EFFECT OF RECAPITALIZATION OF BANKS ON NIGERIAN ECONOMY.
Need help with a related project topic or New topic? Send Us Your Topic
DOWNLOAD THE COMPLETE PROJECT MATERIAL
EFFECT OF RECAPITALIZATION OF BANKS ON NIGERIAN ECONOMY.
Chapter one
INTRODUCTION
1.1 Background of the Study
It is widely acknowledged that the financial sector plays an important role in economic development. Boyd et al. (1993) discovered that in a merger and acquisition arrangement, a larger, more efficient institution tends to take over smaller, less efficient institutions, presumably in part to spread the more efficient institution’s expertise or operating policies and procedures over the acquired institution.
It has also been discovered that acquiring banks are more lucrative and have lower non-performing loan ratios than target banks (Peristiani 1993).
Consolidation of financial activities is a global phenomena that has been affecting financial stability. It is a method of addressing financial hardship issues, and it is becoming increasingly common in most countries around the world, particularly in emerging economies.
According to Lemo, T. (2005), the major goal of the changes is to ensure an efficient and sound financial system. The reforms are intended to help the banking sector acquire the resilience necessary to support the nation’s economic development by efficiently performing its functions as the fulcrum of financial intermediation.
The study also found that profitable banks are always willing to be acquired, whereas tiny, unprofitable banks are more likely to be acquired.
According to Soludo (2004), consolidation is a key component of financial reforms designed to ensure a diverse, strong, and reliable banking sector, which will ensure depositor money safety, effective performance of developmental roles, and competitive players in the African regional and global financial systems.
Some analysts believe that the primary motivation for consolidation is to maximise shareholder values, which is best achieved through mergers and acquisitions
whereas others believe that consolidation will not only increase shareholder value but will also contribute to the expectation of economics of scale as well as altering the centres and peripheries of financial activity; however, despite its benefits, consolidation is not without consequences.
Financial consolidation could have an impact on bank consumers by disrupting past lending practices. A lack of short-run replacements for bank credit would suggest that an interruption in the availability of bank credit would have a detrimental impact on affected borrowers and possibly the macro-economy, as argued in Bernanke’s (1993) literature assessment.
Strahan and Weston (1998) investigated banks involved in mergers by comparing their small business lending before and after the merger to a sample of banks that were not involved in the merger. Their data thus do not support the consolidation idea.
1.2 Problem Identification
The Central Bank of Nigeria (CBN) Act 21, 1990, and the Bank and Other Financial Institutions Act (BOFIA) 1991 constitute watershed moments in capital regulation for Nigeria’s banking sector. From a modest ten million Naira minimum paid up capital in 1988, Nigerian commercial banks were obliged to maintain capital of at least N50 million by 1991. Between 1991
Since 2005, following increases have ranged from N500 million (1997), N2 billion (2002), and N25 billion in 2005.
Today, many individuals have lost faith in these institutions because of the numerous problems that exist, and several have been liquidated. While various regulatory approaches, ranging from deregulation to consolidation, have resulted in an increase in the size, structure, and function of the Nigerian banking system, capital regulation cannot be said to have been effective in ensuring a stable banking system or corresponding levels of economic growth.
1.3 RESEARCH QUESTIONS.
The research work aims to answer the following questions:
i. Has the adoption of bank recapitalization in Nigeria had a beneficial or negative impact?
ii. How has it influenced the economy?
iii. Is this an initiative that will benefit the banking industry?
iv. Has the issue of a weak capital base been resolved?
V. Do small and medium-sized savers now profit from these banks?
vi. Does the society now have the confidence to request assistance from the bank? I.e. cash assistance.
1.4 The purpose of the study
The primary goal of this project is to investigate;
1. How bank recapitalization affects the Nigerian economy.
2. Determine the relationship between bank recapitalization, GDP, distressed banks, and the number of banks.
3. To investigate the various ideas of bank recapitalization.
No country can achieve greater economic success without a strong banking sector, as banks are the foundation of all economies. Nothing can be moved in an economy unless there is a strong, secure, and viable financial sector, whether in politics or other areas.
1.5 Research Hypothesis.
The conjectural statement for the research work in relation to the research question is as follows:
Recapitalization of banks has not benefitted Nigeria’s economy.
Hi – Recapitalization of banks has boosted the Nigerian economy.
1.4 Research Methodology
This research is based on secondary data obtained from bank journals, banking books, and the CBN statistical bulletin, among other sources. The project spans from 1990 to 2007, and the approach of analysis is as follows:
Y = F(bo + bI, xI + eI)
Where;
Y = GDP
XI equals bank capitalization.
bo equals the constant (S).
bI = The coefficient for the independence variable.
e equals standard errors.
1.5 Significance of the Study
This report will provide a complete and extensive analysis of the impact of bank recapitalization on the Nigerian economy. As a result, it will benefit governmental agencies, monetary authorities, non-governmental organisations, bank boards of directors, researchers’ scholars, students, and academicians alike.
Banks contribute to economic progress in a variety of ways while also operating in a delicate and volatile industry.
Efforts have been made in this study to determine the impact of the recapitalization programme on Nigerian banks and the Nigerian economy. The project write-up at the end will reveal if the influence is favourable or negative.
1.6 SCOPE AND LIMITATION.
Bank consolidation through mergers and acquisitions came into existence in Nigeria in 2004, but the examination into the causes for the CBN’s bad management began in 2004 by the Pius Okigbo panel on the reorganisation of the CBN, which was established by the then-Head of State, SANI ABACHA.
This research is hampered by some specific aspects that tend to make the research work difficult; these include:
i.FINANCE
The ability to financially support any research work is fundamental. The limited availability of most materials required for this research, such as periodicals, textbooks, the CBN statistical bulletin, and so on, makes gathering information extremely difficult.
ii. Death research materials
Apart from magazines, we do not have any textbooks that provide an in-depth discussion of the subject topic.
iii.TIME
There is insufficient time due to academic and other tasks needing simultaneous performance.
Need help with a related project topic or New topic? Send Us Your Topic