The issue of inadequate capital remains one of the major challenges of business entrepreneurs in Nigeria. Business firms are constantly searching for ways to expand their operations and deliver quality services and increase revenue, while the new ones want to start in good shape but enough funding is not readily available. Leasing has been long established as a creative financing tool for the acquisition of capital assets. Over the years, leasing has grown into an industry of imposing scope, and greater potentials are met through this unique form of financing.
This study examines the impact of finance leasing on the performance of Nigerian banks.
The population of the study consists of twenty (20) banks that are quoted on the Nigerian stock exchange and members of ÉLAN as at 31st December, 2005. The sample of the study is five (5) banks drawn randomly from the population of the study.
The study uses linear regression as a tool of analysis to assess the impact of lease financing on profitability, investment and shareholders fund of the selected banks.
The study establishes that finance lease has no significant impact on the performance of Nigerian banks despite the relationship between them is positive.
The study concludes that finance lease has no significant impact on the performance of Nigerian banks and therefore, recommends among others that Nigerian banks should increase their commitments into leasing business to improve earnings from the proceeds of leasing and be leasing buildings and office equipment instead of building and buying them at the event of expanding or opening new branch.
1.1 Background to the Study
One of the most prominent issues in the corporate and financial world today is the issue of leasing (Abashiya, 2005). In the developed countries, it is almost an integral part of the overall financial system and often advocated as the least expensive and most advantageous form of funding (Afzal, 2003). As (Olusoga, 2003) indicates, the most generally accepted method of financing capital investment throughout the world is equipment lease financing option.
In Nigeria, although lease volume remains relatively insignificant in terms of world rankings, the concept is fast gaining recognition and has been influencing some major decisions in the various sectors of the economy. With the paucity of capital in the continent, many African countries such as South Africa, Zimbabwe, Ghana, Nigeria and recently Egypt have used leasing as a major anchor of their economic development policy with considerable success. In these countries, lessors are fully involved in investments in the extractives industries, transport, agriculture, construction and telecommunications (Olakunle, 2002).