Recapitalization is a major step in the country, taken by the central
bank of Nigeria
to make the financial institution (especially banks) to the strong. This has
made Nigerian banks to prepare for the challenges ahead.
It makes the financial institution to have a strong capital base which is
far beyond what was in existence before the re-capitalization exercise.
However, the financial sector have to reposition itself in order to meet
up to the challenges ahead. This work will be on the effect of
Aims and Objectives of Study
The objective of
the study is to determined the effect of re-capitalization policy on the
performance of financial institutions.
literatures review and hypothesis were formulated questionnaire. Structured and
administered to shareholders in the banking industry. Researchers at the
financial institutions training centre various banks headquarters, professional
formulated was tested using chi-square model to test the relationship between
the variables crammer’s statistics to test the strength of the relationship and
likert scale to measure the degree of effectiveness.
Findings, Recommendation and Conclusion
made from the analysed data. Recommendations and conclusion suggesting that
there is need for the regulatory authority to ensure that, there is adequate
provision of necessary guidelines for the operators in the industry. They
should also ensure strict compliance by effectively monitoring with the
directive provided so that the aim of recapitalization policy be achieved fully
as to the effective performance of the banking sector. Also that the financial
institutions should embrace good corporate governance principles to enhance
public confidence in their operations and the reports that emanate from their
TABLE OF CONTENTS
of the Study
of the Study
and Limitation of the Study
of the Study
Historical Background of the Banking Industry
for Recapitalization Policy
of the Re-Capitalization
Re-Capitalization Policy (Expectation)
Research Design and Methodology
Sources of Data
Method of Data Collection and
Data Processing and Presentation
Data Coding and Construction of
Data Analysis Sheet
Method of Investigation and Data
Data Analysis and Discussion Of
Coding Of Questionnaire
Preparations of Tables
Summary of Major Findings, Conclusion
Recommendations to the Regulatory
Recommendations to the Operators in
the Financial Institutions
Recommendations to the Banking
There is no doubt that as countries progress in their
wealth creation and income generation drives, their financial institution
invariably enhance their asset, institution and market there is no doubt that
in any economy the financial system is the hub of productive activity as it
performs the primary provider of payment services and the fulcrum of monetary
Even as the banking (financial institution) is very
important to the nations economy, it has experience serious of threat of
distress in the past 47 years of the country independence, which lead to the
liquidation of many banks in the process. Experts often define banking distress
as a state of financial difficulties experienced by a bank and which hinders
it’s ability to discharge it’s obligation as at when needed.
The Nigerian banking sector was thrown into a serious
confusion on 6th July, 2004, when the governor of the central bank
of Nigeria Professor Charles Soludo make it known in a meeting held with the
bankers committee at the Central Bank headquarters Abuja, that all bank
operating in Nigeria should raise their minimum capital base to N25 billion as
obtainable before now.
The essence of the reform is to ensure a diversified,
strong and reliable banking sector which will ensure the safety or depositors
money, play active developmental roles in Nigeria economy and be compel and
competitive player in the African regional and global financial system.
BACKGROUND OF THE
Banking Sector reform like every development process is an
ongoing endeavor aimed at assisting and focusing the evolutionary direction of the industry so as to achieve
the desired momentum and shape if the development of the economy.
Thus the subject banking sector reform a broad one
incorporating various regulatory supervisory and legislative measure aimed at
consistently improving the banking industry is pursuit of a better economy.
In view of the above, the Governor of the Central Bank of
Nigeria, Professor Charles Soludo, unveiled a 13 point reform agenda to banks
Chief which includes an upwards review of banks capital base from N2 billion to
N 25 billion to meet up with it role of development and others such as
Be a strong and reliable banking sector which
will ensure the safety of depositors money.
Play active development role in the Nigeria economy
Become competent and competitive in the regional
and global financial system
The recapitalization policy with its attendant
consequences was motivated by the globalization trend and the need to have a
sound and solid banking system that would support their nation’s economy in
term of real sector development.
The issue of recapitalization is not new to the banking
industry, it has happened between 1990 and 1992 then there were 119 banks in
the industry. Some of the collapsed while others survived until 2000 when the
issue of banking reform comes up out of the 89 banks that was remaining today
after merger and acquisition is 25 banks which includes:
Access Bank Plc
Afri Bank Plc
Diamond Bank Plc
Eco Bank Plc
Fidelity Bank Plc
First Bank Plc
First Inland Bank Plc (Fin bank Plc)
Guarantee trust Bank Plc
IBTC Chartered Bank Plc
Skye Bank Plc
Stanbic Bank Plc
Spring Bank Plc
Standard Chartered bank
Union Bank Plc
Sterling Bank Plc
STATEMENT OF PROBLEM
The study seeks to investigate the effect of the
re-capitalization policy on the performance of financial institution. A case
study of United bank for African Plc (UBA) this will be dealth with by looking
at the following problem.
Problem of insufficient capital of banks
Problem of inefficient nature of services by
problem of numerous and high number of banks in
the banking industry
Problem of persistent illiquidity, poor assets
quality and unprofitable operation
Problem of unsoundness of the banking industry
Problem of individual ownership and control of
Problem of weak corporate government in banks
Problem of raising capital to meet up with the
Problem of job losses as a result of the re-capitalization policy
OBJECTIVES OF THE
This study intend to examine the performance of the banks
(financial institution) as a result of re-capitalization policy by the CBN in
examining these issues the study will.
Assess the sufficiency of the capital base of
Find out if the banks are rendering efficient
Determine the liquidity assets quality and
profitability of the banks
Find out the soundness and control on banks
Assess the ownership and control of banks
Assess the feasibility of raising additional
capital to share up capital base of the banks
Find out the consolidation, merger and
acquisition process of the banks
Assess the extent of job losses which may arise
as a result of the re-capitalization policy
Assess banks and know how many banks ca play
active development roles.
SIGNIFICANCE OF THE STUDY
The study is very important because it tend to investigate
and reveal the effect and performance of the financial institution as a result
of re-capitalization policy is also very necessary because it assist student
who went to update, improve and increase their knowledge about financial
institution (banking industry) which also include
To know the capital base requirement of banks
Reveal the nature of services rendered by banks
Determine the number of bank suitable for the
Highlight the ownership and corporate governance
of the bank
Ascertain the soundness of banks in the industry
To know the liquidity assets quality and
profitability of the banks
Reveal the capital raising process of banks
To know the numbers of jobs that may be lost due
to the re-capitalization policy.
LIMITATION OF THE STUDY
For the purpose of relevant fact this study will be
limited to the united bank for African Plc (UBA) and re-capitalization policy
Apart from Qualitative factor such as time constraint,
limited financial resources, proximity and accessibility to obtain relevant
data. The findings were base on the bits and pieces of information obtained
from the national dallies, internet materials and personal interviews.
For the purpose of this research work the hypothesis will
be base on Null and Alternative Hypothesis the recapitalization policy of CBN
has effect on the performance of the financial institutions (banking sector).
Null Hypothesis H0: B = O. The recapitalization
policy has no effect on the performance of the financial institution.
Alternative Hypothesis HA: A = 0. The
recapilitalisation policy has effects on the performance of financial
institutions (banking sector).
ORGANIZATION OF THE
The rest of this study is organisation into four part as
Two - literature review
Three - Research methodology
Four - Data analysis, evaluation and Interpretation.
Five - Summary of major findings, recommendation and conclusions.
DEFINITION OF TERMS
The following are the definition of terms on the effect of
re-capitalization policy on the performance of financial institutions.
Institutions: These are the institutions that provide financial services to
its clients. They also facilitates the flow of money through the economy and
also, they are responsible for transferring funds from investors to companies
in need of those funds.
Market Operation: These are monetary instruments periodically issued by CBN
to mobilize excess fund in the economy. They double as indirect credits to
government to finance its current budget banks are required to maintain at
least 10 per cent of the 30 per cent liquidity ratio in treasury bill.
Central Bank of Nigeria
(CBN): This is a monetary authority established by the government of a
country to oversee the overall financial institutions of the country. It is the
apex regulatory body of the banking industry of that country.
Control: This entails the issue of credit guidelines to every bank, stating
the details of monetary policy and the lending activities expected to banks.
Suasion: This refers to a gentleman appeal to commercial banks to reduce
their lending activities. CBN usually organised seminars, workshops where they
make the appeal.
Rate/Rediscount Rate: This is the minimum rate at the central bank is
prepared to lend through the discounting of short term securities to the
commercial banks or through lending by cash directly.
Bank: A commercial bank can be defined as a monetary institution that is
fully owned by either the government (federal or state) or private businessmen
or jointly owned by government and private individuals for purpose of making
Bank: This is refers to as a whole sales banks, acceptance house and
issuing houses. They operate with few branches and most of it are concentrated
in urban industrial and commercial centres.
Constitute the major assets held by banks and they are the major source of
income to banks.
This means any person who carried on banking business and includes a commercial
bank, a merchant bank and a profit and loss sharing bank.
Banks: These are speciallise financial institutions meant to provide medium
and long term fund to accelerate the pace of development in the country.
Bank Financial Institutions: A Non Bank Financial Institution (NBFI) is an
institution that is licensed to transaction business but not to accept deposit
from the public.
Clearing: This is the process of collecting the proceeds of the other banks
cheque deposited by customers.
Exchange Rate: Foreign exchange rate is the ratio at which the domestic
currency will exchange for a foreign currency.
Stock Exchange (NSE): The Nigerian Stock Exchange is a private, non profit
making organisation, limited by guarantee
Exchange Commission (SEC): This
Will: This is the reputation at which a company acquires as a result of
it’s effectiveness and efficient operation.
The WACB is a monetary system common to Nigeria, Gambia, Ghana and Sierra-Leone.
These are securities issued by companies to borrow on long term basis from
investors in the capital market.
Money advanced to a borrower usually to be repaid with interest and evidence by
notes, bonds etc.
interest bearing certificate of debt, usually issued in series by which the
issuer obligate itself and repay a principal amount and interest at a specified
time, usually 5 years or more after date of issue.
The use of money for the purpose of making money to gain income or increase
capital or both safely of principal is an important consideration.
Is to ensure a diversified strong and reliable banking sector, which will
ensure the safety of depositor money and also become competent and competitive
in the regional and global financial system and to promote the soundness,
stability and enhanced efficiency of the system.
Stocks: These are securities issued by companies to borrow on long-term
basis from investors in the capital market.
Rate Regulation: These are directly controlled by the central Bank in Nigeria. The
CBNM pegs interest rate within a particular range and this has effect on the
commercial banks vis-à-vis the rate of inflation in the economy.
This can be defined as the availability of ready money or the ease with
which an asset can be converted to cash in order to meet the depositors on
Securities: Are issued to mop up excess liquidity from the economy and to
influence money supply and demand. Bankers rather regard it as the penalty paid
for exceeding the required minimum liquidity ratio.
share is defined as the interest of members in a company which is measured in
monetary term for the purpose of the holder entitlements and indebtedness
(entitlement in form of dividend and indebtedness in form of liabilities)
This is a certificate of indebtedness which is usually issued by public
limited liability company to one class of it’s creditors known as debenture
These are reserve normally arise in accounting book in compliance with
company Act (or Decree) requirement.
Adequacy: Capital adequacy measures the relationship between banks capital
and it’s 2 weighted assets.
Debt: This is a method of payment in which the creditors apply to the bank
for payment, which is debited to the customer account. This method is used by
many companies like insurance companies for collection of premium savings and loans
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