THE EFFECT OF N25 BILLION CAPITALISATION ON THE BANKING INDUSTRY

TABLE OF CONTENTS

Title Page

Certification                                                                             ii

Dedication                                                                               iii

Acknowledge                                                                           iv

Table of Content                                                                      v

Chapter One

Introduction                                                                            1

Significance of the Study                                                        2

Scope and Limitation of the Study                                         3

Research Methodology                                                            3

Definition of Study                                                                  4

References                                                                               5

Chapter Two

Introduction                                                                            6

The Imperative of Bank Recapitalization in Nigeria              6

The Imperative of Bank Recapitalization                               12

Option Available for Bank Recapitalization                           13

Conclusion                                                                              20

Recommendation                                                                    21

Chapter Three

Summary Conclusion and Recommendation                       22

Summary                                                                                 22

Conclusion                                                                              22

Recommendation                                                                    23

References                                                                               24

CHAPTER ONE

INTRODUCTION

The word “capitalization” was not a business word just two year ago. That it has come to stay portends a good omen that will change the face of banking business forever and would undoubtedly speed ‑the recovery of the Nigerian ailing economy. The situations in banks are dull in terms of financing major projects apart from other domestic services offered its. numerous customers. As a result of this poor banking practice, many of these banks enjoy round‑tripping, money laundering and lobbying to keep government revenue accruable to states and local governments, to survive.

Reports have been unfavourable to the banks for their productivity to cut comers. The revolution of Nigerian Banking Industry. The governors of the Central Bank of Nigeria, Prof Charles Soludo, in his maiden speech to bankers on 23 March, 2005, said that most banks in Nigeria have a capitalization of less then $10million. Even the largest bank in Nigeria, has a capital base of about $240 million compared to $526 million for the smallest bank in Malaysia. In view of this, if the trend remains unchanged, there might be no meaningful development in the banking sector. He further observed that the sector is highly concentrated, as the, ten largest banks account for about 50 percent of this industry's total assets and liabilities while there were 89 deposit money banks operating in the country comprising institutions of various sizes and degrees of soundness.

Addressing the factor that may have encourage sharp practice, Soludo asserted that the Small size of most of the banks, each with expensive headquarters, separate investment in software and hardware, heavy fixed costs and operating expenses, and with branches in few commercial centres lead to very high average cost for the industry. To this end, fie explained further that this in turn has implications for the cost of Intermediation, the spread between deposit and lending rates and puts undue pressures on banks to engage in sharp practice as means of survival.

Addressing the role banks play in any economy he buttressed his facts further by saying that banking system occupies a unique position in every economy and that is why it often attracts more than a casual regulatory attention. His words: out industry in the 21^st century must have a moral face and live up to some medium of social responsibility. Capitalism must have a social face and human soul to be sustainable. This is the lesson of world industry. To appraise the impact of the N25bn capitalization in Nigerian banking industry.

SIGNIFICANCE OF THE STUDY

The final work of this research study will serve as guide for banks to imbibe best‑practice, corporate governance, improve on self‑regulation, institute IT‑driven culture and seek to be competitive in today's globalizing world. Will emphasize diversification of the productive base of the economy as fundamental challenge of economic management, will challenge banks to become more innovative in their intermediation function, and especially to increase financing to the productive sectors. Also, the original study of this project will suggest the collaboration of Economic and Financial Crimes Commission (EFCC) in the establishment of the Financial Intelligence Unit (FIU) and the enforcement of the anti‑money laundering, economic crime measures and other security agencies to ensure compliance and entrench transparency, accountability in various bank transactions to forestall sharp practice.

SCOPE AND LIMITATION OF THE STUDY

This research study will cover how revolution has come to stay in the banking industry, Bank capitalization, success of capitalization to date, role of banks in developing Nigeria economy, and the benefits derivable from bank recapitalization.

It is worth‑nothing that these are some factors capable of Remitting the success and value of this study. Such factors may include, timing, financial constraint, lack of materials, wrong attitudes of interviewees towards research questionnaire etc. Nevertheless, these factors cannot disrupt the attainment of major objectives of this study.

RESEARCH METHODOLOGY

The research work shall be conducted through.

a.       Research Questionnaires

b.      Personal Visitation

c.       Personal Interview

d.      Review of literature (i.e. Journals, magazine, textbooks, newspaper e.t.c).

DEFINITION OF TERMS

a.       Capitalization: An idea of setting a minimum capital for a particular business that is enough for effective and efficient operation of the business.

b.      Economy: The relationship between production, trading and the supply of money in a particular country.

c.       Finance: The management of money. It is the planning, organizing and controlling of money     in a business.

d.      Revenue: The total amount of money that accrues to the government or a business from various sources.

e.       Central Bank: The highest financial institutions in Nigeria that monitors and regulates other financial institutions like banks, insurance companies, discount houses etc in the country.

f.        Diversification: An idea whereby economic resources in a country are directed towards the development of all sectors of an economy.

g.       Investment: An act of putting a certain amount into an activity or a project that will yield some benefits in the future.

h.      Assets: The properties of a business, provided by both the owner(s) and outsiders,

used in running the business.

i.        Liabilities: These are financial obligations (debts) a business is unable to meet within a specific time of period.

j.        Intermediation: Banks activities that involves bringing both lenders and borrowers together for productive purposes.

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