Ict and Nigerian Banks Reforms free essay sample

Primary data was employed, which was analyzed using cross-tabulations and regression technique built on the framework of technical progress. Factors such as bankers’ age, educational qualification, computer literacy and type of ICT gadgets, were found to influence banks’ degree of ICT usage, while ICT impacts significantly the speed of banking operations, productivity and profitability. The need for the banks to regularly train their workers, and procure quality ICT gadgets, which will enhance efficiency, etc, was stressed. This is crucial in the sector’s current reforms where attention is focused on the ability of banks to attract and retain customers, which is mainly feasible through efficient service delivery that depend, to a large extent, on the use of ICT. In recent times, Information Communication Technology (ICT), which basically involves the use of electronic gadgets especially computers for storing, analyzing and distributing data, is having a dramatic influence on almost all aspects of individual lives and that of the national economy- the banking sector inclusive. The increasing use of ICT has allowed for integration of different economic units in a spectacular way. This phenomenon is not only applicable to Nigeria but other economies of the world, though the level of their usage may differ. In Nigeria, ICT usage especially in the banking sector, has considerably improved, even though it may not been as high as those observed for advanced countries (Adeoti, 2005; Adeyemi, 2006). The use of ICT in the banking sector became of interest to this study due to the significant role it plays in the economy. It helps in stimulating economic growth by directing funds to economic agents that need them for productive activities. This function is very vital for any economy that intends to experience meaningful growth because it makes arrangements that bring borrowers and lenders of financial resource together and more efficiently too than if they had to relate directly with one another (Adam, 1998; Ojo, 2007). In essence, the banking sector acts as a bridge that connects lenders and investors in the economy. Hence, the need for reforms in the sector initiated by the Federal Government via the instrumentality of the Central Bank of Nigeria-CBN. The bank reforms (especially the recapitalization that specifies a minimum capital base of 25 billion naira for commercial banks), are pursued with a view to making the sector realize its objectives in advancing the economy (CBN, 2006). It is expected that the impact of these reforms will be enhanced with the use of ICT because it will create some form of competitive advantage and improve banking services through accuracy and efficiency in their transactions. In other words, it will change the nature of banks’ services in terms of quality which will culminate in greater service delivery and productivity. This is in tandem with the findings made by Adeoti (2005) that the use of information technology has the ability of improving the competitiveness of Nigerian manufacturing industries. 67 Global Journal of Business Research, Vol. 2, No. 2, 2008 Osabuohien, E. S. C. From the above discourse, this paper seeks to carry out an empirical analysis on the anticipated role of ICT in enhancing the operations of selected Nigerian banks in the light of current reforms in the sector. To achieve this objective, three commercial banks were selected, viz; Union Bank of Nigeria Plc-UBN, United Bank for Africa Plc- UBA and Wema Bank Plc-Wema. The study is structured into sections. Next to this introduction is the literature review, followed by the analytical framework and methodology. Section 4 is analyses of data, summary of findings and recommendations. The last section is the conclusion. LITERATURE REVIEW The Concept of ICT and a Perspective of Nigerian Banks Technology can be referred to as the application of knowledge for the execution of a given task. It entails skills and processes necessary for carrying out activities (works) in a given context. While ICT encompasses computer systems, telecommunication, networks, and multimedia applications (Frenzel, 1996). It came into use in the late 1980’s replacing earlier terms like Electronic Data Processing (EDP), Management Information System (MIS), although the latter terms are still in use (Frenzel, 1996). ICT has transcended the role of support services or only electronic data processing; its fields of applications are somewhat global and unlimited. Its devices especially the Internet through the World Wide Web (www) and modern computer email facilities have further strengthened early innovations like the telephone and fax. Other ICT devices include data recognition equipment, factory automation hardware and services, tele-computing and teleconferences using real time and online system (Adeoti, 2005). It is a concept that is having a remarkable effect on almost entire aspects of the human endavours. This connotes that it involves the application of principles to engage physical component in achieving an intended goal. The convergence of computer and telecommunication after about four decades of applying computers to routine data processing, mainly in information storage and retrieval, has created a new development where information has become the engine of growth around the world. This development has created catch-up opportunities for developing countries such as Nigeria to attain desired levels of development without necessarily ‘reinventing the wheels’ of economic growth. This new technology has brought far-reaching revolution in societies, which has tremendously transformed most business (banking) scenes (Ovia, 2005). With respects to the banks in Nigeria, the first bank was established in 1892 (then African Banking Corporation). However, there was no banking legislation until 1952 when three foreign banks (Bank of British West Africa, Barclays Bank, and British and French Bank) and two indigenous banks (National Bank of Nigeria and African Continental Bank) were established, with a total number of 40 branches (Iganiga, 1998). As at 1988, the Nigerian banking system consisted of the CBN, 42 commercial banks and 24 merchant banks (Iganiga, 1998; Adam, 2005). From 1970, the banking sector grew significantly in terms of number and coverage as a result of increase in economic activities. However, between 1970 and 1985, the growth of the sector was relatively slow due to predominant government regulations but the period 1986-2000 witnessed a phenomenal growth of the sector as a result of the financial deregulation policy, that is the Structural Adjustment Program-SAP of 1986 (Iganiga, 1998). This brought about the liberalization of bank licence leading to a rapid change in the sector. Some of the banks were characterized by paper oriented methods, rather than technological based systems and this resulted to slow pace of their operations vis-a-vis their employees’ productivity cum general performance. The use of computers and other ICT gadgets in their operations were limited. 68 Global Journal of Business Research, Vol. 2, No. 2, 2008 Osabuohien, E. S. C. This was one of the reasons adduced by Ojo (2007) as factors responsible for the Nigerian financial sector malaise. To mitigate the shocks experienced in the system, the Federal Government of Nigeria came up with the financial sector reforms through the CBN. The bank reforms entail other issues but this paper is dwelling manly on the bank consolidation that was initiated in 2004. The policy thrust on bank reforms encompasses the sum of the variations that occur in the direction of a comprehensive banking system. The bank reforms agenda, among others, specified a minimum capital base of 25 billion naira for the commercial banks that took effect in December, 2005 (Diamond Bank, 2005; CBN, 2006). This has reduced the number of commercial banks in Nigeria from 89 to 25, which was done via the processes of mergers, acquisition and the stock market (CBN, 2006; Ige, 2007). The major aim was to make Nigerian banks vibrant and resilient, clothed with efficiency and financial strength to absorb possible shocks, thereby instilling public confidence as well as global relevance (Soludo, 2004). ICT and Nigerian Banking Sector The revolution in ICT has made the banking sector changed from the traditional mode of operations to presumably better ways with technological innovation that improves efficiency. ICT can enhance efficiency via its use and in recent times banks have been encouraged by the rapid decline in the price of ICT gadgets. This has perhaps increased the bank level of ICT usage (Ovia, 2005). The increase might have also be attributable to business environment that became relatively flexible to accommodate new forms of technological change as a result of reforms in the country. Banking is becoming highly ICT based and because of its inter-sectoral link, it appears to be reaping most of the benefits of revolution in technology, as can be seen by its application to almost all areas of its activities (Akinuli, 1999). It has broadened the scope of banking practices and changed the nature of banking as well as the competitive environment in which they operate. A broad opening has been experienced around the world for banks and they are currently taking due advantage of these innovations to provide improved customer services in the face of competition and faster services that enhance productivity (Akinuli, 1999; Ovia,2005). Technological advancement facilitates payments and creates convenient alternatives to cash and cheque for making transactions. Such new practices have led to the development of a truly global, seamless and Internet enabled 24-hour business of banking. Technological advance in payments are important due to the fact that it will be feasible to outsource quite a number of the banks’ role in the payments system. Also banks’ regulation can be more technologically dependent and better focused rather than focusing on conceptual guidelines. ICT revolution both in terms of innovation rate, speedy operation, and cost per unit (portraying reduction in average total and marginal costs) has made a good number of banks embrace the use of ICT infrastructure in their operations (Akinuli, 1999). The technological innovation that is being witnessed currently in the Nigerian banking sector is possible of impacting on the banks’ mode of transactions especially in their payment systems. The payment systems are made feasible by ICT gadgets such as Automated Teller Machine (ATM), Electronic Fund Transfer (EFT), Clearing House Automated Payments (CHAPs), Electronic Purse (E-PURSE), Automated Cheque Sorter (ACS) and Electronic and Transfer at Point of Sale (EFTPOS), which have made transactions easy and convenient. This phenomenon is capable of bringing about speedy operations and enhanced productivity (Adeoti, 2005; Ovia, 2005). Though there may be little interruptions at times due to network failures, which may make customers unable to carry out transactions at that point in time. This little shortcoming is not in any way comparable to the days when banking halls were characterized by long queues mainly as a result of delays in the traditional banking operations. 69 Global Journal of Business Research, Vol. 2, No. 2, 2008 Osabuohien, E. S. C. Now banks can provide comprehensive services to their customers by making them access their accounts via online services. These instruments have an edge over the traditional payment instruments because it is safer, more efficient, convenient and cost effective. Before the introduction of these ICT services in the banking industry, manual processing of documents were in use. The bankers were made to cope with this onerous task, and the process made business transactions minimal. Besides several hectic procedures, people had to contend with, banks’ customers were inevitably made to spend several hours in the congested banking halls in carrying out their transactions (Ovia, 2005). The ICT culture in Nigerian economy can be said to be on the increase. Nigeria is the largest Internet subscriber in Africa with about 100,000 Internet users as at 2000, which was estimated to have grossly increased (Balancing Act, 2007). It has also been observed that Nigeria’s teledensity had remarkably increased by more than 2,550% from 0. 35% in 1992 to 9. 3% in 2004, thereby greatly exceeding the International Telephone Union’s (ITU) benchmark of 1% (Ndukwe, 2005). This phenomenon has helped banks keep substantial information on-line which reduces the cost of marketing their products. Being a competitive tool, it enhances the creation of customized services, reduces the cost of operation, and improves productivity as well as profitability. More interestingly, almost all the banks in Nigeria have internet and on-line real time banking facilities which has improved the scope of Nigerian banking1. It has aided transfer of funds from one location to another without any involvement of facial transactions thereby reducing the incidence of loss of funds to stealing and the likes. Another recent one is the telephone banking technology that allows customers to have transactions on their accounts by calling a particular telephone number, through voice activation, and using a tone pad. All of these improve the comfort of banking transactions. ANALYTICAL FRAMEWORK AND METHODOLOGY Analytical Framework and Models Formulation The study employs the concept of technical progress as framework in underpinning the anticipated impacts ICT has in the selected Nigerian banks. Technical progress involves discovering new methods of production, developing new products and introducing new techniques. It also implies the process by which firms in a given economy change over time, in terms of their products and production processes. It refers to an idea or a model for a new improved device, while innovation connotes its commercialization (Frenzel, 1996). Thus any change made in the method of firm’s operations is expected to precipitate progress in that organization In this formulation, when there is technical progress in a particular sector of the economy (banking for instance), it leads to increase in the productivity of labour as well as other factor inputs. The involvement of technical change will therefore enhance increased efficiency and effectiveness in the sector. Technological diffusion (i. e. increasing use of technology-ICT) is essential in realizing large scale economy benefits rooted in productivity gains. The productivity gains from the adoption of new technologies could be one of the major factors behind rising wages, while the introduction of new products could also be a factor accounting for the creation new jobs in the sector. The evolutionary perspective of technical progress connotes the ability for firms in a given sector of the economy to have sustainable improvement which depends on their ability to generate technological change. This means that one of the major ways Nigerian banks can achieve their anticipated development is to embrace significant investment in ICT. This will be enhanced by improving the interaction with one another in knowledge creation and use that is capable of improving output via faster mode of operations as well as service delivery. 70 Global Journal of Business Research, Vol. 2, No. 2, 2008 Osabuohien, E. S. C. The paper formulated two models that would be fitted into the data. The first explores the possible factors that could determine the rate at which banks use ICT (i. e. the intensity of ICT use) while the second elucidates the anticipated impacts of ICT on the operations of the banks. The model on intensity of ICT Usage in the Banks relates the use of ICT (ICTUSE) to po ssible factors that could explain the rate at which it is used in the banks. The explanatory variables included were: Age, Sex, educational qualification (Edu), computer literacy (Clit) and the type of ICT gadgets used by the banks (Type). This is represented in a functional form below: ICTUSE= f (Age, Sex, Edu, Clit, Type, ? ) 1 The above equation can be written explicitly as: ICTUSE= B0+ B1Age + B2Sex + B3Edu + B4Clit +B5Type +? 2 Where; ICTUSE : intensity of ICT used in the banks Age : age of the bankers Sex : gender of the bankers Edu : educational qualification of the bankers Clit : their level of computer literacy Type : type of ICT gadgets used in the banks. :error term capturing other explanatory variables not explicitly included. The ‘Bi’s (i= 1,†¦. 5) are the coefficients to be estimated which show the nature of relationship between dependent and explanatory variables while B0 is the intercept of the regression line. The aprori is such that Bi (i= 0, †¦. ,5) 0. This means positive relationship between dependent and explanator y variables. In the above model, the extent at which the features of the bankers and type of gadgets used could influence the intensity of ICT usage in the banks is being investigated. This is essential given the fact that it is the bankers that make use of the installed ICT gadgets and for it to have the anticipated impacts in the operations of the banks it must have to be used efficiently. The second model is on the impacts of ICT on the operations of the banks. It relates the usage of ICT (ICTUSE) to some of the variables believed to measure the performance of the banks such as enhancement in speed of banking operations and efficient service delivery (Spid), improvement of workers productivity (Wopd) and inducement in bank’s profit level (Pfit). This model seeks to capture the anticipated impacts that ICTUSE will have in the banks. It is being represented thus; (Xi = f (ICTUSE, ? ) 3 This can further be expressed as: (Xi= ? 0+ ? k ICTUSE + ? Where; Xi : vector of the dependent variables (viz: enhanced speed of banking operations-Spid; improved workers’ productivity-Wopd; and induced bank’s profit-Pfit). ?0 is the constant while ? k (k =1,2,3) shows the variations in dependent variables with respect to independent variable. The aprori is given as ? k 0. Others are as earlier defined. Research Design and Sources of Data Primary data was used with the aid of structured questionnaire in analyses. The population of the study consists of the 25 consolidated Nigerian Banks while the sample is made up of three banks, namely: UBN, UBA and Wema representing about 12%. This is quite adequate as a sample of 0. 05 proportion of the population is believed to be satisfactory in making inferences (Amadi, 2005). These selected banks have elements of the old and new generations, as some of them acquired/merged with other banks during 71 Global Journal of Business Research, Vol. 2, No. 2, 2008 Osabuohien, E. S. C. he consolidation process of 2005. They operated paper based systems at inception and later adjusted at the dawn of ICT revolution. With regards to branch networks, the selected banks have national coverage. UBA which was founded in 1946 merged with Standard Trust Bank Plc in August 2005 and later acquired Continental Trust Bank Plc and Trade Bank Plc in December 2005 and December 2006 respectively, has a bout 500 branches in different parts Nigeria. This made it to be the bank with the highest number of branch networks and first to reach one trillion naira in balance sheet (UBA, 2007). UBN was established 1917 and acquired Universal Trust Bank Plc, Broad Bank Ltd and Union Merchant Bank Ltd in 2005, has 379 branches. While Wema was incorporated in 1945 and merged with National Bank has 110 branch networks2. The target respondents were the bankers (cahiers and managers). This is because they make use of ICT gadgets in the banks; hence, they have adequate information of their operations. The location used was Victoria Island, Lagos (a commercial hub of Nigeria) where most banks have their head offices from where decisions about the use of any ICT gadget are usually initiated and first implemented. Therefore, it is believed that the type of ICT gadgets used in this location would be the same across their branches. This corroborates the fact that the banks have the same mode of operations in all their branches as they are normally networked where one can access his/her account from any of them. The Structured questionnaire drew responses on the following; age, sex, highest educational qualification, marital status, working experience, type of ICT gadgets they use and how significant is its use in carrying out their jobs, among others. 80 questionnaires were distributed to the respondents (60 for each bank) using a purposive sampling technique. This is because the author was interested in eliciting responses from individuals that have a relatively good knowledge of the concepts.