NEW GENERATION BANKS AND OLD GENERATION BANKS: COMPARATIVE ANALYSIS OF UNITED BANK FOR AFRICA AND ZENITH BANK

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

A bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money.

A bank, be it old generation or new generation bank is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly by loaning or indirectly through capital markets. What differentiate new generation bank from old generation bank are the quality of services, the level of technological advancement etc.

A bank links together customers that have capital deficits and customers with capital surpluses.

Due to their importance in the financial system and influence on national economies, banks are highly regulated in most countries. Most nations have institutionalized system known as fractional reserve banking, in which bank; hold only a small reserve of the funds deposited and lend out the rest or profit. They are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords. Banking in its modern sense evolved in the 14th century in the rich cities of Renaissance Italy but in many ways was a continuation of ideas and concepts of credit and lending that had its roots in the ancient world. In the history of banking, a number of banking dynasties have played a central role over many centuries.

Banks’ activities can be divided into retail banking, dealing directly with individuals and small businesses: business banking, providing services to mid-market business; corporate banking, directed at large business entities; private banking, providing wealth management services to high network individuals and families and investment banking, relating to activities on the financial markets. Most banks are profit-making, private enterprises. However, some are owned by government, or are non-profit organizations.

The competition in Nigeria banking sector is getting more intense. Partly due to regulatory imperatives of universal banking and also due to customer awareness of their rights. Bank customers have become increasingly demanding, as they require high quality, low priced and immediate service delivery. They want additional improvement of value from their chosen banks (Olaniye, 2004). Service delivery in banks is personal; customers are either served immediately or join a queue if the server and the systems are slow. Queuing occurs where facilities are limited and cannot satisfy demand made against them at a particular period.

However, most customers are not comfortable with waiting or queuing (Olaniye, 2004). The danger of operating the old generation banking system or traditional banking system which usually result to keeping customers waiting, not getting serviced as they want, irregularity in the Automated Teller Machine (ATM), service failure etc is that their waiting time may amount to or could become a cost to them and which will result to dissatisfaction to the customers.

However, banks no longer restrict themselves to traditional banking activities, but explored newer avenues; to increase business and capture new market. Growroos, (1990).

In the 1990s, greater emphasis being placed on technology and innovation in banking system and new concept like personal banking, retail banking, total branch automation, etc were introduced. This helped most banks to metamorphose from the so called attitude of old generation banking system to new generation banking system in order to meet the demand of not just the customers but also the Central Bank of Nigeria (CBN).

For the purpose of this study, the researcher wishes to give a comparative analysis of the old generation banking technique and the news generation banking technique using United Bank for Africa (UBA) and Zenith Bank Plc.

1.2 HISTORICAL BACKGROUND OF UNITED BANK FOR AFRICA

United Bank for Africa Plc (UBA) is the product of the merger of Nigeria’s third (3rd) and fifth (5th) largest banks, namely the old UBA and the Standard Trust Bank Plc (STB) espective1y, and a subsequent acquisition of the Continental Trust Bank Limited (CTB). The union emerged as the first successful corporate combination in the history of Nigerian banking. UBA’s history dates back to 1948 when the British and French Bank Limited (“BFB”) commenced business in Nigeria and the STB and CTB both in 1990. Following Nigeria’s independence from Britain, UBA was incorporated in 1961 to take over Fie business of BFB.

UBA is a bank with business offices in 19 countries in Africa including Nigeria plus New York, London and Paris. UBA is a large financial services provider in Nigeria with subsidiaries in 20 sub-Saharan countries, with representative offices in France, the United Kingdom and the United States. It offers universal banking services to more than 7 million customers across 750 branches. Formed by the merger of the commercially focused UBA and the retail focused Standard Trust Bank in 2005, the Bank purports to have a clear ambition to be the dominant and leading financial services provider in Africa. Listed on the Nigerian Stock Exchange in 1970, UBA claims to be rapidly evolving into a pan- African full service financial institution. The Group adopted the holding company model in July 2011. As of December 2011, the valuation of UBA Group’s total assets was approximately US$12.3 billion (NGN:1.94 trillion), with shareholders equity of about US$1.07 billion (NGN: 170 billion)

1.3 HISTORICAL BACKGROUND OF ZENITH BANK PIC

Zenith Bank is a Nigerian bank with headquarters in Victoria Island, Lagos.

Zenith Bank was established in May 1990. It became a public limited company in July 2004, and had a initial public offering on the Nigerian Stock Exchange (NSE ) on October 21 of that year. Also in 2004, credit rating agency Fitch Ratings identified its credit as AA - on their long-term scale.

As of December 2010, it is the second largest company in the country. In addition to Nigeria, the bank has branches in Gambia, Ghana, Sierra Leone, South Africa, and the United Kingdom.

The Bank has been in a series o controversies lately as regards its labor practices. The bank has developed a penchant for mass terminations of staff employment without regard to due process. A series of court cases instigated against the bank by ex-employees adds credence to this view. In 2010, the Bank was defrauded of about N7.5 Billion by a staff and was made to make provisions for it by Nigeria’s reserve bank.

ASSETS, LOSSES AND PROFITS OF UNITED BANK FOR AFRICA PLC AND ZENITH BANK PLC

Bank’s assets comprise cash, money at short notice, bills and securities discounted, bank’s investments, loans sanctioned by the bank, etc. Bank’s cash in hand, cash with other banks and cash with central bank are its assets. When a bank makes money available at short notice to other banks and financial institutions for a very short period of 1-14 days it is also treated as bank’s asset. Apart from these items bank always make money available to people on the form of loans and advances, these also represent bank’s assets. The assets of United Bank for Africa and Zenith Bank Plc therefore include cash in hand, deposit with the Central Bank of Nigeria, cash with other banks, loans and advances to the public etc.

United Bank for Africa is said to be one of the largest bank by total assets in West Africa and largest bank by total deposits in the Nigerian Market hence capable of maintaining a significant market share. In the developing Nigerian economy UBA anticipates that it will be able to partake significantly in financing some of the upcoming opportunities in power, telecommunication amongst other sectors. (Source: www.ubagroupcom)

As at September 30, 2009 UBA declared a loss after tax and exceptional items of N7.292 billion compared with a period of 2008. The bank attributed the exceptional items to provisions for loans and capital market activities and write off of special assets. The bank reported gross earnings of N198.149 billion as against N169.581 billion in the comparable period of 2008.

UBA has changed its financial year end to December 31 in line with the Central Bank of Nigeria guidelines. For the financial year ended September 30, 2008, UBA recorded significant growth in all key performance indicators.

UBA gross earnings for the period was N169.6 billon compared with N109.5 billion in 2007 while profit from operations before tax and exceptional items was N56.8 billion as against N31.2 billion in 2007, representing growth rate of 55 per cent and 82 per cent respectively over the previous year.

The balance sheet grew 39 per cent to N2.3 billion during the year on the back of the bank’s aggressive expansion of its presence both nationally and internationally. Total deposits rose 47 per cent to industry highest of N1.33 trillion just as it recorded the best return on assets (RCA) and return on equity (ROE).

With an RCA and ROE of 3.4 per cent and 29.2 per cent in the last financial year, UBA wanted high among other emerging top players in the Nigeria’s banking industry in the area of asset utilization and returns on shareholders’ investment.

(source: www.thetidenewsonline.com)

In 2007 Zenith Bank was said to be African Bank of the Year which was awarded by African Investor magazine. It was also said to be the Quoted Company of the Year which was awarded by Nigerian Stock Exchange; Socially Responsible Bank of the Year which was awarded by African Banker magazine in 2007 also. In 2005 Zenith Bank was said to be the most respected bank in Nigeria (awarded by PricewaterhouseCoopers).

UNITED BANK FOR AFRICA

UBA’s consolidated and Separate Financial Statements for the period of 6 months ended 30 June 2013 is summarized bellow:

ZENITH BANK NIGERIA PLC

Zenith Bank’s statement of comprehensive income for the period ended 31

December 2013 is summarized bellow:

1.4 STATEMENT OF THE PROBLEM

There are some characteristic factors that make a bank a new generation bank or an old generation bank. Some of the factors that make bank an old generation bank could be; failure to meet the technological requirements, having weak deposit base, or afflicted by mismanagement.

Due to a high level of competition in the banking sector arid the CBN requirement of the commercial banks in Nigeria, it is becoming difficult to be able to differentiae new generation bank from old generation bank. A bank can he called an old generation bank i.e UBA because of it number of year 3 in operation. Again, a bank can be called a new generation bank i.e. Zenith Bank because of it recent introduction into the sector. But the problem is that, the so called old generation bank can attain more technological advancement than the new generation bank.

The current banking sector reform in Nigeria was designed to promote the viability; soundness and stability of the system to enable it adequately meet the aspirations of the economy in terms of accelerated economic growth and development. The reform agenda was motivated by the need to proactively put the Nigerian banking industry on the path of global competitiveness to enable it effectively respond to the challenges of globalization. The ability of a bank to meet up with the requirement of this reform agenda is not based on the generation of the bank (whether old or new generation bank).

1.5 OBJECTIVES OF THE STUDY

The following are the objectives o the study:

1.       To give a comparative analysis between old generation bank and new generation bank.

2.       To examine the problem of new generation bank and that of old generation bank.

3.       To examine the relationship between new generation and old generation bank.

4.       To investigate the impact of new generation bank to the economy.

5.       To examine how old generation bank has contributed to the growth of the economy.

6.       To examine those factors that make a bank new generation or old generation bank.

1.6 HYPOTHESIS OF THE STUDY

Ho: Old generation banks do not have more impact on economic development than new generation bank

Hi: Old generation banks have more impact on economic development than old generation bank.

Ho: The old generation banks are more technologically advanced than the new generation banks.

Hi: The new generation banks are more technologically advanced than the old generation banks.

1.7 SIGNIFICANCE OF THE STUDY

The significance of this study relates to the comparison and assessment of the activities of old generation bank and new generation bank and tries to observe which of the activities constitute more economic development of the country.

This study is therefore relevant to the students and researcher as it will help them to know the difference between new generation bank and old generation bank.

1.8 SCOPE OF THE STUDY

This research work tends to cover mainly the comparative analysis of new generation bank and old generation bank and the functions as well as the problems of both. For the purpose of this study, emphasis will be laid on United Bank for Africa rind Zenith bank Plc.

1.9 LIMITATIONS OF THE STUDY

During the conduct of this research work, some factors posed as constraints to the determined efforts of the research to carryout the research study to such a depth and in such a manner that it ought to have been carried out judging from its relevance to Management, such factors include:

a.       Management Restriction: Management hardly allow access to information that are considered very confidential in nature like detail information of the Organizational corporate profile. As a result of the restrictions the researcher was able to work with only the information that was accessible.

b.       Time Constraint: Time is also another factor that acts as hindrances in carrying out this research study. This is as a result of the fact that other things were still being attended to in the course of carrying out this research work,

c.       Financial Constraint: Money also acts as a problem in the conduct of the research work. Traveling expenses were incurred in getting the materials for the research work. Also incurred, were expenses for the typing and distribution, building and a lot of other expenses.

1.10 DEFINITION OF TERMS

Bank: Banks perform very important functions in any modern economy. They provide a variety of financial services with lubricate transactions between business enterprises and their customers or suppliers. They also provide advisory kind technical support services which help business enterprises o solve their operational problems (Inegbenebor: 2006).

Bank performance: Bank performance is the measurement or rating how well a bank is doing, its liquidity ratio ability to meet long and short term obligations and how it is able to aid the wealth of the nation.

Comparison: a consideration or estimate of the similarities or dissimilarities between two things or people.

Failure: inability to meet up a predetermined goal or objective. Management: The art of running and controlling a business or similar Organization. According to Fubara (1986) views Management as an activity carried on in an environment that comprise of resources in capital and human, having alternative uses.