ABSTRACT
Prior 2005, the Nigeria banking
sector was bedeviled with lack of adequate capital base over reliance on public
sector funds. Inability to compete favourably with banks in other countries in
African. As such, the study attempts to examine the impact of recapitalization.
Introduced by the Central Bank of Nigeria Governor professor Charles
Soludo. The study focuses on 24 currently listed banks on the Nigeria Stock
Exchange (NSE), this number is divided into four (4) subgroups using the
stratified random sampling techniques. A 18-item questionnaire constructed by
the researcher validated by two experts in the Department of Statistics, Auchi
Polytechnic, Auchi served as the instrument for data collection. A non-parametric
statistical tool the chi-square (X2) was used to analyses the data
collected. The result indicates that there is a significant effect of the
recapitalization policy on the banking sector, the policy had contribute to the
efficiency performance of banks in Nigeria. Based on the findings obtained
the following were recommended among others; deregulation programmes should be
properly sequenced; policies should be divince from the regulatory activities
of the banking sector in Nigeria.
The study concludes by expressing the fact that the ultimate responsibility for
the healthy, reliable and effective banking sector layerly rests on the
practice of good corporate governance adopted by banks in Nigeria.
TABLE OF CONTENTS
Title Page i
Certification ii
Dedication iii
Acknowledgement iv
Abstract vi
Table of Contents viii
Chapter One: Introduction 1
1.1
Background to the Study 1
1.2
Statement of the Research Problems 6
1.3
Objectives of the Study 8
1.4
Research Hypothesis 9
1.5
Significance of the Study 10
1.6
Scope of the Study 13
1.7
Limitation of Study 14
1.8
Operational Definition of Terms 15
Chapter Two: Review of Related Literature 16
2.1
Introduction 16
2.2
An Overview of the Nigeria
Banking System 16
2.3
Meaning and Objectives of the Recapitalization Policy 35
2.4
Nigerian Banks and the Recapitalization Policy 44
2.5
Nigerian Economy and the Recapitalization Policy 46
2.6
Recapitalization Policy Options 51
2.7
Highlights of facilitates granted to Owners and
Directors of
some Selected Banks 56
Chapter Three: Research Methodology 58
3.1
Introduction 58
3.2
The Research Design 59
3.3
The Population 59
3.4
The Sample Size 60
3.5
Sampling Technique 60
3.6
Sources of Data Collection 61
3.7
Method of Data Collection 61
3.8
Method of Data Analysis 63
Chapter Four: Data Presentation,
Analysis and
Hypothesis
Testing 65
4.1
Introduction 65
4.2
Presentation of Data 65
4.3
Data Analysis 68
4.4
Hypothesis Testing 78
Chapter Five: Summary of Findings,
Conclusion
and
Recommendations 85
5.1
Introduction 85
5.2
Summary of Findings 85
5.3
Conclusion 86
5.4
Recommendations 87
References 90
Appendix 93
Questionnaire 94
CHAPTER ONE
INTRODUCTION
1.1 Background
to the Study
Before the
recapitalization policy was implemented, the Nigerian banking industry could be
likened to a financial landscape that was flooded with adverse, negative,
unwanted implications and practices such as poor, declining capacity
utilization, weak financial systems, bank failures, bank mismanagement and
crisis etc.
Until Tuesday July 6,
2004 when the Central Bank of Nigeria CBN helmsman unleashed a swarm of locust
on the Nigerian financial landscape, the reformative locusts carrying with them
financial incentives, options, regulations and better developments on how
forward the Nigerian banking industry is to move or directed.
Gyargy (2001) (as cited
in Ajayi, 2005) in Hungary
documented that the reforms in the banking sector proceeded against the backdrop
of banking crisis due to highly under capitalization to state owned banks,
weakness in the regulatory and supervisory framework; weak management
practices; and the tolerance of deficiencies in the corporate governance
behaviour of banks.
The existing financial
landscape were run by a team of no-do-well, draw back based incentives or
ideas, these same set of people reacted to the outbreak of the swarm of locust
that was unleashed by the apex bank- CBN, various means were employed to check
or put under control the unanticipated outbreak of reforms on the industry.
Various regulatory bodies such as the CIBN and even the national assembly tried
several attempts to boycott, the revolution that has being initiated by the
Central Bank of Nigeria (CBN) Governor-Professor Charles Soludo. After several
power tussles, the directive was still in full force, solidly supported by
former President Olusegun Obasanjo. Ogwuma (1996) states that “the control of
the monetary and banking system by the CBN is carried out in partnership with
the federal government which has the overall authority over the system”.(P.3)
Thus , the Central Bank of Nigeria initiates the guiding policy measures and
implements them only as approved by the Government.
It then dawn on the
banks that if they do not start cultivating or sowing on this new fertile
financial landscape, they will definitely die of starvation and eventually go
extinct.
It was really amazing
how the bottom have fallen off an industry that has over the past five years
shown as annual growth rate of 24%, the fastest growing sector in the economy,
if one should ignore the telecommunications sector which is yet reach maturity.
How could an industry that has had the highest deployment and utilization of
information technology, that has attracted MBA’S from many of the world’s top
business schools, that pays the highest remunerations that employs over 50,000
people be a target for a revolutionary change?. The reason is not far-fetched;
the industry has been eroded with malpractices, mismanagement, frauds of high
levels, inadequate financing etc.
Ezegbu (2005) opines
that “the Nigerian banking industry, has been like a cat sent by its master to
hunt squirrels, killed a few and ate them up and
returned to the master empty-handed and then the master was angry and gave it a
flogging”(P. 22).
The banking industry’s growth lacked staying
power, the fundamentals supporting it were all wrong. It was like a balloon
floating, hoping it did not accidentally have a puncture. The bubble had to
burst; it was only just a matter of time. On the surface it was always business
as usual. But deep down the operators lived in perpetual fear. Emotions were dashed when the CBN
governor, at a special session of the bankers committee in Abuja, unveiled a 13- point reform agenda, of
which included an upward review of banks capital based from 2 billion Naira to
25 billion naira.
Otu (2005) states that
“capital provides a cushion to absorb abnormal losses not covered by current
earnings thereby enabling banks to regain equilibrium and return to normal
earning pattern” (P. 61).
Obitayo (1992) states
that “the development process in the developing countries has been constrained
by shortage of productive factors, a critical aspect being capital (P.23).
It was catastrophic,
and a financial debacle for most of the banks. The industry’s profitability was
questioned and it was found out that it was empty- the industry’s
profitability; the time of judegment for the industry has finally come and
stared it in the face. These banks never really understood the meaning of
financial intermediation, not knowing that it is only through effective
financial intermediation that banks can contribute to economic performance, the
society’s main purpose for the banking business.
Mutallab (1986) opines
that “the traditional macro-economic role of banks is financial intermediation.”
A silent war had been on between the banking industry and the rest of the
society, contentions raging from the lending rates on the high side, interest
rate on retail deposits very low, millions of people losing core saving due to
bank distress and failures. Making the society to go bank into time,
patronizing local daily collectors-the “esusus” (P.23).
It cannot be ignored or
neglected that the place of the banking industry on the economic life of any
nation is to strategic, that every effort is made by the appropriate financial
authorities-CBN, NDIC, and NSF etc, to regulate and effectively supervise the
business of the industry. This objective could be achieved through the
combination of Accounting, Code of Conducts, Financial Regulations, Financial
Acts- Companies and Allied matters Act (CAMA 1990), Banks and Other Financial
Institutions Acts (BOFIA 1991) etc, mechanisms designed to purge the banking industry
of diverse frauds and malpractices.
The Nigerian banking
industry today might have preserved a phase for itself in history, since the
July 6, 2004 announcement. A reform most people in the financial circle tagged “The Soludo’s Solutions”.
1.2 Statement
of the research problems
As a way of improving
the Nigerian banking industry, there have been a series of reforms, all aimed
at making the banking industry play it economic function, reforms such as the
recapitalization policy and other development corrective measures, which
includes; mergers and acquisitions, new capital rising programmes, through the
stock market, private placement, foreign equity participation, group
consolidation etc.
A policy that is aimed
to transform the industry to having unique characteristics such as; investors
confidence , branch expansion, increased asset base, creating banks of
world-class status, attraction of foreign investors, stable interest and
exchange rate regimes, and most especially availability of capital for some
businesses etc. Cole and Wairaven (1998) (as cited in Adedipe, 2005) suggest
that consolidation in the banking industry may have enhance rather than
restricted the availability of credit to small businesses, although they did
not rule out changes in the credit terms.
Jayaratne and Wolken
(1998) (as cited in Adcdipe, 2005) suggest
that bank consolidation will have little effect on credit availability to small
firms.
In order to achieve the
purpose of this study, the research will work towards answering the following
questions:
a.
Is the
recapitalization policy having any sufficient positive impact on the banking
industry and the Nigerian economy?
b.
Is the policy
increasing the financial trust that the government and other relevant
stakeholders have on the banking industry or system?
c.
Has the
recapitalization policy improve the efficiency or performance of the financial
sub-sector-banking industry?
d.
Has the policy
made corporate entities, individuals, and other stakeholders benefit from the
operative efficiency of the recapitalized banking industry?
1.3 Research
hypothesis
To achieve a meaningful
objective of this work, the following hypothesis has been formulated to enhance
the authentication of the subject matter. That is the hypothesis will be tested
in a null form, denoted by 40 and the alternative form denoted by HI
Formulations:
HO: There is no significant impact of the
recapitalization policy on the banking industry and the Nigerian economy.
HI:
There is significant impacts of the
recapitalization policy on the banking industry and the Nigeria economy.
The study employed data
collection methods and data analysis methods, were the data collection method
involves the use of primary sources of data, with the aid of questionnaires,
and the secondary sources of data with the aid of textbooks, financial
journals, research projects, newspaper cuttings, conference and seminar papers
presented by stakeholders in the industry professionals and regulatory publications
etc.
The data analysis
methods used or employed are tables, which will help ease the calculation of
the percentages in relation to the responses from the respondents and finally
the chi-square (X2) inferential statistical took will be used to test
the research hypothesis formulated above.
1.4 Objectives
of the Study
This research is wholly
undertaken to examine the recapitalization policy both the banking industry and
its impact on the Nigeria
economy. After the research, one should be able to know what the
recapitalization policy is all about, the impact it has made so far on the
banking industry and on the wholesome existence of the Nigerian economy, and
then contribute necessary recommendations.
These are to be done
with the following objective in mind
a. To critically evaluate the impacts of the
policy on other economic industries in Nigeria.
b. To examine the impacts on the various
sectors in the Nigeria
economy.
c. To examine the impacts on the overall
banking industry.
d. To look into the impacts on the stakeholders
of the industry
e. To examine the impacts on international
or global banking.
1.5 Significance of the study
This is carried out to
add or increase the awareness of the Nigerian banking systems industry, impacts
on the economy. Further research on banking, periods of bank distress and
failures as well as relevant banking eras. Also to breakdown or reduce the
hullabaloo about the recapitalization policy implemented as announced on
Tuesday July 6, 2004 by the CBN Governor.
The study is aimed to
assist the following:
(a)
The Nigerian
Government: the government stands to benefit from the recapitalization policy
implementation in the following ways
i.
Adequate
financing of the public sector banks worth partnering with.
ii.
Adequate trust
in the system to be able to implement other goal oriented policies.
iii.
By ensuring
macro-economic stability.
b.
Policy
formulators and analysts: the following will benefit in the below stated ways;
i.
Availability of
data to enable them give valid analytical judgments and formulations.
ii.
It will increase
their persuasive powers, when advising the government on policies and other
strategies issues
c. The
Academia; will benefit in the following ways;
i. It will increase the bank of knowledge in
the field or area of banking.
ii. The academia might benefit if they
further research, in the way that they may be appointed by the government to
run or head an economic
committee.
d. The Nigeria society: benefits in the
following way:
i. The Nigeria society will be rid of job
losses, occasioned by banks going under, and benefit from job savings
ii. Investments by members of the Nigeria
society will be encouraged, that is the initial public offer by the banks to
raise capital.
iii. It increase confidence, in terms of having
relaxed mind and not necessarily having tensed up behaviours, which can lead to
medical implication.
e. Foreign and Domestic investors; will benefit
in the below stated ways;
i. Increased returns on their investments
without the fear of a shaky financial system.
ii. Will also benefit from the diversification
of the economy because of solid based of the financial system
f. Management of companies benefits range
from
i. Corporate governance of corporate
entities will be boasted, thereby giving such management added value and
advantages.
ii. Management will benefit by having good and
lasting relationship with the government stakeholders and even itself
g. Researchers; will benefit in the following
ways
i. Availability of data bank for further
research and improve on other research.
ii. Creation of a stable and enabling environment
to conduct research.
(h) Financial and regulating bodies; will benefit
in the following ways;
i. The essence why they were created or
established will be achieved
ii. Data provide will help them place or put
checks and controls on organization, systems that are not contributory to the
economy.
1.6 Scope of the Study
The study concentrates
on the Nigeria banking industry, where an overview of the Nigeria banking
system shall be discussed, development of banks in Nigeria, eras of banking
with time frames ranging from, (1892-1952), (1953-1959), (1959-1969), (1970-1979), (1980-1985), (1985-1993),
(bank failure years-1994), (1995-till date). Looking at the
pre-recapitalization, recapitalization and post-recapitalization periods.
1.7 Limitation of the Study
It must be pointed out-that
the process of this research work was lead with some limitation which include
human and socio-economic impediments encountered in the courses of this work.
However, the main
limiting factor was the reluctant of the brass of some banking and other sector
management to disclose the relevant cost data economy financial information
need for adequate review of research, due to fear of being exposed to
competitors. And luckwarm attitude of some members of staff of course time
constraint due to the fact that write ups had to be combined with other academic
work. Above all they when financial constraint. Despite the above mentioned
limitations encountered during the course of carrying out this research work,
the purpose for which it was met and achieved.
1.8 Operational definition terms
Acquisition: This involves process of controlling shares in
another company.
Merger: This is viewed as the situation where two or more
companies combine together to form a large business organization.
Synergy: This is the generic term used in the field of business
acquisitions and mergers to cover the economics which can result through integration,
often expressed as 2+ 2 = 5
Re- organization: It means to re-arrange the business by adding orderliness
of business into the existing one e.g. by diversification.
Re-structuring: Refers to change in the capital structure of a
company, in some cases the ownership structure is also charged in order to make
it operate more effectively.
Re-construction:
This means to build or create again the business
entity and the capital structure of the organization
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