercial banks. Due to the competitive climate, banks have been scrambling for deposits, which serve as the primary raw material for their operations.
Banks have traditionally served as a mediator between savers and investors, mobilising deposits from the surplus sector, which consists of people with several investment ideas that require more capital than they have.
They also serve as a catalyst for capital formation, which is recognised as the most important factor influencing the rate of economic growth and self-sufficiency.
Furthermore, they have a very sensitive position in hastening the development of other units in the system by Nigerian banks into the money market.
The issue is determining if these new financial products efficiently mobilised deposits for banks while also benefiting depositors. The goal of this effort is to find the correct solutions to the problems mentioned above.
1.3 OBJECTIVES OF THE STUDY
(1) To recognise the various forms of new commercial bank financial products.
(2) To ascertain the degree of responsiveness of these products' depositors.
(3) Determine the extent to which these financial products have contributed to bank profit generation.
(4) Determine the elements that influence the use of these new items.
(5) To assess the market potential for existing instruments as well as the feasibility of introducing new ones.
(6) To propose recommendations that will assist commercial banks in resolving the issues impeding the development of these new financial products.
1.4 RESEARCH QUESTIONS
1. What are the numerous forms of new commercial bank financial products?
2. What is the level of receptivity of depositors to these products?
3. How much have these financial products contributed to bank profit generation?
4. What variables influence the adoption of these new products?
5. What are the prospects for existing instruments, as well as the potential of new ones entering the market?
6. What are the advice that could help commercial banks overcome the obstacles to the development of these new financial products?
1.5 RESEARCH HYPOTHESIS
(1) Ho: There is no discernible level of response.
Customers are drawn to these products because of their high quality.
Hello: There is a great level of responsiveness of
the depositors to these things.
(2) Ho: No financial products have been donated.
Bank profit creation is significantly impacted.
Hello: These financial instruments have helped to
Bank profit creation is significantly impacted.
(3) Ho: Poor communication is a factor that influences
utilisation of these new items.
Hello: Poor communication is not a factor that influences
the use of these innovative items.
1.6 significance OF THE STUDY
The study is noteworthy since several products have been introduced and more are planned to enter the market as the government continues its attempts to bring sanity and restore depositor confidence in the banking industry (lost confidence).
It is critical to the operations of the banking industry because it allows them to assess the degree of success of their newly developed products and identify unprofitable ones and phase them out of the market, redesign them for greater impact, or concentrate effect on effective productions.
It will also serve as a first information source for new comers in the Banking industry and those planning to develop some, in determining their targets in finance. Students and researchers interested in the field of banking and finance will benefit from the opposition.
1.7 DEFINITION OF TERMS
(1) Profitability: This necessitates that assets be employed in the most profitable way possible. To achieve this goal, all of the bank's assets should be placed exclusively where they would yield the most interest.
(2) Prudential Guidelines: These are some of the monetary measures implemented by the CBN to bring order to banking operations and the performance reporting system.
Essentially, prudential requirements compel all banks to categorise their loan portfolios as performing or non-performing in order to demonstrate their effectiveness.
(3) Fraudsters:- Fraud in the banking industry is defined as a conscious or deliberate effort aimed at obtaining an unlawful financial advantage at the expense of another person who is the rightful owner of the fund (Orji 1998),
whereas the fraudster is the person who specialises in deceiving and obtaining through tricks of which the banking industry is an example. The entire issue revolves around the bank's depositors.
(4) Liquidity: A bank must be able to pay cash instantly when called upon to do so for all of its demand liabilities.
(5) Corporate Profits: This is the monetary equivalent of organisational performance. In other terms, it is the bank's net profit.
(6) Financial Products: These are products (innovations) introduced to facilitate financial market transactions, hence raising their degree of activity. Western Union transfer, UBA money gramme, smart card, and more goods are available.
(7) New Financial Product: These are new products that have recently been created in the banking industry to improve their operating level.