CHAPTER ONE
INTRODUCTION
1.1    BACKGROUND TO THE STUDY
In recent years, the global financial environment has witnessed significant transformation in terms of operations. The transformation has mounted significant pressure on the financial system of developing nations, with Nigeria inclusive financial performance failure in Nigeria banks has resulted in loss of public confidence in the banking sector.
    Performance links an organisation’s goal and objectives with organization decisions. Uboh (2005) states that performance can be grouped into two basic types, those that relates to results, output or outcomes such as competitiveness, profit, as well as those that relates to determinants of result such as prices or products. This assertion suggests that performance can be based on results and determinants. This underscores the importance of performance analysis to organizations going concern and hence its competitiveness.
Misra and Dus (2005) contend that transformation in the banking sector ranges from diversification to technological revolution, liberalization in the cross-border movement of capital and above all, financial liberation across developing nations, which has established a new international architecture. The significant changes that have occurred in the financial sector of Nigeria have increased the importance of performance analysis of banks. Sojibo and Adekaye, (1991) stress that banking industry is a key sector in any economic and as prime movers of economic life banks occupy a significant place in every nations. They further emphasized that banking sector represents a significant value added to the economy and it is an important source of wage, employment and Tax Revenue to government. Like many other economic organizations, banks are expected to generate profitable income through effective and efficient utilization of resources to ensure continuity and as well as ensure adequate return on investment for shareholders.
    Performance analysis is an important tool used by various agents operating either internally or externally. This explains why stock market investors in bank securities consider the investment outcome based on the performance before forming an opinion about the ability of its management. According to Nnanna (2005), commercial banks core functions to a large extent, is financial intermediation. That is, taking money from the surplus units in terms of different kinds of deposits accounts to service the deficit units through loans and advances at different prices. Nnanna (2005) further stress that banks, in performing their functions, are oiling the wheels of economic and social development in the country.
    Banks, as key actors in the financial sector, are germane to economic development through the financial services they provide.Their intermediation role can be said to be a catalyst for economic growth. The efficient and effective performance of the banking industry over time is an index of financial stability in any nation. Financial intermediation is perhaps, the basic and most important  function of the bank especially in developing countries like Nigeria, where available resources which are generally inadequate or insufficient to meet the capital and development needs of the economy (Nnnana, 2005), are inequitably distributed.
    The various studies carried out in the past had shown that performance measurement interlinks financial indicators like the use of financial ratios, as suggested by Saga and Ragesh (2008). These measurement aids in interpreting bank performance while serving as crucial policy-making tools in reacting to the dynamics of the market for financial services.
This also necessitates several classifications of banks into failed/surviving, successful/non-successful and vulnerable/resistant as well as troubled/healthy banks (Sinkey, 1992). The financial sector engages in the creation of different types of assets that both the banking and non-banking public wish to hold for the kind of liabilities that debtors are willing to incur. According to Beck, Cull and Jerome (2005) bank performance is a function of the ability of banks’ managers to assemble resources, allocate resources and manage the inherent risk associated. It could also be seen in terms of the quality of capital employed (assets), level of liquidity and net contribution to the economic development of the nation. Roll and Ross (1995) posit that asset return are also affected by influences that are not systematic to the economy as a whole; in other words, influences which are associated with individual firms or particular industries but are not directly related to overall economic conditions.
1.2    STATEMENT OF RESEARCH PROBLEM
    In acknowledgement of the fact that the size of a firm is crucial to global competitiveness and thus its success in the global market, the issue of robust capitalization is highly imperative, especially for the banking sector. This implies, by extension, that small size firms will hinder the attainment of adequate profitability subject of its inability to compete favourably in the market for financial products. Despite the various reformisms the banking sector, it is disheartening to note that some banks still collapse (Soludo, 2004). This is worrisome because of its adverse effects on the Nigerian economy as well as dent on the series of reform agenda which climaxed with the recapitalization of banks.
    It must be emphasized, that the major problem of economics has always been the efficient allocation of scarce resources among competing and unlimited ends. Given the scarcity of financial resources in Nigerian economy, an effective allocation of financial resources, is only possible if the performance of the bank is adequate. To this end, this study seeks to ascertain the determinants of bank performance in Nigeria. That is, the factors that determine how the incomes generated by banks are judiciously disbursed so as to minimize waste and maximize profit (Benefits). It is against this backdrop that the following specific research questions are put forward to guide the study:
i.    What is the relationship between size of loans and advances and bank performance?
ii.    What is the relationship between capitals employed and bank performance?
iii.    What is the relationship between number of employees and bank performance?
1.3    OBJECTIVES OF THE STUDY
    The main objective of the study is to investigate the determinants of bank performance in Nigeria. The specific objectives include:
i.    To ascertain the relationship between size of loans and advances and bank performance;
ii.    To ascertain the relationship between capital employed and bank performance; as well as
iii.    To ascertain the relationship between number of employees and bank performance.
1.4    HYPOTHESES OF THE STUDY
The following null hypotheses will be tested:
i.    Ho: There is no relationship between size of loans and advances and bank performance;
ii.    Ho: There is no relationship between capital employed and bank performance; and
iii.    Ho: There is no relationship between number of employees and banks performance.
1.5    SCOPE OF THE STUDY
    It is a Nigerian specific study, focusing on Wema Bank Plc, as one of the leading banks in the Nigerian banking sector. Furthermore, this study will examine the determinants of bank performance in Nigeria, using data on size of loans and advances, capital employed (asset) number of employees, and profit for a period of twenty two (22) years (1990 to 2011).
    Due to the study’s practical nature, much effort will be made to give a comprehensive and detailed picture of the nature, causes and scale of performance of Wema Bank Plc. Relevant data shall be sourced from a Central Bank of Nigeria (CBN) statistical bulletin (2012).
1.6    SIGNIFICANCE OF THE STUDY
    The results of this study will be of immense importance to various stakeholders; including regulatory agencies such as the Central Bank of Nigeria (CBN) the Nigerian stock exchange (NSE), Nigeria Deposit Insurance securities and company (NDIC) Securities and Exchange Commission (SEC), and owners of banks in terms of their investment and framework for monitoring managements. Furthermore, the results of this study will also assist strategic managers in the banking sector in managing banks more effectively by adopting appropriate policies and strategies that will take cognizance of risks peculiar to the banking sector.
    In addition, results of this study is expected to contribute towards addressing, to an appreciable extent, the issues of incessant bank distress so that the nation can have a dependable financial system that will effectively serve the core purpose of financial intermediation and economic developments. Lastly, it will also enhance the knowledge of researchers and students in management sciences on determinants of bank performance and thus stimulate their interest in this area. Such interest could lead to further researches which may seek to verify the results of this study or to replicable this study using, different methodologies or different populations.