The Effect Of Bank Consolidation On The Performance Of Banks In Nigeria
study, organization of the study and definition of terms.
CHAPTER TWO: This section consists of reviews of relevant literature of renowned authors in the field of this study.
CHAPTER THREE: This section entails the methodology selected by the researcher of the study. It entails research design, sample procedure, data collection, operational measure of the variables, and data analysis technique.
CHAPTER FOUR: This consists of a vivid presentation and analysis of data collected from relevant sources for the study.
CHAPTER FIVE: This is the last section of the work and it consists of discussion, conclusion and recommendations made by the researcher.
CHAPTER TWO
2.0 THE CONCEPT OF CAPITAL BASE
The recent call for recapitalization in the banking industry has 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. Historically, the failure of pioneer z1930’s and 1940’s brought about the enactment of banking ordinance of 1952. 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 has become the hallmark response policy of the Nigerian monetary authorities.
Capitalization is an important component of reforms in the banking industry, owing to the fact that a bank with a strong capital base has the ability to absorb losses arising from non-performing liabilities (NPL). Attaining capitalization requirement is achieved through consolidation, convergence as well as the capital market. Thus, banking reforms are primarily driven by the need to achieve the objectives of consolidation, competition and convergence. (Deccan Herald,2004), in the financial architecture.
2.1 THE POSITION OF THE BANKING SECTOR BEFORE
CONSOLIDATION
There was existence of eighty-nine (89) banks predominantly in the urban centres as at June 2004, Characterized by structural and operational weakness of low capital base. Dominance of a few banks insolvency, and illiquidity over dependence on public sector deposits, and foreign exchange, trading. Poor asset quality, weak co-operate governance, a system with low depositor confidence. Banks that could not effectively support the real sector of the economy at 24 percent of GDP compared to African average of 87 and 272 percent for developed countries.
Furthermore the vision of consolidation amongst others includes becoming Africa’s financial centre and CBN as one of the best in the world. Within ten years, Nigerian bank(s) should be among the top 50 0f the 100 banks in the world. Facilitate evolution of a strong of a save and strong banking system. Improve transparency and accountability in the sector. Drive down the cost structure of banks and make them more competitive and development oriented. A new banking system that depositors can trust and investors can rely upon to usher in a new economy.
2.1.1 THE REFORM AGENDA FOR CONSOLIDATION
Recapitalization of banks to 25 billion naira share holders fund by December 31 2005. Zero tolerance on misreporting and infarctions.
Stricter enforcement of corporate governance principles.
Policy framework on Risk Management systems.
Strengthening risk management systems in banks.
Risk based supervision.
Payment system Reforms.
Closer collaboration with the Economic and Financial Crimes Commission (EFCC) in the establishment of the Financial Intelligence Unit (FIU) and enforcement of anti money laundering measures.
Some element of reform, to a strengthened, Universal, banks.
2.2 BENEFITS OF CONSOLIDATION
The consolidation program has fundamentally changed the nature of competition, in the banking industry, in Nigeria. Through the new minimum capital requirement, the number of banks in the country has been successfully reduced from eighty-nine to twenty-five. The policy has also effectively raised entry barriers for those wishing to start banking business (Osubo, 2006.5).
There are many benefits attached to the consolidation of the Nigerian banking sector, and the Nigerian banks stand to gain a lot from them. Some of the benefits are
Emergence of 25 banks through consolidation (compare to 89 banks before consolidation). Successful banks accounted for about 93.5% of aggregate deposit liabilities
More effective supervision focus on fewer (25) banks rather than 89 mostly sick banks. No more wholly regionally/ ethnically based banks
Strong capital is a basic indication of solvency, and it will take a while along with careless risk for any of the newly capitalized banks to walk its way into insolvency
The consolidation provides a vehicle for taking out the weak banks in the system in an orderly manner
The consolidation