Roles of Banks in Facilitating Foreign Business Finances in Nigeria
CHAPTER ONE
OBJECTIVES OF THE STUDY
- To examine the role of banks in foreign business finance.
- To examine the operation of the foreign company in Nigeria
- To examine foreign investment requirement and protection
- To examine the nature and level of relationship between First bank and other specialized banks in financing international business.
CHAPTER TWO
LITERATURE REVIEW
Theoretical foundation
The better we understand behaviour from a variety of points of view the more effective we can use it in analysis and problem solving (Kothari, 2004). This study will be based on three main theories. These are: Transaction cost theory, Porter‘s theory of Diamond model, and Keynesian theory. These are presented below.
Transaction Cost Theory
Ronald Coase in (1937) tries to explain why companies exist and why companies expand or source out activities to the external environment. The transaction cost theory supposes that companies try to minimize the costs of exchanging resources with the environment, and that companies try to minimize the bureaucratic costs of exchanges within the company. International traders are therefore weighing the costs of exchanging resources with the environment (in this case the banks) against the bureaucratic costs of performing activities in-house. The theory sees institutions and markets as different possible forms of organizing and coordinating economic transactions.
When external transaction costs are higher than a company’s internal bureaucratic costs, the company grows because the company is able to perform its activities more cheaply than if the activities are performed in the market. However, if the bureaucratic costs for coordinating the activity are higher than the external transaction costs, the company downsizes and the roles of international trade facilitation and promotion are performed by commercial banks.
According to Coase (1937), every company expands as long as the company’s activities can be performed cheaper within the company as opposed to outsourcing the activities to external providers in the market. According to Williams (1997), a transaction cost occurs when a good or a service is transferred across a technologically separable interface. Therefore, transaction costs arise every time a product or service is being transferred from one stage to another, where new sets of technological capabilities are needed to make the product or service.
The transaction costs related to the exchange of resources with the external environment could be reflected by the following factors; environmental uncertainty, opportunism, risks, bounded rationality and core company assets. These factors potentially increase the external transaction costs, where it may become rather expensive for a company to control these factors. Therefore, it may very well be more economical to maintain the activity in-house, so that the company may not use resources on contracts with suppliers, meetings, supervision etc. Therefore, if companies see the environmental uncertainty as high, they might choose to not outsource or exchange resources with the bank. The theory, therefore, guides the banks in setting realistic prices for their international business services such as foreign exchange rates and charges to international payment transactions.
CHAPTER THREE
RESEARCH METHODOLOGY
Research Design
Research design refers to how data collection and analysis are structured in order to meet the research objectives through empirical evidence (Cooper and Schindler, 2006). The study adopted descriptive research design. Mugenda and Mugenda (2003) describes descriptive research design as a systematic, empirical inquiring into which the researcher does not have a direct control of independent variable as their manifestation has already occurred or because the inherently cannot be manipulated.
The study used a case study design as well in determining the strategic planning and implementation practices. Kothari (1990) describes a case study as a form of qualitative analysis that involves a careful and complete observation of a social unit. He further describes a social unit as a person, family or institution. The researcher adopted a case study because of its contribution to the knowledge of individual, group, organizational, social and political phenomena.
CHAPTER FOUR
DATA ANALYSIS, RESULTS AND
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Demographic Factors of the Respondent
From the data collected, 6 respondents were interviewed in the department. Several demographic factors were considered which were important in the interpretation of responses given. The factors included the gender of the respondent, their highest level of education, and number of years in the organization as well as their position in this department.
CHAPTER FIVE
SUMMARY, CONCLUSION ND RECOMMENDATIONS
Introduction
This chapter presents summary, conclusion and recommendations of the study in line with the objective of the study aimed at examining the role played by First bank in promoting international trade.
Summary
The objective of the study was to determine the role played by First bank in promoting international trade. The study established that the various international business transactions at First bank Limited included issuance of letters of credit which is done by getting collaterals and other relevant critical documentation. The letters of credit are governed by the international chamber of commerce, thus the terminologies used is similar across all banks. Other international business transactions included bank guarantees which are issued based on various bank specific conditions. The bank also offers discounting of invoices to the customers as another international business transaction to the clients.
Conclusion
The study concluded that the bank led to the establishment of RMA with various banks especially in China. RMA Africa is a French regulated mutual fund (Fonds Commun de Placement) issued from the partnership between RMA Asset Management and RMA Capital. The fund is mostly invested in Africa and gives investors the opportunity to benefit from the substantial potential of this market, with a firmly established local expertise. The fund’s objective over the recommended investment period, is to take profit from the dynamism of a growing continent by selecting African securities offering the greatest potential of appreciation in the medium term. The annual report released by the RMA listed Nigeria at the top position up +2.54% rated the best performance. (RMA Africa, 2014).
Recommendations for policy, theory and practice
The study recommends that bank management should review the policies guiding the provision of international trade finance products to customers with a view to making them attractive and affordable to customers.
The study also recommends that the government with the statutory arm (Central Bank of Nigeria) enact policies that curb transactions on substandard imports and issue hefty penalties to non-abiding business persons.
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