THE CHALLENGES OF FINANCING PROPERTY DEVELOPMENT IN A POST BANKING CONSOLIDATION ERA IN NIGERIA

ABSTRACT

Property development world wide is capital intensive and without sufficient money, nothing reasonable can be achieved. Today, problem of housing is getting worse everyday because demand outstript supply. Commercial and industrial  properties are scarce due to lack  of capital. Unfortunately the finance houses in Nigeria that should be vehicle of growth are facing various degrees of problems, hence could not perform the roles primarily designed for them. The federal government through the Central Bank of Nigeria has recently evolved a policy  guideline whereby some banks should either fold-up merge or recapitalize for greater  performance.

These have resulted in the liquidation of some banks while the others have either merged or recapitalized resulting in only 25 functioning banks in Nigeria today.

This thesis therefore studied the reform, its concept, benefit, achievement so far the aim and objectives and the challenges the banks are facing in this competitive era in banking sector, in order to finance big project including property development.

It is view of the findings that recommendations are made for the full achievement of the central bank reform.

TABLE OF CONTENTS

Content                                                                           page

Title page                                                                                          i

Certification                                                                                     ii

Dedication                                                                              iii

Acknowledgement                                                                           iv

Table of content                                                                               v

List of  Tables                                                                                   ix

List of Figures                                                                                  x

 Abstract                                                                                          xi

CHAPTER ONE

1.0     General Introduction                                                            1

.1           Introduction                                                                           1

.2           Statement Of Problem                                                           2

.3           Aim And Objectives                                                               3

.4           Research Hypothesis                                                             3

.5            Scope Of Study                                                                     4

.6           Significance Of Study                                                             4

.7           Limitation Of The Study                                                         5

.8           Definition Of Terms                                                                5

References                                                                    7

CHAPTER TWO

REVIEW OF LITERATURE                                                               8

2.1.0  Financial institutions                                                   8

2.1.1 Introduction                                                                           8

2.1.2  Evolution of commercial banks and functions                     8

2.1.3  Evolution of merchant banks and functions                                  12

2.1.4  Evolution of Central Bank of Nigeria and functions                      14

2.1.5  Policy instruments used by central bank of Nigeria

to control money supply into the economy                                    17

2.1.6  Causes of financial distress in Nigerian banking  industry          20

2.2.0  Nigeria Banking Reform (consolidation)                                        21

2.2.1  Concepts and processes of banking reform                                  22

2.2.2  Benefit of the banking reform                                                         25

2.2.3  Achievements of banking reform so far                                         25

2.2.4  Challenges of banking reform                                                         26

2.3.0    Property development                                                                   29

2.3.1  Meaning of property development                                                  29

2.3.2  Parties to property development                                                    32

2.3.3  Development process                                                                      33

2.4.1  Property development finance                                                        38

2.4.2  Sources of finance for property  development                               39

2.4.3  Types of property development finance                                         40

2.4.4  Methods of financing property development                                 41

2.4.5  Importance of credit to property development                              44

2.4.6  Problems of  property development finance in Nigeria                 45

2.4.7  Banks involved in property development and their

achievement so far                                                                          46

References                                                                                        48

CHAPTER THREE

RESEARCH METHODOLOGY AND STUDY AREA                                 

3.0    Introduction                                                                                     50

3.1  Restatement of research hypothesis                                                 50

3.2  Sources of data                                                                                   51

3.3  Characteristics of the population of study                              51

3.4  Sampling techniques                                                                          51

3.4.1  Sampling design                                                                              52

3.4.2  Sampling procedure                                                                        52

3.4.3  Determination of sampling  size                                                     52

3.5  Questionnaire administration                                                           52

3.5.1  Questionnaire design                                                                      52

3.5.2  Questionnaire distribution                                                             53

3.5.3  Collection of responses                                                                   53

3.6  Techniques for data analysis                                                             53

3.7  Limitations to research methodology                                                53

3.8  Study area                                                                                          53

References                                                                                           55

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS                                                  56

4.1       Introduction                                                                                     56

4.2       Presentation and analysis of data based on research objectives 56

4.3       Analysis of other relevant data                                                       66

4.4       Presentation and analysis of data according to responses

to the research hypothesis                                                              72

References                                                                              80

CHAPTER FIVE

SUMMARY OF FINDING, RECOMMENDATION CONCLUSIONS

 AND SUGGESTIONS FOR    FURTHER STUDIES                                  81    

5.1       Summary of findings                                                                       81

5.2       Recommendations based on research findings                             82

5.3       Implementation                                                                               83

5.4       Conclusion                                                                                       83

5.5       Suggestions for further studies                                                      85

References                                                                              86

Bibliography                                                                                    87

Appendix

LIST OF TABLES

Table 4.2.1          Adequacy of time frame by CBN for the capitalization exercise

Table 4.2.2           Implication of the reform on banking industry

Table 4.2.3           Implication of the reform on the economy

Table 4.2.4           Increase in banking patronage

Table  4.2.5         Reform achieving its objectives

Table 4.2.6           Interest rate charges on loan after capitalization

Table 4.2.7           Banks investment in real estate after capitalization

Table 4.2.8           Banks venturing into other sectors of the economy

Table 4.3.1           How banks survived the capitalization mandate of

CBN

Table 4.3.2           Percentage growth in banking patronages after

recapitalization

Table 4.3.3           Percentage growth in money supply into economy

after capitalization

Table 4.3.4           Properties banks prefers to finance

Table 4.4.1          Increase in flow of financial resources into economy after capitalization.

Table 4.4.2          Availability of finance for property development after capitalization

LIST OF FIGURES

Fig. 2.3.3             Development process

Fig. 4.2.1             Bar chart on adequacy of time frame by CBN for the capitalization exercise

Fig.  4.2.2            Bar chart on implication of the reform on banking industry

Fig.  4.2.3            Bar chart on implication of the reform on the economy

Fig. 4.2.4             Bar chart on increase in banking patronage

Fig.  4.2.5            Bar chart on reform achieving its objectives

Fig. 4.2.6             Bar chart on interest rate charges on loan after capitalization

Fig.  4.2.7            Bar chart on banks investment in real estate after capitalization

Fig. 4.2.8             Bar chart on banks venturing into other sectors of the economy

Fig.  4.3.1            Bar chart on how banks survived the capitalization mandate of CBN

Fig.4.3.2              Bar chart on percentage growth in banking patronages after recapitalization

Fig. 4.3.3             Bar chart on percentage growth in money supply into economy after capitalization

Fig. 4.3.4             Bar chart on properties banks prefers to finance

Fig. 4.4.1             Bar chart on the increase in flow of financial resources into economy after capitalization.

Fig. 4.4.2             Bar chart on the availability of finance for property development after capitalization

CHAPTER ONE

1.0     GENERAL INTRODUCTION

1.1       INTRODUCTION

Adewusi (2004) defined property development as improvement made upon land which involves the changing or intensifying the land for residential, commercial, industrial, agricultural and special uses. In involves the combination of land, labour, materials, developer (private or public) and finance 

Odejimi (1991) defined financing as the process of obtaining funds / finance or capital for the purpose of supporting property development from financial institutions

Professor Charles Soludo (2006), Central bank of Nigeria Governor listed a new set of challenges that go far beyond mere consolidation in the banking sector reforms, Soludo, world Central Banker of the year 2005 disclosed at a two day Global  banking  conference on Nigerian reform at  Dorchester Hotel in West London. He said the new bench mark for Nigerian banks was to  compete with their global counterparts and subject themselves to international rating agencies to  know how and where they stand among others.

There is a burden on financial institutions to stimulate productivity, encourage job creation and help alleviate poverty while profiting.

In the post banking consolidation era in Nigeria, the Banks are to improve their lending practices to other sectors in the economy including property development sector.

From the foregoing, a clear analysis of the challenges and benefits of consolidation of the banking sector to property development will be studied.

1.2       STATEMENT OF PROBLEM

The directive of the central bank of Nigeria to commercial banks was on attempt for sufficient mobilization of domestic savings, meeting the financial needs of productive sectors of the economy and making banking more stable.

It was an opinion for many banks to merger and thus creating relatively small number of better capitalized and accountable banks. These banks are expected to be able to grant long term loan than before and enhancing the Nigerian’s ability to finance development projects.

This project will examine

(a)          If consolidation in the banking sector has succeeded in achieving its main purposes.     

(b)          If consolidation has increased the flow of financial resource for property development

1.3       AIM AND OBJECTIVES

The aim of this project is to examine the challenges of financial property development in a post banking consolidation era in Nigeria.

         The objectives of the projects are as follows:

(a)          To identify the financial institutions in Nigeria and their functions.

(b)         To examine the banking reform, concept, benefits and achievement so far

(c)           To expose the challenges of banking reform

(d)     To examine property development

(e)      To expose property development financial, sources types and methods of financing property development.

1.4       RESEARCH HYPOTHESIS

Null Hypothesis (Ho)- There is no significant relationship between consolidation in banking sector and the flow of financial resources into the economy.

Alternate Hypothesis (Hi) – There is significant relationship between consolidation in banking sector and the flow of financial resources into the economy.

Null hypothesis (Ho) – There is no significant relationship between consolidation in banking sector and the availability of finance for property development.

Alternate Hypothesis (Hi) – There is significant relationship between consolidation in banking sector and the availability of finance for property development.  

1.5       SCOPE OF STUDY

The scope of this project is to highlight the challenges of financing property development in the post banking consolidation era in Lagos state.

This study is designed to discuss 25 (Twenty five) surviving banks in the country after the recapitalization mandate of the central bank of Nigeria on December 2005.

1.6       SIGNIFICANCE OF STUDY

The project is intended to examine the challenges of financing property in the post consolidation era in Nigeria.

The project will be a valuable material for students and general public on the study of on-going consolidation in the banking sector, the concept, processes, benefits, achievements so far and the challenges and also on the property development and property development finance, the sources, types and methods of financing property development.

Educate the property developers on how to source funds for executing property development projects and the methods to use in financing the property development.

1.7     LIMITATION OF STUDY

The constraints encountered during the course of this research include

(1)         The uncooperative attitude of many respondents to questions posed to them in the process of gathering information for this research, made the project a little more difficult to write

(2)         Time constraints-sourcing materials for the project  and visitation to case study has to be done several times, despite the fact that lectures and assignments demanded time too, thus making the process of writing very challenging.

1.8   DEFINITION OF TERMS

MERGER

Ajayi (2005) defined merger as the combination of two or more separate firms into a single organization.

CONSOLIDATION

Ajayi (2005) defined consolidation as the reduction in the number of banks and other deposit taking institutions with a simultaneous increase in the size and concentration of stronger entities in the sector.

ACQUISITION

Ajayi (2005) defined acquisition as the taking over the controlling shareholding interest of a company by another company.

CONVERGENCE

Ajayi (2005) defined convergence to involve the consolidation of banking with other types of financial services like securities and insurance.