AN ASSESSMENT OF GOVERNMENT PALLIATIVE MEASURES IN THE BANKING SECTOR DURING AND AFTER THE 2008 GLOBAL FINANCIAL CRISIS

AN ASSESSMENT OF GOVERNMENT PALLIATIVE MEASURES IN THE BANKING SECTOR DURING AND AFTER THE 2008 GLOBAL FINANCIAL CRISIS

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ABSTRACT

This study attempts to investigate the effectiveness of the government palliatives during and after the 2008 global financial crisis in sustaining the survival of banks in Nigeria and by extension the Nigerian economy. The study is a longitudinal survey design with tine series variables. A panel data between 2006 and 2015 from secondary source were used and analyzed with valid and reliable statistical tools- Tables, Graphs- Line & Scatter, Least Squares- Ordinary & Multiple and Pearson’s Pair-Wise Correlation were used in analyzing our data. The study was able to show that the survival of banks in Nigeria was really threatened as NPLs soared exponentially while CAR crumbled steadily, the capital markets collapsed as a result of capital flights, equity mop up as well as crumbling GDP. The study equally revealed a weak risk assets management by banks. However, the study concludes that these palliatives anchored by the CBN & AMCON were very impactful. Enhanced due diligence and profound oversight roles by regulatory bodies are however recommended in forestalling future reoccurrence.

Keywords: Corporate survival, gdp, global financial crisis, npl, palliative measures.

INTRODUCTION

The most recent financial crisis has been extensively discussed both in academic and corporate fora because of its perceived impact on ordinary citizens of the affected nations. Its threats to the survival of organizations make it even more worrisome. As a matter of fact, every economy integrated in the chain of international business network was not spared by the financial crisis (Sanni, 2014). Since survival, based on conventional accounting theory, should be a critical

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objective of an organization, the race for survival begins as every nation and organization cannot afford to sacrifice their existence at whatever costs (Sanni, 2014).

It is widely believed that the financial crisis originated from the US due to a policy error which led

to unrestricted access of low income earners to mortgage finance (Sere-Ejembi, 2008). Obadan

(2010) argues that the spread of the crisis worldwide was due to the linkages of the world economy

arising from economic globalization. This financial crisis in the US in the summer of 2007

transformed into full blown global financial meltdown in 2008 (Atuche, 2009).

Although many sectors of every economy were affected, financial sectors took the centre stage

comprising both banks and non-banks institution. Nigeria was obviously hit by the crisis because

the banking subsector accounts for 90% of Nigeria’s financial assets (Abdullahi & Obiechina,

2009; Soludo, 2009) and 65% of the total market capitalization of the Nigerian Stock Exchange

(Abdullahi & Obiechina, 2009). According to AMCON (2013), financial sector still accounts for

77% of listed Equities Portfolio Distribution.

Aggressive policy responses have been made to the crisis by the government and other institutions

(Ajakaiye & Fakiyesi, 2009). A number of studies have been conducted addressing the impacts of

global financial crisis on banks in Nigeria as an important aspect of the economy as well as

response actions taken to tackle the problem.

Some of these studies focus on the policies and reforms adopted by government to address the

problem (see Abdullahi & Obiechina, 2009; Ajakaiye & Fakiyesi, 2009; Lamido, 2010 and Soludo,

2009), while others like Ikoku (2009), Obadan (2010), Sere –Ejembi (2008), and Udom (2009) pay

attention to the effects of the crisis on capital market and government palliatives geared towards

strengthening the banks’ ability to create loan stocks.

However, a number of gaps were identified in these studies as to the extent to which the Nigerian banks were hit during these times. Also, none of the reviewed literature enquires into the extent to which government palliative measures facilitated the recovery of the economy from the financial crisis. Lastly, there were no empirical tests as to how the palliatives addressed the capital shortage crisis. To bridge this gap, this research focuses on investigating whether the coordinated strategies


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adopted by the government regulatory agencies- CBN and AMCON - assisted in the survival of Nigerian banks and the recovery of the economy.Sequel to this, the following empirical questions were raised:

     To what extent was survival of banks in Nigeria threatened by the 2008 global financial crisis?

       To what extent did capital depletion affect the Gross Domestic Product?

         To what extent were government's palliative measures impactful on credits generation by banks in Nigeria?

         How have these palliative measures impacted on capital market recovery?

1.2         Research Hypotheses

The following hypotheses stated in null form will be tested in the study:

H01:     The 2008 global financial crisis did not significantly threaten the survival of banks in Nigeria.

H02:      Capital depletion did not significantly affect the Gross Domestic Product.

H03:     Government palliative measures did not significantly impact on credits generation by banks in Nigeria.

H04:      The palliative measures did not significantly impact on capital markets recovery.

The remaining parts of the paper are organized as follows. Section two reviews relevant literature. Section three explains the methods adopted, while data presentation, analyses and results are in section four. The findings and conclusion of the research are discussed in section five.


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