THE
IMPACT OF CASHLESS POLICY ON PROFITABILITY OF COMMERCIAL BANKS IN NIGERIA (A
CASE STUDY OF FIDELITY BANK PLC)
CHAPTER
ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The importance of managing the economy
efficiently cannot be over emphasized. The monetary authorities, by controlling
the supply of money, maintain price stability and influence economic activities
especially when combined with appropriate fiscal measures (Friedman, 1999). The
banking system remains the major channel for monetary control by the Central
Bank of Nigeria (CBN) and the monetary authorities in general. Unfortunately,
it is estimated that about 65% of the cash in circulation in the Nigerian
economy is outside of the banking system, thus severely limiting the impact of
the CBN’s efforts at price and economic stabilization (CBN 2012). Consequently,
the amount of money in the form of deposits available to banks for the creation
of more money is reduced. The profitability of the banks, which to a large
extent depends on the amount of money at their disposal for lending, is
therefore affected by the large size of this informal sector.
However, the breakthrough in
Information Communication Technology (ICT) has revolutionized human society in
terms of communication, efficiency in processes, general exchange of
information, and in the exchange of goods and services. Within seconds,
businesses are carried out online across different geographical location making
it impossible for physical cash to be used as a medium of such exchanges
(Baddeley, 2004).
The Central Bank of Nigeria (CBN) in
collaboration with the Bankers Committee, introduced the cashless policy
designed to provide mobile payment services that aim to breakdown traditional
barriers hindering the financial inclusion of millions of Nigerians, secure and
make convenient financial services to urban, semi-urban and rural areas across
the country.
However, implementing the cashless
policy requires that the banks make huge investments on ICT and other
technologies that would enhance the proper implementation of the cashless
system. For banks that barely survived recapitalization, and several others
forced into a merger and acquisition, this policy may affect their performances
and productivity positively or negatively depending on the strength of the
individual banks. Therefore, this study seeks to analyze the impact of this
policy on Nigerian banks in relation to their profitability using Fidelity Bank
as a case study.
According to (Cobb, 2005), “electronic
payments can thus lower transaction costs stimulate higher consumption and GDP,
increase government efficiency, boost financial intermediation and improve
financial transparency”. She further added that “Governments play a critically
important role in creating an environment in which these benefits can be
achieved in a way that is consistent with their own economic development
plans”.
Fidelity
Bank, also known as Fidelity Bank Plc., is a commercial bank in Nigeria. It is
licensed as a commercial bank, by the Central Bank of Nigeria, the central bank
and national banking regulator. In 2011, the bank was ranked the 7th most
capitalized bank in Nigeria, the 25th most capitalized bank on the African
continent and the 567th most capitalized bank in the world. As of December
2013, Fidelity Bank Plc. was a large financial services provider in Nigeria
with total assets estimated at over US$6.318 billion (NGN:1+ trillion), and
shareholders’ equity in excess of US$1 billion (NGN:158 billion). At that time,
the bank served 2.3 million customers at about 220 branches nationally
(Wikipedia, 2015).
The
current enlarged Fidelity Bank is the result of the merger with the former FSB
International Bank Plc and Manny Bank Plc (under the Fidelity brand name) in
December 2005. Fidelity Bank is today ranked amongst the top 10 in the Nigerian
banking industry, with presence in all the 36 States as well as major cities
and commercial centers of Nigeria. Fidelity continues to rank among Nigeria’s
most capitalized banks, with tier-one capital of nearly USD1 billion (One
Billion US Dollars).
1.2 STATEMENT OF THE PROBLEM
The
quest for global relevance and sustainable development had led to wide
exploitation of the benefits of cashless policy in payments system of Nigerian
banks. The study examines the impact of cashless policy on the profitability of
banks in Nigeria using Fidelity Bank Plc as a case study. It has become
necessary for researchers to make use of values and figures obtained in the
cashless services such as Automated teller machine (ATM), Point of sale (POS),
and web based transaction (WBT) to examine its impact on the aggregate return
on equity (ROE) of deposit money banks in Nigeria with a view of identifying
the effect of this cashless policy on profitability of Nigerian Banks.
1.3 OBJECTIVES OF THE STUDY
The
following are the objectives of this study:
1. To
examine the impact of cashless policy on profitability of commercial banks in
Nigeria.
2. To
examine the overall effectiveness of the CBN’s cashless policy.
3. To
determine the level of acceptance of the cashless policy by Nigerians.
4. To
identify the limitations in the implementation of cashless policy by commercial
banks in Nigeria.
1.4 RESEARCH QUESTIONS
1. What
is the impact of cashless policy on profitability of commercial banks in Nigeria?
2. What
is the overall effectiveness of the CBN’s cashless policy?
3. What
is the level of acceptance of the cashless policy adopted by commercial banks
in Nigeria?
4. What
are the limitations in the implementation of cashless policy by commercial
banks in Nigeria?
1.5 HYPOTHESIS
HO:
There is no significant relationship between the cashless policy and
profitability
HA:
There is significant relationship between the cashless policy and profitability
1.6 SIGNIFICANCE OF THE STUDY
The following
are the significance of this study:
1. The
outcome of this study will educate stakeholders in the banking industry on how
the cashless policy has influenced the profitability in the Nigerian commercial
banks.
2. This research will also serve as a
resource base to other scholars and researchers interested in carrying out
further research in this field subsequently, if applied will go to an extent to
provide new explanation to the topic.
1.7 SCOPE/LIMITATIONS
OF THE STUDY
This
study on the impact of cashless policy on profitability of commercial banks in
Nigeria will cover the level of profit made by commercial banks before and
after the implementation of the cashless policy in Nigeria
LIMITATIONS OF STUDY
Financial constraint– Insufficient fund tends to impede the
efficiency of the researcher in sourcing for the relevant materials, literature
or information and in the process of data collection (internet, questionnaire
and interview).
Time constraint– The researcher will
simultaneously engage in this study with other academic work. This consequently
will cut down on the time devoted for the research work.
REFERENCES
Baddeley, M. (2004). Using E-Cash in the New Economy: An
Economic Analysis of Micropayment Systems, UK Cambridge. Journal
of Electronic Commerce Research, 5(4)
Central Bank of Nigeria (CBN) Statistical Bulletin. (2012).
Cobb
Anne. (2005). http://www.ameinfo.com/50050.html.
Friedman, B. (1999). The Future of Monetary Policy: The Central
Bank as an Army with Only a Signal Corps? International Finance, 2,
3(321-338)
Wikipedia,
2015: www.wikipedia.com