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Banking crisis are a recurrent trend in the present-day world of finance. Banking crisis management consist of a group of official and personal responses because banks are unique, with the increasingly part they play in these current times. The collapse of a bank and the prospective loss of access to banking services, even for a short period of time could have severe impact on the capacity of people to carry on with their daily lives, on top of the impending loss of their deposit held with the bank. This indicates that for customers, banking services will be perceived as necessary (Waring & Glendon, 2007).
2.2 Theoretical/ Conceptual Framework on banking crisis and resolution
2.2.1) Theory of Bank Crisis
Mishkin (2002) points out that, banking crisis could be classified into two major schools, namely monetarist and business cycle school. According to business cycle banking crisis is linked to it, hence the flawed stresses in monetary policy, however that is totally different from what is occurring at present. The hegemonic observation in typical economics clarifies the unexpected happenings of banking crisis by merging issues formed by information irregularity in credit contracts with the happening of macroeconomic shocks. As a result the justification of the reasons for banking crisis is related to the expansion of the business cycle.
Kindleberger (2007) implies that the long-established monetarist ideas are frequently mix with the concept of macroeconomic shocks, laying emphasis that flawed monetary policy influences both the business cycle badly during the upsurge as well as during the decline. This may prompt depositors to cash in at banks, thereby causing financial stability in financial institutions.
A financial system logically builds up from a strong structure to a weak one. As the representative of the instability hypothesis by Irving Fisher, appends immense significance to debt as the source of financial difficulties. Over an extended time of prosperity, there is a transition by the economy from financial associations that head towards a secure system for financial relations that move towards an unsound system. Consequently, an increase in financial weakness is also an outcome of debt contracted to control the possession of speculative assets for resale later (Minsky, 2005).
2.2.2) Theory of Contagion
Fratzscher (2002) demonstrates that this theory is grouped into two, the fundamental causes and investors' behaviour. Global or common shock (also known as monsoonal effect) is one type of fundamental cause. For instances a major change in economic shift in industrial countries, also changes in currency value or interest rate and a decline in international expansion could start crisis, as well as huge capital outflows from up and coming markets (Bekaert & Campbell, 2003).
Bordo and Murshid (2001) demonstrate that the second main fundamental cause is trade linkages, that contains linkages through direct trade and competitive deflation is also a cause for banking crisis. Banking distress in one country can cause a decrease in earnings, and equivalent decline in demand for imports, consequently have a negative effect on exports. This causes the country's currency to be weakened. As a result it decreases the relative export competitiveness of other countries that could take part in third markets.
While Gelos and Ratna (2001) explained that investors' re-evaluation of policies under which international financing is obtained could also cause contagion. This could be a sign of increase anxiety that countries might follow challenging, unilateral laws regarding foreign private creditors. In addition, this could be an indication that foreign financial institutions are less likely to help out countries with financial trouble, this could be as a result of the change in rules or inadequate supply of resources.
2.2.3) Theories of Banking Regulation
Banks are regulated due to the fact that if they fail, there would be negative externalities causes on their clients. Nonetheless the official rational for banking regulation is the requirement of providing security for banks to protect depositors in case of the distress of their banks. Externalities are generated by the failure of any type of business, nevertheless while prudential regulations are fundamentally limited to banks, insurance firms and other financial intermediaries will demonstrate that, this precision of bank failures could be made clear by asymmetric data issues. So, even though the rational of banking regulation could be associated to the same fundamental market failures categorize by the general theory of public regulation, they are so entwined that an exact analysis is required (Frederick, 2001).
The general regulation theory is apprehensive about the design of the optimal regulatory policies. It is as a result mostly normative. Positive approach regulation analysis is the major strand taken. Its goal is to evaluate the consequences of a known regulation that either under study or exist by the regulatory authorities, for example, capital sufficiency condition, those in support of this approach would put forward questions like will this regulation be successful in achieving its goals? Will the risk taken by banks be induced further by it? Or will it alter the stability of rates in the credit market? (Allen et al, 2003).
The pattern of bank branching deregulation throughout the last 30years could be accounted for by the regulation of the private interest theory. Those who benefited from branching regulation had supported an alliance that favoured geographical restrictions regardless of their cost to clients. Several innovations that started in the70s changed the value of the limits to the parties affected, and the resulting rivalry among interest groups can clarify the consequent deregulation. Although several results are also consistent with the public interest theory other results mainly facts on the significance of competition among small and large banks and between banking and insurance are not easy to describe with the public interest approach (Jith and Phillip, 2005).
Security and soundness regulatory tools in use in the banking industry could be grouped into six broad kinds, that is, entry, branching, market and merger restrictions, portfolio restrictions, deposit interest ceiling including reserve requirements and even, as a severe case, narrow banking, deposit insurance, capital requirement and regular monitoring (Allen et al, 2003)
2.2.4) Resolution Theory of Bank Crisis
There are a variety of theories for resolving insolvent banks. A bank could be kept operating by the injection of capital at one extreme, while on the other hand the assets of a bank could be sold and depositors and probably other creditors paid off while the bank is shut down at the other extreme. Among these extremes, a banks licence might be taken away, but the bank is acquired by another bank in parts or full to ensure the bank's activities are continued. The degree of participation of the authorities may also differ. It may be narrowed down to persuading or organising private sector support, or extended to official financial support, in the boundary in the course of government takeover (Demirguc et al, 2000).
Caprio and Klingebiel (2003) demonstrate that when a bank is facing financially difficulties there is generally an inclination to promote a private sector solution.
Whereby a bank is, insolvent or is close to it, the existing shareholders could be asked to by the administrator to make available the shortfall in the funds. This has the benefit of attempting to keep the bank active as a going concern, while impose a charge on those that have most to achieve from the bank's continued existence. If a deteriorating bank is acquired by another stronger bank this normally has the benefit of disciplining current managers and shareholders. The higher-ranking managers would probable to be changed whilst all or parts of investments would be lost by existing shareholders.
If funds infusion from existing shareholders or other concerned parties is not accessible, an unaided merger with another strong financial institution is normally the next course of action. For a lone merger to occur, the level of losses must be translucent to the potential buyer. Hence, supervisors should look at the distressed bank to find out the size of losses to make certain that the purchasing institution has enough money to accommodate possible losses in the deteriorating institution (Goldstein & Turner, 2006).
2.2.5) Bank Crisis Theory Empirical Evidence
Knutsen & Sjogren (2009) implied that, after the macroeconomic study on the Norwegian banking crisis from 1987- 1992 that pro-cyclic monetary policy reason for both the uncontrolled lending all through the boom in 1983-86 and the 1987 loan losses. It has been established, that monetary policy scarcely could be the driving force following the 1983-1986 extreme boom in Norway. Somewhat the deregulatory measures carried out during the liberalization of financial markets were the key impulses to which the boom began. Previously banking crisis frequently have been associated to depositor panics and bank runs. Nevertheless the application of bank runs as the key or the only sign of banking crisis and failing monetary policy as the main explanatory cause in understanding the crisis in banks over time and space are related with great logical issues.
Knutsen & Sjogren (2009) further argued that the Minsky-Kindleberger theory has a basic fault. Not every booms turns out up to become banking crisis the Minsky-Kindleberger theory is not very comprehensive about the function of the state, in the phase leading up to financial vulnerability by a bank.
In additon, traditional theories are not capable of explaining banking crisis totally given that the disparity within the banking area is ignored. Individual banks strategies have to be examined and associated to the losses in the following crisis. A bank's readiness to admit to the risk of undergoing credit losses is reliant on the macroeconomic environment, the legislation, control systems and the bank's internal governance. Hence losses may be as a result of managerial or operational decisions, a variance between old and new institutions, or by a general market movement, or more probable, by a mixture of the three (Knutsen & Ecklund, 2000).
Steigum (2004) suggests that three factors determined financial instability. Firstly, is the case of, if the lender of the last resort will step in or not. Secondly, to ascertain the number of players concerned in order to establish the profundity of the distress. Lastly, the behaviour of consumers which are associated with moral hazard, rational and joint action has an influence on the total outcome. The players can take away or add confidence in purpose of the market. If there is an agreement about the means and the target, each person will operate in a similar way. This approach, in turn, leads to a smoother course towards stabilization, and if the financial difficulty still remains, the next phase is banking crisis.
Knutsen & Sjogren (2009) states that as an outcome of banking crisis, the whole system and also specfic distressed companies would have to be by salvage by the government or CBN. The quantity of actors will decline and the will be a contrast in the financial industry thereby causing credit crisis. They arrived at the outcome that the non financial industry hence will be more reliantant than before on internal financing and financial sources outside the customary financial industry.
2.2.6) Empirical Evidence of Bank Regulation Theory
The present crisis as Randall (2009) points out, has uncovered several boundary problems, with both leveraging and maturity transformation being taken on important scale by entity outside the regulatory boundary in addition to those surrounded by it. furthermore, the tightening regulatory that is both needed and already under way will formulate new incentives to try to put certain activities outside the boundary.
A number of activities, products and financial institutions are regulated, while others are not. Often termed the regulatory boundary issue,is the result.Generally the boundary is established by risks to customer security and financial permanence. If risks posed by an activity, product or entity to these two aims, that cannot be kept under controllother than by direct authorisation and supervision, the boundary should be drawn to embrace them, or other steps should be taken to lessen their impact on the stability in the market (Allen et al, 2003).
Frederick (2008) points out that, numerous reasons for the present crisis starts from the regulated sector. Due to the crisis risks have been discovered that elements of unregulated financial sector pose to financial permanence because of their reputational link, to regulated companies and the effect on market pricing of asset sales and other activity by the unregulated.
According to Allen et al (2003) the crisis has drawn attention to a number of the problems and risks that can arise from big, international group operating structure, specfically where these span a number of jurisdictions. Evidently there are important benefits and efficiencies that flow from such structures, like group capital and liquidity planning as well as management functions that are centralised. A number of challenges for supervisors are posed by such structures. The crisis has also indicated the difficult problems that occur when large, international groups with highly integrated structures of organisations encountering difficulty while, ultimately collapse in some cases. In these conditions, it probably be very hard to get the organized resolution or sale of one (national) business, since it will be so incorporated into the wider group, frequently in ways that span diverse jurisdictions.The recent crisis has seen the collapse or near crash of a huge number of international financial groups. This has in turn shown problems about the manner in which these groups are overseen, both other regulators and by the FSA. The existing crisis, reflecting the growth in the global economy, has in its nature been global and has shown major deficiency in international regulatory arrangements. Mounting risks were not identified properly and inspection of standard-setting bodies (and implementing of their standards), with regulatory authorities, diverse in their efficiency and cross-border crisis management arrangements did not work well (Jith and Phillip, 2005).
2.3.1) Theoretical Framework on Service quality
Service quality "is the delivery of excellent or superior service relative to customer expectation" (Zeithaml & Bitner, 1996, p.117) Service quality is acknowledged as a multi-dimensional construct. Whereas the dimensions numbers vary from researcher to researcher there is some concurrence that service quality comprises of three primary elements, interaction quality, physical service, environmental and outcome quality (Brady & Cronin, 2001). The consumer's of the service delivery process are referred to as interaction quality, which is usually rendered via a physical interface involving the service provider, in person or via technical equipment and the customer. It takes into account for example the consumer's assessment of the attitude of the service providing employee. The physical service environment quality dimension refers to the client's assessment of any tangible factor related with the facilities or equipment that the service is provide with/in (for instance the physical conditions of an ATM machine). Outcome quality refers to the client's assessment of the core service which is the most important motivating aspect for getting the services (e.g. receiving money from the ATM)
The significance of service quality has grown in the service sector and considerable attention is being given to it. According East et al (2008) it is more complex for consumers to assess the quality of service than the quality of products. This is true because of definite distinct characteristics of services, they are, variable, perishable, intangible and they are produced and consumed side by side. To conquer the fact that consumers are unable to compare competing services side by side as they do with competing products, consumers rely on surrogate cues (i.e., extrinsic cues) to evaluate service quality.
Johnston (1995) argues that one of the pressing problems before the study of service is the identification of the determinants of service quality. As the identification of service quality is essential in order to be able to specify measure, control and improve customer perceived service quality. Early research during 1980s concentrated on determining what service quality meant to customer expectations (Parasuraman et al, 1985). While the Nordic school implies that services quality comprises of two or three underlying dimensions. Physical and interactive quality is referred to by Lehtinen & Lehtinen (1985). Whereas, functional dimension, technical and the third as the firm's image. However Parasuraman et al. (1988) later on published empirical evidence from five service sectors that demonstrated five dimensions which captured the perceived service quality properly. The marketing science institute (MSI) has funded a study in the area of service quality (Parasuraman et al, 1985& 1988 sited in Brown 1991) the work explained disparity between expected and perceived service which could be a focal point for quality in service issues.
The Nordic school of services marketing provides another view on service quality models (Gronroos1986 sited in Brown 1991) believes that experienced service is a function of two dimension, they are technical and functional quality. Technical quality is about what the client gets as a result of the buyer-seller interaction. While the functional quality is how the clients gets it. As suggested by Gronroos (1986) model, a corporate image which in turn influence the clients perceived service quality is determine by these two quality dimensions. The perceived quality is as a result of the customer's assessment of the perceived services as compared to service expected. A current survey of American banker (1986) discovered that customers rank good service first when discussing what satisfies them most about financial institutions. Typical service quality attributes consist of convenience, security, safety, friendliness, reliability and customer empathy (Brown, 1991). Perceived Service quality will be present measurement by using Parasuraman et al (1988) who identified ten determinants of service quality on a sequence of focus group meetings after which they established five particular components which recasted the ten determinants, there comprise of reliability, empathy, assurance, responsiveness and tangibles.
Schiffman & Kanuk (2004,p:192) suggests that reliability is providing the service as promised, at the promised time and done right the first time, handling customer problems in a dependable manner and keeping customers informed. Reliability is an element of crucial importance in banks, as marketing is becoming a differentiating factor due to the effects of financial crisis. Reliability is a strategic factor in creating a balanced and persistent operation for both individual and the banking sector.
Empathy is a general team valve. It is the capacity to understand another person's point of view or circumstances whether you agree with this person or not. It is important to successful conflict resolution because understanding diverse viewpoints allows joint solutions to rise from crisis. Empathy is explained further as employees who deal with consumers in a caring fashion and understand their needs, giving consumers individual attention and having their best interest at heart. A lot of theories and applied literature on service encounters speaks about the positive payoff that comes when services workers identify with customers (Varca, 2009).
The question is whether or not a bank gives individual attention to clients, has their best interest at heart, and understands the specific needs of clients. It is easy to see how banks with seller's market approach would be weak in this section. Their organizational culture is not used to looking at things from the client's angle. Moreover, emerging from a seller's market era, they are not structured to deliver excellent individualized service quality. These circumstances may be discouraging at first glance, but in reality offers excellent opportunities for those banks willing to change and adapt (Yavas et al., 1997).
One key determinant of service quality is the sufficient and timely response. The without delay service, keenness to help consumers and readiness to response to consumers request, for example (access convenience, benefit convenience, transaction convenience and decision convenience), Lane & Disefane, (1988) points out that individuals in developed economies consider time as a scare and limited resource. The aim is to strive towards quick responses with delays, hence merely responding to clients' complaints inquiry might not be enough in developed countries, therefore falling short in terms of meeting a consumer's expectation of service quality.
Making them feel safe in their transaction and instilling confidence in customers, consistently courteous staff with the knowledge to answer questions raised by consumers. In addition this assurance consists of courtesy, security, competence and credibility (Schiffman & Kanuk, 2000). Having the required skills and knowledge to provide the service is also vital to the success of any bank. As consumers' satisfaction with service is greatly reliant upon he or she's interaction with the service provider, the appearance, number and behaviour of the workers in the service environment could either induce approach or avoidance behaviour. In addition, since their the rate of reliability of service companies in developing countries are low, there is a high rate of concern and assurance from freedom from danger risk or doubt which take account of physical, financial and emotional security, there a need for the assurance of consumers stability and predictability of the safety of their funds (Malhotra & Ulgado, 2004).
This refers to the physical evidence of the service, it comprises of physical facilities, appearance of personnel, tools or equipments, physical presentation of the service and other consumers in the service facility (Parasuraman et al., 1985). Clients in developing countries are normally satisfied with up to standard performance of the service in terms of the core benefits it promises to offer. The core benefits of a service refer to the fundamental nature of the service that could never be replaced with by facilities which are fancy and tangible (Schneider & Bowen, 1999). While clients in developed countries are usually satisfied only when the service gives benefits that are extended above the ones that are functional.
2.3.8) Empirical Evidence of Service Quality Satisfaction
Johnston (1995) explained in a qualitative study that for banking clients the integrity of service staffs are dissatisfiers, once the clients perceives the integrity to be the acceptable level, satisfaction levels. Johnson (1997) suggests further that the most important source of dissatisfaction appear to be cleanliness, aesthetics, integrity, functionality, reliability and security which are linked with either more tangible elements of service or systemic problems. Rahman (2004) identified the handling of consumers' information safely as a dissatisfier in banking sector. In addition identifies the willingness to help customers by bank workers also viewed as a satisfier while Johnston (1997, p.113) points out that satisfiers tend to be focus more with the intangible nature of the service, attentiveness, care, friendliness, courtesy and commitment.
However the recent literature on service quality demonstrates the existence of criticals. Following the classic linear path are these service attributes .Meaning higher levels on these service quality elements indicate higher levels of consumer satisfaction. During the study of linear linkage connecting quality attributes and satisfaction, Levesque &McDougall (1996) established that the more abstract dimension of quality outcome and process are vital components of quality in banking.
The intention of the research was to empirically confirm grounded theory on the existence of critical, satisfiers and dissatisfiers across service industries. Nevertheless the research does not speculate which service quality elements follow the three paths. Chowdhary & Prakash (2007) suggests that the relative significance of service quality elements is service reliantant. However Maddern et al. (2007) in their investigation of the impact of outcome (technical) and process (functional) quality found empirical support only for the outcome quality satisfaction relationship in the financial service sector in the UK.
2.4) Theories of Consumer behaviour
Consumer behaviour can be defined as the study of the processes involved when individuals or groups select purchase use or dispose of products, services, ideas or experiences to satisfy needs and desires (Solomon et al, 2006). A question of concern is how banks can satisfy these needs. A major economic shift in industrial countries such as changes in interest rates, changes in commodity prices or reduction in global growth can trigger crises and larger capital outflows from emerging markets (Bekaet & Campell, 2003).
Paul Peter & Olson (2005) indicates that the dynamic interaction of affect and cognition behaviour and the environment by which human being perform the exchange aspects of their lives. In other words consumer behaviour entails the thoughts and feelings people experience and the action they perform in consumption processes. In addition it embraces all the things in environment that influence these feelings, thoughts and actions. These consist of comments from other customers, product appearance and several others. It is vital to recognize from this definition that consumer behaviour is dynamic, involves interaction and exchange.
Maclnnis & Hoyer (2004) explain further that the subject Consumer behaviour goes beyond consumer purchasing. It entails understanding the set choices (When, how often, what, how much, whether, why, how and where) a customer's motivation, ability and chance have an effect on his or her decisions and influence what a consumer is exposed to, what she or he perceives and what she or he pays attention to. A consumer categorizes or interprets information, through these elements also influence how she or he forms and changes attitudes, and how she or he forms and retrieves memories. All of these factors of the psychological core have a bearing on the decision making of a consumer. For this reason the regulators and public policy makers strive to protect consumers from unsafe, unfair or inappropriate practices by organisations. President Kennedy in the 60s stated that consumers had four basic rights, the right to be heard, to information, the right to choice and safety.
An attitude is a lasting, common assessment of people (including oneself), advertisement, objects or problems. An attitude is lasting because it tends to endure over time. It is common because it applies to more than a momentary event, like hearing about banking crisis (though over time you might develop a negative attitude towards the crisis). Customers have diverse attitudes towards service. Attitudes help determine whether a consumer will open an account or not. A good number of researchers agree that an attitude has three components: affect behaviour and cognition. The way a customer feels about an attitude object is referred to as affect. While behaviour bring about the person's intentions to do something, and lastly cognition refers to the beliefs a customer has. An attitude can be formed in various different ways, depending on the specific hierarchy of effects in operation (Solomon et al, 2002.p:129).
Hoyer & Macinnis (1997) explains further that, attitudes generally are assessments that express to a large extent how we like or dislike an object or action. Attitudes are learned, and tend to persist over time. Attitudes are essential because they serve numerous functions. Firstly, they guide our thoughts (cognitive function). Secondly, influence our feelings (affective function), finally, affect our behaviour (connative function). East (1997) demonstrated that individuals alter their attitudes and intentions over time in response to new information
2.5.1) Dissonance Theory
This theory states that when an individual is faced with discrepancy between attitudes or behaviour, he or she takes some action to resolve the dissonance, possibly by modifying behaviour or changing an attitude. The theory has consequences for attitude, since people are usually confronted with situations in which there are some differences concerning their behaviour and attitude. The theory focuses on circumstances in which cognitive elements are conflicting with each other, in other words the pressure to lessen dissonance is more likely in high involvement conditions to be observed, in which aspects are more significant to the person. Nonetheless, the key element of the theory is the notion that individuals differ in terms of the information they would find acceptable or unacceptable (Solomon, 2004).
There are four level priority hierarchies in terms of dissonance or congruence between the view of interactive service quality, taking into account the stricture of time and context.
When the service provider's view is positive and the receiver's of the service is negative, this is when the first priority level transpires. This means that the provider of the service overestimates the quality of service being delivered to the receiver of that service. A close examination of negative dissonance of interactive service quality is required in this situation.
Secondly, when both the provider and receiver of the service viewpoint are equally negative, is when the second priority level take's place. This means that the service provider's negative outlook of the lacking service quality offered in the service encounter, is equivalent to the service receiver's negative view. This situation is worrisome and requires attention to improve the interactive service quality.
The third priority level arises when there is a positive point of view shared equally by the service provider and the receiver. This indicates that the service provider's positive view of the quality of service delivered in the service encounter is the same with the receiver's positive angle. This position is satisfying because there is a positive dissonance of the interactive service quality in the service encounter, there is no requirement of immediate attention.
The last priority level which is the fourth occurs in a service encounter, when the service provider's outlook is negative and that of the receiver is positive. This signifies that the provider of the service underrates their own delivered service in the encounter of the services offered. This displays a pleasant situation, however it might be valuable if the service provider took steps to study the reason behind the positive dissonance.
2.2.2) Cognitive Component
This component explain customer as combining items of information about attributes about to reach a decision (Arnould et al, 2004). According to Johnston & Clarks (2001) consumers cognitive could be described as the service process or service encounter that generate the emotional and behavioural responses which result in a memory. A number of the service experience are especially favourable and others mainly unfavourable. Both tend to stay in the client's long term memory. These experiences have a strong impact on client's quality view (Edvardsson, 2005)
2.5.3) Affective Component
This attitude component represent customers overall evaluation of the product. Beliefs about a product or service are multidimensional because they signify the service or product attributes customers perceive (East, 1997)
Affect-laden experiences also manifest themselves as emotionally charged states (for example shame, surprise, guilt, happiness, sadness, anger, distress or disgust) Studies have shown that such emotions states might improve or magnify positive or negative experiences and that later memories of such experiences might have an effect and what comes to mind and how the individual acts (Schiffman & Kanuk, 2004).
2.5.4) Conative Component
The final component conative focuses on the likelihood or tendency that a person will take on a specific way with regard to their attitude. The conative component might include the actual behaviour itself, according to some interpretations (East 1997). Additionally conative is possibly the most referred to attitude and determines mostly the desirable or undesirable element attitude of a consumer. In a consumer study, conative component is often treated like an expression of the client's intention to make a purchase.
Chapter two draws notice to several theories and conceptual frame work on banking crisis as well as how it affects consumer behaviour. Chapter three will examine the analysis of Afribank Nig plc which will show case the rational for selecting Afribank Nig Plc as the centre for this investigation. In addition identify the methodology, data collection method, reliability and validity for examining the study.