Recapitalization Policy and the Banks Performance
Chapter One
OBJECTIVE OF THE STUDY
The objective of the study is to critically examine the recapitalization policy and bank performance in Nigeria. The specific objectives are to;
- Examine history of bank recapitalization
- Assess historical background of banking in Nigeria
- Assess the challenges facing the banking industry in Nigeria
- Assess rationale for recapitalization in Nigeria banking industry
- Assess the benefits of recapitalization
CHAPTER TWO
REVIEW OF RELATED LITERATURE
INTRODUCTION
Many Developing Countries implemented financial reforms as part of broader market oriented economic reforms since the late 1980’s (Uboh, 2005). Globally, activities of banks reflect their unique role as the engine of growth in any economy. The importance of the financial sector of an economy which comprises banks and non – banks financial intermediaries, the regulatory framework and the ever increasing financial products, in stimulating economic growth is widely recognised especially in developmental economics. (Uboh, 2005) set the pace for the landslide of other works on the interdependent relationship between banks and economic growth. Stressing further that the pioneering work of Gurley and Shaw (1956) on the relationship between real and financial developments shows that financial intermediaries, monetisation and capital formation determine the path and pace of economic development. The Nigerian banking system has undergone remarkable changes over the years, in terms of the number of institutions, ownership structure, as well as depth and breadth of operations. These changes have been influenced largely by challenges posed by deregulation of the financial sector, globalization of operations, technological innovations and adoption of supervisory and prudential requirements that conform to international standards. Prior to the recent reforms, the state of the Nigerian banking sector was very weak. According to Soludo (2004), ‘‘The Nigerian banking system today is fragile and marginal. The system faces enormous challenges which, if not addressed urgently, could snowball into a crisis in the near future. He identified the problems of the banks, especially those seen as feeble, as persistent illiquidity, unprofitable operations and having a poor assets base’’. Imala (2005) posited that the objectives of banking system are to ensure price stability and facilitate rapid economic development. Regrettably these objectives have remained largely unattained in Nigeria as a result of some deficiencies in our banking system, these include; low capital base, as average capital base of Nigeria banks was $10 million which is very low, a large number of small banks with relatively few branches, the dominance of a few banks, poor rating of a number of banks, weak corporate governance evidence by inaccurate reporting and non compliance with regulatory requirements, insolvency as evidence by negative capital adequacy ratios of some banks, eroded shareholders fund caused by operating losses, over dependence on public sector deposit, and foreign exchange trading and the neglect of small and medium scale private savers. The Nigeria banking sector plays marginal role in the development of the real sector. Soludo (2005) observed that many banks appear to have abandoned their essential intermediation role of mobilizing savings and inculcating banking habit at the household and micro enterprise levels. The indifference of banks towards small savers, particularly at the grass-roots level, has not only compounded the problems of low domestic savings and high bank lending rates in the country, it has also reduced access to relatively cheap and stable funds that could provide a reliable source of credit to the productive sectors at affordable rates of interest. Imala (2005) also comment that the current structure of the banking system has promoted tendencies towards a rather sticky behaviour of deposit rates, particularly at the retail level, such that, while banks’ lending rates remain high and positive in real terms, most deposit rates, especially those on savings, are low and negative. In addition, savings mobilization at the grass-roots level has been discouraged by the unrealistic requirements, by many banks, for opening accounts with them. The issue of recapitalization is a major reform objective; recapitalization literarily means increasing the amount of long term finances used in financing the organization. Recapitalization entails increasing the debt stock of the company or issuing additional shares through existing shareholders or new shareholders or a combination of the two. It could even take the form of merger and acquisition or foreign direct investment. Whichever form it takes the end result is that the long term capital stock of the organization is increased substantially to sustain the current economy trend in the global world. Asedionlen (2004) opined that ‘‘Recapitalization may raise liquidity in short term but will not guaranty a conducive macroeconomic environment required to ensure high asset quality and good profitability’’ In his comment, Soludo (2004) said that low capitalization of the banks has made them less able to finance the economy, and more prone to unethical and unprofessional practices. These include poor loan quality of up to 21 per cent of shareholders’ funds compared with 1–2 percent in Europe and America; overtrading, abandoning the true function of banking to focus on quick profit ventures such as trading in forex and tilting their funding support in favour of import-export trade instead of manufacturing; reliance on unstable public sector funds for their deposit base; forcing their female marketing staff in unwholesome conduct to meet unjustifiable targets in deposit mobilization; and high cost of funds.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study recapitalization policy and the bank performance
Sources of data collection
Data were collected from two main sources namely:
(i)Primary source and
(ii)Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
DATA ANALYSIS
The data collected from the respondents were analyzed in tabular form with simple percentage for easy understanding.
A total of 133(one hundred and thirty three) questionnaires were distributed and 133 questionnaires were returned.
Question 1
Gender distribution of the respondents.
TABLE I
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
Introduction
It is important to ascertain that the objective of this study was to ascertain recapitalization policy and the banks performance. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenge of recapitalization policy and the banks performance
Summary
This study was on recapitalization policy and the banks performance. Three objectives were raised which included: Examine history of bank recapitalization, assess historical background of banking in Nigeria, assess the challenges facing the banking industry in Nigeria, assess rationale for recapitalization in Nigeria banking industry, assess the benefits of recapitalization. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staffs of selected banks in Aba, Abia state. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study.
REFERENCES
- Adegbaju A. A. and Olokoyo F. O. (2008). Recapitalisation and Bank’s Performance; A Case Study of Nigerian Banks. African Economic and Business Review, 6(1), 1 – 4.
- Ahmed H. I. (2003). Trend in the Profitability of Banks in Nigeria before and during Interest Rate Deregulation: A Comparative Analysis, NDIC Quarterly, 13, September, p 62.
- Alao R.O (2010). Mergers and Acquisitions: The Nigerian banking Industry: an advocate of three mega banks. European Journal of Social Sciences, vol. 15, No 4, pp 554 – 563.
- Akhalumeh P.B. (2011). Bank Capitalization and Economic Crisis: What Lessons can Nigeria Learn? Research Journal of Finance and Accounting, 2(6), 13 – 22.
- Akinola G.O. (2008). Effect of Globalisation on Market Structure, Conduct and Performance in Nigerian Banking Industry. Ph.D. (Unpublished post field seminar paper), Department of Management and Accounting, Obafemi Awolowo University, Ile – Ife, p 18
- Annual Accounts and Reports (2003-2013) Access Bank Plc, First Bank Plc, Guaranty Trust Bank Plc, United Bank of Africa Plc, Wema Bank Plc and Zeneith Bank Plc.
- Anthonia T.O. (2013). Pre-Consolidation and Post-Consolidation of Nigerian Banking Sector: A Dynamic Comparison. International Journal of Economics and Financial Issues, 4(1), 27 – 34.
- Ata A.S (2013). Recapitalization Policy and the Banks Performance in Nigeria (1985 – 2010). B.Sc. (Unpublished Project Research), Department of Economics, Caritas University, Emene, p 20.
- Bakare A.S. (2011). The Trend and Growth Implication of Bank Recapitalization in Nigeria. African Journal of Business Management, 5(14), 5938 – 5945.
- Baltensperger (1973). Alternative Approach to the Theory of the banking Firms. Journal of Monetary Economics, 187 pp 147 – 160.
- Banwo S. (1997). The Funds Flow Statement: Towards Enhanced Utility, 1997 ICAN News, July/September, pp 23 – Gale D. (2010). Capital Regulation and Risk Sharing. International Journal of Central Banking, 6(4), 187 – 204.
- Goudreau R. E. and Whitehead D.D. (1989). Commercial banks Profitability improved in 1988, Economic Review, Federal Reserve Bank of Atlanta, July/August.
- Ikpefan O. A. (2012). Bank Capitalization and Performance in Nigerian Banking Industry (1986 – 2006): Empirical Evidence. European Journal of Accounting Auditing and Finance Research, 1(4) 12 – 32.
- Kanu C. and Isu H.O. (2013). The Impact of Capitalization on Bank Performance in Nigeria 1970 – 2010: An Assessment. International Review of Management and Business Research, 2(3), 643 – 652.
- Kennedy M. and Johnson M. (2004). Risk, Capital and Economic profit – Are We Seeing the Full Picture. Pricewaterhousecorpers. The Journal. Specific Risk Management Edition.
