ABSTRACT
In this study the researcher
evaluated the impact of bank consolidation on the performance of the Nigerian
banking industry. The study was saddled with three objectives: to evaluate the
impact of recapitalisation on the profitability of Nigerian banks; to evaluate
the impact of recapitalisation reform on the deposit mobilisation of banks; to
evaluate the impact of recapitalisation reform on the shareholders' earnings of
banks. Using different statistical ratios and regression model analysis
supported by the f-test (ANOVA), it was found that banking sector
re-capitalization legislation has always been a means of strengthening the
capital base of banks in Nigeria. It has always been achieved through
legislation. Since the 1952 banking ordinance witnessed about eight (8) minimum
capital legislations, all with the intent of stabilizing the financial system.
However, it was also found that with each minimum capital it appeared that the
objectives of setting it were far from being achieved. This study also found that,
though there is a significant relationship between bank capital and
profitability, the impact of the recapitalisation exercise in Nigeria has not
been felt in the areas of profitability, deposit mobilisation and shareholders
earnings. The following recommendations were proffered for the study: that
though having a strong capital base is important to any business, it should be
borne in mind that the banking industry is a highly leveraged industry, hence
legislating minimum capital should follow the business trends in the industry.
As a follow up to this, regulatory environment should be such that will enable
the banks invest profitably; since robust capital base does not translate to
profits automatically, banks should be encourage to mop up the excess liquidity
in the economy, thus helping them have robust deposit base for meaningful
intermediation; banks should be encouraged to get involved in good banking
habits, as this will translate to meaningful profit. This is when it is
considered at the backdrop that there is a positive relationship between bank
capital and profitability.
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND OF THE STUDY
The Nigeria banking system has
undergone remarkable changes over the years in terms of the number of institutions,
ownership structure, as well as depth and breadth of operations. These changes
have been influenced largely by challenges posed by deregulation of the
financial sector, globalization of operations, technological innovations and
adoption of supervisory and prudential refinement based on international
standards.
As at June 2004, there were 89
banks operating in the country, comprising institution of various sizes and
degrees of soundness. Structurally, the sector was highly concentrated as ten
largest bank accounts for about 50% of the industry’s total assets and
liabilities. The small size of most of our banks each with expensive
headquarters, separate investment in software and hardware, heavy fixed cost
and operating expenses and with high branches, few commercial centers led to
very high average cost for the industry. This in turn has implication of the
cost of intermediation, the spread between deposits and lending rate which put
pressure on banks to engage in sharp practice as a means of survival. It is
obvious that some of our banks are not engaged in strict banking business in
terms of savings, intermediation, but are traders in foreign exchange;
government treasury bills and sometimes indirect importation of goods through
phony companies. This is unhealthy for the economy sometimes ago before the
reform for the banking sector; many Nigeria banks depend significantly on
government deposits with the three tiers of government and parastatals
accounting for 20% of the total deposits liabilities with banks.
The ultimate strength of a bank
lies in its capital funds. Banks capital funds, therefore is to reassure the
public and especially bank supervisors that the bank is in a position to
withstand whatever strains may be
placed
on it. Adequate capital serves to keep banks open so that they may be able to
absorb losses out of future earnings rather than out of capital funds
themselves (Nwankwo, 1991). However it should be borne in mind that capital is
made up of paid-up capital, and retained earnings. This means that capital
could be built up over the years, with good business practice.
This in essence is what has been
influencing minimum capital legislation. But how has the various legislations
impacted on the economy and the banking industry? Should legislation on minimum
capital be pursued in isolation of other factors that influence the stability
of the economy? This study in an attempt to study the impact of Bank
recapitalization on the Nigerian banking industry, by appraising its impact on
the operations of the Union Bank, the United Bank for Africa Plc, and the
Zenith Bank Plc.
1.2 STATEMENT OF THE PROBLEM
Capital
adequacy has remained an issue for the banking industry in Nigeria and
elsewhere. Herein lays the reasons for the various minimum capital legislations
for Nigerian banks. Ever since the 1952 Banking Ordinance, the Nigerian banking
industry has witnessed more than eight minimum capital legislations, all with
the intent to stabilise the financial system.
But
how has this minimum capital legislation impacted on the banking industry? Is
capital adequacy, the only factor that will stabilize the banking industry, or
are there some other more important factors? According to IMF (2003), each
banking crisis has its own dynamics of which most of the main ingredients are
noticed before the crises. Based on their most common causes, banking crises
can be classified into one of two categories: Microeconomic (or bad banking)
and Macroeconomic (or bad operating environment). Which of these characterised
the
Nigerian
experience? Is the recent twenty five billion naira (N25bn) minimum capital
legislation, what the banking industry in Nigeria need currently? Does growth
come by legislating minimum capital or by sheer good business practices? Will
the increased minimum capital actually impact positively on the banking
industry in Nigeria? All these and many other issues, bog the mind of the
researcher, which are intended to be unravelled in the course of this study.
However,
just like any other business, banking requires capital to function effectively.
Adequate capital is required to maintain public confidence by standing ready to
absorb unexpectedly or unusual losses not absorbed by normal earnings. Banks
require adequate capital to be able to attract additional funds in the market,
and to assuage the confidence of the depositors, the regulators and the general
public on their ability to continue in business to discharge their obligations
(Nwankwo, 1991). Added to the above, regulators in the Nigerian environment are
often pointing to bank distress and failures as reasons for adequate capital
base
1.3 OBJECTIVES OF THE STUDY
The objectives of this research work are as follows:
i). To evaluate the impact of recapitalisation on the profitability of
Nigerian banks.
ii)
. To
evaluate the impact of recapitalization reform on the deposit
mobilization of banks.
iii). To evaluate the impact of recapitalization reform on the
shareholders' earnings of banks.
1.4 RESEARCH QUESTIONS
i). To what extent has bank recapitalization impacted on
the profitability of Nigerian banks?
iii). To what extent has bank
recapitalization reform impacted on the shareholders' earnings of banks?
1.5 RESEARCH HYPOTHESES
The following hypotheses will be
tested for their validity, in line with the objectives of the study.
Ho1: Bank recapitalization exercise does not have a significant positive
impact on the profitability of banks.
Ho2: Bank recapitalization exercise does not have a significant positive
impact on the deposits of banks.
Ho3: Bank recapitalization exercise does not have a significant positive
impact on the shareholders earnings of banks.
1.6 SCOPE OF THE STUDY
This study has for its scope,
the determination of the impact of bank recapitalization on the Nigerian
banking industry- using United Bank for Africa (UBA) Plc, Union Bank of Nigeria
(UBN) Plc, and Zenith Bank Plc, as a case study; and for the period 2000 to
2009......
================================================================
Item Type: Postgraduate Material | Attribute: 66 pages | Chapters: 1-5
Format: MS Word | Price: N3,000 | Delivery: Within 30Mins.
================================================================
No comments:
Post a Comment