John
N. N. Ugoani
College
of Management and Social Sciences, Nigeria
E-mail:
drjohnugoani@yahoo.com
Anthony
Ugoani
College
of Engineering and Engineering Technology, Nigeria
E-mail:
tugoani@yahoo.com
Submission: 04/10/2016
Revision: 17/10/2016
Accept: 25/12/2016
ABSTRACT
Prior
to 2000, and before banks in Nigeria embraced BPR the NBS was inefficient,
characterized by frauds, long queues, nonperforming loans, illiquidity and
distress. As one way of overcoming these challenges banks started to focus on
BPR as a veritable tool to drive efficiency, customer satisfaction and improved
shareholder value. With the advent of BPR and process improvement, efficiency
gradually strolled back into the NBS. Against the prereengineering era when the
liquidity ratio of the NBS was minus 15.92 percent in 1996, with 41 banks
falling below the 30 percent minimum prudential requirement, the NBS had a
positive average liquidity ratio of 65.69 in 2011, with all the banks meeting
the 30 percent minimum liquidity ratio. The banks that introduced BPR early in
the 2000s have remained without distress, liquid, efficient and with high
growths in gross earnings, total assets profitability and equity. The
exploratory research design was deployed for the study, and it was found that
BPR has positive effect on NBS efficiency.
Keywords:
Efficiency, Capital adequacy, Asset quality, Management, Earnings capacity,
Liquidity.
1. INTRODUCTION
From business and management
perspectives, efficiency connotes the ability of managers and organizations to
achieve better organizational performance at a reduced or minimum cost to the
organization. According to Jones and George (2003) organizational performance
is a measure of how efficiently and effectively managers use resources to
satisfy customers and achieve organizational goals.
They suggest that organizational
performance increases in direct proportion to increases in efficiency and
effectiveness. Accordingly, efficiency is a measure of how well or how
productively resources are used to achieve organizational goals. Put in another
way, organizations are said to be efficient when managers minimize the amount
of resources or the amount of time needed to produce goods or to provide
services for customers’ and shareholders’ satisfaction.
Before the turn of this century, the
Nigerian Banking System (NBS) was generally poor in service delivery characterized
by long queues, delays, frauds, forgeries, accounts falsification, rendition of
inaccurate returns and reports to the regulatory authorities, among other
infractions that led to inefficiencies. Such inefficiencies contributed in
great measure to the NBS distress and crisis of the late 1980s and early 1990s,
through 2009, that eventually boomeranged to bank failures in Nigeria.
Against this background, banks
sought for ways of providing more efficient services to satisfy the changing
needs of their customers and better channels of responding to the statutory
requirements of the regulatory authorities in standard and acceptable
modalities. To improve the reporting framework in the NBS, the Central Bank of
Nigeria (CBN) introduced the automation of the process for rendition of returns
by banks and other financial institutions through the electronic Financial
Analysis and Surveillance System (e-FASS) (Okorie and Uwaleke, 2010).
The race for efficiency led to major
change processes, including Business Process Reengineering (BPR) in the NBS.
According to Hammer (1990) reengineering is a fundamental rethinking and
radical redesigning of business processes to achieve dramatic improvements in
critical, contemporary measures of performance, such as cost, quality, service,
and speed. He asserts that the idea of BPR is to achieve efficiency, otherwise
the process of achieving quality and excellence at reasonable costs to the
organization.
Government intervention in the NBS
between 1986 and 1996 made it imperative for banks to engage in BPR in order to
meet internal challenges and global competition. Factors like the Structural
Adjustment Programme (SAP), export promotion, public sector efficiency,
deregulation and liberalization, privatization – and commerlization, were among
the major push factors for of BPR in the NBS. Other factors were legal
measures, such as the Banks and Other Financial Institutions Decree (BOFID)
Prudential Guidelines, establishment of Nigeria Deposit Insurance Corporation
(NDIC), capital adequacy ratios, Failed Banks and Money Laundering Decree,
among other government requirements.
For example, according to Muo (1999)
liberalization of bank licensing led to almost 300 percent increase in the
number of banks within five years, establishments of many fringe banking
institutions like the community banks, peoples bank, mortgage banks, explosion
in the number of finance houses, stock brokerage firms, and others, that were
providing fund intermediation services. He posits that all the processes
resulted in an intense competitive environment and banks reacted in different
ways.
They became market conscious,
adopting the market concept and manipulating the “5ps”: product, price, place,
promotion and packaging, in a do or die effort to gain competitive advantage.
In the process, there were new products, new delivery channels, new branch
locations that added to the work-load in the NBS. As a result, the NBS became
more cost and efficiency conscious, hired more high quality people, embraced full
automation of processes based on the superior principles of strategic
management.
Although competition should lead to
efficiency, insider abuse in the NBS gave way to leakages, dwindling liquidity,
poor asset quality profitability. By the end of 1996, the average liquidity
ratio in the NBS was minus 15.92 percent, against the minimum 30 percent ratio
prescribed by the CBN, and by then the NBS recorded about the highest number of
failed banks in sub-Saharan Africa (SSA), against the figures of 1993.
For example, according to Caprio and
Klingebiel (2002) in 1993, insolvent banks in Nigeria accounted for 20 percent
of banking system assets and 22 percent of deposits. In 1993 Nigeria made
history when 25 banks were liquidated by the CBN as a result of mismanagement
and efficiency. And in 1995, almost half the banks in Nigeria reported being in
financial distress. The problems of efficiency and inefficiency in the NBS were
directly related to the unprecedented increase in the number and types of
banking institutions, regulatory inadequacies and laxity, fiscal problems,
among others.
These caused the disappearance of
profits, and shareholders’ funds, and distress took the centre stage, which
exacerbated NBS problems. Consequently, many banks were taken over by the CBN
between 2000 and 2009 because of inefficiency (SANUSI, 2012; DAVENPORT; SHORT,
1990; MOGHALU, 2011; HAMMER, 1996; ROHLEDER; SILVER, 1997; UGOANI, 1998).
1.1.
Statement of the Problem
The NBS witnessed large scale
distress in the 1980s and 1990s through 2011 due largely to mismanagement and
inefficiency. According to Ibrahim (2012) the NBS crisis saw the CBN using
$4billion of public funds to bail out some inefficient and mismanaged banks.
According to Sanusi (2012) shareholders of the eight banks taken over by the
CBN automatically lost their investments in the banks.
The banks: Union Bank, of Nigeria
Plc, Intercontinental Bank, Plc, Afribank Plc, FinBank Plc, Bank PHB Plc,
Spring Bank Plc, and Equatorial Trust Bank Ltd. were found to be in bad condition
after the CBN’s special audit of the 24 banks in the country then, prompting
the injection of about N620billion in bail out exercise.
Among other problems, the result of
the CBN examination showed that the nonperforming loans (NPLs) of the banks exceeded
their share capital that resulted in a situation where their balance sheets had
negative networth. Within this context, their shareholders funds were eroded
due to inefficiency, leading to complete loss of investments in the banks.
Sanusi (2012) thought that those who
mismanaged their banks should go to jail or even be killed. This scenario
underscores the problem and gravity of inefficiency in the NBS. In the wake of
the global financial crisis, the CBN rose to ensure a sound financial system through
the provision of clearing facilities for banks, development of payment systems,
banking regulation and supervision.
In the quest of financial stability
the CBN created special units with a responsibility to monitor, on a regular
basis, the stability of the banks to avoid the mistakes that hitherto led to
financial crisis. To this extent, the
CBN did not just bailout banks considered to have been at great risk, it
equally pursued other measures with the aim of unlocking the credit potentials
of the Deposit Money Banks (DMBs) and ensuring the flow of credit to productive
sectors of the real economy.
Section 31 of the CBN Act (2007)
provides that the CBN can make financial interventions for the purpose of
promoting economic development (Moghalu, 2011, Editorial, 2011, Okorie, 2012,
Daniel, 2016, Ugoani, 2015a, Ugoani, 2015b). In the late 1990s some bank boards
were crisis – ridden which largely distracted management from underlying
business issues, and some even operated under different boards that contributed
to huge NPLs (IKEDIASHI, 1998; DAVIES, 1998; UGOANI, 1998), Bank efficiency is
a major factor for survival.
According to Okoh, et al (2016) bank
failures in Nigeria have been closely associated with inefficiency. Abiola
(2003) posits that profitability and efficiency are among the principal
variables for the assessment of banking system productivity. NDIC (1991)
reports that in assessing the financial condition of a bank, it is customary to
evaluate the capital adequacy, asset quality, quality of management and staff,
level of earnings as wells as liquidity.
According to Okorie and Uwaleke
(2010) prior to 2004, the NBS comprised of 89 banks, many of which were
characterized by low or eroded capital bases, large number of small banks with
relatively few branches, weak corporate governance, insolvency, as shown by
negative capital adequacy ratios and capital that had been significantly eroded
by losses, arising from huge nonperforming loans (NPLs) as a result of lack of
efficiency.
Since the 1990s, till 2009, the
problem of inefficiency in the NBS has been persistent largely due to
mismanagement and inefficiency. Abiola (2003) addressed the problems of IT and
NBS effectiveness, competitiveness and profitability, but did not explore the
areas of BPR and efficiency. This is the gap the present study sought to bridge
(OLUWASANYA, 2014; OKOH, et al. 2016; GREUINING; BRATAMOVIC, 2003; MCNAUGHTON,
1997; BARLTROP; MCNAUGHTON, 1997; IDAM, 2002).
1.2.
Objective
of the study
The study was designed to evaluate
the effect of BPR on NBS efficiency.
1.3.
Significance
of the study
The study will enable students,
researchers, consultants, academics, bank promoters, governments, and others
interested in bank management to appreciate the relevance of BPR on NBS
efficiency.
1.4.
Hypotheses
Two hypotheses were formulated and
tested based on the objective of the study.
H1:
BPR has no effect on NBS efficiency.
H2:
BPR has positive effect on NBS efficiency.
2. LITERATURE REVIEW
Hammer (1990) posits that BPR is a
major tool for driving organizational efficiency. According to him BPR
emphasizes teamwork, worker participation and empowerment, cross-functionality,
process analysis and measurement, supplier involvement and benchmarking, all of
which are related to the concept of Total Quality Management (TQM).
He states that the two concepts of
BPR and TQM are compatible and actually complement one another, because both
concepts are customer-oriented. TQM has also influenced enterprise culture and
value by exposing organizations to the need for change. He posits that the
basic difference between the two is that TQM emphasizes continuous and
incremental improvement of process whereas BPR is about radical, discontinuous
change through process innovation.
It is therefore expected that a
particular business process is enhanced and supported by TQM until it is
practically reengineered (CHASE, et al, 2001). Organizations adopt different
approaches for improving efficiency which may be seen as long-term and
permanent changes in the philosophy of the organization and the way that it is
managed.
Many of these approaches overlap
like the similarities between BPR and TQM and between TQM and Continuous
Improvement (CI) as well as the market concept. BPR can be seen as a direct
response to organizational inefficiency, and a way to overcoming sluggishness,
excessive organizational bureaucracy and control, or frustrating the personal
initiatives of organizational members to actually reach their full potentials (TORRINGTON,
et al, 2005) BPR includes technologies that seek for new ways of doing things
rather than simply trying to run old processes faster and more efficiently.
Information Communication Technology
(ICT) is an essential ingredient for successful implementation of BPR as it
allows for efficient measuring of times and outputs and makes process records
available to all participants. Many executives have recognized that their task
is to create a work environment that stimulates employees and encourages them
to be more motivated, creative, and entrepreneurial than competitors (BARTLETT;
GOSHAL, 1995; MCLEOD, 1997).
2.1.
BPR
and TQM
According to Chase, et al (2001) TQM
involves managing the entire organization so that it excels on all dimensions
of products and services that are important to the customer. Based on this
definition, the philosophical elements of TQM stress the operation of the
business using quality as the integrating element to ensure CI.
They insist that CI is a management
philosophy that approaches the challenge of product and process improvement as
an enabling process of achieving customer satisfaction, and an integral part of
a TQM arrangement.
The CI concept seeks steady
improvement of machines, materials, labour utilization, and production methods
through application of ideas, suggestions, and implementation of
recommendations of team members. The CI philosophy of business and management
is frequently in contrast with the traditional management approach of entirely
relying on major technological or theoretical innovations to achieve
organizational efficiency, or customer and stakeholder value.
TQM and BPR emphasize the concept of
zero defects throughout the process, product design and delivery. TQM concept
focuses toward improvement of product and services with the aim of becoming
competitive, and to stay in business and create more jobs within the
population. It is a concept that emphasizes that everybody in the business must
work to achieve the needed organizational goal either through BPR or any other
means because to achieve meaningful transformation involves everybody in the
organization (HAMMER; STATON, 1990).
2.2.
NBS
and Market Concept
The deregulation and liberalization
of the NBS in the middle 1980s through the 1990s led to the application of the
market concept or philosophy by banks as a strategy to survive and also remain
competitive.
According to Akanwa and Agu (2005)
the market concept is a management philosophy geared toward providing value and
satisfaction for the customer as a basis for the existence of an enterprise.
According to them, this orientation holds that the key task of an organization
is to determine the needs of the customer and to adapt the company’s products
and services to satisfy them more effectively and efficiently.
This concept was at the minds of
banks in Nigeria at the time of liberalization in attempts to outperform each
other in an increasing competitive environment. The market concept is often a
reflection of management to testify that customer is always right and the king.
It is all about methods of having the customer and his needs satisfied as the
focal point of business.
Getting the customer and his needs
satisfied in the NBS requires radical redesigning of processes, which means
going to the roots of the ways of providing products and services. BPR and CI
involve dropping any old and poor ways of doing business and finding new and
better methods of satisfying the customers as well as enhancing shareholder
value.
The twin process does not suggest
obliteration or completely removing established good standards, but supports
the invention of better and new methods of accomplishing work more efficiently.
The BPR and the market concept can be explained by the fact that BPR
fundamentally embraces the major redesign of how work must be done, and based
on the assumption that there is a close positive correlation between improved
work efficiency and work design, upon careful ICT architecture that ensures a
clear work process.
In this context, a process can be
described as a group of related tasks and activities undertaken to create
shareholder value and customer satisfaction, because good work processes are
often very central to organizational efficiency. BPR incorporates business and
management strategies that have high implications on the philosophy,
foundation, elements and organizational culture. The effects of BPR are
frequently not only evaluated on the basis of the potential gains in terms of
performance and improved efficiency, but also on the basis of challenges in
terms of related costs and risks of business failure (HAMMER; CHAMPY, 1993).
3. METHODOLOGY
3.1.
Research
design
The exploratory research design was
used for the study. The nature of the exploratory research design requires the
use of a flexible research process. It is evolutionary and historical in nature
and it rarely involves the employment of large samples or use of structured
questionnaire. (Asika, 2004)
3.2.
Sources
of Data
Data were collected through primary
and secondary sources such as personal interviews, observations, books,
newspapers, journals, government reports, Central Bank of Nigeria Reports,
Nigeria Deposit Insurance Corporation Reports, Annual Reports of banks, etc.
3.3.
Population
and Sample
The population and sample of study
comprised all the 20 banks in Nigeria as at December, 2011.
3.4.
Data
Analysis
Data were analyzed using descriptive
and regression statistical methods. The (SPSS) software was used for the
regression analysis, and the results were presented in tables.
3.4.1.
Presentation
of results
Table 1 showed the liquidity
position of banks in 1996.
Table 1: Liquidity Position of Insured
Banks as at December 1996.
Banks |
Number of
bank |
Average
liquidity ratio |
Ratio of net
loans and advances to total deposits |
Number of
bank with average liquidity ratio of less than 30% |
||||
1995 |
1996 |
1995 |
1996 |
1995 |
1996 |
1995 |
1996 |
|
Merchant |
51 |
51 |
29.02 |
12.32 |
44.7 |
80.96 |
18 |
15 |
Commercial |
64
|
64 |
(22.25)
|
(38.42)
|
57.6 |
57.4 |
32 |
26 |
Industry |
115 |
115 |
0.49 |
(15.92) |
58.4 |
60.0 |
50 |
41 |
Source: NDIC (1996)
Annual Report & Statement of Accounts.
Table 2 showed that adjusted
shareholders’ funds for the NBS increased by about 91 percent from negative
N8,791.1 in 1995 to negative N791.2m in 1996, which explains the massive bank
failure in 1996. The capitalization requirement in the NBS decreased from
N38,835m in 1995 to N24,662m in 1996, partly due to the implementation of the
Failed Banks’ Decree which enabled distressed banks to recover a reasonable
proportion of their outstanding debts.
Table 2: Insured Banks’ Capital
Shortfall as at December 1996
Banks |
Number
of Banks |
Adjusted
shareholders’ funds (N. M) |
Capital
requirement ( |
|||
1995 |
1996 |
1995 |
1996 |
1995 |
1996 |
|
Merchant |
51 |
51 |
(4,869.1) |
(1.961.8)
|
11,672.7 |
5,803.1 |
Commercial |
64
|
64 |
(3,922.0) |
1,171.0 |
27,162.3 |
18.859.6 |
Industry |
115 |
115 |
(8,791.1) |
(791.2) |
38,830.0 |
24.662.7 |
Source: NDIC (1996)
Due to inefficiency, table 3, showed
the level of fraud cases in the NBS as at 1998.
Table 3: Ten Banks with Highest Fraud
Cases (N. M) in 1998
Group |
1990
|
1991 |
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
1998 |
Total for 10
Banks |
782.69 |
381.44 |
346.77 |
134.4 |
2303.5 |
630.49 |
1052.6 |
3649.1 |
3104.3 |
Total for
all Banks |
804.19 |
388.51 |
411.75 |
1419.0 |
3399.4 |
1011.4 |
1600.7 |
3777.9 |
3196.5 |
% |
97.3 |
98.1 |
84.4 |
94.5 |
67.8 |
62.3 |
65.8 |
96.6 |
97.1 |
Source: Asein (2004)
Table 4 showed that total NPLs in
the NBS rose from N21.27b in 2002 through N260.19b in 2003 to N350.82b in 2004.
NPLs as a percentage of total loans or credits declined from 59.28 in 2002 to
21.59 in 2003, and marginally rose to 23.08 in 2004. However, the percentage of
NPLs as a percentage of shareholders’ funds rose from 89.17 percent in 2002,
through 91.99 percent in 2003 to 107.82 percent in 2004. This showed that all
shareholders’ funds in the NBS which ordinarily should provide a cushion for
the depositors’ funds were completely wiped away by huge NPLs.
Table 4: Indicators of Insured Banks
Assets Quality for the Last Quarters of 2002, 2003, and 2004
Asset – quality indicators (%) |
2002 |
2003 |
2004 |
Total non-performing credits (Nb) |
21.27 |
260.19 |
350.82 |
Ratio of non-performing credit to
total credits |
59.38 |
21.59 |
23.08 |
Ratio of non-performing credits to
shareholders’ funds. |
89.17 |
91.99 |
107.82 |
Source: Nnamdi and
Nwakanma (2011)
Table 5 showed the inefficient banks
taken over by government for sound management.
Table 5: List of Mismanaged Banks Taken
Over by Government in 2009
S/N |
Name of Bank |
1 |
Union Bank
of Nigeria Plc |
2 |
Oceanic Bank
Plc |
3 |
Intercontinental
Bank Plc |
4 |
Afribank Plc |
5 |
FinBank Plc |
6 |
Bank PHB Plc |
7 |
Spring Bank
Plc |
8 |
Equatorial
Trust Bank Ltd |
Source: Adapted from
Sanusi (2012)
Table 6 showed the liquidity
position of banks as at 2011 in Nigeria.
Table 6: Liquidity Ratio of Insured
Banks as at December, 2010/2011
Items |
Year |
|
2010 |
2011 |
|
Average
liquidity ratio |
51.77 |
65.69 |
Loans and
advances to deposit ratio |
59.23 |
55.95 |
No of Banks
with less than the 30% minimum liquidity ratio |
1 |
Nil |
Source: Nigeria Deposit
Insurance Corporation (2011) Annual Report and Statement of Accounts
Table 7 showed that the adjusted
shareholders’ funds as at 2011 was N1.93bn against the figures of N791.2m in
1996, when banks were not reengineered in Nigeria.
Table 7: Insured Banks Capital Adequacy
as at 2011
Capital Adequacy Indicators |
Year |
|
2010 |
2011 |
|
Total
Qualifying Capital (N’ billion) |
424.46 |
1,400.31 |
Adjusted Shareholders’
Funds |
312.36 |
1,934.93 |
Capital To
Total Risk Weighted Asset Ratio (%) |
4.06 |
17.71 |
Number of
Banks |
24 |
20 |
Source: Field Work 2016
Adapted from NDIC (2011)
As in table 8, the ratio of
nonperforming loans to total shareholders’ funds as at 2011 was 17.13% against
about 108% in 2004 when many banks were undermanaged in Nigeria.
Table 8: Asset Quality of Insured Banks
as at 2011
Item |
Year |
|
|
2010 |
2011 |
Total loans (N’ billion |
7,166.76 |
7,312.72 |
Nonperforming Loans (N’ billion) |
1,077.66 |
425.96 |
Ratio of nonperforming loans total
loans (%) |
15.04 |
5.82 |
Ratio of Nonperforming Loans To Total
Shareholders’ Funds (%) |
250.85 |
17.13 |
Source: Fieldwork 2016
Adapted from NDIC (2011)
Table 9 proved that BPR in the NBS
brought about efficiency with the reduction of the share of 10 banks with
highest fraud cases declining from 97% in 1998 to 87% in 2011.
Table 9: 10 Banks with the Highest Fraud
Cases in 2011
Group |
2010 |
2011 |
|
|||||
|
Amount involved (N = M) |
% share |
Amount involved (N = M) |
% share |
||||
Total for 10 banks |
10,874,680 |
51.08 |
24,730,044 |
87.1 |
|
|||
Total for all banks |
21,291,417 |
100 |
28,400.855 |
100 |
|
|||
Source: Fieldwork 2016 Adapted from NDIC (2011).
4. MODEL SPECIFICATION
4.1.
Regression
– Model Specification
The present study estimate one
regression model and the model seeks to investigate the effect of BPR on
efficiency; comprised of such factors as: capital adequacy, asset quality,
management effectiveness, earnings capacity, liquidity and security (CAMELS) in
the NBS.
The specification of this model is
given below:
FDP
= f(FA)
FDP
= BO + B1FA + Ui
Where:
The a priori expectation is B1, B2
> 0
FDP
= Efficiency
FA
= BPR
U
– Disturbance Term
B
= Intercept
B1
= Coefficient of the independent variable.
Table 10 showed the summary of
statistics of the analysis of BPR on efficiency. The coefficient of correlation
(R) = 0.785; the coefficient of determination (R2) = 0.617; and the standard
error estimate of 0.42192, indicating that BPR contribute 61.7% to efficiency
in the NBS.
Table 10: Model Summary
Model |
R |
R Square |
Adjusted R Square |
Std. Error of the Estimate |
Durbin Watson |
1 |
.785a |
.617 |
.610 |
.42192 |
.638 |
a. Predictors: (Constant), BPR
b. Dependent Variable: Efficiency
Table 11 revealed that the
independent variable (F(1,61) = 98.074; P<.01) contributed significantly on
the regression plane.
Table 11: ANOVA
Model |
Sum
of squares |
df |
Mean
square |
F |
Sig. |
Regression 1 Residual Total |
17.459 10.859 28.317 |
1 61 62 |
17.459 .178 |
98.074 |
.000b |
a. Predictors: (Constant), BPR
b. Dependent Variable: efficiency
Table 12 showed that BPR (B = 0.747;
t = 9.903; P<.01) has positive and significant effect on NBS efficiency.
This implies that BPR is an antidote to NBS in efficiency. This result agrees
with the assertion of Hammer (1990) that BPR is a tool to drive organizational
efficiency.
Table 12: Coefficient
Model |
Unstandardized coefficients |
Standardized coefficients |
T |
Sig. |
|
B |
Std. Error |
Beta |
|||
Constant 1 BPR |
1.135 .747 |
.329 .075 |
.785 |
3.451 9.903 |
.001 .000 |
a. Dependant Variable: NBS efficiency
4.2.
Discussion
Prior to compliance with CBN e-FASS
reporting platform and full reengineering of the NBS in the 1990s and early
2000s, banks were riddled with inefficiency characterized by frauds, forgeries,
corporate governance breaches, huge NPLs, illiquidity, low capital base, among
other factors that resulted to distress and bank failures in Nigeria.
The NBS liquidity position
deteriorated from 0.49 percent in 1995 to minus 15-92 percent in 1996, against
the minimum prudential requirement of 30 percent liquidity ratio for banks.
Frauds in 10 banks rose to N3,104m in 1998 largely due to inefficiency. NPLs
increased sharply between 2002 and 2004, rising from N21.27billion in 2002,
through N260.19billion, in 2003, to N350.82 billion in 2004.
More worrisome, in the same period,
the ratio of NPLs to shareholders’ funds rose from 89.17 percent in 2002,
through 91.99 percent in 2003, to 107.82 percent in 2004, indicating that all
shareholders’ funds in the NBS were washed away. After a special audit of banks
in Nigeria in 2009 the CBN discovered that some of them were being
undermanaged, grossly inefficient and in critical state of distress.
The sad situation was attributed to
corporate governance breaches, insider abuses, that necessitated the CBN
putting $4b or about N620bn in an unprecedented bailout arrangement to help the
illiquid and poorly managed banks. As a further NBS survival strategy, the CBN
summarily dismissed the boards of the weak banks and took them over for more
efficient management.
The CBN strategies largely
succeeded, as liquidity, profitability, sanity and efficiency started to
gradually return to the NBS. For example, the average liquidity ratio in the
NBS was 51.77 as at 2010 and 65.69 in 2011, against the minus 15.92 percent in
1996. Also, in 2010, the loans and advances to deposit ratio was 59.23, and
55.95 in 2011, with all the banks meeting the 30 percent minimum prudential
requirement as at 2011, against the prereengineering era when most banks in
Nigeria could not meet the minimum liquidity requirement and had huge NPLs.
All the 20 banks in Nigeria that
were fully reengineered and ICTs compliant have positive shareholders’ funds in
2011, contrary to 2004, when all the shareholders’ funds were totally wiped
away due to inefficiency. The banks like the First Bank of Nigeria Plc that was
reengineered early enough in 2000s has remained without distress, efficient,
liquid, and profitable.
The FBN Holdings Plc is today the
leading diversified financial services supermarket in sub-Saharan Africa with
offices in London, Paris, Beijing and Abu Dhabi. FBN Holdings gross earnings as
at 2015 grew to reach N505.2billlion, with total assets of N4.2trillion, and
N578.8 billion in total equity. The FBN experience is an eloquent testimony of
the effect of BPR on NBS efficiency.
This gives credence to the strong
views of Hammer (1990) that BPR is about achieving significant customer
satisfaction and shareholder value, and that BPR is an important tool to drive
business efficiency. With the coefficient of determination as in table 10, it
was found that BPR has positive effect on NBS efficiency.
4.3.
Recommendations
i. The regulatory authorities should ensure that banks must fully
comply with e-FASS reporting system to reduce inaccuracies in rendering
returns.
ii. BPR is not once in a life time affair. It should be regularly
reviewed in the light of global changes in business.
iii. Even with BPR frauds still occur. Management needs to pay close
attention to HRM practices to ensure that the right people are brought into the
NBS.
iv. There should be maintenance measures over ICTs equipment to prevent
and reduce the activities of hackers into confidential details.
v. High value of NPLs in the NBS in the 1990s and beyond was a direct
result of poor credit risk management and fraud by both bank promoters and managers.
Such a situation can always be reduced by the appointment of professional
managers with integrity and banking dexterity and not necessarily the
self-styled “banking gurus”.
4.4.
Scope
further study
Further study should examine the
need for BPR in the public sector of Nigeria. This may help to improve public
financial management (PFM), service delivery and reduce the level of
inefficiency in the public sector management.
5. CONCLUSION
BPR brought efficiency in the NBS as
reflected in the rise of average liquidity ratio that was 65.99 in 2011 against
minus 15.92 percent in 1996. Another credible evidence of efficiency is the
positive shareholders frauds of N1,935billion in 2011 against the negative
position in 2004. The banks like the First Bank that engaged in BPR in the
early 2000s has remained without distress, efficient, and continued to grow in
terms of liquidity, shareholders’ funds’, total assets, total equity, gross
earnings and profitability. Through statistical analysis this study found that
BPR has a positive effect on NBS efficiency. This result is very plausible as
it contributes to support Hammer (1990) that BPR is an important management
tool to drive business efficiency. This is the objective of the study.
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