CHAPTER ONE INTRODUCTION 1.1 BACKGROUND OF THE STUDY
The name bank is derived from the Italian word banco desk/bench used during the renaissance by Florentine bankers who used to make this transaction above desk covered by a green table cloth. However, there are traces of banking activities even in ancient time. In fact, the word traces its origin back to the ancientRoman Empire, where money lenders would set up their stalls in the middle of enclosed country and called macella on a long bench called bancu, from which the word banco and bank are derived. Mckenna & Fleming (2015) described competition as a market condition which exist when there are large number of business enterprise, all able to supply the same or similar products or service to a large number of purchase/buyers.
In this last decade there has been a high competition within the banking industry in Nigeria, with the licensing and establishment of more banks bringing the total number of commercial and merchant bank in the country to about eight – seven , there has been high tendency for various banks in the industry to fend for themselves for survival. A commercial bank is defined as an establishment which accepts deposit from customers that are prepared which loans an advances and general financial business concerning all forms of trade are made. Examples of such trade are retail, wholesale, import and export trade. The 1991 banking decree defines a commercial bank as any institution which carries out banking business inNigeria, which includes a commercial bank, a discount house, financial institution and an acceptance house. (Federal Republic of Nigeria 2011).
The commercial banking industry inNigeriahas been positively affected by competition. In attempt by commercial banks to fend for themselves many method have been adopted to improve corporate efficiency and maximize profit. This method led theNigeriabanking into scientific approach and investigation into better ways to achieve corporate goals and objective. Some suggested method includes expansion of existing operational facilities to area of wider market, Improving corporate efficiency, diversification of port-folio and investment banking, appropriate marketing, application of combined branch and little degree of unitary banking, good publicity, employment and development of capable staff and carrying out research for onward positive development and growth. Also each day competition in the industry is heightened by emergence of new brand in commercial banks, many of the older commercial banks have been force to change in their operation due to the competition. It is interesting to watch older commercial banks paying as much as 14 – 19% same deposit before the 1986 deregulation in the commercial banking industry has been highly regulated. Economic regulation in general, embraces controls which government imposes on economic and business activities reaching the maximum regulation.
The government can be said in participating in some non-traditional public sectors activities in order to foster competition and improve economic Efficiency. When regulation fails as it often does the process of deregulation is inevitable begins in a bid to avoid collapsed whole systems. Economic deregulation is defined as deliberate and systematic removal of regulating controls. Structure and operational guideline in the administration and pricing system in the economy. The underlined philosophy of the deregulation of an economy or its component segment is the belief that factors of production, good services are optimally priced and allocated when their prices are freely determined in a competitive environment. The aim of the study is to determine four factors affecting competition in the commercial banking industry inNigeria.
1.2 STATEMENT OF THE RESEARCH PROBLEM
The relevance of commercial bank in the economy of any nation cannot be over emphasized. They are the cornerstone, the linchpin of the economy of a country. The financial deregulation in Nigeriastarted in 1987 and the associated financial innovation have generated an unprecedented degree of competition in the banking industry. The deregulation initially pivoted powerful incentives for the expansion of both size and number of banking and non-banking institutions.
The consequent phenomenal increase on the number of banking and non-banking institutions provide financial services which led to increased in competitions among various banking institution and banking and non-banking financial intermediaries. Apart from the competition with the range of financial activities, commercial banks have also faced problem associated with a persistence show down in economic activities, several political instability, virulent inflation, worsening economic financial condition of their corporate borrowers and increased incidence of fraud and embezzlement of funds. All these factors of deregulation, competition , innovation, economic recession political, instability escalating inflation and frequent reversal in monetary policy hence combined to create a challenging and precautions financial environment for banks. Consequent of new financial environment has been rapidly dealing profitability of the traditional banking activities. This in a bid to survive and maintain adequate profit level in this highly competitive environment banks have tended to take excessive risk.But then the increasing tendency for greater risk taking has resulted to insolating and failure of a large number of banks. Hence the sole aim of the study is to determine how some of these factors affect commercial banking industry either positively or negatively.
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