THE IMPACT OF GLOBAL FINANCIAL CRISIS ON THE NIGERIAN BANKING SECTOR
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
The world Technological advancement has ushered in drastic changes in The global financial crisis began in the United States of America and the United Kingdom when the global credit market came to a standstill in July 2007 (Avgouleas, 2008:24). The crisis brewing for a while, really started to show its effects in the middle of 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems. The crisis later spread to Europe and now has become a global phenomenon. The financial crisis at the early stage manifested strongly in the sub-prime mortgages because households faced difficulties in making higher payments on adjusted mortgages (Olowe, 2008:11). This development led to the use of credit contraction by financial institutions in the US to tighten their standards in the light of their deteriorating balance sheets. In addition, financial institutions stopped lending and recalled their credit lines to ensure capital adequacy (Aluko, 2009:32). According to Baker (2008:31), the original root of the current financial mess is in the US- the world‘s largest Industrial-Military complex. With an estimated GDP of $14 trillion, the US contributes about 25% of world output. If, as is being forecast, the US economy contracts by just 1%, this will imply a direct output loss of approximately $140 billion- equivalent to the GDP of Pakistan, the 47th largest economy in the world! And the crises are not restricted to the US. Cyprian (2008:44) notes that financial markets have tumbled and slumped the world over: from London to Tokyo, Seoul to Sydney, Sao Paulo to Moscow, Bombay to Frankfurt etc. Avey (1998;12) asserts that no economy – whether developed, emerging or developing is, so far, insulated from what Greenspan refers to as „once-in-a-century credit tsunami‟. The initial response of the policy makers in Nigeria was meek. Either they did not understand the crises or underestimated its magnitude. In general, they thought of the crisis as only a ‗storm in a tea cup‘, an aberration, a ‗hiccup‘. They insisted that the ‗fundamentals of the financial system look impressively strong‘ even when the capital market has been bleeding uncontrollably. The Minister of Planning stated, rather insensitively, ‗there is