EFFECT OF RECAPITALIZATION ON THE PERFORMANCE OF DEPOSIT MONEY IN NIGERIA

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

The concept of recapitalization is a world-wide practice which was also adopted in Nigeria as a means of rescuing the collapse of the banking industry through the initiation of diverse reform programs. Banking reforms refer the changes or shifts in deposit money bank structure which is binding on them by the regulatory bodies. It has been a usual episode both in emerging nation and developed world since 1980. In Nigeria, the structural adjustment programme (SAP) which was established in 1986 brought about the 1987 reduction of government powers in major sectors of the economy and opened the way for a high level competition and uncontrolled expansion especially in the financial industry. This has been attributed to the provision of incentives in terms of size and number of banks in operation [1]. Consequent upon this era of deregulation, coupled with political instability and financial policies defects, the Nigerian banks witnessed a lot of challenges in the areas of unethical practices, poor performances and decline in profitability.

According to Aregbeyen et al (2011), [2], banks started taking excessive risks which led to frequent bank failures and related financial shocks in the economy, in a bid to survive and maintain adequate profit level in the ensuring political and policy instability in the Nigerian economy. They maintained that the major reform programme of central bank of Nigeria (CBN) in July 6, 2004, was to help the deposit money banks in Nigeria to drastically decrease their cost of operation and boost their competitiveness both locally and globally. At the time of this Recapitalization, Nigeria had eighty nine (89) banks which later came down to twenty five (25) because of the demand for mandatory minimum capital requirement of twenty five billion naira (N25bn) for a bank, as against the initial two billion naira (N2bn). Apart from the belief that the recapitalized banks would be strong, sound and reliable, it was expected that the newly emerged banks would increase customer’s confidence, increase profitability, increase performance and of course increase the returns (dividends) to the shareholders. The evidence that so many banks in Nigeria were distressed became more open or visible with increasing long queues at many banking halls across the country; persistent illiquidity, inability to pay bills and cheques on short notice, inability to grant loans coupled with obvious growing indebtedness and incessant lay-off of staff. Consequently, the responsibility was on the Central Bank of Nigeria to bring sanity to this once thriving industry and restore public trust and confidence on banks’ ability to secure customer’s deposit, grant loans and advances without hindrance, as well as reduce the stress of waiting endlessly on queue in the bank to cash cheques. Adegbaju and Olokoyo (2008), [3], while commenting on this deplorable situation, stated that, Banking sector reforms and recapitalization have caused deliberate policy response to impact on apparent banking industry crisis. They added that the major causes for bank failure include weakness in banking method as a result continual illiquidity, increasing rate of nonperforming loans, insolvency, insufficient capitalization, feeble corporate governance among others. The Central Bank of Nigeria (CBN) recent banking reforms were justified when Soludo (2004), [3], as cited by Nwankwo (2013), [5], identified that illiquidity, poor asset quality and unprofitable operations are the major problems facing most of the banks in Nigeria. He decried the situation whereby the deposit money banks in Nigeria depended largely on government. Such dependence renders the banks resources inadequate to add to the development of the financial industry reforms. The main purpose of the banking sector reforms was captured in Soludo (2005), [6], when he suggested that the reforms will increase intermediation process, ensure financial sector stability, promote economic growth, increase the capital base of banks, enhance liquidity and capitalization of stock market, enhance expansion of shareholders base to promote good corporate governance, facilitate evolution of strong and safe banking system, ensure efficiency in risk management and to ensure healthy domestic and cross border competition. Therefore, the major purpose of this study is to evaluate the effect of recapitalization of Nigerian banks on their performances.

TOPIC: EFFECT OF RECAPITALIZATION ON THE PERFORMANCE OF DEPOSIT MONEY IN NIGERIA

Format: MS Word

Chapters: 1 - 5, Abstract, References
Delivery: Email

Number of Pages: 73

Price: 3000 NGN

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