NEW GENERATION BANKS AND OLD GENERATION BANKS: COMPARATIVE ANALYSIS OF UNITED BANK FOR AFRICA AND ZENITH BANK
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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 government-licensed financial institution. Its core businesses include money borrowing and lending. A bank, whether old or new, is a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly through lending or indirectly through capital markets.
The quality of services, the amount of technological innovation, and other factors distinguish new generation banks from old generation banks.
A bank connects consumers who have capital deficiencies and customers who have capital surpluses.
Banks are heavily regulated in most countries due to their prominence in the financial system and influence on national economies. Most countries have institutionalised a system known as fractional reserve banking, in which banks store just a tiny portion of the funds deposited and lend the remainder or profit.
They are often subject to minimum capital requirements based on the Basel Accords, an international set of capital regulations. Banking as we know it today emerged in the 14th century in the opulent towns of Renaissance Italy,
but it was, in many respects, a continuation of ideas and conceptions of credit and lending that had their roots in the ancient world. Several financial families have played key roles in banking history spanning many centuries.
Retail banking, which deals directly with individuals and small businesses; business banking, which provides services to mid-market businesses; corporate banking, which deals with large business entities; private banking, which provides wealth management services to high-net-worth individuals and families;
and investment banking, which deals with financial market activities. The majority of banks are for-profit businesses. Some, however, are owned by the government or are non-profit organisations.
The banking sector in Nigeria is becoming increasingly competitive. Because of the regulatory imperatives of universal banking, as well as client understanding of their rights. Bank clients have become more demanding, requiring high-quality, low-cost, and quick service delivery.
They expect more value enhancement from their preferred banks (Olaniye, 2004). Banks provide personalised service; consumers are either serviced quickly or placed in a line if the server and systems are delayed. Queuing happens when facilities are limited and cannot meet demand within a specific time period.
However, most customers dislike waiting and queuing (Olaniye, 2004). The danger of operating the old generation banking system or traditional banking system,
which usually results in keeping customers waiting, not getting serviced as they want, irregularities in the Automated Teller Machine (ATM), service failure, and so on, is that their waiting time may amount to or become a cost to them, resulting in customer dissatisfaction.
Banks, on the other hand, are no longer limited to traditional banking activities, but have explored alternative channels in order to boost revenue and grab new markets. Growroos was released in 1990.
In the 1990s, there was a greater emphasis on technology and innovation in the banking system, and new concepts such as personal banking, retail banking, total branch automation, and so on were introduced.
This aided most banks in transitioning from the so-called mentality of the old generation banking system to the attitude of the new generation banking system in order to meet the demands of not only consumers but also the Central Bank of Nigeria (CBN).
The researcher desires to conduct a comparative analysis of the old generation banking technique and the new generation banking technique employing United Bank for Africa (UBA) and Zenith Bank Plc for the purposes of this study.
1.2 THE HISTORY OF THE UNITED BANK FOR AFRICA
United Bank for Africa Plc (UBA) was formed by the merger of Nigeria’s third (3rd) and fifth (5th) largest banks, respectively, the former UBA and the Standard Trust Bank Plc (STB), as well as the later acquisition of the Continental Trust Bank Limited (CTB).
The union was the first successful corporate combination in Nigerian banking history. UBA’s history stretches back to 1948, when the British and French Bank Limited (“BFB”) began operations in Nigeria, followed by the STB and CTB in 1990. Following Nigeria’s independence from Britain, UBA was formed in 1961 to take over the BFB’s fie business.
UBA is a bank with operations in 19 African nations, including Nigeria, as well as New York, London, and Paris. UBA is a prominent Nigerian financial services business with subsidiaries in 20 Sub-Saharan African countries and representative offices in France, the United Kingdom, and the United States.
It serves over 7 million consumers through 750 branches and provides universal banking services. In 2005, the Bank was formed by the merging of the commercially focused UBA and the retail focused Standard Trust Bank, with a stated objective to be the dominant and leading financial services provider in Africa.
UBA claims to be fast expanding into a pan-African full service financial institution after being listed on the Nigerian Stock Exchange in 1970. In July 2011, the Group adopted the holding company arrangement.
UBA Group’s total assets were valued at roughly US$12.3 billion (NGN:1.94 trillion) in December 2011, with stockholders equity of approximately US$1.07 billion (NGN: 170 billion).
1.3 ZENITH BANK’S HISTORICAL BACKGROUND PIC
Zenith Bank is a Nigerian bank headquartered in Lagos’ Victoria Island.
Zenith Bank was founded in May 1990. In July 2004, it became a public limited company, and on October 21, 2004, it went public on the Nigerian Stock Exchange (NSE). Also in 2004, the credit rating agency Fitch Ratings assigned it an AA rating on its long-term scale.
As of December 2010, it was the country’s second largest corporation. The bank has branches in Gambia, Ghana, Sierra Leone, South Africa, and the United Kingdom, in addition to Nigeria.
The bank has recently been embroiled in a number of labor-related scandals. The bank has acquired a predilection for mass dismissals of employees without due process.
A series of legal cases brought by ex-employees against the bank lends validity to this viewpoint. The bank was stolen of around N7.5 billion by a staff member in 2010 and was forced to make preparations for it by Nigeria’s reserve bank.
UNITED BANK FOR AFRICA PLC AND ZENITH BANK PLC ASSETS, LOSSES, AND PROFITS
Bank assets include cash, short-term money, discounted bills and securities, bank investments, bank-approved loans, and so on. Cash on hand, cash with other banks, and cash with the central bank are the assets of the bank.
When a bank makes money available to other banks and financial organisations on short notice for a period of 1-14 days, it is also considered an asset. Aside from these commodities, banks always make money available to customers in the form of loans and advances, which are also assets of the bank.
United Bank for Africa and Zenith Bank Plc’s assets so comprise cash on hand, deposits with the Central Bank of Nigeria, cash in other banks, loans and advances to the public, and so on.
United Bank for Africa is reported to be one of the major banks in West Africa by total assets and the largest bank by total deposits in the Nigerian market, allowing them to maintain a significant market share.
UBA thinks that in the rising Nigerian economy, it would be able to play a big role in funding some of the emerging opportunities in power, telecommunications, and other areas. (From www.ubagroup.com)
UBA reported a loss after tax and extraordinary items of N7.292 billion as of September 30, 2009, compared to the same period in 2008. The bank ascribed the unusual items to loan provisions and capital market activities, as well as the write-off of unique assets. The bank recorded gross earnings of N198.149 billion, up from N169.581 billion in the previous year’s similar quarter.
In accordance with Central Bank of Nigeria standards, UBA has moved its fiscal year end to December 31. UBA experienced strong increase in all key performance measures during the fiscal year ended September 30, 2008.
UBA’s gross earnings for the period were N169.6 billion, up from N109.5 billion in 2007, while profit from operations before tax and exceptional items were N56.8 billion, up from N31.2 billion in 2007, representing growth rates of 55% and 82%, respectively, over the previous year.
The balance sheet increased by 39% to N2.3 billion during the year as the bank aggressively expanded its footprint both nationally and internationally.
Total deposits increased by 47% to an industry high of N1.33 trillion, while it also had the top return on assets (RCA) and return on equity (ROE).
With an RCA and ROE of 3.4% and 29.2% in the previous fiscal year, UBA ranked high among rising leading players in Nigeria’s banking industry in terms of asset utilisation and returns on shareholders’ investment.
(Image courtesy of www.thetidenewsonline.com)
Zenith Bank was named African Bank of the Year in 2007 by the African Investor magazine. It was also named the Nigerian Stock Exchange’s Quoted Company of the Year, as well as the African Banker magazine’s Socially Responsible Bank of the Year in 2007. Zenith Bank was named the most regarded bank in Nigeria by PricewaterhouseCoopers in 2005.
AFRICA UNITED BANK
The following are UBA’s consolidated and separate financial statements for the six months ended 30 June 2013:
ZENITH BANK NIGERIA PLC is a Nigerian bank.
Zenith Bank’s comprehensive income statement for the fiscal year ended 31 December
The month of December 2013 is summarised below:
1.4 STATEMENT OF THE PROBLEM
Some characteristics distinguish a bank as a new generation bank or an old generation bank. Failure to satisfy technology criteria, a small deposit base, or mismanagement are some of the causes that make a bank an old generation bank.
Due to the high degree of competition in the banking sector and the CBN requirements of commercial banks in Nigeria, it is becoming harder to distinguish between new and old generation banks. Because UBA has been in business for three years, it is considered an old generation bank.
A bank can also be referred to as a new generation bank, i.e. Zenith Bank due to its recent entry into the business. However, the so-called old generation bank can achieve greater technological advancement than the new generation bank.
The current banking sector reform in Nigeria was aimed to promote the system’s viability, soundness, and stability, allowing it to fully satisfy the economy’s ambitions for quicker economic growth and development.
The reform programme was prompted by the need to proactively put Nigeria’s banking industry on the path of global competitiveness, allowing it to effectively respond to globalization’s difficulties. The ability of a bank to achieve the requirements of this reform agenda is not determined by its generation (whether old or young).
1.5 OBJECTIVES OF THE STUDY
The study’s aims are as follows:
1. To provide a comparison of the old generation bank with the new generation bank.
2. To investigate the problems of new generation banks and old generation banks.
3. To investigate the interaction between the bank’s new and elderly generations.
4. To investigate the economic impact of a new generation bank.
5. To investigate how the old generation bank has contributed to economic prosperity.
6. To investigate the characteristics that determine whether a bank is new generation or old generation.
1.6 THE STUDY HYPOTHESIS
Ho: Older generation banks have no more impact on economic development than younger generation banks.
Hello: Old generation banks have a greater influence on economic development than new generation banks.
Ho: Older generation banks are technologically more advanced than newer generation banks.
Hello: New generation banks are technologically more advanced than previous generation banks.
1.7 SIGNIFICANCE OF THE STUDY
The significance of this study pertains to the comparison and assessment of the operations of old generation banks and new generation banks, with the goal of determining which activities contribute the most to the country’s economic development.
This study is thus significant to students and researchers since it will assist them in distinguishing between new generation banks and old generation banks.
1.8 SCOPE OF THE STUDY
This research effort focuses on a comparative comparison of new generation banks and old generation banks, as well as their functions and challenges. The focus of this research will be on United Bank for Africa and Zenith Bank Plc.
1.9 LIMITATIONS OF THE STUDY
Some factors presented as limits 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 during the performance of this research activity, such factors include:
a. Management Restrictions: Management rarely allows access to material that is deemed highly sensitive, such as detailed information on the Organization’s corporate profile. As a result of the constraints, the researcher was only able to work with the information that was available.
b. Time Constraint: Another obstacle that impedes the completion of this research study is time. This is due to the fact that other things were still being addressed to while carrying out this research work.
c. Financial Restriction: Money is also a constraint in the research process. Travel expenses were incurred in order to get resources for the study project. Expenses for typing and distribution, constructing, and a variety of additional costs were also incurred.
1.10 DEFINITION OF TERM
Bank: Banks play critical roles in every modern economy. They offer a number of financial services that help to smooth transactions between businesses and their consumers or suppliers. They also give advisory-type technical support services that assist businesses in resolving operational issues (Inegbenebor: 2006).
Bank performance is the measurement or rating of how well a bank is doing, its liquidity ratio, ability to meet long and short term obligations, and ability to boost the nation’s wealth.
A consideration or estimation of the similarities or differences between two items or individuals.
Failure is defined as the inability to accomplish a set aim or objective. Management is the skill of administering and controlling a company or organisation. Fubara (1986) defines management as an activity carried out in an environment comprised of capital and human resources with multiple uses.
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