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THE CONSOLIDATION OF THE NIGERIAN BANKING INDUSTRY-IMPLICATION FOR THE NIGERIAN ECONOMY

ABSTRACT

The purpose of this research work was to examine the challenges faced by recapitalisation of banks in Nigeria. Hypotheses were formulated in view of the challenges identified and to meet the objective of the study. Questionnaires were designed and administered on sixty randomly selected executive of five banks (Union Bank, First Bank, Intercontinental Bank, Guardian Express Bank and Standard Trust) all located in Anambra State of Nigeria. Out of sixty questionnaires distributed, fifty–five were found useful to study. A thorough analysis using percentages and chi-square test revealed that bank consolidation will help to broaden the ownership base of Nigeria banks and as such tend to separate ownership from management as far as possible. This in turn will enhance management effectiveness. In addition, it was found that consolidation will enhance control and supervision of the banking industry by the CBN because the number of banks operating within the system will be reduced significantly. This will enhance the supervisory and regulatory role of the CBN in the industry and this will improve the quality of services offered to customers. In particular, recapitalisation of banks will facilitate the economic growth of the nation because more credit will be channeled to the real sectors of the economy. From the result of the study, we conclude that the newly consolidated banks need to employ highly qualified and competent professional in order to meet the expectation of shareholders in terms of returns on their equity and in order to compete favourably in a globalised world economy.

CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Banking institutions require adequate capital to function  effectively. This can be explained from the Fact that  banking is a highly leveraged industry with risky assets  and liabilities and thus can be described as a conditionally  solvent institution. In Nigeria, the need for adequate capitalization of banking  has being a source of concern to regulatory bodies  especially the CBN. Over the years, the monetary  authorities in the country have stipulated minimum capital  requirements for the banking industry. For instance as a  result of incessant bank failures recorded during the Free  Banking era, the 1952 Banking Ordinance stipulated a  minimum paid-up capital of N25000 and N200,00 for  indigenous and expatriate banks respectively.

Ever since then, the minimum capital requirements of  banks has been experiencing huge increment that in the  year 2003 with the subsequent introduction of universal  banking into the country in 2001, the CBN directed all  banks operating in the country to store-up their base to a  minimum paid-up capital of N2 billion. Shortly afterwards in July, 2004 with the assumption of office of the governor of

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