1.1 BACKGROUND OF THE STUDY
Over the years financial system stakeholders have typically paid considerable attention to the significance of the banking sector in the development process, with limited thinking on the promotion of banking system soundness, except until recently with introduction of the banking sector reform. Bank soundness refers to the ability of banks to withstand adverse economic conditions and their ability to promote economic development [CBN, report 2005].
Reform are usually introduced either in response to the challenges posed by factors and developments such as systemic crisis, deregulation ,globalization and technological innovation or as a proactive measures both to strengthen the banking system and prevent system crisis, as in the case of the current reforms.
A sound banking system must be able to facilitate economic development and provide a platform for sound economic policy implementation and ensures that customers and other stakeholders in the banking industry are satisfied. The importance of the banking system to the economy cannot be over-emphasized and it is on this ground that a study on the soundness of banks in Nigeria becomes necessary.
An examination of the soundness of banks in Nigeria was conducted by looking at their capital adequacy, management expertise, assets quality , earnings, liquidity and sensitivity to market risk; as these variables helps to evaluate the performance of these banks and by so doing determine their soundness.
1.2 STATEMENT OF THE PROBLEM
Safety and soundness of the banking system remains one of the key mandates of theCentral Banking of Nigeria [CBN]. This informed the revolutionary effort by the CBN to strengthen banks, refocus and reposition them to meet the global challenges and play a pivotal role in supporting the growth of the Nigeria economy.
Inspite of the effort of the CBN, banks are still not sound as the suppose to be. People are still sceptical as to the soundness of banks in Nigeria in the face of the current economic meltdown. Most Nigeria still feels banks suffer from Some problems such as ; Capital inadequacy, low earnings, poor assets quality, liquidity problems, weak corporate governance, inability to finance large capital projects, poor rating by international rating agencies and weak financial intermediation.
The problems identified above, informed the decision to carry out a research work that will examine banks capital adequacy, assets quality, liquidity ratio, management expertise and sensitivity to market risk in order to determine the health and strength of our banks to meet emerging economic challenges and to able to compete favourably internationally ; as only a resilient bank can withstand risks associated with the current global economic and financial meltdown.
1.3 OBJECTIVES OF THE STUDY
The objectives of the study among others include:
1 To determine the quality of banks earning assets.
2 To determine the level of bank capital adequacy.
3 To determine the liquidity ratios of the banks.
4 To evaluate the banks earning performance.
5 To make recommendations based on observations and findings
1.4 RESEARCH QUESTIONS
The following research questions are formulated to guide in the collection and analysis of data. They are;
1) Is there inefficiency and lack of expertise in the management of the Banks?
2) Does capital adequacy of the banks meet the CBN required standard?
3) What is the level of quality of bank earning asset?
4) Is the banks gross earnings on the decline?
5) Does the liquidity level of the banks fall short of the required benchmark?
1.5 STATEMENT OF HYPOTHESIS
Considering the statement of the problem and the objective of the study, the following research hypotheses were formulated to guide the study:
HO 1 : There is inefficiency and lack of expertise in the management of the banks.
HO 2 : The capital adequacy of banks fall below the CBN required standard.
HO 3 : There is poor assets quality among the banks.
HO 4 : Banks gross earnings has been on the decline.
HO 5 : Banks liquidity levels fall short of the CBN benchmark.
1.6 SCOPE OF THE STUDY
This research work is based on commercial banks in Nigeria. It examined the soundness of banks in Nigeria. The research depended on primary data collected from five (5) banks in Nigeria with fabulous performance; they are: First Bank Nigeria plc, Standard Chattered Bank (Nig) ltd, Access Bank plc, Afri Bank Plc , and Eco Bank plc. The choice of the banks are based on the expert advice of the supervisor of this work.