The study is based on the capitalization m Nigeria banking industry.
The study critically looked into the
reasons for concern over capital adequacy, need for capital and the
legal and regulatory control of capital in the banking industry.
The research in the course of study made
use of questionnaires as a method 'of data gathering, and the data was
statistically analyzed, using simple percentage and chi-square method
Secondly, data were obtained through the
review of related literature including· textbook, banks manuals and
journals. The data obtained were analysed and on the basis of the
findings, made some recommendations.
The study recommendations. The study
recommends that government must always ensure that bank operative in the
economy shall not at any point in time operates contrary to the
provision of the act as regards to capitalization.
It suggested that bank should always see
capitalization strategy as a shield on them and confidence regained
from those ones lost in the past times before recapitalization.
Furthermore, bank should always see merging as one of the best strategies rather than liquidation.
TABLE OF CONTENTS
TABEL OF CONTENT
1.0 CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Purpose of the Study
1.3 Choice of study
1.4 Significant of study
1.5 Scope of study
1.6 Working of Hypotheses
1.7 Limitation of Study
1.8 Research Methodology
1.9 Historical background of the study area
CHAPTER TWO: LITERATURE REVIEW
2.1 Research for concern over capital adequacy
2.2 Legal and Regulatory Control of Capital
2.3 The Need for capital
2.4 Condition Influencing capital adequacy
2.5 Forms of Capitalization may take
2.6 Bank Capitalization and Leverage
2.7 Why should the Minimum Capital Base for Banks
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Research Design
3.2 Data Collection
3.3 Identification of Population
3.4 Determination of Sample size
3.5 Questionnaire Assumption
3.6 Questionnaire Assumption
3.7 Reliability Test
3.9 Questionnaire Administration
DATA ANALYSIS AND INTERPRETATION
4.1 Data Analysis and Interpretation
SUMMARY, CONCLUSION, RECOMMENDATION
1.1 BACKGROUND OF THE STUDY
The engine for economic growth of any
society banking institution. No doubts, that in the past the banks have
experienced a lot of pitfalls even till this present day. Banks by its
nature mobilize funds from the surplus spending units into the economy
and by on- loading such funds to the deficit spending unit for
investment, banks increase in the process, the quantum of national
savings and investment. Through an appropriate investment multiples, the
volume of goods and services produced in an economy increases overtime
as a result of the investment projects embarked upon through banks
direct and indirect contributions towards the growth of the national
economy is achieved contributions towards the growth of the national
economy is achieved. They [banks] succeed in promoting an efficiency
payment system, and creating banking habits needs a solid capital base
and developing the society at large. However, an efficient banking
system needs a solid capital base. The question now arises; what is
capital? According to Oxford mini dictionary, capital is accumulated
wealth or money with which a business is started”. In banking, capital
has these two meaning. At the onset, capital in the form of issued and
paid up shares is money with which the business of banking is started.
Overtime, the capital funds of the bank reflect the accumulated [addition or depletion] of capital.
In good production business, the need
for capital is obvious, as this is required to provide for substantial
fixed capital resources in form of building, plant and machinery, and
even working capital resources in form of raw material. The need for
capital resources is not in the same form business organization in the
financial services industry. In the main, the intelligent of the
operators are employed for financial intermediation between the Savers
and borrowers in the economy.
Thus, the banker, the goldsmith, did not
require addition capital beyond what he had a gold smith for his early
banking business. However, today, the ingenuity of banker has to be
developed and employed so much that we can talk of banker been engaged
in financial engineering.
Consequently, the issue of cost of
capital has to be considered. Traditionally, the term cost of capital
meant some interest rate paid on borrowed funds. This definition implies
that cost is a cash cost or an out of pocket cost to be paid out in
implicit opportunity cost. Moving from the general case to branding, the
concept of cost funds as it relate to the banking industry was defined
by David Durand in 1995 as: The rate of return required to attract new
equity into the business fast enough to keep pace with the secular
increase in bank deposit. Having seen what capital means and cost
associated to it, one may ask. Do banks have solid capital base? The
answer is No. This has been responsible for the distress in the banking
sector. And the government has overtime, regulate the required minimum
paid up capital for banks before starting operation. But the persistent
inflationary trend experience in our economy keeps eroding the capital
base. Hence, a lot of people have lost their jobs, the effect is biting
hard on the citizen because the banking sector employ at least (15
percent) of the Nigeria working population.
Apart from this, the multiplier effects
it had on other sector of the economy ranging from agriculture to
manufacturing have been devastating. This is so, due to role of banks in
Be it as it may, the way out is to find a
lasting solution to the problem of the banking sector, through
continual capitalization not occasion by distress. Presently, because of
the weak capital base, they (banks) find it difficult to confidently
transact business on behalf of their customers across the border of his
country. In fact only few banks can boast of giving letter of credit.
Actually, the bank's capitalization
decision and practice influence bank asset structure. And it is in these
are of bank assets, or equivalently how large should be the composition
of these are the main problems bank management.
Conclusively, the biting effects of
economic recession with its attendant survival antidote make it
different to capitalization of banks started along, the establishment of
banking industry and presently the lies on capitalization. This
research work will examine and evaluate the capitalization in banking.
Industry its economic consequences and
further discuss whether the government regulation on the N25 million
paid up capital for banks should be uniform for all banks.
1.2 STATEMENT OF PROBLEM
With the rising inflationary trend, the
government in 2004, saw the need to raise the minimum capital
requirement of bank from N l billion to N25 billion capital base. This
is because poor capitalization is identified as a major factor
inhibiting against, bank's survival. The government also moves into
restructuring some of the ailing banks and liquidate the terminally
In view of this, the research work IS
expected to find solutions to some likely problems, which the banking
industry or customers might face. These problems are outline as follow;
- To what extent has capitalization affected the operation of banks?
- What are the ways to be adopted to achieve capitalization before the dead line of [31 FIRST OF DECEMBER, 2005]?
- How has capitalization affected the cost of services rendered to customers?
- How those inflation erode the capital base of the banking sector?
- Have the capital base of the banks meet up to international standard?
- Can capitalization standard secure depositor’s funds?
- Has capitalization brought about operational efficiency?
- How does capitalization affect the dividend policy of the banks?
1.3 OBJECTIVES OF STUDY
Financial distress syndrome is not an
issue that is peculiar to Nigeria but rather features of global finance
systems. The causes, effect and remedies for problem failing banks are
the same all over the world.
The regulators have been "defeated" by
the problem once it take root as it has always defied all solution. No
doctor regulator has ever been able to find any preventive vaccine for
it, although they exist some reactive medicine. One of such reactive is
Once the capital of a bank is eroded, it
can easily be affected by other virus, so the purpose of this is to
known economic implication of bank capitalization. Can this
capitalization put an end to the distress now being experience in the
1.4 RESEARCH QUESTIONS.
The research questions that would guide the Study are;
1. What is capitalization?
2. What are the effects of capitalization on performance of banking system in Nigeria?
3. Does capitalization has positive effects on development and size of banks?
4. Has capitalization leads to merger and acquisition of banks?
1.5 SIGNIFICANCE OF STUDY
The completion of this research project
would be of great importance to the society as a whole since it will
lead them to know the effect of government policies on capitalization of
- Capitalization will fill the gap created by inflationary trend, which have eroded the capital base of banks.
- With capitalization, customers' confidence will be restored in the banking system.
- Finally, the research work will serve as spring board to furthering this study area.
1.6 RESEARCH HYPOTHESIS
The findings on this project will be based on the following hypothesis:
- That capitalization process will give banks good solid capital base for operations.
- That capitalization will increase confidence of customers
- That capitalization will increase financial engineering.
- That capitalization will increase time volume of transaction both locally and abroad.
1.7 LIMITATION OF STUDY
The problems to be encountered in the process of carrying to this Research will include the following:
- The availability of people to be contracted and their willingness to
express their frank opinion in issues relating to the banks.
- The collection of the questionnaire raised may not turn in the
questionnaire in time and some may not even give a feedback making it a
more different task.
- The time to be spent on this research is short.
1.8 ORGANISATION OF STUDY
This study will be divided into five chapter as follows:
Chapter one focused on the introduction
of study which include back ground of study, statement of problem,
objectives of study, research questions, significance of study, scope
and limitation of the study and organization of study.
Chapter two contain literature review and theoretical frame fork of the study.
Chapter three contained the research methodology and method of date analysis.
Chapter four focused on data analysis and interpretation.
Chapter five contained the summary, recommendation and conclusion of the study.
1.9 HISTORICAL BACKGROUND OF THE STUDY AREA
The CBN is empowered by the Central Bank
act (as amended) 1991, to “promote stability and sound financial
system" and the Governor of the Central Bank of Nigeria is empowered
further by the BOFIA to "make rules and regulations for the operation
and control of all institutions under the supervision of the bank". The
CBN is also exercising its power as the lender of the last resort.
Prior to 1991, the minimum paid up
capital requirement for banks in Nigeria was N12 million for merchant
banks and N20 million for commercial banks. A review that year moved the
requirement to N40 million and N50 million respectively. This level
lasted till 1997 when a uniform and N 50 million minimum capital was
introduced. The reason for discontinuing the dichotomy was to allow for a
level playing field and the realization that there was no real
difference between the capital requirements of the two categories. It
was also to prepare the system for the introduction of universal of
banking. In 200, the minimum capital was moved to N1 billion for new
banks while existing banks were expected to meet this level by December