Portfolio Management and Its Impact on Profitability Levels of Banks in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
The primary objectives of this study are to analyze the effects of portfolio management on the profitability of selected insurance companies in Nigeria. The specific objectives include:
- To examine the determinants’ of profitability of commercial banks investment
- To determine the relation between commercial banks short term investment and their gross profit.
- To examine the significance of insurance companies long term investment on their gross premium.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
Introduction
As financial intermediaries, banks play an important role in the operation of an economy. Banks are the sole providers of funds, and their stability is of paramount importance to the financial system. As such, an understanding of determinants of their profitability is essential and crucial to the stability of the economy (Babalola, 2012). The banking sector in any economy serves as a catalyst for growth and development. Banks are able to perform this role through their crucial functions of financial intermediation, provision of an efficient payment system and facilitating the implementation of monetary policies (Abreu, 2002). The stream of bank failures experienced in the USA during the great depression of the 1940s prompted considerable attention to bank performance. This attention has grown ever since then (Heffernan, 2005). The recent global financial crisis of 2007/2009, also demonstrated the importance of bank performance both in national and international economies and the need to keep it under surveillance at all times. Aburime (2008) argued that the importance of banks is more pronounced in developing countries because financial markets are usually underdeveloped, and banks are typically the only major source of finance for the majority of firms and are usually the main depository of economic savings (Tobias and Themba, 2011). It is not surprising therefore, that governments over the world, attempt to evolve an efficient banking system, not only for the promotion of efficient intermediation, but also for the protection of depositors, encouragement of efficient competition, maintenance of confidence and stability of the system and protection against systemic risk and collapse (Babalola, 2012) During the last decades the banking sector has experienced worldwide major transformations in its operating environment. Both external and domestic factors have affected its structure and performance. Despite the increased trend toward bank disintermediation observed in many countries, the role of banks remains central in financing economic activity in general and different segments of the market in particular (Brock and Franken, 2002). In today’s economic environment, achieving improved performance and efficiency in public and private sector banking institutions has been prioritized more than ever before. Banking organizations aim at achieving these with the objective of improving competitiveness, delivering better service, and reducing costs. It is against such a background that organizations around the world have prioritized achieving heightened performance and efficiency with such goals in perspective. To achieve milestones in profitability increments, commercial banks should understand and address the determinants of their profitability. Only when these determinants are understood, can organizations be able to tackle the matter of profits improvement (Demirguc-Kunt and Huizinga, 2000 and Goddard, 2004). The determinants of profitability are empirically well explored although the definition of profitability varies among studies. Disregarding the profitability measures, most of the banking studies have noticed that the capital ratio, loan-loss provisions, interest rates and expense control are important factors in achieving high profitability.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to the impact of corporate social responsibility on community performance.
Sources of data collection
Data were collected from two main sources namely:
Primary source and Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain the impact of portfolio management and its impact on profitability levels in banks in Nigeria.
In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of portfolio management and it impact on profitability.
Summary
Although there may be other causes of bank losses and failures, the bank failure phenomenon in Nigeria in the 1990s, and beyond was caused mainly by huge nonperforming loans portfolio created by bank promoters and management which had negative effect on the profitability of the banks. To clean up the banking system and return banks to the paths of sound management and profitability the CBN had to replace some bad management teams with Interim Management Boards (IMBs) among other regulatory actions.
Conclusion
This study sought to analyze whether profitability measures were associated with increments or decline on loan portfolio, interest expense, administrative cost, and asset value at the organizational level. The study makes several contributions to the literature. In doing so, this study provides the first reliable evidence of the association of the four indicator factors on financial performance at the organizational level. In the second section the research analyzed the profitability differences and determinants of commercial banks of Nigeria Banking Industry for the year 2009 to 2012 (annually). It analyzed the influence of macro-economic indicator (inflation and GDP) on foreign and domestic banking sector of Nigeria. The empirical findings report indicated that the profitability determinants of foreign banks were different from domestic banks. This research also shows the better capability in explaining the variability of domestic banks’ profitability (ROE and ROA) than foreign ones, which may be deduced to mean that foreign banks operating in a market were not only affected by the conditions in market, but also by other factors that could be related to their home markets. As a deductive conclusion it can be said that local controlled commercial banks in Nigeria were more profitable than foreign controlled ones as far as the profit volumes are concerned which is reflected in their yearly earnings per share but the foreign controlled commercial banks in Nigeria, as a whole are more capital efficient as compared to the local controlled commercial banks subject to few exceptions. From the findings, it can be concluded that control over non-performing assets, operating expenses, provision and contingencies were major areas of concern for the management of public sector banks.
Recommendations
To strengthen the position of commercial Banks, the public sector banks must strive to greatly enhance efficiency through a control over shrinking spread, increasing non-interest income, and maximizing business per employee and per branch, etc. Technology up gradation, provision of better service quality, inculcating customer driven work culture, mental revolution among the staff of public sector banks, use of modern risk management practices are also the most sought after steps that are needed to ensure the sustainable level of profit and its growth.
Reference
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