THE EFFECTS OF GLOBAL FINANCIAL CRISIS ON THE FOREIGN DIRECT INVESTMENT IN NIGERIA BANKS

1.0 Introduction

1.1 Background of the Study

The global financial crisis brewing for a while really started to show its effects in the middle of 2007 and into 2008 around the world stock markets have fallen, large financial institution have collapsed or been brought out, and government in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.

A collapse of the united states sub-prim mortgage market and the reversal of the housing boom in other industrialized economist have had a ripple effect around the world.

According to Aluko (2008), the lending difficulties of the investment banking industry in the united states spectacularly lehman Brothers, Merrill Lynch, morgan Stanley and JP morgan chase and government backed mortgage giants fannie mae and Freddie mac has casued series of panics and financial instability globally even in the growing economy like Nigeria.

According to shah (2009) starting in well street, other followed quickly. With soaring profits, all wanted in even if it went beyond their area of expertise. Banks borrowed even more money to lend out so they would create more securitization some banks borrow from other banks and sells those loans on as securities, bad loans would be the problem of whosoever bought the securities.

Nigerian economy cannot be alienated from what happens in the global economy since oil the major source of our revenue is affected globally with the short all in oil price to less the £40 dollar per barrel, yusuf (2009).

Flakpa, Adeboya, Igbikiowuba, Komolafe (2008) the withdrawal of funds by foreign investors from the Nigerians economy has contributed to the downward trends of stock market value of the various sector in the Nigerian economy. The Nigerian banking sector is not left out especially with some of the having foreign partners who contributes to the growth and development of the sector.

At the inception of the global financial methods, it was though that Nigeria will not get caught in the economic back lash, but now it is no longer how should we get insulted but how do we reduce the adverse effect of the financial meltdown.

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1.2 Statement of the Problem

In Nigeria, the capital market has recorded a downturn as economic watchers notice divestment by foreign investors, with attendant tightness and possible second round effects on the balance sheet of banks by increasing provision for bad debt decrease in profitability.

Another problem is loss of confidence in carry out their “Intermediation” role in the economy. This has led to the crashing of the stock market in which Nigeria banks share prices nose dive and loss value of more than 60 percent. The crash can also be blamed on the withdrawal of funds by foreign investors.

Banks have loss the opportunity of realizing revenue from interest on loans which might be given to foreign investors who would want to embark on viable project but with sufficient capital.

Ordinarily, the effects of the global financial Nigeria, If her economic management team had boom in mind that there is always a tomorrow and so prepare for an inevitable rainy day.

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1.3 Objectives of the Study

This study is designed to achieve the following objectives.

1. To economic the effect of global financial crisis on foreign direct investment in Nigerian banking sector.
2. To measure the extent to which global financial crisis has affected foreign direct investment in Nigerian bank.
3. To evaluate the efforts banks make to with stand the effects of the global economic downturn.
4. To identify the problems Nigerian economy will face as a result of withdrawal of funds by foreign investors from the banking industry.
5. To investigate on the appropriate solution to reduce the effects of the financial crisis on the Nigerian economy.

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1.4 Research Question

• To what extent do the global financial crisis affect Nigeria economy?
• Did global financial crisis affect the opposition of Nigeria banks?
• What is the degree of the economic effect of the global financial crisis on foreign direct investment in Nigerians?

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1.5 Statement of Hypothesis

According to Ezirim, Aloy chinedu et al (2006), A hypothesis is an assumption or statement made well in advance of observation (or actual collection of data), about what can be expected to occur concerning one or more population understand or given condition. In this research work therefore, two null and alternative hypothesis are stated. The null hypothesis is shall be analyzed and tested for decision rule in chapter four of this work.

The null hypothesis is shall be rejected if the result of the findings proves it false and in that case the alternative hypothesis shall be taken or accepted. But when the result finds prove that null hypothesis is right, it shall be accepted.

Ho-ve: the global financial crisis does not affects Nigerian banks to a greater extent (x2 tested x2 table)

H1+ve: the global financial crisis affects Nigerian banks to a greater extent (x2 table or x2 tested > x2 table)

H0-ve: the foreign direct investment does not contribute to the Nigerian economy (x2 tested = x2 table)

H1+ve: The foreign direct investment contributes to the Nigerian economy (x2 tested = x2 table).

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1.6 Significance of the Research

The following are the importance of the study on various groups.

The Investors:

it will aid investors to evaluate the performance of banks in the present economic event and to guard against irrational investment in portfolio that is vulnerable to the financial meltdown.

The Banks:

The study will assist banks to identify the threats in the current financial system and convert their strengths to opportunities for profit making to avoid liquidation due to unwise lending to vulnerable avenues.

The Creditors:

The creditors will benefit from this study since loop holes in the financial system is exposed there by aid them to avoid throwing funds to the wind.

The Government:

This study will aid the government to put close check on the financial system and adopt policy when urgency demands.

The Populace:

this will aid them to have knowledge of the economic event.

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1.7 Scope of the Study

This study covered only the Nigerian banking sector including such other areas as the global financial crisis.

Its impact on banks and effects on foreign direct investment trend in Nigerian banks.

The activities of banks in the stock exchange (NSE) as at time of this research.

The central bank of Nigeria's tools in handling the adverse effect of the crisis.

The challenges to be faced by banks and the financial system.

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1.8 Limitation of the Study

The following factors hindered this study:

Insufficient Funds:

During the period of this research work, finance was inadequate following the unfavourable economic situation in the country.

Difficulty In Obtaining Information:

These is caused by lack adaisical attitude of bank officials and other personal in the position of information delivery.

Time Factor:

The studying of the banks in the country would be time consuming since the time given for research was quite short especially when one had to combine it with one's lecture period.

Changing Factors:

The events on the topic at hand changes over time hence, the information obtained might change over short period of time.

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1.9 Definition of Terms

Bad Debts:

Credit whose maturity is overdue but chances of repayment from the borrower is zero especially when there may be no perfected securities easy to realize.

Bail Out:

To provide emergency financial help to keep a firm a float.

Boom: a rapid increase of business activities that generates high or increasing turnover to a firm or economy.

Correspondent Banks:

Larger banks who provide financial services including assistance to smaller banks.

Credit Crunch:

A sudden reduction in the availability of loans and other types of credit from banks and capital markets at a given rate of interest

Financial System:

It consists of institutional units and markets that interact typically in a complex manner, for the purpose of mobilization payment systems for the financing of commercial activities.

Foreign Direct Investment:

This is investment of foreign assets into domestic structures equipment and organizations. In this context, it is investment of foreign assets into banks in Nigeria.

Global Financial Crisis:

This is economic down turn that spill over the world economy as a result America's financial system.

Financial Intermediation:

It is the primary functions of the financial institutions which involves collecting funds from the surplus unit and channeling or lending it to the deficit unit (area of use).

Investment Banking:

It is provision of a range of financial and investment related services, advising clients on security issues, acquisitions and business disposals, arranging underwriting new issues, distributing securities and running fund management companies.

Securitization:

Creating a more or less standard investment instruments such as the mortgagee pass through security, by pooling assets to back instrument.

Stock Market:

It is a market for the trading of company stock, and the likes of the same. In abstract concept, it is the mechanism that enable the trading of company stock.

Stock Market Crash:

A situation in which a stock market experiences a shuddery and major decline in the prices of its underling stocks.

Subprime Mortgage:

A class of mortgage used by borrowers with low credit ratings. It is also granted to borrowers whose credit history is not sufficient to get a conventional mortgage.

Wall Street:

Located at manhattan USA, it is the historic site of many financial institutions which has become a symbol of commerce and the American economy. The East west running street is office to several firms and also house the new York stock exchange (NYSE) a major institution in the American market.