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.
This material content is developed to serve as a GUIDE for students to conduct academic research
STAFF PERCEPTION OF THE IMPACT OF THE TWENTY-FIVE BILLION NAIRA RECAPITALIZATION POLICY IN NIGERIAN BANKING INDUSTRY.
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