Title Page Page
1.1 Historical Background
1.2 Purpose of Study
1.3 Significance of Study
1.4 Statement of Problem
1.5 Scope and Limitations of Study
1.6 Research Hypothesis
1.7 Research Methodology
2.0 Literature Review
2.1 The Role of Banking Industry
2.2 Historical Background
2.3 Review of Previous Work
2.4 Review of Related Literature
2.5 The Impact of the Research
3.0 Research Design
3.1 Study Population
3.2 Methods of Data Collection
3.3 Characteristics of Study Population
3.4 Research Instrument Specification
3.5 Method of Analysis
4.1 Data Analysis and Presentation
4.2 Test of Hypothesis
5.0 Summary, Conclusion and Recommendation
BACKGROUND OF THE STUDY
potential crisis that is looming in the Nigerian banking industry can no longer
wait to be addressed other than what could be witnessed in the revolutionary
instance taking by Prof. Charles Soludo, directives on the
N25b capitalization base for banks who wish to operates in Nigeria
addressing the financial institutions, he maintained that, the directive is
part of a series of reforms to get the banking sector in the modern proper
shape, to have banking system “where people can afford to put their money
and go to sleep”, where investors can rely on banking sector to provide
long term credit and to develop a banking sector that can respond to demands of
globalization for global competitiveness. Fundamentally, it is designed to
prevent potential systematic crisis that is looming in the banking sector where
you have 89 banks all of which put together happening to be less than one bank
in South Africa, where the most capitalized bank in Nigeria has less than 50
percent of the capital base on the least capitalized bank in Malaysia; where
indeed none of our bank is big enough to be able to transform the economy.
to Soludo( 2006), among the 89 banks we almost cannot count on your
fingertips, how many of them are really involved in the real act of
banking, he described most of the banks as traders who just collect banking
license, use connection to get public sector deposit, trade in government
treasury bills, trade in foreign exchange and open letters of credit in the
Nigeria economy. We have a weak banking system where nobody can put his money
and go to sleep and that is why confidence in the system is impaired.
banking sector as the life wire of economic growth and development of any
economy, what is obtained presently is a back drop, hence N25b capitalization
is needed to sanitize the industry particularly the entire economy of Nigeria.
According to DoyinOdunfa (2005) Said during
the unveiling of this year’s web-jurist rating for the financial services
sector that 25billion naira capitalization would create several opportunities
and hamess banks potentials and capitalization to drive e-banking in Nigeria.
1.2 STATEMENT OF RESEARCH PROBLEM
statement of problem in question here, formed to enhance a clear articulation.
This image is built up by information about the company while information is
also centred on dividend payout, earnings announcement and management
potentials. The questions awaiting instant answer are:
What are the effects of
N25b capitalization on Nigeria financial
What meaningful choice of option were
available (whether merger or acquisition) and its effect on employees and
What effect has this capitalization
depict on the consumers of the services rendered by the banking sector.
purpose of this study is to attempt to answer questions raised in the statement
of the problem of this research work. Such includes:
examine and assess the ability of the new regulation and to sanitize the banking
sector of the economy.
identify the various effects and measures of performance evaluation on
customers, employees and the bank as a whole.
To carry out a detailed performance
evaluation of the selected case study.
Recommending viable solutions to
these problems and prospects.
study is also expected to determine the effects and impact of
N25b Capitalization on Banking Industry in
Nigeria. It will be of great help to the economic planners, academicians for
future review, mostly banking executives and top-management of banks and
statutory agencies governing and regulating the institutions.
1.4 RESEARCH QUESTION
importance of research question is to guide the researcher on the specific
methods and the procedures for acquiring information needed to structure or
solve the problem under consideration. The method of collecting data for this
research was through primary and secondary sources of data collection. The
primary sources were through questionnaires given to some of the staff of the
case study organizations and personnel interviewed while secondary sources were
through documented literature such as CBN annual report, NDIC annual report,
financial dailies, seminar papers, journals and textbooks.
study will seek the following answer for the question:
H0: The twenty five (25) Billion naira capitalization does not have effect in the banking industry in
H1: The twenty five (25) Billion naira capitalization will have effect
in banking industry in Nigeria.
H0: The twenty five (25) Billion naira
capitalization will not have impact on loan syndication of Banks.
H1: The twenty five(25) Billion naira
capitalization will have impact on loan syndication of Banks.
H0: The twenty five (25) Billion naira capitalization will not help to
build customers confidence in the banks.
Hl: The twenty five (25) Billion naira capitalization will help to
build customers confidences in the banks.
H0: The twenty five (25) Billion naira capitalization will not improve
the services of the banks.
Hl: The twenty five (25) Billion naira capitalization will improve
the service of the banks.
OF THE STUDY
significance of this study cannot be over-emphasized, owing to the fact that
the banking industry plays a significant role in the economy. Most studies have
dealt with profitability and social responsibility as the sole determinants of
the performance of the banking industry; few have included other variables like
leverage and managerial quality. It is commonly assumed that the Nigerian
investors are dividend conscious, therefore, when a company is not paying
dividend as at when due, there is tendency for investors to sell such equity.
Furthermore, the ability of companies to raise funds from the capital market
and the quantum of funds raised is a function of the image of the company in
the eyes of the investing public.
SCOPE AND LIMITATION OF THE STUDY
a project work of this nature is no doubt a herculean task that needs sufficient
time and patience, funds and adequate material, commitment and concentration.
However, some of these requisites and other factors combined to mitigate
against the success of this project. In this research work, we have examined
thoroughly the effects of
Capitalization of Banking Industry on loan syndication while proffering some
major constraint envisaged would be that of laying hands on relevant data and
information on the banks and the dearth of adequate record of transactions and
their inability to make available their annual year report on time for
compilation to the apex bank and relevant authorities. Due to financial
constraints, limited time amongst others, the research is limited to three
banks, First Bank of Nigeria Plc., Guaranty Trust bank and Skye bank Plc. All
in Abuja branch. Comments, opinions from questionnaires and excerpt from
Central Bank of Nigeria (CBN) annual report, financial dailies, journals and
textbooks were also utilized.
1.8SHORT HISTORICAL BACKGROUND OF THE
Bank of Nigeria Plc. was incorporated as a limited liability company on March
31st, 1894, with Head office in Liverpool by Sir, Alfred Jones, a shipping
magnate. It started business in the office of Elder Dempster& Company in
Lagos under the corporate name of the Bank for British West Africa (BBWA) with
a paid up capital of 12,000 pounds sterling, after absorbing its predecessor,
the African Banking Corporation, which was established earlier in 1892. In its
early years of operations, the bank recorded an impressive growth and worked
closely with the Colonial Government in performing the traditional functions of
a central Bank, such as issue of specie in the West African Sub-region.
justify its West African coverage, a branch was opened in Accra, Ghana in 1896
and another in Freetown, Sierra Leone in 1898. These marked the genesis of the
Bank’s internationals banking operations. The second branch of the bank in
Nigeria was in the old Calabar in 1900 and two year later, services were
extended to Northern Nigeria.
reposition and take advantage of opportunities in the changing environment, the
bank had at various times embarked on restructuring initiatives. In 1957, it
changed its name from Bank of British West Africa to Bank of West Africa.
1969, the bank was incorporated locally as the standard Bank of Nigeria limited
in line with the companies Decree of 1968. Changes in the name of the bank also
occurred in 1979 and 1991, to First Bank of Nigeria Limited and First Bank of
Nigeria Plc., respectively. In 1985, the Bank introduced a decentralized
structure with five regional administrations.
Bank got listed on the Nigerian Stock Exchange (NSE) in March 1971, and has won
the NSE president’s Merit Award eleven times for the best financial report in
the banking sector.
2002, the bank established the first off shore financial subsidiary of a
Nigerian owned bank in the UK and in 2005 acquired two banks – MBC
bank ltd & FBN (Merchant Banker) Ltd
2007 floated first ever hybrid capital offering out of Africa (www.first
origins of Skye Bank date back to 1989 when Prudent Bank Plc., was incorporated
as a limited liability company. In 1990, the bank was issued a license as
merchant bank. That same year, it rebranded as Prudent Merchant Bank Limited.
In 2006, Prudent Merchant Bank Limited merged with four other banks to form
Skye Bank Plc.:
International Bank Plc.
January 2011, the bank introduced a Naira-denominated MasterCard debit card,
called "MasterCard Verve", the first of its kind in Nigeria. The bank
also offers Internet banking and mobile banking.
back a section
of February 2011, Skye Bank Plc. maintains the following subsidiaries:
Mortgage Bankers Limited - Paid up share capital of US$6.42 million (NGN:1
Stockbrokers Limited - Dealing member at Nigerian Stock Exchange (NSE)
Union and Rock Insurance Plc. - 51.95% shareholding in 2007
Integrated Technologies Limited - IT Solutions Company
Trustees Limited - Licensed by the Securities and Exchange Commission (SEC) to
function as a Trustee and Funds Manager in the capital market.
Financial Services - Paid up capital of US$12.84 million (NGN:2 billion). Asset
management, corporate finance and securities underwriting
Bank Sierra Leone Limited - 95% shareholding by Skye Bank Plc. 5% owned by
Sierra Leonean investors. Paid up capital of US$3.1 million (SLL:13.85 billion)
Bank Gambia - Paid up capital of US$3.1 million (GMD:87.8 million) in 2008.
Bank Guinea - Opened in April 2010.
shares of stock of Skye Bank Plc. are listed on the Nigerian Stock Exchange,
where they trade under the symbol: SKYBANK. The detailed shareholding in the
bank is not publicly available at the moment.
Trust Bank Limited was incorporated and has been in operation in the
Commonwealth of The Bahamas since 15th January 1962 and is one of the country's
oldest established Banks.
Bank, which is an entirely independent corporate entity, both legally and
practically, has established particularly effective relations with a
significant number of companies and individuals worldwide, thus providing for a
continuing flow of business and investment opportunities for the Bank and its
Bank employs a dedicated staff of qualified professionals with the necessary
quality technical expertise in all practice and support areas, including
accounting, legal, banking, trust, compliance and financial due diligence.
majority of staff has been with the Bank, on average, over 15 years.
Bank also has longstanding, professional relationships with banking, accounting
and legal firms in other financial centres and in the major world cities
1.9 DEFINITION OF TERMS
In a study like this it is necessary to
define at the beginning those terms and concepts that will be used in the study
to avoid ambiguities. For the purpose of this, terms like business, industry,
firm, and enterprises are used inter changeably. So also is bank and financial
institution. Others are distress and failure or bank-run, Capitalization and Recapitalization.
ASSETS: These are properties of a business and its stock in trade or its
stock of goods at any particular time.
ACCEPTANCE HOUSE: These are financial institutions that specialize in
the grants of acceptance facilities.
BANK: Sec 2 and 61 of(BOFID) 1991 defines a bank as; "A duly
incorporated company in Nigeria holding a valid banking license to receive
deposit on current account, savings account or other similar accounts, paying
or collecting cheques drawn by or paid in by customers. Provision of finance or
such other business as the government may order to publish in the gazette
designated as banking business.
Banking is signified by certain kind of dealings in money, approved by the
state accordingly by which money is deposited with the bankers for the benefit
of the depositor, so that the ownership of the money passes to them, and so
that the creditors (i.e. depositors) get security; and the debtors (i.e. the
bankers) get advantage. The condition is however implied that the depositor may
whenever he pleases demand the money he deposited. Therefore a bank can simply
be said to be an establishment where money is deposited in accounts, withdrawn
BOFID: Banks and other financial institution decree.
CAPITAL: This refers to the sum invested in a business. It is also seen
or used in business by a person, corporation, government etc. Capital can also
be referred to as the net worth of a business; amount by which the assets
exceed the liabilities.
CAPITAL BASE: The total sum value of amount invested in a business.
The market for sale of Securities. It is also refer to as a market where
investment instruments mostly in monetary forms are exchanged either through
long, short or medium term agreements.
Convert into capital.
These are banks with problems relating to liquidity, poor marginal or total
earnings and non-performing assets. The climax of it is that it could be a
condition of insolvency, which implies inability to pay debtors or meet
maturity obligations as they fall due.
FIXED INTEREST PAYMENT OR FIXED REDEMPTION: These are investments that
already have a fixed duration and interest rate.
HOLDING ACTION: This refers to condition prescribed by Central Bank for
the turn-around of distressed banks.
A rise in the average price level of goods and services.
LIABILITY: This is what a business owe to outsiders.
To put a firm out of business or stop its operations dueto insolvency.
LIQUIDITY: Money or near money (e.g. Bank drafts).
MERGER: The combination of two or more companies in which one firm
survive as a legal entity.
OPEN MARKET OPERATION (OMO): This is the sales and buying of
Government bonds in the market. The
market consists of commercial banks and the public.
PAID UP CAPITAL: The amount subscribed in a company share capital.
RECAPITALISATION: Review of the require minimum capital and the process
of adapting to the new requirement. It is also defined as the enhancement and
restructuring of the financial resources of an organization with a view to
enlarging the long term fund available to the organization.
LOAN SYNDICATION: This is an inter-bank relationship and
facilities in carrying on a common interest in financing a project.
RETURN ON INVESTMENT (ROT): Gain received from money put into a
SPECIAL DRAWING RIGHTS (SDR):- This is a device for increasing
international liquidity to member nations of IMF. This was introduced in 1969.
They are assets which are to be issued (i.e. created like commercial banks
deposits) only by IMF. They are not to be regarded as borrowings from the fund,
but are meant to supplement gold and convertible currency and so form part of
SHARE CAPITAL:- The value of a company's capital contributed by its
STOCK EXCHANGE:- Market for the issue and sale of new securities.
PRUDENTIAL GUIDELINES:- These are guidelines and practices which all
licensed banks are required to adhere to in reviewing and reporting their
performance, particularly in the areas of credit portfolio classification and
disclosure, provision for non-performing facilities, interest accruals,
classification of other assets and off balance sheet engagement.
TAKE OVER: - the acquisitions of another company which may (from the
viewpoint of the acquired firm’s management) take the form of a
"friendly" or "unfriendly" merger.
SECURITY OWNERSHIP: - This is creditor interest in an organization
Evidenced by a certificate.
CAPITAL ADEQUACY RATIO: - this is defined as the total qualified
Capital to total risk weighted assets.
The ratio is an indicator of appropriate level of capitalization of a bank.
LIQUIDITY RATIO: This is defined as the ratio of total specified liquid
Assets to total current liabilities and
reflects the liquidity position of a bank.
LIQUIDATION: This has been defined by Glenn G. Munn in Encyclopedia of
banking and finance as the termination or winding up of a business by
conversion of its assets to cash and distribution of proceeds first to the
creditors in the order of preference and the remainder, if any, to the owners
in proportion of their holdings.