IMPACT OF HUMAN RESOURCE DEVELOPMENT ON THE PERFORMANCE OF COMMERCIAL BANKS IN NIGERIA

BY

MUSTAPHA MUKTAR, Ph.D

mmuktar75@yahoo.com

DEPARTMENT OF ECONOMICS

BAYERO UNIVERSITYKANO-NIGERIA

Being a paper presented at the National Conference on Corporate Survival, performance & Satisfaction in competitive Nigerian Market.

12^th – 14^th July, 2005

  

Abstract

Human resource development and training is one of the most important tools of enhancing staff quality and skills, and hence making them competent towards the achievement of organizations’ goals. The study explores the empirical relationship between human resource development and performance of commercial banks in Nigeria. Multiple regression was used and the technique of ordinary least squares was adopted in estimating the parameters. The study further sheds light on the quality staff of commercial banks, using qualification, working experience and course duration as indicators. The basic findings are that, expenditure on training exerts a strong and positive impact on performance of commercial banks in Nigeria. Also it was discovered that most of the staffs in commercial banks has low educational qualifications and have attended training courses with short duration of less than two weeks. It is recommended that there is the need to encourage commercial banks’ staff to earn higher qualification and join professional bodies such as ICAN and CIBN so as to enhance their quality. Banks need to raise their level of expenditure on training, so that their performance could equally be improved.

1. INTRODUCTION

Perhaps the most important resource of an organization is the human resource. The human resources are men and women who are working in an organization. They constitute the active agents who harness and combine other resources towards the accomplishment of organizations goals. Consequently organizations must have competent employees who will be able to carry out assigned tasks for the purpose of attaining organizational goals. It has long been recognized that employees’ competence on a job is acquired not only by formal education but also through experience gained in the work environment and through the acquisition of specific skills and knowledge on the job through training and development. Studies of inter-firm comparisons of productivity and competitiveness reveal that the more skilled the firms’ employees are in meeting the strategic purpose of the firm. The better its performance visa- vis its rivals. Greater attention should therefore be placed on training and development as a means of obtaining competent employees that will help in achieving greater performance.

One of the critical variables in the performance function of organizations is manpower training and development. This happens to be the vehicle through which the knowledge, skill, and attitudes requisite for the running of organizations are passed on to the people who make the organizations to be. The realization of this fact have made organizations, especially those interested in attaining and maintaining excellent performance, to pay close attention to training and development. Failure to do so can, and indeed does, spell doom for any organization. On the average, therefore, effectively performing organizations plan and invest optimally in training and development.

Banks as all result oriented organizations are aware of critical role of staff  development in determining their performance, profitability, and competitiveness. Consequently conscious efforts are made to use training and development in order to enhance performance. These efforts can pay off handsomely where there is a good knowledge, and appropriate application of training and development. It is therefore, necessary for all banks to have a good grasp of training and development as an instrument for achieving corporate performance (Gapsiso, 2001).

Despite the key role played by human resource development and training towards the achievement of corporate performance, most commercial banks in Nigeria do not attach much importance to staff development and training. In most banks (especially the first generation banks) staff development centre (SDC) is often considered to be “cost centre” and hence it is being marginalized. Moreover, annual budgets allocated for staff training are meager despite the reimbursement assurance from the industrial training fund (ITF), and above all in adequacy of effective training and development personnel who can effectively handle training and development in banks. Training departments are thus believed to be punishment centers (for erring staffs or those not liked) and that they are dry as the prosperity in the banking industry does not flow there, which makes good materials posted there to resist. If staffs that resisted are finally forced to go there, they remain uncommitted (Daradara 2004)

The objective of this paper is to assess the impact of human resource development on the performance of commercial banks in Nigeria. Specifically, the paper will try to assess the relationship between performance of commercial banks and expenditure on training, it will also assess the quality of human resource employed by commercial banks. And lastly it will make policy recommendations based on the findings.

The scope of this paper is narrowed to the year 1990 – 2003 the choice of this period has to do with the availability of data; also the impact of staff development on the profitability of banks will only be covered. Other performance indicators are thus not considered. This is due to the constraint posed by insufficient data, time and finance. However the findings of the paper will be of great importance to corporate bodies, the policy makers and the entire economy at large.

To this end, the paper is organized into four parts, following this introductory part section two contains  literature review and theoretical issues, section three contain methodology and discussion of result. The last chapter contains concluding remarks.

   

2. LITERATURE REVIEW

Human Capital Development

The concept of human capital formation refers to a conscious and continuous process of acquiring and increasing the number of people with the requisite knowledge, education, skills and experiences that are crucial for political and economic development of a country (Harbison 1973; Salleh 1992). The importance of human capital in the overall national development and the well-being of people is certainly not a new idea. It has been noted by Adam smith in his Classic writings in 1776 that the bases for national wealth are skill, dexterity and competence of individuals. This conception is further given prominence by the ancient proverb: “if you are planning for a year, sow rice. For ten years, plant trees. For hundred years, educate people. (Salleh 1992) The classical economists thus, commented on the role of human capital development through education towards the economic growth of a country at large. They believed that it is through education that human capital needed in areas in construction and heavy industries, schools, colleges, hospitals and a host of other activities associated with development can be provided. Smith further concluded that the acquisition of talents and skills by an individual through education, study or apprenticeship is a fortune not only to the person himself but to the society to which he belongs.

The concept of human capital has relevance to the issue of productivity, growth and marginal returns, as differences in productivity among workers may reflect different levels of skills acquired through investment in human capital formation. This will include the acquisition of knowledge, abilities, attitudes and sensitivities.

At organizational level, Human resource development refers to the full range of strategies, tools, processes, procedures and structures that are employed in a given organization, aimed at improving the capability of the organizations workforce to achieve its goals (Itsede 2003) Although the focus here is at the level of individual, it should be noted that the abilities of individuals are constrained by the systems in which they work.         

Staff training and development

Training simply put, is the process of imparting knowledge, skills and attitudes in people in order to achieve some desired goals, on the other hand development refers to the process of making somebody or something more matured, advanced, or organized. In the light of the above, manpower training and development refers to the process of imparting knowledge, skills and attitudes in the staff of an organization, and making the staffs more mature. It is through these processes that staff knows what are to be done, how those things to be done are to be tackled, and the manner in which the things to be done are to be approached. In addition it is through these processes that the staff becomes more mature, capable, effective and efficient in the performance of their duties (Gapsiso, 2001)

Training and development in organization aims at enhancing the performance of staff and the organization at large. Improving the productivity of staff and organization and acquainting staff with changes so as to achieve the goals of the organization. It is obvious that he primary and indeed the ultimate aim of training is enhanced organizational performance. Once performance is enhanced, profitability and competitiveness will naturally follow, especially for commercial organizations.

Human resource development in Banks

Banks pay close attention to training and development activities in order to enhance their performance, however, any bank desirous of exploiting the endeavor to advantage has to tailor the objectives of its training and development activities to be in tune with its corporate strategies. Such strategies are expected to make banks competitive so that, at the end of the day the bank can perform better. Staff trained should be expected to be equipped with knowledge, skills and attitude that will facilitate the achievement of corporate goals.

Staff in charge of, or involved with, training and development in banks have to clarify the objectives of their activities, endeavor to derive the objectives from the overall corporate goals and strategies. There are thus, three activities that make up training and development functions in banks. They are on- the- job, courses and self development activities. On-the- job, staff is trained through learning by doing attachements, acting appointment and relief appointments. Course organized by banks include, courses, workshops, seminars and symposia. For self development activities, staff is mainly attending part time programmes to get additional qualification  

Financing training and development activities in banks

One aspect of training and development in banks is the availability or otherwise of fund, for the purpose. Even though banks have money as their stock in trade, they do not have all they need all the time. It is therefore, necessary to note the available sources and work towards the exploitation of the sources. Banks have four major sources of finance for training and development. These are corporate budgetary allocations, assistance from other organizations, re-imbursement from the industrial training fund, and proceeds from commercial courses. Each of these sources should be known well, and appropriately exploited, so as to boost training and development activities (Gapsiso, 2001)

Empirical literature

Uchendu (1995) attempted to investigate the performance of commercial banks in Nigeria using the ordinary least squares (OLS) single equation estimation technique. He used a time series data 1970 – 1993, and concludes that whether you use all banks data, six banks data or three large banks data, the dominant factors affecting banks performance are banking structure, unit labour cost and interest rate. The study is important as it assists the industry managers in identifying the dominant variables to target in order to improve their performance.

Nyong (1996) Using simultaneous equation model studied the performance of commercial banks in Nigeria. He however, considers profitability as a measure of banks performance in spite of the high level of undercapitalization. His study sheds more light on the effects of managerial efficiency on the performance of commercial banks. The findings of this study however, raised serious concern about the quality of human resource especially at managerial level, and the need for concerted efforts to promote staff development programme as a logical first step in preparing for dynamic banking.

CBN in collaboration with NDIC and NISER (2000) studied the performance profile of commercial banks in Nigeria in relation to the quality of human resource.  Banks performance was proxied by profit before tax divided by Asset base ratio, in the study. It was discovered that the performance of commercial banks is associated, to a great extent with the educational qualifications of its human resources. The study also found that there is a high percentage of staff in the industry with low qualifications. An encouraging development however is that, the percentage is declining as increasing number of staff who had no degrees are improving themselves, by acquiring more certificates. The study recommended that, if staff with experience of 3 years or more could be complemented with those with higher qualifications, performance will undoubtedly improve.  

3. METHODOLOGY

3.1 Model specification

The conventional neoclassical growth theory as modeled by Robert Solow (1965), holds the view that economic growth is as a result of accumulation of physical capital and an expansion of the labour force in conjunction with “exogenous” factor, technological progress that makes physical capital and labour more productive. The solow production function is of the form:

              Y_t = A_tF (K_t L_t)                                                                       (1)

Where  Y_t  is the aggregate real output, K is the capital stock, L is the labour resource, A is the efficiency factor and t is the time dimension.

The emergence of endogenous growth theory and models (e.g. Romer 1986 and Barro 1991) suggest that other endogenous factors such as human capital and education, political stability and, etc, can also affect economic growth.

Mankiw (1992) and Grammy& Assane (1996) adopted the Cobb Douglass production function to formulate their growth model as;

               Y_t = A _(t)   K ¹L ² H ³                                                                                      (2)

Where H is the human capital, ₁ + ₂ + ₃ = 1 (assuming constant return to scale); other variables as defined earlier. Both A and L represent the number of effective units of labour, and it is expected to grow.  Taking the natural logarithm of both sides of the equation produces a linear equation in the levels of the form:

              LnY = a + ₁Ln K + ₂Ln L  + ₃ Ln H                               (3)

  In  line with the above model the model adopted in this study will use commercial banks performance proxied by return on capital as depending on  expenditure on local training and expenditure on overseas training. Empirically the model is given as;

             Ln CBF = ₀ + ₁ Ln ELT + ₂ Ln EOT  +  U_t                    (4)

Where BF is commercial banks performance, ELT is expenditure on local training, EOT is the expenditure on overseas training and U is the disturbance term. On a priori ground _{0,  1,} and   ₂  > 0. It should be noted that all the coefficients are positively related to bank’s performance.

Data sources and measurement

From the model it is evident that the needed data are banks performance, proxied by return on capital. Commercial banks’ expenditure on local training and commercial banks’ expenditure on overseas training. The data covered the period 1990 – 2003. The sources of the data are as follows return on capital was generated by dividing the profits on ordinary equity of commercial banks before interest and taxation by capital employed. And the data on profits and capital employed were obtained from Central Bank of Nigeria, CBN. Human resource development was proxied by the expenditure on local training and expenditure on overseas training. And the data were sourced from financial institutions’ training centre, FITC (see appendix). All data are converted into natural logarithm for ease of analysis.

Sample and Sampling Technique.

The total population of this study is the entire commercial banks, however to be more specific and precise a sample of four banks was selected using stratified technique of sampling. The banks sampled are; First bank of Nigeria Plc, Bank of the North Ltd. Intercity bank Plc and Zenith international Bank PLc. This sampling technique is however adopted so that both the first generation and the new generation banks are covered.

Empirical Result

The estimated results are presented in table 1. Multiple regression was used, and ordinary least squares (OLS) estimation technique was adopted in estimation the equation.

Table 1 Regression Result.

Variables	Coefficients	T Stat.	Standard Errors	Other Results
Constant	12. 8137	19.9225	0.0624	R2 = 0.67
Ln ELT	0.3364	1.8652	0.3121	Adj.   R2= 0.61
Ln EOT	0.1265	1.0902	0.0625	DW=1.91,F=12.461

Source : Computed using Micro fit 4.0 Computer Software.

LnCBF=12.8137+ ₁Ln 0.3364 + ₂ Ln 0.1265 +  U_t                        (5)

From the result of estimation of equation 5, the following facts emerge:

It is evident that he sign and sizes of all the parameters estimated are consistent with the a priori expectations. They all have the predicted positive signs. All the explanatory variables are statistically significant at the conventional 5% level of significance.

The dependent variable is commercial banks’ performance, and the equation shows a positive relationship between performance and expenditure on local training and that of overseas training. This is an indication that human development and training is vital to the performance of commercial banks’ staff and that have a direct and positive impact on the performance of the banks.

The values of R² and adjusted R² are 67% and 61% respectively and it means 61% of the total variation in performance is explained by the explanatory variables. The F statistics is statistically significant at 5% level. The David Watson statistics is 1.91 and that shows that, there is no evidence of serial correlation of the first order.  

Quality of human resource in commercial banks

The issue of human resource quality is worthy of examining because of two reasons; the first relates to high incidence of fraud and forgeries in commercial banks. The second is the concern on the high level of non performing loans and assets. Given these, the relevant question that could be posed is whether there were not enough trained and qualified personnel to do the job?

Qualification is an important factor in determining human resource quality, apart from pre employment formal education (University degrees, and etc) commercial banks require professional qualification from bodies like ICAN, CIBN and etc. The qualification mix of commercial banks as at 1997 is presented on table 2

Table 2 Qualification mix of staff in commercial banks, 1997

Professional and degree	Professionals only	Non degree /Non professionals	Total
2,499  (5%)	14,461 (26%)	37,723 (69%)	54,683

 Source: Financial institution training centre FITC, 2000.

From the table we can see that the highest percentage is that of staff with non degree / non professional qualification holders in their workforce in 1997, and hence it can be concluded that the human resource quality in terms of qualification is very low.

Experience as a factor in human resource quality

The number of years spent on a job by a staff is a valid measure of the quality of human resource; this is because workers learn on the job. Table 3 presents this factor.

Table 3 Experience profile of staff in commercial banks, 1997

Less than 3 years	3 – 10 years	Above 10 years	Total
5,260 (10%)	19,466 (35%)	29,997 (55%)	54,723

Source: Financial institution training centre FITC, 2000.

The data shows that as at December 1997, 55% of the staff in commercial banks had experience of over 10 years, while 35% had 3-10 years and lastly only 10% had less than 3years of working experience. And we can conclude that about 90% of staff in commercial banks has 3 and above years of experience and hence have undergone different types of on the job training, as such the quality of human resource in terms of years of experience is encouraging.

Training and human resource quality

The number and quality of training courses attended by each staff over time as well as the duration of such course are important determinants of human resource quality. The longer the period/contact hours trainees spend, the faster and more qualitative will be the human resource.

Table 4 Course duration in commercial banks, 1997

Under 2 weeks	2 – 3 weeks	Above 3 weeks	Total
2,0447	2,646	692	23,785

Source: Financial institution training centre FITC, 2000.

From the table above, majority of staff trained in 1997, were exposed to short courses of less than 2 weeks duration. This may perhaps be due to two reasons, namely; the need to reduce the overall cost of raining, and banks can ill afford to release staff for training period beyond two weeks, as a result of pressure of work. However from the point of view of banks, training should be considered as an investment rather than a cost. And the greater the contact hour trainees were exposed, the more they are likely to acquire relevant competence to cope with their complex and intricate job.

4. CONCLUSION AND RECOMMENDATIONS

Human resource development is a crucial factor in explaining the performance of commercial banks in Nigeria. Two important findings are observed in this study. First there is a strong and positive relationship between performance of commercial banks, and human resource development and training. Secondly the quality of commercial banks staff as at 1997 was evaluated using three factors, qualification, years of working experience and course duration. The study found that as at December 1997, about 70% of the staff in commercial banks neither has degree or its equivalent nor do they have any professional qualification. With regards to the working experience 90% of the total staff in commercial banks has at least 3 or more years of working experience. And lastly, courses attended by commercial banks’ staff in 1997 have short duration of less than 2 weeks.

It is therefore, recommended that, there is the need to improve the quality of human resource in commercial banks through more rigorous training with longer duration and capacity utilization programmes. By and large there is the need to encourage staff to earn higher qualification and join professional bodies so that their skills can be increased and hence they will become more productive and capable of achieving corporate objectives.

In addition since training expenditure is a significant factor in determining the performance of banks, then, there is the need to increase it, so that the performance can be increased too.

  

REFERENCES

Dara Dara, J.B (2004) “Human Resource Development and performance of

                                       Tropical Commercial Bank” Unpublished Seminar,

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Financial Institution Training Center (2000) Issues in Human Resource

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                                                            Banking Sector. Published by FITC

Gapsiso, V.H (2001) “Manpower Training and Development in Banks”

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Grammy, A.P and Assane, D. (1996) “New Evidence on the Effect of

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Appendix

Training Expenditure, Capital employed and Profits before Tax  1990 – 2003.

Year	1 Expenditure on Training in Million Naira.	2 Capital Employed in Million Naira.	3 Profits in Million Naira.
1990	17.6	26625.88	31951.05
1991	21.06	28458.32	42687.45
1992	21.726	31838.16	382005.79
1993	27.774	45232.56	50660.47
1994	29.996	590066.44	598265.07
1995	30.726	77028.36	130948.21
1996	39.69	91755.44	137633.16
1997	37.272	11687.50	198681.75
1998	42.648	120021.64	1137415.73
1999	38.544	128807.24	6283372.07
2000	41.604	204247.30	7627449.61
2001	88.438	275254.84	24144193.65
2002	111.438	391254.84	14655345.93
2003	112.987	406305.30	16867878.22

Source: 1 Financial institution training Centre, FITC 2003.

              2 and 3 Central Bank of Nigeria, Research Department, 2004.