ABSTRACT
The
global phenomenon in the financial service industry is the consolidation of the
financial activities towards ensuring financial stability. It is occurring at a
rapid pace due to changes in economic environment, which often alter the
constraints faced by financial service firms.
The
main objective of this study is to examine the effect of recapitalization of
banks on Nigerian economy. Secondary data was gathered from CBN statistical
bulletin on GDP, bank capitalization, number of distressed banks, number of
banks, from the year 1990-2007. The gathered data was analyzed using the
multiple regression models on statistical package for social sciences (SPSS).
The research showed a strong correlation coefficient between the dependent and
the independent variables. Hence, our finding revealed that there is a
significant and thus positive relationship between bank recapitalization,
number of banks, number of distressed banks and GDP.
Hence,
this research work recommends that there should be effective training and
manpower development, asset management company (AMC), cross border merger, and
the use of modern information and communication technology. These are to ensure
stability, effectiveness and efficiency in the system. Thus, from the analyzed
data and other findings, this research work concludes by recapitalization of
banks as improved the Nigerian economy.
TABLE
OF CONTENTS
Contents Pages
Title of page i
Certification ii
Dedication iii
Acknowledgement iv-v
Abstract vi
Table of Contents vii-viii
CHAPTER
ONE: INTRODUCTION
1.1 Background of the Study 1
– 3
1.2 Problem Identification 3-4
1.3 Research Question 4-5
1.4 purpose of the study 5
1.5 Research Hypothesis 5-6
1.6 Research Methodology 6
1.7 Significance of the Study 6-7
1.8 Scope and Limitation 7
– 8
1.9 Plan of Study 8-9
1.10 Definition of Term 9-10
References 11-12
CHAPTER
TWO: LITERATURE REVIEW
2.0 Introduction 13-14
2.1 Evolution of banking in Nigeria 14-21
2.2 The Role of the Banking System in Economic 21-23
2.3 Historical Perspective of Recapitalization 23-27
2.4 Banking Sector Reform
and Bank Consolidation 27-29
2.5 Facet in Reform and Conceptional Issues on
Consolidation in the banking
Sector 29-30
2.6 Rationale for Banking System Reform in Nigeria 31-32
2.7 The Objectives of banking Sector Reform 32-34
2.8 Drives and Capital Success Issues in the
Banking Consolidation 34-36
2.9 Nigerian Banking Industry Consolidation 36-39
2.10 The Challenges of Consolidation 39-41
2.11 Banks that met the N25 Billion Minimum capital
requirement
and the Banks constituting each group 41-43
2.12 Selected Literature Review 43-44
References 45-46
CHAPTER
THREE: RESEARCH METHODOLOGY
3.1 Introduction 47
3.2 Re-statement of Hypothesis 47-48
3.3 Re-statement of Model 48
3.4 Nature and Source of Data 48-49
3.5 Method of Analysis 49
3.6 Scope and Limitation 49-50
References 51-52
CHAPTER
FOUR: ANALYSIS OF DATA AND DISCUSSION OF RESULT
4.1 Introduction 53
4.2 Presentation of Result 53-54
4.3 Discussion of Result 54-56
CHAPTER
FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction 57
5.2 Summary 57-58
5.3 Conclusion 58-59
5.4 Recommendation 59-60
5.5 Suggestion for Further Study 61
Bibliography
62
– 64
Regression
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
It
is widely recognized that the financial system plays crucial roles in economic
development. In Boyd.et.al (1993), it was discovered that in an Merger and
acquisition arrangement, a larger, more efficient institution tends to take
over smaller, less efficient institution, presumably at least, in part to
spread the expertise or operating policies and procedures of the more efficient
institution over the one acquired.
It
has also been found that acquiring banks are more profitable and have smaller
non-performing loan ratios than target (Peristiani 1993) consolidation of the
financial activities is the global phenomenon been faced in the financial
stability. It is a way of resolving
problems of financial distress and its occurrence is at a rapid pace in most
countries of the world, particularly in emerging markets.
According
to Lemo, T (2005), he argued that the primary objective of the reforms is to
guarantee an efficient and sound financial system. The reforms are designed to enable the
banking system develop the required resilience to support the economic
development of the nation by efficiently performing its functions as to fulcrum
of financial intermediation.
It
was also discovered in the study that profitable banks are always willing to be
acquires while small, unprofitable banks tend to be acquired (Forcarell,
Panetta and Salleo 1998).
Soludo
2004, argues that the consolidation is one of the key components of financial
reforms designed to ensure a diversified, strong and reliable banking sector,
which will in turn guarantee the safety of depositors money, effective
performance of developmental roles and competitive players in African regional
and global financial system.
There
are some analysts that are of the view that the main motivation behind
consolidation is to maximize shareholders values which is best achieved through
mergers and acquisition while others view that consolidation will not only
bring about increase shareholders worth but also contribute to the expectation
of economics of scale as well as altering the centers and peripheries of
financial activity but in spite of its benefits, it is not without its
consequences.
One
possible impact of financial consolidation on bank customers could stem from
the disruption of historical lending patterns. A lack of short-run substitutes
for bank credit would imply that a disruption in the supply of bank credit
would have negative consequences for the affected borrowers and possibly for
the macro-economy, as argued in the literature reviewed by Bernanke (1993).
Strahan
and Weston (1998) examined banks involved in mergers by comparing the small business
lending of the bank pre-and post-merger to a sample of bank not involved in
mergers. Their findings therefore, do not support the consolidation
hypothesis.
1.2 PROBLEM IDENTIFICATION
The
central bank of Nigerian (CBN) Act 21, 1990 and Bank and other financial
institution Act (BOFIA) 1991 represent significant watershed, in capital
regulation for the Nigerian banking system. From a modest value of ten million Naira
minimum paid up capital in 1988, Nigerian commercial banks were required to
maintain capital not below N50million in 1991. Between 1991
and
2005 subsequent increase have also been made ranging from N500 million (1997);
N2billion (2002), to N25 billion in 2005.
Today,
a lot of people no longer have faith in these banks anymore because of the fact
that a lot of problem exists in distress while some were liquidated. While,
various regulator approaches starting from deregulation to consolidation have
brought about growth in the size structure and function of the Nigerian banking
system, capital regulation cannot be said to have been efficient in ensuring a
stable banking system or a corresponding level of economic growth.
1.3 RESEARCH QUESTIONS
The
research work is attempting to answer the following questions;
i.
Has the introduction recapitalization
of banks in Nigeria
brought a positive reaction or not?
ii.
Has it in any way affected the
economy?
iii.
Is it a venture that will boost the
banking sector?
iv.
Have the problem of weak capital base
been solved?
v.
Do small and medium savers now benefit
from these banks?
vi.
Does the society now have the
confidence to request for help form the bank? i.e. financial supports.
1.4 PURPOSE
OF THE STUDY
The
main purpose of this study is to examine;
1.
The effect of recapitalization of banks on the Nigerian economy.
2.
To determine the relationship between bank recapitalization, Gross domestic
product (GDP), distressed banks and the number of banks.
3. To also examine the various theories of
bank recapitalization.
No
nation can attain greater height in its economy without the banking sector
because banks are the pivot of any economy. there is no sound, safe and viable
banking sector in an economy, nothing can be moved, be it political or other
spheres of life.
1.5 RESEARCH HYPOTHESIS
The
conjectural statement for the research work in respect of the research question
is as follows;
Ho
– h=recapitalization of banks has not improved
the Nigerian economy.
Hi
– h ≠recapitalization of banks has improved the Nigerian economy.
1.4 RESEARCH METHODOLOGY
This
research is based on secondary data which was sourced from the use of bank journals, books on banking and CBN
statistical bulletin etc. the span of the project takes place between 1990-2007
and the method of analysis goes this;
Y
= F (bo + bI xI + eI)
Where;
Y
= GDP
XI
= Bank capitalization
bo
= The constant (S)
bI
= The co-efficient for the independence variable
e
= Standard errors
1.5 SIGNIFICANCE OF THE STUDY
This
study will bring about a comprehensive and detailed analysis of the effect of
recapitalization of banks on the Nigerian economy. Thus, it will be useful for
governmental agencies, monetary authorities, non- governmental organizations,
board of directors of banks, researchers’ scholars, the students and
academicians alike.
Banks
facilitate economic growth in a variety of ways and also a sensitive and
volatile industry.
Efforts
are been made in this study in other to discover the effect of the
recapitalization programme on thee Nigerian bank and how it affect the Nigerian
economy. At the end of this project, the projects write – up will tell if the
effect is positive or negative.
1.6 SCOPE AND LIMITATION
Banks
consolidation through mergers and acquisition came into existence in Nigeria in
2004 but the investigation on the reasons for the poor management of the CBN
started in 2004 by the Pius Okigbo panel on the re-organization of the CBN set
up by the then Head of state, SANI ABACHA.
This
research is limited by some certain factors which tend to make the research
work difficult; they include;
i.
FINANCE
The
basic aspect of any research work is the ability to back it up financially.
Information is being made very difficult due to the limitation of most materials
needed for this research such as, journals, textbooks, the CBN statistical
bulletin and so on.
ii.
Death
research materials
Apart
from journals, we don’t have any text book that contains an indebt explanation
of the subject matter.
iii. TIME
There
is no sufficient time as result of academic and other activities all requiring
simultaneous performance.
1.7 PLAN OF STUDY
This
research work shall be divided into five chapters. Chapter one will be devoted
to introduction, historical background, the purpose of the study and limitation
of the study. Chapter two will contain the review of past work on the related
topic and in this regards journal and text books will be consulted. Chapter
three will take a critical look at the methodology source of data, data interpretation model specification and
technique analysis. Chapter four contains data analysis and interpretation.
Finally chapter five will focus on introduction, summary, conclusion and
recommendation.
1.8 DEFINITION OF TERMS
The
technical terms in this research work are suitably defined in this section to
make room for general understanding.
Recapitalization: The
current trends of compelling all commercial banks to raise their capital base
from 2 billion to 25 billion Naira by the central bank.
Mergers:
This is the combination of organization or commercial companies into one
entity.
Acquisition:
This refers to a situation whereby company takes a controlling ownership
interest in another firm.
Capital:
This is the amount of money used to set
up a business.
Liquidity:
State of being able to raise funds easily by selling assets.
Market:
The set of all actual potential buy of a product.
Deregulated economy: This
is a situation in whereby controls on all fiscal monetary trade pricing and
exchange rate policies are removed.
Globalization: The
idea of the different countries and economics of the world being closely
connected together by modern communications and therefore economically,
poetically, socially and environmentally dependent on each other.
Hypothesis: A
conjectural statement preposition or an assumption about the relationship
between two or more variables. This, which is subject to testing, may either be
true or false (null or alternative).
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