THE IMPLICATION OF RECAPITALIZATION POLICY ON THE PERFORMANCE OF UNITED BANK FOR AFRICA [UBA]
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THE IMPLICATION OF RECAPITALIZATION POLICY ON THE PERFORMANCE OF UNITED BANK FOR AFRICA [UBA]
INTRODUCTION TO CHAPTER ONE
1.0 Background Of The Study
Since the mid-1980s, the Nigerian banking industry has seen considerable growth and transformation. Unfortunately, the sector’s growth and expansion are not indicative of a sound or vibrant banking system anywhere in the world.
Most Nigerian banks have insufficient capital, poor services, a high rate of insolvency, a lack of management experience, bad debt syndrome, and a higher risk of fraud.
Furthermore, many have a poor database and a lack of solid information on which the Board of Directors can make informed policy decisions.
This is a frail banking system on the verge of collapsing due to the contagion impact of the liquidation of over eleven technically impaired banks.
In Nigeria, there are currently 89 banks in existence, with 79 considered marginal or fringe players and over 1,036 fraud cases in banks in 2003, with N9.3 billion lost through fraudulent activities.
A poor banking system of this type causes incalculable problems and crises in the economy, resulting in thousands of people losing their jobs, the loss of depositors’ money, the loss of confidence in the banking system, and, most importantly, the banks can contribute little to the country’s economic development.
Essentially, the new banking sector reform intends, among other things, to take proactive steps to prevent an impending systematic crisis and collapse of the banking industry, to create a sound banking system that depositors can trust, to create banks that investors can rely on to finance economic investment,
to drive down the cost structure of banks and make them more competitive, and to promote development. African regional and global powerhouse.
Taking these steps is critical for the survival of Nigeria’s frail financial system and for keeping up with the global trend. In general, the average capitalization of Nigerian banks is less than $10 million, or N1.3 billion, with the largest bank in Nigeria having $298 million compared to the smallest Malaysian bank having $526 million.
This is a key indicator for assessing the distinctive nature of Nigeria’s banking system among developing economies.
The study attempted to examine Nigeria’s fragile banking system, the need for recapitalization, the various strategies used by Commercial Banks to meet the recapitalization requirements, and how recapitalization can improve Commercial Banks’ repositioning in Nigeria’s competitive marketing environment.
Although complete recapitalization policy execution begins in December 2005, this analysis provides insight into the anticipated issues of the post-recapitalization future. These issues, as shown in recent mergers and acquisitions by smaller banks, give material for academic research and analysis.
However, the purpose of this study is also to outline United Bank for Africa’s various repositioning strategies in meeting the challenges of Banking Sector reforms and maintaining a leading position among new generation banks in meeting the CBN recapitalization requirement deadline.
It is hoped that the findings of this research study will give a trailblazing blueprint for commercial banks in Nigeria to adequately deal with post-recapitalization marketing problems.
1.1 Statement of the Problem
The increased incidence of bankruptcy and distress syndrome in the Nigerian financial system, driven by a lack of capital, management expertise, bad debt syndrome, corrupt practises, and fraud, among other factors, has prompted major worry among depositors, investors, and the rational economy.
To overcome this challenge, commercial banks in Nigeria must redefine their capital bases in order to strengthen the banking system. Dependable and viable, with minimum distress and a considerable contribution to Nigeria’s economic growth.
Commercial banks must seek investors and merge in order to achieve the December 31st, 2005 deadline for recapitalization of N25 billion.
Banks that meet recapitalization targets may be fewer in number, have a stronger capital base, and are better positioned to carry out full-service operations.
The main challenge for competing banks is to develop effective marketing strategies to attract customers to patronise their services and maintain a leading position in the industry.
Under the current recapitalization strategy, United Bank for Africa is a successful developing bank with a well-designed, modern financial marketing network that is better positioned for post-recapitalization competitive marketing of financial services in Nigeria.
This study conducts a critical analysis and investigation of United Bank for Africa Plc, Abuja’s marketing operations aimed at gaining a competitive edge.
The findings of this study, it is hoped, would provide an important blueprint for effective modern marketing of banking services in Nigeria.
1.2 Objective of The Study
The primary goal of this research is to investigate positioning methods for competitive advantage through recapitalization in the banking market, with a focus on United Bank for Africa, Kaduna. The study is primarily designed to accomplish the following goals:
a) To demonstrate the major flaws in Nigeria’s current banking system
b) Explain the rationale for the CBN’s commercial banking recapitalization programme in Nigeria.
c) To identify the issues that commercial banks face as the deadline for recapitalization approaches.
d) Determine the vicarious plans of action or competitive advantage techniques at the post-recapitalization epoch
e) To propose recommendations and solutions based on the study’s findings.
1.3 Research Questions
The following research questions will be addressed in this study:
a) Why should the minimum capital base for Nigerian commercial banks be increased to N25 billion?
b) Will bank recapitalization result in the intended beneficial effect in the Nigerian economy?
c) What are the implications of the reform for the country’s current job situation, including job security in the banking industry?
d) What happens to customer accounts (loans and deposits) if banks are unable to achieve the requirement?
e) What does it mean for a bank’s existing customers who do not come inside its redefined target market if it acquires or merges in the current consolidation process?
g) Will the capital requirement for banks be increased beyond N25 billion in the future?
1.4 Significance of the Research
The importance of this study is based mostly on the significant contributions provided by the study to individuals, commercial banks, investors, financial analysts, and others who are interested in the genuine development of the Nigerian banking sector through recapitalization.
To begin with, the management of United Bank for Africa would find this report quite concise in offering a clear picture of the crises and disputes in the Nigerian banking industry, including ways to satisfy the CBN recapitalization through various mergers and consolidation techniques.
Furthermore, the perspectives of seasoned bankers, academics, and financial analysts on the future of the Nigerian banking sector under the recapitalization strategy would make it easier for the bank to identify areas of threat and opportunity in the years ahead.
Second, because recapitalization is a novel concept in the baking business and even in academia, this study project would serve as a valuable resource for people from all walks of life, including students, bankers, investors, and the general public.
Finally, it is hoped that the different proposals and recommendations offered in this study will serve as effective tactics in addressing commercial banks’ post-recapitalization marketing operations in Nigeria.
1.5 Scope of The Study
The marketing operations of United Bank for Africa, Kaduna, are the topic of this research study. Though data collecting may be done centrally through the Kaduna head office, the analysis and interpretation of findings may include all state branches in Kaduna.
1.6 Limitations of The Study
a) Respondents’ Uncooperative Attitude: The bank used as a case study initially did not cooperate with the researcher because, in today’s competitive environment, an organisation views any person who comes for an inquiry as a spy on the activities used by their competitors to undo them in the market place. This explains the first uncooperative attitude of the bank visited.
b) Time Factor: This project work was completed at a time when academic activities were at their pinnacle, particularly for us final-year students. As a result, little time was set aside for this critical work.
c) Financial Constraints: As a student at this level, it was difficult to obtain resources, as well as the costs associated with typing, photocopying, and binding.
d) Lecturers are also required to lecture while also supervising a number of projects; nevertheless, lecturing, which is the primary responsibility of every lecturer, tends to limit the frequency of project supervision. Despite these limits, the primary objectives of this investigation were fully met.
1.7 Definition of Terms
The following words and abbreviations are explained in this study:
A syndrome is a collection of clinical symptoms that occur at the same time.
Management: The formally organised skill of getting things done through and with people. It is a tool for fostering an environment in which individuals work together to achieve collective goals.
A service is an intangible item or benefit that cannot be seen, felt, heard, tasted, or smelled prior to purchase.
Fraud: A purposeful act of deception with the intent of gaining something monetary by getting an unfair advantage over another person.
Bank failure occurs when a bank becomes insolvent or when its total property (assets) and intangible rights (securities) are insufficient to cover all of its financial obligations.
CBN stands for Central Bank of Nigeria.
NDIC stands for Nigeria Deposit Insurance Corporation.
Capital: Paid-up capital and reserves not offset by losses
Reserves: Surpluses coming from devaluation during consolidation.
Paid-up capital consists of ordinary shares plus non-redeemable preference shares.
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