1.1   Background of the Study

Deposit Money Banks are the backbone of the economy of any country. They are the determinant factors to bring the development of the country; They serve as bridges between savings and investments. Furthermore, deposit money bank are the institutions specifically designed to further the capital formation process through the attraction of deposits and the extension of credit ( see Dhanuskodi, Thangavelu, Venkatachalam & Sudalaimuthn, 2007:2).

Various work have been conducted to recognize the pivotal role of deposit money banks, then referred to as commercial banks, in development of a country. Salvage (1979), Kanu (2005), Adekanye (1986), Ekezie (1997) and Rose & Hudgins (2008); highlight the important roles of deposit money banks to include: acceptance of deposits, granting of credit facilities, financing foreign transactions, offering of trust services, discounting services, financing e-commerce, safe keeping of valuables, managing investments, implementation of monetary policies and foreign reserve management.

Despite these important roles, deposit money banks are exposed to a wide array of risks: financial operations, business and events risks (see figure below). Financial risks reflect possibility of loss associated with liquidity, capital adequacy, credit, profitability and market. While operational risks reflect uncertainty of earnings due to failures in computer systems, management errors, and employee misconduct. Business risks are associated with a bank’s business environment, including macroeconomic policy concerns, legal and regulatory factors, and the overall financial sector infrastructure and lastly, event risks are exogenous risk like political crisis, that could affect bank’s operations.

Figure 1: The Banking Risk Spectrum



























Source: (Greuning & Bratanovic, 2003:4).

These risks, if not properly identified, evaluated, monitored and controlled could jeopardize a bank’s operations or undermine its financial conditions. In extreme cases, it could lead to a distressed or failed bank with its ripple effects on all bank stakeholders such as loss of deposits, investments, employment, credibility by depositors, shareholders, banks staff, and bank regulators, examiners, supervisors and auditors respectively.

In view of the dynamic nature of deposit money banking system soundness and its susceptibility to financial risks, various evaluative approaches have been developed by different scholars to provide early warning signs about the health of banks.

Dick (2003) evaluated the capital adequacy impact on banking operation of Societal General Bank Limited using chi-square technique of analysis. This technique suffers from objectivity as data analyzed were from questionnaire and interview (which are subjective opinions of individuals) and not from the bank financial statements.

Anyanwu (2002), in his research, evaluated the impacted of credit and management on the commercial bank profitability using regression analysis. This technique though appropriate for test of relations or impact, is however dumb on the over all financial performance of the selected banks he studied.

Dhanuskodi, Thangavelu, Verkatachalam & Sudalaimuthu (2007) compared the profitability performance of commercial banks in Ethiopia using profitability ratios and percentage growth ranking. Their work focus on profitability to the detriment of capital ratios, liquidity and assets quality ratios which are measures of capital adequacy, liquidity sufficiency and assets quality. Besides, foreign banks were used which did not relate to the Nigeria environment.

Pak & Huh (1993), compared Korean banks’ performance with Asian and American banks using financial ratios. The study made use of aggregate ratios as against individual bank ratios and hence do not reflect the individual performance of those banks.

Other bank evaluation model is stock valuation model. This tied to market price of bank’s stock as against the operating performance as disclosed in bank’s financial statements.

Having reviewed the shortcomings of various banks performance evaluation models used by different scholars, the purpose of this study is to analyze the trend and comparative financial performance of three selected Nigerian deposit money banks for the financial periods spanning 2003-2007 using Uniform Financial Institutions Rating System (also known as CAMELs Rating). CAMELs rating involves rating the overall financial performance of banks based its capital adequacy, asset quality, management efficiency, earnings Quality, liquidity sufficiency, and sensitivity to market risks. The First Bank of Nigeria Plc, Oceanic Bank International Plc and Access Bank Plc are cases under review.

To assure the tentativeness and credibility of this study, the follows tools will be employed: textbooks, various annual reports of selected banks, journals, Central Banks of Nigeria publications, World Bank Publications, Basel Agreement on International Capital Standards, analytical tables, charts, financial ratios or models, and percentage growth analytical techniques.

The data collected for the purpose of this study will be presented in a non-technical descriptive and pictorial manner. And finally, the conclusions to be reached and the recommendations to be made would assist depositors, shareholders, creditors, bank staff, bank management and auditors to identify a sound or a problem bank before making an interested decision.


1.2   Statement of the Problem 

Stakeholders in the Nigeria deposit money banks are exposed to high risk of loss of their interest holdings due to their inability to identify and evaluate a problem or distressed bank until declared failed bank by the Central Bank of Nigeria.

This apparent lack of practical guide to evaluation of sound or problem banks, led Alashi (2002) as cited in CBN (2004:15), to reveal that bank crisis becomes serve when a bank shows most or all of the following conditions.

  1. Gross under-capitalization in relation to the level and character of the bank business;
  2. High deteriorating credit or assets quality;
  • Illiquidity as reflected in banks in ability to meet customers’ cash withdrawals and/ or a persistent overdrawn position with the Central Bank;
  1. Low earnings resulting in huge operational loss;
  2. Weak management as reflected by poor assets quality, insider abuse, inadequate internal controls, fraud, including unethical and unprofessional conduct, squabbles and a high staff turnover among others.
  3. Mkila (2002) added infrastructural inadequacies e.g. matters to do accounting law and the judiciary, to the list.


1.3   Objectives of the Study

Having identified the problem, the following objectives are pursued in this study:

  1. To assess the deposit money banks’ financial performance based on equity, earnings, deposits and earning assets.
  2. To analyze the performance of these banks based on their capital adequacy, assets quality, earnings quality and liquidity sufficiency.
  • To rank the performance of the selected deposit money banks based on the above two assessments.


1.4   Research Questions

The above objectives of this study are operationalised into the following investigative research questions to give this study a direction:

  1. What are the financial performance of the selected deposit money banks on equity, earnings, assets and deposits?
  2. What are the performance of the banks understudy based on capital adequacy, assets quality, earning quality and liquidity sufficiency?
  • What financial performance ranking or ratings be assigned to the selected deposit money banks year wise?



1.5   Scope and Limitations of the Study

This study is intended to cover five-year financial performance evaluation counting from 2003 to 2007, of the First Bank of Nigerian Plc, Oceanic Bank International Plc and Access Bank Plc on the basis of capital adequacy, assets quality, liquidity and profitability or earnings.

However, this research is not intended to cover evaluation of management efficiency and sensitive to market risks of the mentioned banks neither will it measure financial performance of micro finance banks and other non-banks financial institutions.


1.6   Significance of the Study

This study through its findings and recommendations, will be significant in the following ways.

  1. This study will provide banks’ stakeholders (depositors, investors, bank staff and legislators information in following safety and soundness trend in the Nigeria deposit money banks.
  2. It will serve as a useful reference material for lecturers and financial analysts in future assessment of cases of sound and problem deposit money banks.
  • It will also bring to bare to bank stakeholders the practical evaluation statistics (models) to assessing a deposit money bank financial strengths and weaknesses.
  1. It will be useful to the bank regulatory and supervisory agencies like are the Central Bank of Nigeria (CBN) and the Nigerian Deposit Insurance Corporation (NDIC) in fulfilling their collective mission of maintaining stability and public confidence in the Nigeria banking sector.
  2. And lastly, it will assist bank management to appropriately focus attention on the bank performance area(s) exhibiting adverse or weak trends.



1.7 Profile of Selected Deposit Money Banks

Among the 24 re-capitalized deposit money banks, three of which are selected for review in this study. This sample selection is judgmental and the banks include: the Oceanic Bank International Plc, the First Bank of Nigeria Plc and the Access Bank Plc.

1.7.1 Oceanic Bank International Plc

The bank was incorporated in Nigeria under the companies and Allied Act of 1990 as a private limited liability on March 26, 1990. it was granted license on the 10th of April 1990 to carry on the business of commercial banking and commenced business on June, 12 1990. the bank was converted into a public limited liability company 2004. Its shares were listed on the 25th of June 2004 on the floor of the Nigerian Stock Exchange by way of introduction. The bank is wholly owned by Nigerian citizens.

The principal activity of the bank is and has always been the provision of comprehensive universal banking services to all its corporate, commercial and individual customers from its headquarters in Abuja, corporate offices in Victoria Island and other branches/ cash centres spread across the country ( Oceanic Bank Plc, 2007: 21).


1.7.2 First Bank of Nigeria

The Bank was incorporated as a limited company on March 31, 1984 as Bank of British West Africa Limited with Head Office in Liver Pool, UK. In 1969, the Bank was incorporated locally as the Standard Bank of Nigeria Limited in Line with the Companies Decree of 1968. The Bank was converted to Public Company in 1970 and got listed on the Nigerian Stock Exchange (NSE) in March 1972. Changes in the name of the Bank occurred in 1979 and 1991, to First Bank of Nigeria Plc, respectively.

The Bank engages in the business of Universal Banking. That is, it carries on the business of commercial banking, registrar, trusteeship and capital market (First Bank of Nigeria Plc, 2004, 2006, 2007).



1.7.3 Access Bank Plc

The Bank was incorporated as a private limited liability company on 8 February, 1989 and commenced business on 11 May 1989. The Bank was converted to a public limited company on 24th March, 1998 and its shares were listed on the Nigeria Stock Exchange on 18th November 1998. The Bank was issued a universal banking licence by the Central Bank of Nigeria on 5th February 2001.

The Principal activity of the Bank continues to be the provision of money market activities, retail banking, granting of loans, and advances, equipment leasing, corporate finance and foreign exchange operations.


1.8   Operational Definition of Key Terms

  • Banker’s Acceptance: A short term credit investment which is credited by a non-financial firm and whose payment is guaranteed by a bank.
  • BOFIA: Banks and Other Financial Institutions Act.
  • CAMD: Companies and Allied Matters Decree
  • Capital: Funds subscribed and paid by stockholders representing ownership in a bank. Regulatory capital also includes debts components and loss reserves.
  • CBN: Central Bank of Nigeria.
  • Commercial loan: An unsecured obligation issued by a corporation or bank to finance its short-term credit needs, such as accounts receivables and inventory.
  • Credit risks: The probability that the issue of a loan or security will fail and default on any promised payment of interest or principal or both.
  • Demand Deposits: A Deposit that may be withdrawn at anytime by cheque without prior written notice to the depository institution.
  • Distressed bank: A bank undergoing or expected to undergo liquidation or restructuring in an effort to avoid insolvency.
  • Earning Assets: Loans, investment securities and short term investment that generate interest and yield related fee income.
  • Governor: Means the Governor or any of the Deputy Governments of the CBN.
  • Guarantee: A contractual engagement to answer for the debt, default or failure of another person.
  • Insolvency: A situation where banks’ realisable assets value is less than the total value of its liabilities.
  • Lease: A written agreement under which a property owner allows a tenant to use the property for a specified period of time and rent.
  • Loan: A sum of money transferred to another for temporary use to be repaid with or without interest according to terms of the loan agreement.
  • Liquid Assets: Consist of cash, balance held with the CBN, Treasury bills, balances held with other banks, certificate of deposits, bankers acceptances.
  • Liquidity: Inability of bank to meet its liabilities as they mature for payment.
  • Market risk: The potential for loss on net interest income or market value of securities due to rising and falling of interest rate.
  • Net interest income: Total interest income – total interest expenses.
  • NDIC: Nigeria Deposits Insurance Corporation.
  • OECD: Organization for Economic Cooperation and Development.
  • Operational Risk: Uncertainty surrounding a financial firm’s earnings or rate of return due to failures in computer systems, management errors, employee misconduct, fraud, floods and similar events.
  • Saving Deposits: Interest-bearing funds left with a depository institutions and withdrawable upon demand.
  • Subordinated Debts: Type of capital represented by debt instruments whose claim against the borrowing institution legally follows the claims of depositors but come ahead of the stockholders.
  • Trust Services: refer to the management of property and other valuables owned by a customer under a contract (the trust agreement) in which the bank serve as trustee and the customers becomes the trustor during a specified period of time.
































Access Bank Plc (2007). Annual Report and Accounts 2007.


Adekanye, F. (1986). The Elements of Banking in Nigeria (3rd edn). Lagos: F & A Publishers.


Anyanwu, F.O. (2002). “The Impact of Credit & Management on Commercial Bank profitability: A Case of Selected Banks”. MBA Project Presented to University of Nigeria, Enugu Campus.


Central Bank of Nigeria (2004). A Case Study of Distressed Banks in Nigeria. Abuja: Central Bank of Nigeria.


Dhanuskodi, R; Thangavelu, R; Venkatachalam, A and Sudalaimuthn, S. (2007). “A Comparative Study on the Profitability Performance of Commercial Banks in Ethiopia”. Ethiopian Economic Association 5th International Conference Paper.


Ekezie, E.S. (1997). The Elements of Banking – Money, Financial Institutions and Markets. Onitsha: Africana-Fep Publishers Limited.


First Bank of Nigeria Plc (2004). Annual Report and Accounts 2003/2004.


First Bank of Nigeria Plc (2006). Annual Report and Accounts 2006.


First Bank of Nigeria Plc (2007). Annual Report and Accounts 2007


Greuning, H.V. & Bratanovic, S.B. (2003). Analyzing and Managing Banking Risk – A Framework for Assessing Corporate Government and Financial Risk (2nd edn.). Washington: The World Bank.


Oceanic Bank International Plc (2007). Annual Report and Accounts 2007.


Kanu, N.O.N. (2005). Money & Banking – Concepts, Principles and Practice (2nd edn.). Owerri: BON Associates-HRDC.


Pak, H.S. & Huh, S. (1993). “Comparative Analysis of Korean Banks’

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