CHAPTER ONE
INTRODUCTION
1.0 BACKGROUND OF THE STUDY
The Nigerian banking industry has witnessed tremendous changes and
expansion since the mid 1980s. Unfortunately the growth and expansion in
the sector are not the manifestation of a sound or vibrant banking
system known anywhere in the world. Most banks in Nigeria are
characterized by inadequate capital base, poor services, high rate of
bankruptcy, lack of management expertise, bad debt syndrome and greater
exposure to fraud. In addition, many have poor database and lack of
reliable information on which sound policy decision can be taken by
Board of Directors. This is a fragile banking system which is waiting to
explode from the contagion effects of the liquidation of over eleven
banks which are technically considered distressed. Currently there are
89 banks in operation in Nigeria, with 79 being considered marginal or
fringe players and with over 1,036- Fraud cases in banks in 2003 while
N9.3 billion was lost through fraudulent activities.
A poor banking system of this nature creates unquantifiable problems
and crisis in the economy which could result in thousands of people
losing their jobs, lost of depositors’ money, lost of confidence in the
banking system and above all the banks can have little contribution to
the economic development of the country.
Essentially, the objectives of the new, banking sector reform through
recapitalization of N25 billion for each bank intends among other
things to take proactive steps to prevent an imminent systemic crisis
and collapse of the banking industry, create a sound banking system that
depositors can trust, create banks that investors can rely upon to
finance investments in the economy to drive down the cost structure of
banks and make them more competitive and development oriented and to
ensure Nigeria meets minimum requirements for regional financial system
integration, effectively, positioned to be a key. African regional and
global player.
Taking this step is imperative for the survival of the fragile
banking system in Nigeria and to be at per with the global trend.
Generally speaking, the current average capitalization of banks in
Nigeria is less than $10 million or N1.3 billion and with the largest
bank in Nigeria having $298 million compared with the smallest Malasian
bank with $526 million. This is an important indices for an
understanding of the unique nature of the Nigerian banking system among
developing economics.
In the study an attempt has been made by examining the fragile
Banking system of Nigeria, the need for recapitalization, the various
strategies by Commercial Banks to meet the recapitalization requirements
and how recapitalization can enhance repositioning of Commercial Banks
in competitive marketing environment of Nigeria. Although the full
policy implementation of recapitalization takes effect from December
2005, this study provides an insight into the anticipated challenges of
post-recapitalization era. These challenges as evident in the current
mergers and acquisitions by smaller Banks provide input for academic
research and analysis. In addition, it is also the intention of this
study to outline the various repositioning strategies of Hallmark Bank
Nigeria Plc. towards meeting the challenges of the Banking sector
reforms in maintaining a leading position among New Generation Banks in
meeting the CBN recapitalization requirement deadline.
It is hope that the finding of this research study would provide a
pioneering blue-print for commercial banks in Nigeria to adequately cope
with post-recapitalization challenges of the marketing
scenario.
1.1 HISTORICAL BACKGROUND OF HALLMARK BANK NIGERIA PLC.
The bank was incorporated on 29th October 1990 as Hallmark Bank
Nigeria Limited. It was granted license to carry on commenced business
on 22nd January 1991. It commenced business on 2nd April 1991. It
changed its name to Hallmark Bank Limited on 24th April 1991. It became
Hallmark Ban Plc on 24th September 1996. The principal activity of the
bank through out the years continued to be provision of commercial
banking services such services include granting of loans and advances,
project financing, trade finance activity and money market operations.
With 32 branches to date, 9 in Lagos, 3 in Oweri, two each in Aba,
Port Harcourt and Abuja, One in Onitsha, Ummahia, Bonny, Awka, Enugu,
Warri, Jos, Abakaliki, Uyo, Kano, Maiduguri, Benin, Otigbo and Kaduna,
Hallmark Bank is expanding in line with growth strategy to position it
closer to its customers and to harness the penitential of the Nigerian
Market. All the bank’s branches are interconnected via Hallmark global
Banking System (HGBS) to enable you access your account from any of the
bank branches.
In this era of globalization, when technology offers banks enormous
leverage in capturing niche markets. Hallmark Bank cannot but play in
the top most segment of the Information Technology race. The deployment
of the latest Information technology from the IBM stable The IBM risc
model P 670 serve as a further demonstration of their desire to deliver
to customers, financial services at the speed compatible with the best
any where in the world.
Hallmark Bank is the second financial Institution in Nigeria to have
acquired this Infrastructure. To Safeguard the equipment and direct
Internet background has been installed as a first step towards launching
full internet banking service later this year.
The Introduction Technology model of bank is capable of linking over
150 branches given its high reliability rating already, all their 32
branches in operation have been inter-connected.
With the issuance at the shares authorized by shareholders at the
preceding Annual General Meeting, the banks paid-up capital rose to N1.0
billion in accordance with regulatory requirement. The banks authorize
share capital also increased form N2.0 billion to N3.0 billion
consisting of 6 billion ordinary shares of 50 kobo each in accordance
with members’ approval at the same meeting. Following the same
subsequent successful hybrid offer subscription and right issue of N1.3
billion and N700 million shares respectively undertaken by the bank.
It’s paid up capital rose significantly to N1.87 billion. However, this
figure could not be reflected in the present accounts a the proceeds
were received after 31st March 2003/2004 the share holders fund of the
bank rose to N8.9 b. with assets base of N48. billion at the end of
2004/2005 financial years the share holders funds risen to over n10
billion. The bank at its 10th Anniversary celebration set a vision 2011
targeting share holders fund of 50 billion and asset base of N500
billion.
In response to the Central bank recapitalization call the board of
the bank has authorize increase of the authorize share capital of the
bank to N25 billion. With this level of capitalization and strategic
plans put in place by the bank it now stands in goods state to pursue
its future expansion and consolidation program.
The proceeds of the bank shall be deployed to finance expansion of
branch network, improvement in information technology, provide
additional working capital and prosecute investment in Universal
banking, with this level of capitalization, the bank stands in good
stead to purse our expansion programmes in the next few years.
The table below provides bridge. Information on the banks performance over the last five years.
Profit & Loss A/c
2004
N 000
2003
N 000
2002
N 000
2001
N 000
2000
N 000
Gross Earning
7405870
7182372
4669317
2876688
Profit before taxation
1457668
1564176
1253632
811758
Dividends
-
105000
350,000
210,000
Earning per share of No 50l each
50.3k
80.9k
73.7k
49.4k
Dividends per share of No each
Nil
7.5k
25k
15.0k
1.2 STATEMENT OF THE PROBLEM
The rising incidence of bankruptcy and distress syndrome in the
Nigerian banking system caused by poor capital base, lack of management
expertise, bad debt syndrome corrupt practices and fraud among others
have created serious concern to depositors investors and the national
economy. The need to address these issues have brought the need for
redefining the capital base of commercial banks in Nigeria to make the
banking sector strong, dependable and viable with minimal distress and
meaningful contribution to the growth of the Nigerian economy. The
recapitalization of N25 billion makes it imperative for commercial banks
to seek for investors and to into mergers to meet the December 31st
2005 deadline.
The banks that meet up the recapitalization targets may be fewer in
number, stronger in capital base, well positioned to carry out full the
main challenges before the competing banks is to evolve effective
marketing strategies to attract customers to patronize their services
and to maintain a leading position in the industry.
Hallmark Ban Nigerian Plc as a successful emerging bank under the new
recapitalization policy has a well designed, modern financial marketing
network, better positioned for the post recapitalization competitive
marketing of financial services in Nigeria.
This study makes a critical analysis and examination of the marketing
activities of Hallmark Bank Nigeria Plc, Abuja designed to achieve
competitive advantage. It hoped that the findings of this study would
provide an important blue print for effective modern marketing of
banking services in Nigeria.
1.3 OBJECTIVES OF THE STUDY
The main important objective of this study is to examine positioning
strategies for competitive advantage through recapitalization in the
banking industry with a special reference to Hallmark Bank Nigeria Plc.
Abuja. The study is specifically designed to achieve the following
objectives:
a) To present the various shortcomings of the current banking system, of Nigeria.
b) To provide the rationale behind the CBN recapitalization policy for. Commercial banking in Nigeria.
c) To identify the challenges facing commercial banks towards the dateline for recapitalization.
d) To find out the vicarious plans of action or strategies for competitive advantage at post recapitalization epoch.
e) To provide recommendations and solutions identified by the study.
1.4 SCOPE OF THE STUDY
This research study focuses on the marketing activities of Hallmark
Bank, Nigeria Plc. Abuja Headquarters and o its various branches nation
wide. Though data collection might be centrally to done, through the
head office in Abuja but the analysis and interpretation of findings may
cover all the state branches nation wide.
1.5 SIGNIFICANCE OF THE STUDY
The significance of this study has essentially on the important
contributions made by the study to individuals commercial banks,
investors, financial analysts and others interested in the genuine
development of the Nigerian banking system through recapitalization.
First and foremost, the management of Hallmark Bank would find this
study very compressive in presenting the clear picture of the crisis and
conflicts in the Nigerian banking system, including strategies to meet
the CBN recapitalization through various mergers and consolidation
strategies. In addition, the views of seasoned bankers researchers and
financial analysts on the future of the Nigerian banking system under
the recapitalized policy would be provide to make it easier for the bank
to discern areas of threats as well as opportunities in the years
ahead.
Secondly, recapitalization being a new concept in the banking
industry and even in academia, thus research project would provide an
important reference material for people from all walks of life,
including students, bankers, investors and the general public.
Finally, it is also hoped that the various suggestions and
recommendation presented in this study would serve as effective
strategies in meeting the post- recapitalization marketing activities of
commercial banks in Nigeria.
1.6 RESEARCH QUESTIONS
This research study intends to address the following research questions:
1. Why should the minimum capital base for commercial banks in Nigeria be raised to N25 billion?
2. Can recapitalization of the banks result in the desired positive change for the Nigerian economy?
3. What are the implications of the reform on the existing
job situation in the country including the job security in the banking
industry?
4. What will happen to customer accounts (loans and deposits) for banks that cannot meet the requirements?
5. If a bank is acquired or goes into mergers in the
existing consolidation process, what does this imply for bank’s existing
customers that do not fall within its redefined target market?
6. Beyond the N25 billion are there further increases in the capital requirements for banks in future?
1.7 LIMITATION OF THE STUDY
a. UNCOOPERATIVE ATTITUDE OF RESPONDENTS.
The bank used as case study initially did not cooperate with the
researcher due to the fact that in the current competitive environment,
an organization regards any persons who comes for an enquiry as a spy on
the activities who is used by their competitors to undo them in the
market place. This explains the uncooperative attitude of the bank that
was visited initially.
b. TIME FACTOR
This project was written when academic activities when at the highest
peak particularly for us the final year students. Therefore, little
time was set aside for this important task.
c. FINANCIAL CONSTRAINTS
This project work was much tasking as it was not easy to obtain
materials, the cost involved in typing, photocopying and binding as a
student of this level.
d. Lecturers are also expected to lecture and at the same
time supervise a good number of projects. Lecturing, which is the main
task of every lecturer tend to limit the frequency of project,
supervision.
Despite these constraints, the main objective set for this study has been fully achieved.
1.8 DEFINITION OF TERMS
The following terms and abbreviations used in this study are explained as follows.
· Syndrome: A group concurrent symptoms of a disease.
· Management: The art of getting
things done through and with people in a formally organized way. It is
the aid of creating and environment in which people cooperate towards
the attainment of group objectives.
· Service: A service is an intangible offering or benefit that cannot be seen, felt, heard, tasted or smelled before being purchased.
· Fraud: An act of deliberate
deception with the intention of securing something monetary gained by
taking an unfair advantage over another person.
· Bank failure: This is where a
bank becomes insolvent or whose total property (assets) and intangible
rights (securities) are insufficient to pay all it’s debts obligations.
· CBN: Central Bank of Nigeria.
· NDIC: Nigerian Deposit Insurance corporation.
· Capital: Paid-up capital and reserves unpaired by losses.
· Reserves: Surplus resulting from revaluation in the course of consolidation.
· Paid-up-capital: Ordinary shares plus non-redeemable preference shares.