CHAPTER ONE
INTRODUCTION
1.1 Background to the study
The banking sector of any economy is one of the most important sectors. The sector represents the most active, most influential and responsive to changes in the economy especially as it has to respond to the dynamics as imposed by globalisation. It also plays a significant role in the economic development of all countries. The efficiency of banks is therefore of paramount importance in the development process of a country (Ikehide, 2000).
Efficiency is a major success determining factor in today‟s business
environment because of its highly dynamic and competitive nature. Efficiency in
banking is the ability of a bank to use small amount of inputs to produce
maximum outputs (Mehdian, Perry & Rezvanian, 2007). Efficiency in banks can
be classified into various forms namely; technical, pure technical and scale
efficiencies (Afsharian, kryvko & Reichling, 2011). Technical efficiency
has to do with obtaining the maximum level of loans, financial assets and net
commission income from a given set of equity, liabilities and deposits. Pure
technical efficiency deals with a gain, an optimal utilization of inputs to
generate output, In other words, it is the ratio of technical efficiency to
scale efficiency. Scale efficiency deals with choosing the optimum size of bank
to generate certain production level (Bikker, 1999). Managers must develop
strategies in order to be viable and succeed in this highly unpredictable
environment. Innovation is regarded as an important factor that influences
individual business success. It has improved the impact of banks on the
populace, and also expanded the horizon of banking business in developed
nations. The fact that the business of banking is similar everywhere
presupposes homogeneity in banking services, thus globalisation is easily
amenable to the banking sector (Umaru, Hamidu & Musa, 2013).
Globalisation is seen as the removal of artificial barriers restricting trade and investment and ensuring free movement of goods and services and investment around the world, so as to create a global economy (Usman, 2004). It has led to increased interconnectedness and interdependency among national economies. Shrinkage in distance and location between countries facilitated by rapid advances in Information and Communication Technology (ICT) enable free movement of goods and services and investment has become apparent. This has created a global village with single global market place which forces countries to establish new policies and in turn business firms are forced to review or change their mode of operations. Banks, especially in today‟s era of globalisation have been forced to adopt new strategies to enable them enhance their performance and enable them compete successfully in the global arena (Usman, 2004).
On the other hand, globalisation is viewed as a conspiracy by a few individuals or countries to create a one world government that will dominate the field of international finance thereby creating a centralized banking system through the use of a single currency (Gary, 1992). This is facilitated by rapid advances in electronic banking technology and the willingness of consumers to accept a single card for worldwide use there by promoting a cashless society and the recent international banking laws that have enabled foreign banks to take over local banks (Gary, 1992).
Globalisation, therefore, is a phenomenon which banks operating in the
twenty first century cannot ignore because globalisation provides an array of
opportunities for banks through increased access to new markets. These benefits
notwithstanding expose banks to stiff competition from other banks from around
the world that may be stronger and more financially stable. Therefore, banks
must adopt strategies that will enable them reap the benefits of global market
and minimise the threat from the global market.
Increased integration among national economies has made the concept of banking efficiency more important. The globalisation of financial services has revolutionised and changed the entire banking industry business models, thus, changes in attitudes and perception of the work force and new competitions have become apparent. Since globalisation exposes banks to competitive pressure both locally and globally, banks therefore need not only be profitable but efficient in order to compete in this changing environment (Gul, Irshad & Zaman, 2011).
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GLOBALISATION AND EFFICIENCY OF DEPOSIT MONEY BANKS (DMBs) IN NIGERIA
