STAFF PERCEPTION OF THE IMPACT OF THE TWENTY-FIVE BILLION NAIRA RECAPITALIZATION POLICY IN NIGERIAN BANKING INDUSTRY.

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ABSTRACT

This study investigated the staff perception of the impact of the N25 billion minimum capital base on Nigerian banking system using case study of some selected banks namely; First Bank of Nigeria Plc, Union Bank of Nigeria  Plc  and United Bank  for Africa Plc. The  research  was geared towards finding both the positive and negative impacts of the N25 minimum capital base on Nigerian banking system, the impacts of the N25 billion minimum  capital base  on  bank  workers/bankers e.t.c. To  achieve  this, relevant literatures were reviewed. Also using the selected banks, the researcher  employed  both  primary  and  secondary  sources  of  data collection for the analysis. The primary sources of data collection employed include   questionnaires,   oral   interview   and   observations   while   the secondary sources of data collection employed include textbooks, newspapers, journals and seminar papers. Statistical tools like tabulations and Chi-square were used to analyze the data collected. From the analysis done, the following findings were made; the N25b minimum capital base has significant impacts on the Nigerian banking system, the N25b minimum capital base has not significantly improved the competitive efficiency of the Nigerian   banks,   the   N25b   minimum   capital   base   has   not   led   to retrenchment of many bankers and N25b minimum capital base has led to mergers and acquisition within the banking industry which may of course lead  to  more  strong  and  reliable  but  few  banks.  The  study  equally concluded that the exercise posed some problems on the regulatory authorities. Finally, the researcher recommended that; the banks’ capital base should be stratified into investment and universal bank categories with each having a capital base according to the services it renders and its risk profile, necessary policy framework should be established to improve on the quality of bank management and the general security network.

CHAPTER ONE

INTRODUCTION

1.1    BACKGROUND OF THE STUDY

Banking institutions occupy a central position in the financial system of any nation and are essential agents in the development process of market economies. They are particularly relied on for the promotion of financial integration of the various parts of a country; bringing about improvement in the mobilization and utilization of funds for increased capital formation. It is obvious that banks must be viable and healthy and its stability and soundness provided for.

Based on this, the industry is usually heavily supervised and regulated by government or her agencies. The soundness and stability of the banking industry promote public confidence and provides  liquidity and safety of shareholders funds. This is one of the reasons why government or her agencies demand reforms of the industry.

On this ground, the Nigerian Banking Industry had undergone remarkable changes over the years, in terms of the number of institutions, ownership structure as well as depth and breadth of operations. The industry has been witnessing prudential regulation and control in an attempt to address the backdrop of banking crisis due to highly under-capitalization, deposit taking banks, weakness in the regulatory and supervisory framework; weak

management practices, and the tolerance of deficiencies in the corporate government behaviour of banks. Banking crisis usually starts with inability of the bank to meet its financial obligations to its stakeholder. This, in most cases, precipitates ruins on banks, the banks and their customers engages in massive credit recalls and withdrawals, which sometimes necessitate Central Bank liquidity support to the affected banks.

In respect of this, at the 273rd meeting of the Nigerian Bankers’ Committee held at the Central Bank of Nigeria’s headquarters in Abuja on July 6th

2004, the then newly appointed governor of the Central Bank, Charles Soludo in his maiden address, announced a 13 – point reform program for the Nigerian Banks. Among these reforms, is the requirement of Nigerian Commercial Banks to shore up their minimum capital base to N25 billion (through injection of fresh capital and/or mergers & acquisition) each with full compliance as at 31st December, 2005.

The primary objective of the reforms is to guarantee, an efficient and sound

financial system. They are designed to enable the banking system develop the required flexibility to support the economic development of the nation by efficiently performing inter-mediation (Lemo, 2005). Thus, the reforms were to ensure a diversified, strong and reliable banking industry where there is  safety of depositors’ money and position banks  to play active developmental roles in the Nigerian economy.

Capitalization  is  an  important  component  of  reforms  in  the  Nigerian banking industry owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non-performing liabilities. It resulted from deliberate policy response to correct perceived or impending banking sector crises and subsequent failures.

According to Soludo (2004), the banks have not played the expected role in the development of the economy because of weak capital base and as such, the decision to raise the capital base of banks was with the aim of strengthening and consolidating the banking system. He further explained that the “strengthening and consolidation of the banking system will constitute  the  first  phase  of  reforms  designed  to  ensure  a  diversified, strong and reliable banking sector that will ensure the safety of depositors’ money, play active development roles in the Nigerian economy, and be competent and competitive  players  in  the  regional and  global financial system. The goal of the reform is to help banks become stronger players, and in a manner that will ensure longitivity and hence higher returns to shareholders over the time and greater impacts on the Nigerian economy. We strongly believe that the ultimate beneficiaries of the policy shift would be; the ordinary men and women who can put their deposits in the banks and have a restful sleep, the entrepreneurial Nigerians who can now have a strong financial system to finance their businesses, and the Nigerian

economy which will benefit from internationally connected and competitive banks that would also mobilize international capital for Nigerian development”.  Besides,  it  will  stem  the  systemic  distress  that  has continued to rock the system.

The call for recapitalization in the banking industry raised much argument among the bank regulators, promoters and depositors as if shoring up of bank’s  capital  base  is  a  new  phenomenon  in  Nigeria.  The  Banking ordinance of 1952 prescribed an operating licence and emphasized on minimum equity capital for all banks (Onoh, 2002: 321). Since then, raising of  bank  capital base has  become  the  hallmark  response policy of the Nigerian Monetary Authorities.

1.2    STATEMENT OF THE PROBLEM

Banks are the life wires of every economy. They are expected to play crucial roles, in even nursing a sick economy to life. A bank should be where  you  can  place  your  money,  go  home,  and  sleep  peacefully. However, banks’ performance towards the realization of this noble societal vision  has  been  an  outright  failure  due  to  inadequate  capital  base. According to the financial experts, the low capital base of banks has been a major contributing factor to bank distress/failure. It has also impeded

banks from making meaningful contribution to the development of Nigerian economy at large and among others.

However, the ills or the failure of the banking system especially in Nigeria should not be blamed solely on the inadequacy of capital base. Over the years, the banking system has witnessed some increase in the operating capital base with little or nothing to show in terms of increase performance. This being the case, the researcher tries to find out if the new N25 billion capital base could save the situation.

1.3    OBJECTIVES OF THE STUDY

The objectives of this study are;

1.      To critically examine the perceived impact of N25 billion minimum capital base on Nigerian banking system.

2.      To find out if the N25 billion minimum capital base is perceived to have enhanced the banks’ competitive efficient.

3.      To find out the perceived impact of the N25 billion minimum capital base on banks’ workers/bankers.

4.      To find out if the N25 billion minimum capital base is perceived to be responsible for banks’ mergers and acquisition.

1.4    RESEARCH QUESTIONS

The research questions for this study are as follows:

(i)      What are the impacts of the N25 billion minimum capital base on

Nigerian banking system?

(ii)     Does the N25 billion minimum capital base enhanced competitive efficiency of Nigerian banks?

(iii)    What are the impacts of the N25 billion minimum capital base on banks’ workers/bankers?

(iv)    Is the N25 billion minimum capital base responsible for banks mergers and acquisitions?

1.5    HYPOTHESES OF THE STUDY

For  the  purpose  of  handling  the  study  effectively  and  based  on  the perceived  impacts  of  N25  billion  minimum  capital  base  on  Nigerian Banking Industry, the following hypothesis will be tested to help in arriving at desired conclusion.

1.      Ho,1:  Bank  staff  perception  is  that  the  N25  billion  minimum capital base has no significant impacts on Nigerian Banking System.

2.      Ho,2:  Bank  staff  perception  is  that  the  N25  billion  minimum capital base will not improve the competitive efficiency of Nigerian banks.

3.      Ho,3:  Bank  staff  perception  is  that  the  N25  billion  minimum capital base will not lead to lay-off of many bankers.

4.      Ho,4:  Bank  staff  perception  is  that  the  N25  billion  minimum capital base will not lead to mergers and acquisition.

1.6    SCOPE OF THE STUDY

The research covers the three ‘biggest’ banks in the commercial banking scene in Nigeria, viz; First Bank of Nigeria Plc, Union Bank of Nigeria Plc, and United Bank for Africa Plc. The study focuses on the positive and negative impacts of the N25 billion minimum capital base of banks on the Nigerian Banking System which include safety of depositors money, stronger and competent banking system, attraction of foreign investment etc; and loss of jobs, reduction in shareholders value, synthetic oligopoly etc respectively.

The purview of this study also covers how N25 billion minimum capital base could enhance the banks’ capabilities of financing large projects, and how it (i.e. N25 billion) could facilitate their service delivery channels.

1.7    LIMITATION OF THE STUDY

In the course of carrying out this study the researcher encountered some problems which among them are:

1.      Financial Constraints:- These involve the cost of obtaining all the materials needed for this study and the cost of traveling to various destinations which include the banks’ headquarters, particularly at this period of arbitrary increase in transportation fare.

2.      The non-cooperation of the people interviewed by the researcher resulted to smaller number than the researcher expected, and the quality of their responses seemed to leave much to desire.

3.      A small fraction of the questionnaires administered to respondents was not returned despite the reminders sent to them.

1.8    SIGNIFICANCE OF THE STUDY

This research will be of great importance to the following group of persons:

1.      To the Financial Analysis, this research work reveals the viability of   banks,   thereby   providing   them   with   the   much-needed information with which to advise their clients on which banks to invest.

2.      To the investors, this research elicits the viability of banks thereby providing them with the information on which banks to invest in.

3.      To the students, it provides information to those who may wish to carry out further research work on this study or related topics.

4.      The National Economy, it stands to gain in the long run from the current financial institutions restructuring and re-capitalization through mergers, acquisitions and takeover.

1.9 DEFINITION OF TERMS

1. Acquisition:  This  is  the  purchase  of  controlling  interest  in  one company by another company such that the acquired company becomes a subsidiary or division of the company.

2. Asymmetric information: This is information which the directors have but not available to the market.

3. Capital: This is defined as the shareholder’s funds i.e those funds attributed to the proprietors as published in the balance sheet.

4. Corporate governance: This is the system by which the affairs of companied are directed by those charged with the responsibility for doing so.

5. Financial  market:  This  is  the  various  facilities  provided  by  the financial system for the creation, custodianship and distribution of financial assets and liabilities.

6. Intermediation: The movement of capital from surplus units through financial institution to deficit units seeking bank credit.

7. Merger: This is the combination of two or more separately existing companies to form a new single company.

8. Non-performing loans: These are loans that are for a period of time not performing in accordance with the terms of the credit facility and are unable to meet principal and/or interest repayment obligations in full and thus may be doubtful of collection.

9. Restructuring:  This  involves  changing  the  capital  structure  of  a company (in some cases the ownership structure) in order to make the company operates more effectively.

10.   Systemic risk: This is the inherent, non-diversifiable risk characteristic of an investment because of the peculiar nature of the investment.

11. Universal banking: The conduct of a range of financial services comprising deposit taking, lending, trading of financial instruments, foreign exchange transactions and other derivatives, underwriting new debts and equity.

12.    Working  capital:  This  represents  the  amount  of  resources  the business has in a form that is readily convertible into cash. It is current assets minus current liabilities.



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STAFF PERCEPTION OF THE IMPACT OF THE TWENTY-FIVE BILLION NAIRA RECAPITALIZATION POLICY IN NIGERIAN BANKING INDUSTRY.

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