University of Nigeria Research Publications

NWACHUKWU, Remigius I.

Aut

hor

PG/EMBA/01/0947

Title

Marketing of Banking Services Under the Regime of Recapitalization: A Case Study of the Nigerian

Banking System

Facu

lty

Business Administration

Dep

artm

ent

Marketing

Dat

e April, 2005

Sign

atur

e

MARKETING OF BANKING SERVICES UNDER THE REGIME OF RECAPITALIZATION:

' X CASE STUDY OF THE NIGERIAN BANKING SYSTEM"

Nwachukwu Remigius I. CMD-UNN/PG/EMBA/2001/0947

DEPARTMENT OF MARKETING FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA ENUGU CAMPUS

ENUGU

APRIL 2005

MARKETING OF BANKING SERVICES UNDER THE REGIME OF RECAPITALIZATION:

' X CASE STUDY OF THE NIGERIAN BANKING SYSTEM"

Nwachukwu Remigius I. CMD=UNN/PG/EMBA/2001/0947

BEING A RESEARCH PROJECT SUBMIlTED TO THE DEPARTMENT OF MARKETING, FACULTY OF BUSINESS

ADMINISTRATIONUNIVERSITY OF NIGERIA,ENUGU CAMPUS ENUGU, I N PARTIAL FULFILMENT OF THE

REQUIREMENT FOR THE AWARD OF MASTER OF BUSINESS ADMINISTRATION (MBA) DEGREE I N MARKETING

APRIL 2005

i

CERTIFICATION

Nwachukwu, Remigius I., a postgraduate student in the

Department of Marketing with Registration Number CMD-

UNN/PG/EMBA/02/ has satisfactorily completed the requirements for

the award of Master of Business Administration (MBA) degree in

" Marketing.

- ................

Prof. ~l&echukwu E. Nwosu Project Supervisor

............ b r l - l.~..:f2*,-$.b

Date

DEDICATION

This work is dedicated to my darling wife, Attracta Nneka.

ACKNOWLEDGEMENTS

I am appreciative of my Supervisor, Professor I. E. Nwosu, whose

encouragement, candid advice and directions proved invaluable for me in the

course of this study. My wife's reminders on my assignments and Research Study

ensured that I did not "sweep things under the carpet". I n the same vein, my

colleagues at work, both past and present especially Shina Baruwa, Napoleon

Esemudje and Ajibola Ajayi were simply wonderful in their support. Also relevant

" staff of the Centre for Management Development, were accommodative of our,

oftentimes, extra demand for their time even outside normal office hours.

I appreciate you all.

Nwachukwu Remigius I.

CMD-UNN/PG/EMBA/2001/0947

iii

I n performing their role as financial intermediaries, the banks provide the platform for the transfer of funds from surplus economic units to deficit ones thereby helping in facilitating business transactions and economic development. Since the funds being deployed by the banks are largely owned by third parties (usually the depositors), it becomes necessary for such funds to be prudently and efficiently managed so as to ensure the sustenance of the confidence of the depositors in the banking system, ensure that the financial system remain sound at all times and ensure that the risk of bank failures is minimized.

The proliferation of banks in the 1990s brought about a stiff competition .,which eventually culminated in a wave of change sweeping through the entire banking system. This wave of change led to the death of 'arm-chair banking' and impressed on every bank official the imperatives of constant monitoring of developments in the environment; identifying and analyzing threats with a view to converting them to opportunities as the surest way to ensuring not just the survival but the growth of their banks as well.

Of recent, the Central Bank of Nigeria (CBN) has directed all operators within the Nigeria - banking system to raise their capital base to N25 billion within eighteen months with compliance deadline of 3lSt December 2005.

This recapitalization requirement has thrown up a number of opportunities as well as challenges related to mobilization of deposit and their deployment; marketing of banking services; interest rates; diversification; mergers and acquisition; consolidation, and so on.

I n view of the foregoing prevailing economic reforms in the financial sector, especially the banking industry, with particular regard to the new recapitalization requirement, it has become necessary to examine the challenges and prospects of marketing banking services; deposit mobilization and deployment viz-a-viz the imperatives of ensuring the safety and soundness of the banking system.

For example, it is necessary to examine the position of the Nigerian banking system prior to this era of recapitalization, and also look into the workings of the system post recapitalization.

iv

Specifically therefore, this study sets out to undertake an assessment of the challenges and prospects of marketing banking services under the regime of recapitalization in the Nigerian banking industry.

The study relied basically on both the primary and secondary data which were obtained through the administration of structured questionnaire and the revision of existing relevant literature, respectively. The questionnaire was administered on a carefully selected group of respondents from among notable operators within the Nigerian banking system.

Data gathered during the course of this study were subjected to empirical and statistical tests in order to find answers to the research questions and to prove the hypotheses.

Basically, descriptive statistical analysis were carried out. For clarity purposes, results of data analysis were presented using statistical tables, percentages and charts.

Of the 120 questionnaire administered, 89 were retrieved duly completed. 3 of the questionnaires were however rejected as unusable on the grounds of ambiguity, leaving a balance of 86 usable returned questionnaire which gave a 71.6% retrieval rate. The report of the research findings is hereby presented in subsequent pages.

Specifically, the study identified that the recapitalization will engender shift from speculative banking practice to a more focused approach leading to sustainable long term lending. This will then result in economies of scale and more efficient resource allocation and hence overall national economic development.

However, the study also cautioned on the implementation of the recapitalization exercise to prevent a mis-interpretation by the public, which could lead to a run on the banks. This could be achieved through a phased implementation schedule as different from the 18 months period presently being implemented.

TABLE OF CONTENTS

Title Page Certification Dedication Acknowledgements Abstract Table of con tents

CHAPTER ONE INTRODUCTION

1 . Statement of Research Problems

1.2 Objective of the Study

1.3 Research Questions

1.4 Research Hypothesis

1.5 Significance of the Study

1.6 Scope of the study

1.7 Limitation of the Study

1.8 Organisation of Chapters

Refererices

CHAPTER TWO LITERATURE REVIEW

2.1 Introduction

2.2 Overview of Banking Business in Nigeria

2.2.1 Central Banking

2.2.2 Commercial Banking

2.2.3 Merchant Banking

2.2.4 Development Banking

2.2.5 Community Banking

2.2.6 Peoples Banking

1 . . II ... 111

IV

v vii

2.2.7 Mortgage Banking

2.3 Historical Review of the Nigerian Financial System Reforms

2.3.1 The Concept of Financial Reforms

2.3.2 Background of Financial System Reforms in Nigeria

2.3.3 The 1976 Financial System Review

2.3.4 The 1986 Financial System Reforms

2.3.5 Current Reforms in the Nigerian Banking System

2.3.6 History of Increase in Capital Base in the Nigerian Banking

2.4 Summary

References

CHAPTER THREE RESEARCH METHODOLOGY

Introduction

Sources of Data

Data Collection

Demographic Variables

Features of the Current Recapitalization Requirement

Possible Impacts of the Recapitalization Policy on the Nigerian Banking System and Economy

Measurement of Relevance

Open-Ended Questions

Population sample, Area and Location of Study

Data Presentation, Analysis and Interpretation

vii

CHAPTER FOUR DATA PRESENTATION, ANALYSIS AND

INTERPRETATION

Introduction 48

Respondents Profile 48

Questions on the Current Recapitalization of the Nigerian Ban king System 53

Awareness of the Current Recapitalization of the Nigerian Banking System by the Central Bank of Nigeria (CBN) 54

Identification/Confirmation of the Features of the Recapitalization 54

Possible Impacts of the Recapitalization Policy on the Nigerian Banking System and Economy. 57 Other Findings 60

4.7. I Advantages of Recapitalization 61

4.7.2 Problems Associated with Recapitalization 62

4.7.3 suggestions for Solving the Problems 62

CHAPTER FIVE SUMMARY OF FINDINGS, CONCLUSION AND

RECOMMENDATION

5.1 Introduction 64

5.2 Summary 64

5.3 Conclusion 68

5.4 Recommendations 69

Bibliography 71

Appendix 74

1.0 INTRODUCTION

Recent happenings within the Nigerian banking industry have not only

brought into prominence, the need to enhance the quality of customer

service delivery, but have essentially made it a necessity for continued

corporate existence and profitability.

The events of the 1990s when many Nigerian banks became insolvent,

expelled from the Central Bank of Nigeria (CBN) clearing house and

subsequently liquidated by the Nigeria Deposit Insurance Corporation

(NDIC) and their licenses revoked - clearly brought upon banks the need to

devise the means of coping with the enormous threat posed by

developments in their external environment.

The stiff competition which ensued from the wave of change that swept

through the Nigerian banking industry then quickened the death of "Arm-

chair banking" and impressing upon every bank official the imperatives of

constant monitoring of developments in the environment; identifying and

analyzing threats with a view to converting them to opportunities; and

taking advantage of any existing opportunities as the surest way to

ensuring not just the survival but the growth of their banks as well.

Similarly, the present democratic government in Nigeria has been making

concerted efforts to bring about a turn-around in the nation's economy.

Several types of reforms are being introduced in various sectors and sub-

sectors of the economy. The most recent of such reforms is bank

recapitalization. The Central Bankof Nigeria in July 2004, issued a directive

requiring all banks operating in the country to raise their capital base to

#25 billion (Twenty-five Billion Naira) within eighteen months ending 3lSt

December 2005.

This recapitalization requirement has thrown up a number of opportunities

as well as challenges related to mobilization of deposit and their

deployment; marketing of banking services; interest rates; diversification;

mergers and acquisitions and so on.

1.1 STATEMENT OF RESEARCH PROBLEM

I n performing their role as financial intermediaries, the banks provide the

platform for the transfer of funds from surplus economic units to deficit

ones thereby helping in facilitating business transactions and economic

development. Since the funds being deployed by the banks are owned by

third parties (usually the depositors), it becomes necessary for such funds

to be prudently and efficiently managed so as to ensure the sustenance of

the confidence of the depositors in the banking system, ensure that the

financial system remain sound at all times and ensure that the risk of bank

failures is minimized.

The market interest rates due to their important role in macro-economic

policy, assumes a high level of significance. This is because interest rate

policy has a major influence role not only on short-term adjustments of

spending, inflation and external payments, but also on long-term

accumulation of savings and the level and composition of domestic

investments. Ideally, the real domestic interest rates must be high enough

to ensure an equilibrium level of savings and private sector investment.

I n view of the prevailing economic reforms in the financial sector, especially

the banking industry with particular regard to the new recapitalization

requirement, it has become necessary to examine the challenges and

prospects of marketing banking services; deposit mobilization and

deployment viz-a-viz the imperatives of ensuring the liquidity of the banking

system.

For example, it is necessary to examine the position of the Nigerian banking

system prior to this era of recapitalization, and also look into the workings

of the banking system under the recapitalization regime.

1.2 OBJECTIVES OF THE STUDY

The objectives of this study is to undertake an assessment of the

challenges and prospects of marketing banking services under the regime

of recapitalization using the Nigerian banking industry as a case study.

The Central Bank of Nigeria's directive that all banks operating in Nigeria

should raise their shareholder funds to #25 billion Naira by December 3lSt,

2005 constitutes a significant stepjn the present administration's efforts at

restructuring the economy. It is expected that this policy will bring about a

shift in the focus of the economy from one that is largely and increasingly

motivated by perverse rent seeking incentives, to one which is more

productive and value-adding.

The financial reforms of the mid 1980s also brought along with it an

increase in opportunities of rent seeking in the financial sector and

consequently the proliferation of banks in the industry. This led to a shift in

the 'focus of the industry as a whole; from the essential intermediation role

of mobilizing savings and the provision of loans for the development of the

real sectors of the economy to that of endless stroking speculative

commercial activities.

This not only compounded the problems of low domestic savings and high

bank lending rates in the country, it also reduced access to relatively cheap

and stable funds that could provide reliable credit at affordable rates of

interest. Thus, the economy was denied the vehicle for sustainable

development, as only 3 - 5 per cent of overall banking sector credit was

given to the real sectors of the economy.

It is therefore against this background that the current recapitalization

policy is being assessed viz-a-viz the challenges it posses to, as well as the

prospects it offers to the upliftment of domestic savings, savings-

investment balance, elimination of distortions such as high bank lending

rates; increased access to relatively cheap and stable funds, provision of

reliable credit at affordable rates of interest which will be conducive to

long-term economic growth and the general improvement of economic

efficiency and the productivity of investments such that an equilibrium level

of savings (domestic and foreign) and private sector investment may be

achieved. Specifically therefore, the objectives of this research study are as

enumerated below:

1) To examine and review the previous attempts at recapitalization in

the Nigerian banking industry.

2 ) To assess the effectiveness/ineffectiveness of such past attempts at

recapitalization and attendant problems.

3) To review the Nigerian banking environment immediately preceding

the introduction of the current recapitalization policy.

4) To examine the strategies and procedural modalities laid down for

the actualization of the current recapitalization policy.

5) To identify and examine the various stakeholders in the

recapitalization exercise and their respective roles.

6) To ascertain the prospects of, and the challenges the current

recapitalization policy poses to the marketing of banking services

within the Nigerian banking industry.

7) To identify problems (if any) associated with the current

recapitalization policy; and

8) To put forward suggestions and recommendations to address

identified problems.

1.3 RESEARCH QUESTIONS

The following research questions are expected to assist in undertaking the

research study:

What are the salient features of the current recapitalization policy

which has been introduced in the Nigerian banking industry?

Were there some other recapitalization attempts prior to this current

one?

What is the relationship between the previous recapitalization policies

and the current one?

What are the operational strategies and modalities of the current

recapitalization policy?

Who are the stakeholders in the current recapitalization policy?

Is the current recapitalization policy valid, relevant to the

repositioning of the Nigerian banking industry for greater

effectiveness and efficiency in the banks' operations?

What are the problems associated with the current recapitalization

policy?

What measures can be taken to address these problems?

RESEARCH HYPOTHESES

In the course of conducting this study, the following hypotheses will be

tested.

a) Hi: There is need for the current recapitalization policy

which is being. pursued within the Nigerian banking

industry.

Ho: There is no need for the current recapitalization policy

which is being pursued within the Nigerian banking

industry.

b) Hi: The current recapitalization policy will enhance the

effectiveness and efficiency of the Nigerian banking

industry.

Ho: The current recapitalization policy will not enhance the

effectiveness and efficiency of the Nigerian banking

industry.

1.5 SIGNIFICANCEOFTHESTUDY

I n performing its role as the financial intermediary, the banking industry

provide the platform for the transfer of funds from surplus economic units

to deficit ones thereby helping in facilitating business transactions and

economic development. Since the funds being deployed by the operators

of the banking industry are owned by third parties (usually the depositors),

it becomes necessary for such funds to be prudently and efficiently

managed. It is equally strategic to ensure the sustenance of the

confidence of the depositors especially, and the general public, in the

banking system. This will lead to greater pull on funds from the informal

system, enabling banks greater access to investible funds and hence

facilitating economic growth and development.

This study hopefully, will be of vital interest to the stakeholders within the

Nigerian banking industry as well to operators in other sub-sectors of the

entire financial system.

In a similar vein, this study will also serve as a veritable source of

information to students of economics, business administration, banking and

finance and other similar academic disciplines.

1.6 SCOPE OF STUDY

This research study focuses on such issues as general ovewiew of the

banking industry, the review and examination of previous attempts at

recapitalising the banking system; the details of the current recapitalization

policy, its operational strategies and modalities; finding out the challenges

and prospects of the new recapitalization policy, identifying problems

associated with the current recapitalization policy, and to profer

suggestions for addressing these problems.

1.7 LIMITATIONSOFTHESTUDY

Traditionally, research are bound to contend with constraints and

limitations which are products of the peculiar circumstances within which

they are undertaken.

This study is therefore constrained by the components of time and space

which would not allow for a broader and more indepth investigation which

would also have necessitated a more time consuming data gathering,

, presentation and analysis.

Similarly, the study is limited in scope to cover the Nigerian banking

industry as affected by the current recapitalization policy as introduced by

the Central Bank of Nigeria (CBN) which requires all banks operating within

the Nigerian banking industry to raise their capital base to #25 billion by

December 2005.

1.8 ORGANISATION OF CHAPTERS

The findings of this research study will be presented in a research report

composed of five chapters, viz:

+ Chapter one will be devoted to introduction and general ovewiew of

the subject matter of the research. Chapter two treats a review of

literature which involves the examination and review of existing and

relevant documents, reports, journals, periodical, etc. Chapter three

will be devoted to research study methodology which explains the

methodologies adopted in carrying out the research study, while

chapter four will be devoted to data presentation, analysis and

interpretation.

The final chapter, chapter five will treat summary of findings, conclusions

and recommendation.

REFERENCES

Alashi, S. 0. (1991): "The Implications of Current Monetary Policies on

Safe and Sound Banking Practice to ensure stability in the Industry".

NDIC Ouarterly, Vol. 1, No. 3. September 1991.

Benson, G. et al. (1986): Perspectives on safe and sound banking: Past,

present and future. MIT Press, Cambridge, Mass.

Elugbaju, Y. 0. (2000): 'Responsibilities of Marketing Executives to the

customers". Paper presented at a seminar on Effective Marketing of

Financial Services in the Banking Industry - organized by The

Chartered Institute of Bankers of Nigeria (CIBN), Kano. March, 2000.

Umoh, P.N. (1994): "Regulatory/Supervisory Framework for Assets/Liability

Management: International Overview". NDIC Ouarterlv, Vol. 4. No.

2. June, 1994.

Utomi, P. (1996): 'Institutions and the Evolution of Competition in the

Nigerian Banking Industry" LBS Manaclement Review, Vol. 1, No. 2.

Lagos Business School, Lagos.

Wariboko, N. (1994): Principles and practice of Bank Analysis and

Valuation. Spectrum Books Limited, Ibadan.

CHAPTER TWO

LITERATURE REVIEW

2.1 INTRODUCTION

The importance of banks has since been established. As Alashi (1991)

rightly observed, banks occupy a critical position in a complex financial

system that supplies the money and credit needs of the economy. It has

been empirically proved that a positive correlation exists between real

., economic growth and bank assets, and between money supply, bank assets

and economic development.

McKinnon (1973) and Shaw (1973) described the development of the

banking system as a critical factor in economic development in developing

countries. This explains why Roussakis (1977) asserted that no other

' financial institution contributes more significantly to the successful

functioning of a nation's economy than does its commercial banks.

Aside from its function as the promoter of the payment mechanism, banks

also serve in providing efficient channel for the mobilization of savings and

their allocation to productive investment which, as noted by Ojo and

Adewunmi, (1981), Nwankwo, (1991), and Nyong, (1992), is very essential

for the promotion of economic growth and development.

Jimoh (1993) however observed that how well the banks perform their

function of promoting growth and development depends largely on the

extent to which financial transactions are carried our with trust and

confidence and last risk - whether perceived or real. This necessitates safe

and sound banking practices facilitated by well articulated prudential

guidelines.

The leadership challenge in the executive suites of Nigeria's banks today

according to Utomi, (1996), "is how to enable their organizations capture

apparently diminished opportunities in the market and circumnavigate the

threats created by some factors in the environment...".

2.2 OVERVIEW OF BANKING BUSINESS I N NIGERIA

According to the Banks and Other Financial Institutions (BOFI) Act of 1991,

the banking business is described as "The business of receiving deposits on

current accounts, savings accounts, or other similar account, paying or

collecting cheques, drawn by, or paid in by customers; provision of finance,

or such other business as the Governor of the central Bank of Nigeria

("CBN") may by order published in the gazette designate as banking".

The description of banking business by BOFI Act has however been

criticized by (Abdulai et all 1993) as silent on important areas of activities in

which the banks are making huge profits. These include sale of foreign

exchange, whose authorized dealership was until 1992, the most lucrative

and important banking business in Nigeria.

The banking business in Nigeria can be categorized into the following

(Olanrewaju, 2002):

*:* Central banking

a Commercial banking

*:* Cooperative banking

*:* Merchant banking

*:* Developmentbanking

., *:* Peoples ban king

*:* Community banking

*:* Mortgage banking

2.2.1 Centra/ Banking

The Central Bank was set up in 1959 as the apex bank to perform the

' following statutory functions:

B.. Issuing of legal tender currency

,& Acting as banker and financial adviser to the government

B.. Maintenance of external reserves to safeguard the value of the local

currency at the foreign exchange market.

* Other non - statutory functions include among others

s& Foreign exchange management

* Provision of clearing house facilities

;.., Rediscounting Facilities

i.., Acting as lender of last resort and

* Credit control

2.2.2 Commercial Banking

The commercial banking practice, which started in 1892, is saddled with the

following functions among others:

21, Acceptance deposits from customers

* Provision of credit facilities in form of loans and overdraft

z t Management of customer's portfolio of investment and provision of

investment advice

* Provision of status opinion and enquiry services on behalf of customers.

2.2.3 Merchant Banking

The development of merchant banking activities dates back to 1960. It is

usually referred to as wholesale banking. (with the introduction of universal

banking through the 1999 budget, the merchant banks and commercial

banks are to perform basically the same functions).

Some of its functions include among others:

Arrangement of syndicated loan

~t Unit trust management

Provision of medium and long-term credits

sb Issuing house functions.

2.2.5 Development Banking

Development banks were established in 1964 to take care of the financial

needs of the following sectors: Agriculture, Manufacturing/industrial, Small

Scale enterprises, Mortgage/Property development, Exports and Imports.

I n pursuance of this, the following specialized development banks were

established:

The Nigerian Industrial Development Bank (NIDB) established in 1964

,a. The Nigeria Bank for commerce and Industry (NBCI) established in

The Nigerian Agricultural and Cooperative Bank (NACB) established in

a* The Federal Mortgage Bank (FMB) established in 1977 and

* The Nigerian Export Import Bank (NEXIM) established in 1991

2.2.6 Community Banking

Community banking was introduced into the Nigerian banking system in

1990. It is defined as a self - sustaining financial institution owned and

managed by a community or group of communities for the purpose of

providing credits, deposits, banking and other financial services to its

members largely on the basis of their self - recognition and credit

worthiness.

Their functions include among others:

- Provision of credits to customers, especially small and medium Scale

enterprises based in its area of operation.

- Provision of technical assistance in the area of marketing agricultural

products.

- Issuance of redeemable debentures to raise funds.

2.2.7. Peoples Banking

Peoples Bank was established by Decree 22 of 1990 to meet the basic

credit requirements of the less privileged Nigerians who are involved in

legitimate economic activities, in both urban and rural areas and who

cannot ordinarily benefit from the services of conventional banking system,

due to their inability to provide collateral security for even the smallest

loans.

22.8, Mortgage Banking

Mortgage banking dates back to 1977 through the statute that established

the Federal Mortgage Bank of Nigerian. I n 1989 an act was promulgated to

make provisions for the establishment of mortgage institutions, to grant

loans and advances to individuals for the purchase or construction of a

dwelling house, improvements or extension of an existing one, etc.

2.3 HISTORICAL REVIEW OF THE NIGERIAN FINANCIAL SYSTEM REFORMS

Many authors have, over the years, written on such related issues as

financial system reforms, regulation, deregulation, repression, liberalization,

and monetary policy effects. Some of these authors include: Alashi (1991),

Awosika (1984), Oduyemi (1992), Ojo (1992), Oleka (1992), Olisambu

(1993)) Umoh (1995), and Uchendu (1995). Others include: Odusola and

. Ajakaiye (1995), Nyong (1996) Ezirim (1994), Sani and Yakpogoro (1997),

Isijola (1999), Ikhide (1990), Adebiyi (2000) and Ogunleye (1995, 2000).

These studies, among others, constitute major landmarks and contribution

on the subjects of reforms regulation and/or deregulation. A very

important objective advanced by monetary authorities as a basis for

instituting reforms relates to the alignment of the operations of the financial

superstructure (and especially, banks) with the desired level and dictates of

economic growth. However, as noted by Ezirim and Muoghalu, (2004), the

statistics on selected economic indicators of Nigeria do not seem to suggest

that the economy has reaped the dividend of the reformatory efforts of the

government over the years.

I n a study on banking reforms, Sani and Yakpogoro (1997) made some

interesting findings. Their discovery showed that "to a considerable extent,

banking reforms have exerted a significant influence on bank performance

to have positively impacted on economic growth. This represented the

opinion of 83.33% of the bankers studied". Also it was discovered that "the

efficiency of the monetary authorities in implementing these reforms has

not been as expected. Some of the factors explaining their inefficiency are

official bureaucracy, undue government interference, lack of dedication on

the part of CBN officials, lack of adequate level of supervision and corrupt

conducts of CBN officials".

2.3.1 The Concept of Financial Reforms

Financial reforms and attendant policy prescriptions are age-long global

phenomena. They represent the various transformations and policy

adjustments and overhaul that are directed to the art, practices, and

activities of financial institutions and markets over time in response to the

nominated need for operational improvement and growth of both the

institutions and the general economy. They can be internal or external in

nature and reflect critical-cum-comprehensive amendments, restructuring,

and/or additions to the existing body of laws, guidelines and policies.

Reforms in the banking system can also be seen as an embodiment of

measures - regulatory or deregulatory directions to the operations of banks

in order to make them more relevant economically. The main objective of

banking reforms would be to align the operational performance of the

banks in the system with the economic objectives of the country.

2.3.2 Background of Financial System Reforms in Nigeria

We can define banking reforms as the various transformations in the art

and practice of banking over time in response to growth and diversity in

both the internal and external environment of banks as reflected by

amendments, changes, and/or additions to the prevalent banking laws and

policies. The Nigerian financial system which represents "the congeries of

financial markets, intermediaries, instruments, regulatory agencies and the

body of rules, norms, and regulations that govern interaction in the

system", has evolved from a rudimentary to a more sophisticated one over

the past few decades (Ezirim, 1995).

The Nigerian financial system has witnessed tremendous institutional,

structural, and environmental developments from the colonial era through

independence to the present time. With the evident growth of the system

coupled with the attendant complexities in the financial sectors, the need

arises to put in place various forms of reforms aimed at shaping and

directing the system unto desired ends. Thus the need to develop the

system and improve its operational efficiencies and effectiveness cannot be

over-em phasised.

Prior to independence, the stage of development of the financial system

was anything but commendable. . I n the words of Victor Masi, a former

Federal Minister of Finance (cited in Agene, 1987:43): "On the eve of

independence, the financial system was under-developed and most of the

complex ramifications, which are integral to it today, were not there. The

Central Bank was only established two years before independence and up

to that date, there was little or no regulation of the banking industry. Fiscal

Policy in colonial Nigeria was rudimentary, most of the banks were foreign

owned, and foreign managed, as their orientation was essentially foreign.

Rural banking was unheard of...". Thus it becomes imperative for the

., monetary authorities to institute various forms of reforms to encourage

institutional growth and expansion.

With their implementation, certain changes were recorded as observed by

the Minister: "The last two decades have therefore been a period of

tremendous growth and development in this crucial sector of our national

economy. This growth and development has been both qualitative and

quantitative. In sheer numbers, the range of services and dimensions of

facilities, as well as in policy orientation, leadership, ownership and

management, our financial system has become truly Nigerian...".

Soleye (1987), on the contrary, observed that "this expansion has not been

accompanied by any significant improvement in the functional efficiency of

the system and any appreciable expansion in the level of financial

intermediation between ultimate savers and investors". Thus, we can infer

that reforms are needed to propel economic expansion and efficiency in

financial intermediation carried out by the financial system (occasioned by

concerted reforms) as potential savings are adequately linked with potential

real investments. This reasoning, in part, implies a need for adequate

financial intermediation.

Further, Umoh (1995) contended that the financial sector fosters the

mobilization of resources for capital accumulation through the process of

intermediation, the success of which depends on its ability and willingness

to offer the public a great variety of assets corresponding to the various

needs and preferences of economic agents. Thus, reforms could be to

activate the potentials and willingness of the financial intermediaries to

offer the public varying assets in line with identified and potential needs. It

would also see to it that the sector does its allocation function efficiently.

Thus, the grand design of financial systems reforms on this note is to

guarantee efficient financial intermediation.

I n the work of McKinnon (1973), some more basis of financial sector

reforms are highlighted. It was argued that these reforms are carried out

where it is recognized that the sector is not performing up to expectation

due to numerous difficulties, which can either be removed or harnessed as

opportunities. Such bottlenecks might be peculiar to the system such as

institutional, infrastructure, and personal weaknesses. They can be

sociological or might result from interrelationships subsisting between the

financial system and the economic environments (such as overhang of

budget deficit, regulated interest rate structure, inflation, and

unemployment). Whatever the source of the identified problems, Umoh

(1995) contends, "financial reforms are most often motivated by the desire

to improve the efficiency and stability of the financial system. In some

. cases, as we observed in 1986 up till early 90s, reforms are carried out as

part of a comprehensive structural adjustment programme aimed at

ensuring that market forces are assigned greater roles in national resource

allocation.

Summarizing the objectives of a typical financial system reforms, Umoh

(1995) highlighted the following:

*:* Greater mobilization of domestic savings for investment and growth

through market-based interest rates; and

*:* Laying the basis for a sustainable non-inflationary or minimal

inflationary growth.

As observed by Ezirim (2004), other bodies also abound for the

'reformation' of the financial system. First, reforms attempt to restructure

the mode of operations to be in line with the acceptable international

standards and comparability. This is the critical reason behind the

institution of prudential guidelines in the financial system in 1990

One obvious implication of this trend is the necessity to develop and

continuously review the reporting systems, which allow for a high degree of

comparability of banking performances across national borders. Such

systems have been evolved in such areas of banking practice as credit

. portfolio classification and disclosure, provisioning for non-performing

assets, interest accrual, and off-balance-sheet engagement.

w v u ? Y v f f m ' W M W

C

Among these objectives are generation of full employment, sustained

economic growth, price-level stability and favourable balance of payment.

It is argued that the performance of the financial system, and especially,

the banking system, is critical to the attainment of these objectives. For

instance, Philips (1991) argued that, the banking system provides a major

institutional mechanism for the mobilization of minuscule and not-so-

minuscule resources from surplus units and for channeling of same to the

deficit units through the extension of credit. The efficiency with which this

is done greatly influences the savings-investment process and has

implications for the management of the economy and the attainment of

economic objectives which includes sustained growth and development.

Perhaps, it is in this respect that the monetary authorities invoke such

24

policies as the sectoral allocation of credit into preferred and less-preferred

sectors.

The protection of customers, depositors, and society at large from certain

unscrupulous acts of some intermediaries in the financial system provides

another basis for reforms in the system. Reforms are also instituted to

restore public confidence in the operations of participants in the financial

market. The erosion of confidence on the banks, insurance companies, and

finance houses, for instance, is an unhealthy development, which in turn

has its multiplier effects on the growth of the economy. Onoh (1987)

traced the present economic predicaments to some of these activities.

Another rationale for the reforms instituted in the Nigerian Financial system

was the need to have Nigerians own and control these institutions

operating in the system. This is the mainstay of the indigenization policies

pursued in the country during the last two decades. The exercises were

designed as a strategy for Nigerians to determine their economic fortune by

using equity ownership as spring board into the boardroom of banks and

other financial institutions where policies and programmes are determined;

and into management where they are implemented. Nwankwo (1980)

explained that such policies enable the indigenes to "control the

commanding heights of their economy and ensure economic

2 5

independence...". Today, we witness indigenous domination of financial

institutions in the country.

Amidst the plethora of institutions in the Nigerian financial system, banks

are regarded as the catalysts and prime movers of the economy, exerting

the greatest influence. I n the banking system, the mainstream, banks

occupy a dominant position, which make them the main target of financial

. reforms.

Reforms in the banking sector in any economy are basically same and can

be in two folds: They can be implemented to allow government a control

of the sector or to deregulate the industry to open it to the market forces of

demand and supply. While regulatory reforms allow governments a

stronger control of the industry; deregulatory reforms are undertaken to

improve the efficiency in resources allocation through reliance on market

forces. The latter also aims at mobilizing domestic savings for investments

through market determined interest rates. Furthermore, deregulatory

reforms promote competition in the provision of banking services and

products.

The interval for reforms to be effected in the system is actually not regular

as it is within the discretion of the CBN to determine based on perceived

needs. As earlier pointed out, banking reforms can be prompted internally

within the system (as when some practitioners explore legal loopholes to

effect sharp and dangerous practices), otherwise they are externally

induced. For example, the overwhelming impact/competition from the non-

bank financial institutions was one of the reasons for the promulgation of

the Banks and Other Financial Institutions Decree, 1991 (Ojo, 1992). Much

as the changes in both internal and external environments of banks result

. in banking reforms, these reforms in turn, can be unequivocally adduced as

the proximate causes of further changes in the environments. Thus, as

Ndiomu (1993) posits, these reciprocal impacts between banks and their

environments are self-manifest. The reforms in this sector present several

imperatives. For example, the Rural Banking Scheme (1997), Community

Banking.(1990), and the People's Bank (1989) as products of reforms have

greatly impacted the economic and social lives of the society. However, for

them to make relevant impact, they must take the different forms and

timing as dictated by the particular cause(s) that triggers such reforms.

2,3.3 The 1976 Financial System Review

The Financial System Review Committee otherwise known as the Okigbo

Panel was set up in April, 1976 to examine the adequacy, relevance or

otherwise of the institutions in and the structure of the financial system to

meet the needs of the country for rapid development. Another object of

27

the review was to examine the organization and ownership structures of

institutions in the system, evaluate their liability in the context of the stated

preamble, the economy's future domestic and international requirements,

and development trends. It was also to study the operational needs in the

system with particular reference to promotional activities of the financial

institutions generally and making appropriate recommendations based on

their findings.

The committee recommended a number of practical policy measures from

amongst which the Federal Government accepted to implement the

following:

i >

ii)

iii)

iv)

v>

the establishment of a Security and Exchange Commission;

the establishment of the Nigerian Stock Exchange to replace the

Lagos Stock Exchange with branches in Lagos, Kaduna and Port-

Harcourt;

state and Local Governments as well as state-owned corporations to

be encouraged to float their own bonds in the securities market;

as part of the efforts to improve the monetary management advisory

functions of the CBN, all financial institutions are required to make

returns of financial statistics to the CBN;

setting up of more commercial bank branches in the rural areas of

the country;

vi)

vii)

viii)

28

a comprehensive programme for training and manpower

development in the banking system;

strengthening of the banking legislation to reflect the distinction in

practice between commercial and merchant banks; and

increased ban king supervision and regulation to encourage

specialization of financial institutions.

A remarkable policy imperative of the Review for Commercial banks are the

extension of banking offices and banking credit to the rural areas where the

majority of the Nigerian people reside. As argued by Umoh (1995) "the

recommendations was implemented through the Rural Banking Scheme

(RBS) introduced by the CBN in 1977. Although, the RBS had its problems,

between 1977 and 1989, rural bank branches grew from 13 to 756,

indicating an average yearly growth rate of 47 percent. Unfortunately,

however, the same cannot be said of credit to the rural communities in

which the branches operated".

The second remarkable policy recommendations was the calling for the

strengthening of banking regulation and supervision which led to a number

of changes in the CBN including multiple Deputy Governors (DGs) as

opposed to one DG, in addition to increased attention to banking

supervision. It was in an effort to strengthen supervision and protect

depositors that the Nigerian Deposit Insurance Corporation (NDIC) was

established in 1988 to complement the CBNfs efforts in this regard, (Umoh,

1995). Further issues included the call for a clear distinction between the

operations of commercial and merchant banks.

2,3,4 The 1986 Financial System Reforms

The 1986 reform of the financial system was part of an overall structural

. adjustment programme (SAP), which was instituted by the Babangida

Administration. The whole package was anchored on the need to enhance

competition, reduce distortion in investment decisions and evolve a sound

and more efficient financial system. The reforms concentrated on

structural changes, monetary policy, and interest rate administration. It

encompqsses both financial market liberalization and institutional

development of the financial system. The broad objectives of the financial

sector reform include:

0

ii)

iii)

iv)

Removal of controls on interest rates to increase the level of savings

and improve allocative efficiency;

Elimination of non-price rationing of credit to reduce mis-directed

credit and increase competition;

Adoption of indirect monetary management in place of the imposition

of credit ceiling on individual banks;

Enhancing of institutional structure and supervision;

v) Strengthening the money and capital markets through policy changes

and distress resolution measure; and

vi) Improving the linkages between formal and informal financial sectors

of the economy.

From 1986 through 1995, the reforms took different shape and degrees

such as :-

- the introduction of the second-tier foreign exchange market (for

which banks were primary participants).

- privatization of government-owned enterprises (involving some

banks).

- deregulation of interest rates in August 1987.

- creation of two innovative banking sub-systems (the People's Bank

of Nigeria and the Community Banks in 1989 and 1990, respectively)

focused on the banking needs of the less priveledged economic units.

- the institution of the deposit insurance scheme (with NDIC as the

administrator).

- promotion of finance companies and primary mortgage institutions

to tap the opportunities occasioned by the deregulation of the

financial system.

3 1

Some other notable policies are the abrogation of the compulsory

sectoral credit allocation and the indigenization requirement.

Alongside these institutional developments were new supervisory,

regulatory and legislative arrangements aimed at strengthening the

financial system and, most especially, promoting safe and sound banking

practices. Such included the Prudential Guidelines, the Banks and other

. Financial Institutions Decree (BOFID), Central Bank Decree, financial

malpractices and miscellaneous provisions, insurance decree and a host of

other rules and amendments.

2.3.5 Current Reforms in the Nigerian Banking System

The most recent reforms in the Nigerian banking system is the twenty-five

billion Naira (N25 billion) recapitalization requirement which all banks

operating in the Nigerian financial system are expected to fully comply with

by 31St December 2005. This recapitalization requirement as introduced by

the Central Bank of Nigeria (CBN) has thrown up a number of opportunities

as well as challenges related to mobilization of deposit and their

deployment; marketing of banking services; interest rates; diversification;

mergers and acquisition and so on.

According to Professor Charles Soludo, the Governor, CBN (2005

Oghenekwve) this latest reform is part of the National Economic

Empowerment and Development Strategy (NEEDS). Soludo argued, 'It is

the overall strategy for economic growth, political development, among

others". He added that, as contained in page 75 of the NEEDS agenda, the

whole package of recapitalization is aimed at removing the deficiency and

the low level of capitalization of the banking system in Nigeria.

As observed by the Economic Chronicle in its September 2004 edition, the

N25 billion capital requirement and other related reform as currently being

pursued by the Central Bank of Nigeria can be traced to some happenings

within the Nigerian financial system in the 1980s. The financial reforms of

the mid. 1 9 8 0 ' ~ ~ brought along with it an increase in the opportunities of

rent seeking in the financial sector and consequently the proliferation of

banks in the industry. This led to a shift in the focus of the industry as a

whole: from the essential intermediation role of mobilizing savings and the

provision of loans for the development of the real sectors of the economy

to that of endlessly stroking speculative commercial activities. This

situation, according to Soludo (2004) not only compounded the problems of

low domestic savings and high bank lending rates in the country, it also

reduced access to relatively cheap and stable funds that could provide

reliable credit at affordable rates of interest. Thus, the economy was

denied the vehicle for sustainable development, as only 3 - 5 percent of

overall banking sector credit was given to the real sectors of the economy.

2.3.5 History of Increase in Capital Base in the Nigerian Banking Sector

I n the aftermath of the 1990s' financial crisis, various banks acquired

resources to reposition their structure in order to face the challenges. The

adoption of Universal Banking also changed the banking environment as

most banks sought for conversion to universal banks to enable them

operate freely across the once restricted borders.

With this level playing field, stiff competition among the banks have been

intensified while a the same time, the apex bank, Central Bank of Nigeria

(CBN) has been tasked, especially by the new scenario, to ensure that the

system achieve dynamic stability. The competitive trend remains that

banks are recapitalizing, re-engineering and acquiring modern technology

to face the challenges ahead, just as various methods were being adopted

by these banks to meet customers' needs. Furthermore, creativity and

innovations have been introduced into the banking industry to sustain

competition and stability.

I n order to safeguard customers' deposits, the Nigeria Deposit Insurance

Corporation (NDIC) was established with the promulgation of Decree 22 of

1988. To sustain stability in the banking industry, the existing laws were

replaced with the promulgation of new CBN and Bank and Other Financial

Institutions Acts in1991. These pieces of legislation were amended.

Consequently, the initial positive impact of these reforms in terms of

competition and stability, was offset by the general poor state of the

financial sector.

The banking sector was inflicted by liquidity problem, as accounts of many

banks with the CBN remained overdrawn. Several banks were unable to

honour maturing inter-bank obligations leading to widespread defaults in

the inter-bank market. The number of banks adjudged as technically

insolvent (severely distressed) increased from eight in 1990 to twenty-eight

in 1993.. The revocation of bank licenses brought to thirty-four, the number

of distressed banks closed between 1994 and 2004. Some of the potential

causes of bank failure as identified by Ologun (1994), include:

a) Gross under-capitalization in relation to the level of operation;

b) High level of classified loans and advances;

c) Illiquidity reflected in the inability to meet customers' cash

withdrawals;

d) Low earnings, resulting from huge losses; and

e) Weak management due to board-room clashes, poor credit quality,

inadequate internal controls, high rate of fraud and forgeries, high

labour turnover, etc.

One of the recurring and prominent causes of bank failure in the history of

the Nigerian banking industry is under-capitalization and in addressing this

problem, there has been a periodic review of bank's capitalization

. requirement in Nigeria.

The history of bank capitalization in the Nigerian banking system dated

back to 1958 when the 1952 Banking Ordinance was reviewed and a new

Banking Ordinance was enacted. Under this Act, the conditions for

establishing new banks were tightened and capital requirements, especially

for foreign banks, were doubled from ~200,000.00 under the 1952 Act) to

~00,000.00. This was again increased to 461.5 million in 1969 with the

enactment of the 1969 Ban king Act. Several other capitalization reviews

were to follow as the years roll by, culminating in the current 4425 billion

recapitalization policy of the Central Bank of Nigeria. A summary of the

history of increase is capital base for banks in Nigeria is presented in Table

Table 2.1: History of Increase in Capital Base for Banks in Nigeria

S/No Period Amount 4)

1. 1952 25, 000

2. 1958 250,000

3. 1962 500,000

4. 1969 600,000

5. 1979 6,000,000

6. 1988 10,000,000

7. 1989 20,000,000

8. 1991 50,000,000

9. 1997 500,000,000

10. 2001 2,000,000,000

,ll. 2005 25,000,000,000

Source: CBN, 2005

2.4 SUMMARY

The importance of banks has since been established. As Alashi (1991)

rightly observed, banks occupy a critical position in a complex financial

system that supplies the money and credit needs of the economy. It has

been empirically proved that a positive correlation exists between real

economic growth and bank assets, and between money supply, bank assets

and economic development.

McKinnon (1973) and Shaw (1973) described the development of the

banking system as a critical factor in economic development in developing

countries. This explains why Roussakis (1977) asserted that no other

financial institution contributes more significantly to the successfu1

functioning of a nation's economy than does its commercial banks.

Aside from its function as the promoter of the payment mechanism, banks

also serve in providing efficient channel for the mobilization of savings and

their allocation to productive investment which, as noted by Ojo and

Adewunmi (1981), Nwankwo (1991), and Nyong (1992), is very essential

for the promotion of economic growth and development.

REFERENCES

Abdulahi et al (1993): Establishinq a business in Niqeria. Fourth Edition,

1993. Academy Press Plc., Lagos.

Alashi, S. 0. (1991): "The Implications of Current Monetary Policies on

Safe and Sound Banking Practice to Ensure Stability in the Industry"

NDIC Ouarterlv. Vol. 1. No. 3 September.

Chronicle (2005): "N25 billion capitalization: I n the Interest of Nigeria".

The Economic Chronicle. September, 2004 pp. 1-3. African Business

Databank, Lagos.

Elugbaju, Y. 0. (1999): "Assets and Liability Management Techniques in

the Banking Industry" Paper presented at a Seminar on Effective

credit Administration and Debt Management - organized by the

Chartered Institute of Bankers of Nigeria (CIBN) Kano Branch,

November.

Elugbaju, Y. 0. (2000): "Qualities of Customer Service Delivery in the

Banking Industry". Paper presented at a seminar on Effective

Marketing of Financial Services in the Banking Industry - organized

by The Chartered Institute of Banker of Nigeria (CIBN) Kano Branch,

March.

Ezirim, B.C. & Muoghalu, M. I. (2004): "Financial Reforms and Commercial

Banks' Operations in Nigeria: A comparison of two decades"

Union Diciest, Vol. 8. No. 2. June 2004.

Ezirim, B. C. (1995): "Financial Reforms and Banking Operations in Nigeria"

Research Papers, No. 3 Markowitz Centre for Research and

Development, Port-Harcourt.

McKinnon, R. (1988): "Financial Liberalization and Economic development:

A Reassessment of Internal Policies in Asia and Latin America".

Occasional Papers, No. 6

McKinnon, R. (1975): Money and Capital in Economic Development.

Washington DC: The Bookings Institutions.

Nwankwo, G. 0. (1991): "Banking and Finance Update" Paper presented

at the 1991 Business and Accounting Update Conference organized

by ICAN, Owerri District Society.

Nwankwo, G. 0. (1980): The Nigerian Financial System. The Macmillan

Press Ltd., London.

Nyong, M. (1992): Financial Intermediation and economic Development:

The Case of Sub-Regional Capital Markets in Africa" Financial Journal,

ACMS, Dakar, Senegal.

Oghenekwve, L. (2005): "Sixty Minutes with Mr. Consolidation" Thisda\/,

Vol. 11, No. 3602, March 2005.

Olanewaju, P. 0.: The Role of Public Relations in Banking Business of the

future. Union Diqest (A publication of Union Bank of Nigeria Plc.) Vol.

'7. Nos. 1 & 2 December 2002

Ojo, M. 0. (1992): "Regulatory Framework of Non-Bank Financial

Institutions in Nigeria" Bullion, Vol. 16, No. 3.

Ojo, A. T. and Adewunmi, W. (1981): Bankind and Finance in Niqeria: A

study of the Role of Bankinq and Financial Institutions and Markets in

a Developinq Economv. Graham Burns

Ologun, S. 0. (1994): "Bank Failure in Nigeria: Genesis, Effects and

Remedies" CBN Economic and Financial Review Vol. 3 No. 3.

September.

Sani, T.A., and Yakpogoro, R, E. (1997): "The Impact of Banking Reforms

on Commercial Banks' Performance in Nigeria". Journal of Industrial

Business and Economic Research (JIBER): Vol. 1, No. 2. December

1997.

Umoh, Pr N. (1995): "Assessmen.t of Attempts at Monetary and Financial

System Reviews in Nigeria" NDIC Ouarterlv, Vol. 5. No. 3.

CHAPTER THREE

RESEARCH METHODOLOGY

3.1 INTRODUCTION

This chapter gives a descriptive explanation of the methodology employed

in the course of carrying out this research study and the tools and

processes used in the presentation, analysis and interpretation of data.

3.2 SOURCES OF DATA

The sources of data for this research study comprised of both the primary

and secondary sources of data. Primary data were gathered through the

administration of structured questionnaire to carefully selected respondents

cutting across the Nigerian banking system.

Secondary data were sourced from relevant books, journals, reports,

seminar papers, research findings, periodicals and newspaper reports.

Deliberate efforts were made to target the questionnaire at people who are

formally educated up to, at least, Higher National Diploma (HND) or first

degree (or equivalent) level. This is to ensure that respondents are chosen

from the segment of the Nigerian banking system comprising of people

who, by virtue of their educational background and socio-economic status,

are in a position to have at least, average understanding and appreciation

of happenings, events and developments within the Nigerian economy as a

whole, and especially the banking system vis-a-vis their potential and likely

consequences, outcomes, and impacts on the banking system and the

economy.

3.3 DATA COLLECTION

Using a structured questionnaire, data were collected on the following

variables as enumerated subsequently.

3.3.1 Demographic Variables

i 1

ii)

. iii)

iv)

Age was measured in years

Gender was measured by requesting respondents to indicate whether

they were male (M) of female (F).

Education was measured on the basis of educational qualifications

and respondents were requested to indicate the highest level

attained.

Awareness as assumed with a 'Yes" and Non-Awareness with a "No".

Respondents were requested to indicate which response was

applicable to them.

3.3.2 Features of the Current Recapitalization Requirement

Eight items (statements) were listed as features of the current N25 billion

recapitalization requirement which the Central Bank of Nigeria has

mandated all banks operating within the Nigerian banking industry to

comply with by December 31, 2005, this is aimed at establishing

respondents understanding of the research's subject matter. Respondents

were requested to respond to these features by agreeing or disagreeing

with the statements. The degree of agreement/disagreement were ranked

thus:

1 = Strongly disagree; 2 = disagree; 3 = neutral or undecided; 4 =

.agree; 5 = strongly agree. An average score of less than 3 indicates

disagreement; a score of 3 means neutral while an average score above 3

means agreement.

3-3.3 Possible Impacts of the Recapitalization Policy on the Nigerian Banking System and Economy

Ten items. (statements) were listed as possible impacts of the current

recapitalization policy on the Nigerian banking system and economy in the

research instrument. These statements were designed to elicit from the

respondents, specific answers as to the possible impacts which they feel

that the current recapitalization policy is likely to exert on the Nigerian

banking environment as well as the economy generally.

Respondents were requested to respond to this segment (statements) by

agreeing or disagreeing with the statements. The degree of

agreement/disagreement were ranked thus:

1 = Strongly disagree; 2 = disagree; 3 = neutral or undecided; 4 =

agree; 5 = strongly agree. An average score of less than 3 indicates

disagreement; a score of 3 means neutral while an average score above 3

means agreement.

3,3.4 Measurement of Relevance

Respondents were requested to indicate the relevance of each of the six

statements listed as the features of recapitalization. This is designed to

measure the degree of relevance attached to each of these statements

(features) by each respondents. A scale of measurement was provided and

respondents were requested to tick only one option against each feature

thus: 5 = Highly relevant; 4 = Very relevant; 3 = Fairly relevant; 2 =

Neutral or Undecided; 1 = Not relevant.

3,3.5 Open-ended Questions

Specific open-ended questions were asked and respondents were given the i free will to express their opinions on other aspects of the research subject

matter. These questions were designed to elicit other responses from the

respondents which may not have been elicited by the previous close-ended

questions.

Furthermore, the open-ended question were also meant to strengthen and

establish further, the veracity and reliability of the information earlier

provided for the previous questions.

Such open-ended questions include the request to respondents to list two

or more (as applicable) problems which in their opinion may be associated

with, or arise from the current recapitalization exercise in the Nigerian

banking industry.

Similarly, respondents were also requested to suggest how these problems

could be addressed so as to enable the banking populace, the operators in

the banking industry, other stakeholders as well as the Nigerian economy

itself optimize the benefits and opportunities accruing from the policy.

3.4 POPULATION SAMPLE, AREA AND LOCATION OF STUDY

The population sample of this study is made up of middle managers,

managers and senior executives of various selected banks presently

operating within the Nigerian banking system.

A total of 120 questionnaires were administered using personal contacts

and visits to the respondents. Out of the 120 questionnaire administered,

eighty-nine (89) were retrieved duly completed, giving a recovery rate of

74.16 percent. However, three (3.04%) of these returned questionnaires

were rejected.

The research study was carried out in the Lagos metropolis with local

Nigerian banks carefully chosen to cover the various locations where banks

are clustered around the metropolis such as Allen avenue, Oregun, Alausa,

Ogba, Lagos/Abeokuta Expressway, Victoria Island, etc.

This broad spectrum of population sample composition was meant to

enhance the objectivity of the findings of the research study. Hence, all the

inferences drown from this study as well as the conclusions and

recommendations are localized.

3.5 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

Data gathered during the course of this study were subjected to empirical

and statistical tests. Similarly, the research questions and research

hypotheses were also subjected to statistical tests.

Basically', non-parametric statistical tests were carried out. The t-

distribution test, the chi-square (X2) and the Spearman's rank correlation

were used. I n the same vain, data analysis were presented in percentage

form, statistical tables and charts for easy comprehension.

CHAPTER FOUR

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

4.1 INTRODUCTION

In this chapter, the data gathered during the course of this study is

presented and analysed. The results of the research hypotheses tested are

also presented and discussed, following which inferences and conclusions

were drawn as dictated

4.2 RESPONDENTS

by specific research findings.

PROFILE

As mentioned earlier in the third chapter of this report, out of a total

population of 240, a total sample of 120 respondents were drawn across

three different hierarchical strata (see Table 4.1). A number of practical

. strategic 'measures were adopted in the administration and retrieval of the

questionnaire such as telephone calls, personal visits, reminder notes etc.

It was indeed the combination of these measures, coupled with other

incidental factors such as luck, goodwill, determination, perseverance and

effective interpersonal relations skills that made the very impressive rate of

return that was achieved in retrieving these questionnaires possible.

Of the 120 questionnaires administered, 89 were retrieved duly completed,

thereby recording a recovery rate of 74.16 percent. However, three of the

returned questionnaires (3.04OIo) were rejected as unusable due to

ambiguity. Hence, the findings and conclusions of these research study are

based on 86 retrieved questionnaires representing 71.12 percent of the

total questionnaires administered.

Table 4.1: Distribution of Respondents based on Hierarchical

Strata

Hierarchical Strata

Senior Manager

t ~ - - - . - . ..

.. Middle Level Manager 26 (30.2%) 1 i

Source: Questionnaire Analysis, March 2005

As can be seen from Table 4.1 above, 43 (5O0/0 of the respondents were

senior managers in their respective banks while 26 (30.2) were middle level

managers. The remaining 17 (19.8%) of the respondents were

managers/supervisors.

Table 4.2 Age Distribution of Respondents

Age Bracket I No of Respondents Percentage Total No. of Respondents

31 - 40 years / 39 1 45.3 I I

Above 40 40 46.5 vears Total I I 86 1 loo / C L -. - -7

Source: Questionnaire Analysis, March 2005

A total of 7 (8.2%) respondents fell within the 20 - 30 years age bracket.

Another 39 (45.3%) were between 31 - 40 years while the remaining 40

(46.5%) respondents were above 40 years of age.

Table 4.3: Analysis of Respondents' Academic Qualifications .>~ - -

l ~ ~ a d e m i ~ c - ~ a ~ i c a t i o n /spondents 1 Percentage 7

-. -- - -- -- -- A_-- .. _ _ - 1 Others: ICAN, CIB, etc. i 12 I 1 4 O/o

L -- -- - - - -- - - 1 .- _. . - I -- - 1

Source: Questionnaire Analysis, March 2005

. Table 4.3'shows that a total of 18 (21%) respondents holds an Higher

National Diploma (HND) or Bachelor of Science (B.Sc. Degree while another

49 (65%) respondents holds Post-Graduate Diploma, Master of Science,

and Master of Business Administration Degree, respectively. The remaining

12 (14%) respondents possess professional qualifications from various

institutions and professional bodies such as the Chartered Institute of

Bankers of Nigeria (CIBN), Institute of Chartered Accountants (ICAN) and

so forth.

Table 4.4: Analysis of Respondents' Length of Service - - - - . -- . - - - - . - - -

p r s of service I. of Respondents I Percentage 1

-.. --- -- - -. . - . - / Over 15 years 30 I I

34.9% I

1. T- 29 -- . -. - -. - -

1-- -- - _ I ' Source: questionnaire ~na l~s is , March ZOOS

1 5 - 10 years

As can be deduced from Table 4.4, non of the 86 respondents fell within

33.7%

below five years in the service of their respective organizations. 29

I I

(33.7%) pf the respondents have been in service for between 5 and 10

years while another 27 (31.4%) of the respondents fell within the 11 to 15

years in .service bracket. The remaining 30 (34.9%) respondents have

been in the service of their respective organizations for over 15 years.

From the foregoing analysis, it can easily be seen that a notable majority of

the respondents (30 or 34.9%) have been operating in the Nigerian

banking system for a reasonable long period of time and so can be said to

be knowledgeable in the happenings within the system. I f this is

graduated, then it can be concluded that their responses will be of

immense influence on the answers provided for the research questions and

hence, the findings and conclusions of the research study.

Table 4.5 Distribution of Respondents by Departments/Division

I .-

DepartrnentlDivision No. of Respondents

Banking Operations 32 ---

~Sales/Marketing,Customer Services ,.--- - - ! Corporate Affairs I I

-- - - - - -- - I - product Research & Development

I Human Resources/Training 4 -- --

. IT&, 100

Source: Questionnaire Analysis, March 2005

As shown in table 4.5, 32 (37.2) of the respondents were from Banking

operations Department while another 24 (27.9%) were from

SalesIMarketing and Customers Services Department. Similarly, another 18

(20.9) respondents were from Corporate Affairs Department while 8 (9.3%)

other respondents were from Product Research and Development

Department.

The remaining 4 (4.7%) respondents were from Human Resources/Training

Department. Again, it can readily be noticed that a larger number of the

respondents (32 or 37.2%) were from Banking Operations Department

which is a core department in any banking set-up. This development also

adds value to the veracity of the findings of this research study.

Table 4.6: Analysis of Respondents' Gender Distribution

1 Sex I No. of Respondents ( Percentage I

/-.- . -

Source: Questionnaire Analysis, March 2005

Table 4.6 shows that of the 86 total respondents, 52 (60.5%) are male

.. while 34 (39.5%) are female. Conversely, this shows a ratio of 1:53

(approximately) male-to-female respondent profile. I n other words, the

researcher noticed that for every two (2) female respondents, there is an

average of three (3) male respondents. This goes to conclude that the

gender profile of the total respondents for this research study is skewed

towards the male gender.

4.3 QUESTIONS ON THE CURRENT RECAPITALIZATION OF THE NIGERIAN BANKING SYSTEM

Section B of the questionnaire was devoted to asking respondents specific

questions about their awareness of, and other details concerning the

current recapitalization of the Nigerian banking system as introduced by the

Central Bank of Nigeria (CBN). Following is the analysis of their responses.

4.4 AWARENESS OF THE CURRENT RECAPITALIZATION OF THE NIGERIAN BANKING SYSTEM BY THE CENTRAL BANK OF NIGERIA (CBN)

Apart from those respondents whose questionnaires were rejected on the

grounds of ambiguity, all other respondents (86 in all) who answered this

question affirmed their awareness of the current N25 billion recapitalization

of the Nigerian Banking system as introduced by the Central Bank of

Nigeria (CBN).

4.5 IDENTIFICATION/CONFIRMATION OF THE FEATURES OF THE RECAPITALIZATION POLICY

As a means of establishing the veracity and dependability of the response

to the immediate preceeding question, respondents were asked to identify

and/or coqfirm features of the recapitalization policy which they may

consider to be relevant or related to what is actually prevalent in the

Nigerian banking system presently.

To facilitate an unambiguous answering of this question, they were given

options (ranging from 'a' to 'h') in boxes and were asked to tick 'Yes' or 'No'

as appropriate. The result of the analysis of their responses are as follows:

a) A minimum capital requirement of N25 billion for banks 10O0/o

with full compliance before end of December 2005

b) Only the banks that meet the requirement will be

qualified to hold public sector deposits and participate in 100%

Dutch Auction System of foreign exchange bidding by

end of 2005.

c) Withdrawal (phased) of public sector funds from banks 83%

starting in July 2004

d) The adoption of zero tolerance in regulatory framework 86%

in area of data/information rendition/reporting

e) Embarkation by the CBN on the automation of the

process of rendering returns by banks and other 68%

financial institutions

f) A shifl from speculatory banking practice and short-term

lending, to a more focused approach to banking and

provision of long-term funds for financing productive 91.5%

investments as against merchandise financing

g) Panacea for persistent illiquidity, poor assets quality and

unprofitable operations, weak corporate governance and 54.2%

non-compliance with regulatory guidelines.

h) Mergers and acquisition as a strategy for meeting

recapitalization requirements, as well as consolidation

for repositioning the banks for the emergence of more 98.2%

virile and competitive banking environment

From the foregoing analysis, it could be deduced that the first and second

features recorded a maximum 10O0/o concurrence by all respondents. This

suggests that all the respondents were unanimous that all banks are

required to meet a N25 billion recapitalization requirement to be able to

continue in existence and operate within the post-2005 Nigerian banking

environment.

I n the same vein, the respondents were also unanimous on the second

feature in that only the banks that meet the N25 billion recapitalization

requirement will qualify to participate in the Dutch Auction system of

foreign exchange bidding which also is a very significant aspect of the post

2005 Nigerian banking environment.

Features c, d, e, f, and h also recorded high percentage of affirmation by

respondents who also express hope that the Central Bank of Nigeria will be

able to address all the various aspects of the policy as outlined here, and

put all necessary measures and facilities at the disposal of the

implementers/enforcers so as to see the policy to a logical conclusion and

ensure that the current effort at recapitalization does not suffer a similar

fate like the ones before it.

On the contrary, feature 'g' recorded a rather relatively low degree of

affirmation from the respondents. It recorded a lowly 54.2%. This was

explained by the reservations of the respondents as to the efficiency of the

current recapitalization policy in forestalling the untoward incidence of

illiquidity problem, poor asset quality and unprofitable operations, weak

corporate governance and non-compliance with regulatory guidelines which

has characterized the banking practice in Nigeria and which had led to

., several cases of bank collapse with unpleasant consequences to depositors'

funds in particular, and the Nigerian economy in general.

However, the above results indicates that all respondents who responded to

this question agreed that the listed features of the current recapitalization

of the Nigerian banking system are applicable.

4.6 POSSIBLE IMPACTS OF THE RECAPITALIZATION POLICY ON THE NIGERIAN BANKING SYSTEM AND ECONOMY

Respondents were requested to identify and confirm possible impacts of the

recapitalization policy on the Nigerian banking system in particular, and the

economy in general. To enable respondents answer this question precisely,

ten statements were presented (ranging from 'a' to 'j') as possible impacts

of the current recapitalization policy.

Similarly, five range of options were provided for respondents to choose

from. Answers provided by respondents are summarized in Table 4.7 as

follows:

- Possible Impacts T

---- .- I a) , Many of the banks will have

minimal room to operate

except opting for merger

and acquisition

Will reduce the number of

banks to manageable size

and strengthen their capital

base and deepen the

financial system - - . -

Buoying up the confidence

of 'the banking public as

potentials for minimizing

distress in the system is

enhanced --

Galvanize the indigenous

banking institutions to

finance meaningful

infrastructure projects and

move capital intensive

development projects that

are usually the exclusive

preserve of the foreign

financial institution

Strongly

Agreed

Agree Not

sure

Strongly

Disagree

he developm<nt will help

to change the perception of

these banks which tends to

neglect the small volume

individuals and firms in their

deposit drive -- More foreign investors may

likely be attracted to take

up equity in some of the

banks to boost its capital

base. . - - - .- - ,. - . -. .- - .- - - - - - - - -- - The automation process for

rendition of returns by

banks may signal an end to

sharp practices as insiders'

abuse, and disclosure of

untrue position of their

balance sheet to CBN

inspectors - . . . . .- - -. . . - This policy will engender

constructive downsizing of

the labour force in the

banking system thereby

leading to loss of jobs.

ce: Questionnaire Analys

79

; Marc,

From Table 4.7, it can be seen that majority of the respondents indicated

that they were either strongly in agreement with the statements or were

simply in agreement. We can, therefore conclude, going by the result of

this analysis that the current recapitalization policy will have positive impact

on the Nigerian banking system as well as the economy in general.

4.7 OTHER FINDINGS

Specific open-ended questions were asked and respondents were given the

free will to express their opinions on other aspects of the research subject

matter. These questions were designed to elicit other responses from the

.. respondents which may not have been captured by the previous close-

ended questions.

Furthermore, the open-ended questions were also meant to strengthen and

establish further, the veracity and reliability of the information earlier

provided for the previous questions.

Such open-ended questions include the request for respondents to identify

advantages and problems which in their opinion may be associated with, or

otherwise arise from the recapitalization policy of the Nigerian banking

industry, and to suggest probable solutions to these problems in order that

the banking industry, other stakeholders as well as the Nigerian economy

itself may optimize the benefits and opportunities that are accruing from

the recapitalization policy.

60

The responses were varied but very useful and thought-provoking. They

are summarized as follows:

4.7.1 Advantages of Recapitalization

The respondents were of the opinion that the current recapitalization policy

will:

Engender a shift from speculative banking practice and short-term

lending to a more focused approach to banking and provision of long-

term funds for financing productive investment as against

merchandise financing which has been the practice among banks for

years now.

Serve as catalyst for the consolidation and strengthening of the

Nigerian banking system.

Ensure the emergence of the country as a major player in global

banking business

Promote cost-savings as a result of economies of scale as well as

more efficient allocation of resources; enhanced operational

efficiency and risk reduction arising from improved management.

Promote a more sophisticated and deep financial system and

increased level of foreign investment in the Nigerian banking system.

Facilitate improved distress resolution system and increased synergy

between capital and money markets.

4.7.2 Problems Associated with Recapitalization

Respondents identified the following as problems associated with the

recapitalization policy:

I f not carefully handled, can lead to massive withdrawal of funds by

depositors which by extension will lead to a run in the banks,

especially with the planned (phased) withdrawal of public funds from

banks.

Many banks may not actually be able to meet up given the short

period of time and the wide margin between the present N2 billion

capital base and the new proposed N25 billion.

May result in massive loss of jobs as a result of mergers and

acquisition.

May facilitate influx and eventual take-over of the banking industry

by foreign interests.

May enable money launderers and looters of public funds have

access to legitimatizing their monies.

The time for compliance is too short and could lead to more

disruption in the banking system.

4.7.3 Suggestions for Solving the Problems

The respondents also proffered suggestions for solving the identified

problems. The researcher is of the opinion that the suggestions proffered

were genuinely intended to enhance the success of the recapitalization

policy as currently being pursued by the Central Bank of Nigeria (CBN).

These are being incorporated into the recommendations at the appropriate

part of this report.

CHAPTER FIVE

SUMMARY OF FINDINGS, CONCLUSION AND RECOMMENDATION

5.1 INTRODUCTION

This chapter presents a summary of findings as well as the conclusions

drawn from this research endeavour. It also puts forward the

recommendations proferred as solutions to the problems identified by the

respondents as being associated with the current recapitalization of the

Nigerian banking system as introduced by the Central Bank of Nigeria

(CBN) with a view to enhancing the implementation of the policy in such

manner as will improve the operational efficiency of the banks in particular,

and the Nigerian economy in general.

5.2 . SUMMARY

This research study was conceived as an empirical examination of the

current recapitalization of the Nigerian banking system by the Central Bank

of Nigeria (CBN) and establish the effects (impacts) of this policy on the

marketing of banking services within the Nigerian banking system in

particular, and by extension, the probable effects on the Nigerian economy

in general.

To this end, an indepth study and examination of the Nigerian banking

system was undertaken, pervious efforts at recapitalizing the banking

system were also reviewed vis-a-vis their impacts and adequacy, as well as

the exposition of both the remote and immediate factors which

necessitated the current recapitalization policy.

Furthermore, this research study also attempted to determine wh eth

not there is any need for the current recapitalization policy, and whether or

not the current recapitalization policy will enhance the effectiveness and

operational efficiency of the Nigerian banking system.

Therefore, the research study was aimed at finding answers to the

following specific research questions:

What are the salient features of the current recapitalization policy

.which has been introduced in the Nigerian banking system by the

Central Bank of Nigeria (CBN)?

Were there some other recapitalization attempts prior to this current

ones?

What is the relationship between the previous recapitalization policies

and the current one?

What are the operational strategies and modalities of the current

recapitalization policy?

Who are the stakeholders in the current recapitalization policy?

65

Is the current recapitalization policy valid, relevant to the

repositioning of the Nigerian banking industry for greater

effectiveness and efficiency in the banks' operations?

What are the problems associated with the current recapitalization

policy?

What measures can be taken to address these problems?

With a view to finding answers to the foregoing research questions, a

number of specific tasks and objectives were, from the onset, identified to

be pursued throughout the course of this research study as follows:

To examine and review the previous attempts at recapitalization in

the Nigerian banking industry.

To assess the effectiveness/ineffectiveness of such past attempts at

recapitalization and attended problems.

To review the Nigerian banking environment immediately preceeding

the introduction of the current recapitalization policy.

To examine the strategies and procedural modalities laid down for

the actualization of the current recapitalization policy.

To identify and examine the various stakeholders in the

recapitalization exercise and their respective roles.

6 ) To ascertain the prospects of, and the challenges of the current

recapitalization policy poses to the marketing of ban king services

within the Nigerian banking industry.

7) To identiw problems (if any) associated with the current

recapitalization policy; and

8) To put forward suggestions and recommendations to address

identified problems.

In the course of carrying out this study, two basic sources of data were

exploited. While primary data were gathered first-hand from selected

respondents cutting across the Nigerian banking system, through the use of

structured questionnaire, which was administered on them, secondary data

were gathered through the revision of existing relevant literature on the

subject matter of the research study such as text books, journals,

magazines, periodicals, reports, newspapers and so on.

Data gathered were analysed using descriptive statistics, percentage and

distribution. The analysed data were then presented using tables,

percentage, etc.

The result of this study now provides empirical evidence and information to

the entire banking system, the banking public, and other stakeholders such

67

as the Central Bank of Nigeria (CBN), the Bankers' Committee; the

Securities and Exchange Commission, the Nigerian Government, Students

of Banking and Finance and other related academic disciplines as well as

the general public both in the private and public sectors of the economy.

Further, the study has established that the current economic reforms being

pursued by the Federal Government of Nigeria, especially the current

financial system reforms has the potential of positively impacting on the

Nigerian banking system in particular, and the Nigeria economy in general if

pursued to its logical conclusion with all the seriousness and sincerity of

purpose it deserves.

5.3 CONCLUSION

The following conclusions were drawn from the analysis and interpretation

of the data gathered from this research study:

a) There is need for the current recapitalization policy which is being

pursued within the Nigerian banking system by the Central Bank of

Nigeria (CBN).

b) The current recapitalization policy will enhance the effectiveness and

efficiency of the Nigerian banking system.

c) I f done properly, the recapitalization exercise will ensure the safety

and soundness of the banks.

d) The current recapitalization policy will engender good corporate

governance in banks and shore up the confidence of the banking

public.

e) Recapitalization will serve as catalyst of consolidation and

strengthening of the banking system and facilitate the emergence of

Nigeria as a major player in global banking business.

f) Recapitalization will also provide the necessary platform for the much

needed paradigm shift from speculatory banking practice and short-

term lending to a more focused approach to banking and provision of

long-term funds for financing productive investments as against

merchandise financing.

5.4 RECOMMENDATIONS

I n view of the foregoing conclusions, it is strongly recommended that:

a) The recapitalization exercise should be handled with utmost care so

as to prevent unforeseen occurrences such as a run on the banks

which may lead to serious distortions in the economy.

b) The banks should work closely with other stakeholders in the industry

towards evolving strategies and modalities to facilitate smooth

recapitalization of banks so that no stakeholder is in any way hurt

while the intended objectives are being pursued.

c) The banking public should be re-assured of the safety of their

investment and deposits.

d) Consideration should be given to a phased recapitalization which

would enable banks that want to go into mergers and acquisition to

sort out the obvious knotty issues involved.

e) Banks could be stratified into investment, universal and mega bank

categories with each having a capital base of N5 billion, N12.5 billion

and N20 billion respectively. ' ' ' - a ~ r n *

f) The period for meeting the new capitalization is rather too short. It

should be 2004 - 2006 phased as follows: 50 percent of the

requirement to be met by December 2005; 75 percent of the

requirement to be attained by June 2006, while 100 percent of the

requirement to be met by December 2006.

g) This suggested phased recapitalization will minimize the negative side

effect of the policy and give banks ample opportunity to source for

legitimate funds for the recapitalization exercise.

h) Benchmarks should be established beyond which banks should not be

allowed to overdraw at the Central Bank. For example, no bank

should be allowed to overdraw its account with the Central Bank for

more than seven days in succession.

i) Care must be taken not to replace Nigerian ownership of banks with

foreign ownership.

BIBLIOGRAPHY

BOOKS

Abdulahi et al (1993): Establishina a business in Niaeria. Fourth Edition,

1993. Academy Press Plc., Lagos.

Benson, G. et al. (1986): Perspectives on safe and sound bankina: Past,

present and future. MIT Press, Cambridge, Mass.

Iyiegbuniwe, W. C. (1998): Financial Markets and Institutions. Lagos:

Advent Communications Limited.

Koch, T. W. and MacDonald, S. S. (2000): Bank Manaqement, 4th ~dition.

Harcourt College Publishers Inc., USA.

McKinnon, R. (1975): Monev and Capital in Economic Develooment.

Washington DC: The Bookings Institutions.

Nwankwo, G. 0. (1980): The Niqerian Financial System. The Macmillan

Press Ltd., London,

Nwankwo, G. 0. (1991): Bank Management Principles and Practice. Malt

House press Ltd., Lagos.

Ojo, A. T. and Adewunmi, W. (1981): Bankinq and Finance in Nicreria: A

studv of the Role of Bankina and Financial Institutions and Markets in

a Develo~ing Economv. Graham Burns

Owualeh, S. I. (1996): Contemporaw Issues in Niaeria's Bankinq and

Finance. G-Mag Investments Ltd., Lagos.

Pandey, I.M. (1999): Financial Manaqement. (Eight Edition) VIKAS

Publishing House, PVT Ltd., New Delhi

Shaw, E. S. (1973): Financial Dee~ening in Economic Develo~ment. New

York: Oxford University Press.

Wariboko, N. (1994): Princioles and ~ractice of Bank Analysis and

Valuation. Spectrum Books Limited, 1badan.

JOURNALS/SEMINAR PAPERS

Alashi, S. 0. (1991): "The Implications of Current Monetary Policies on

Safe and Sound Banking Practice to Ensure Stability in the Industry"

NDIC Ouarterly. Vol. 1. No. 3 September.

Chronicle (2005): "N25 billion capitalization: I n the Interest of Nigeria".

The Economic Chronicle. September, 2004 pp. 1-3. African Business

Databank, Lagos.

Elugbaju, Y. 0. (1999): "Assets and Liability Management Techniques in

the Banking Industry" Paper presented at a Seminar on Effective

credit Administration and Debt Management - organized by the

Chartered Institure of Bankers of Nigeria (CIBN) Kano Branch,

November.

Elugbaju, Y. 0. (2000): "Qualities of Customer Service Delivery in the

Banking Industry". Paper presented at a seminar on Effective

Marketing of Financial Services in the Banking Industry - organized

by The Chartered Institute of Banker of Nigeria (CIBN) Kano Branch,

arch. Elugbaju, Y. 0. (2000): "Responsibilities of Marketing Executives to the

customers". Paper presented at a seminar on Effective Marketing of

Financial Services in the Banking Industry - organized by The

Chartered Institute of Bankers of Nigeria (CIBN), Kano. March, 2000.

Ezirim, B.C. & Muoghalu, M. I. (2004): "Financial Reforms and Commercial

Banks' Operations in Nigeria: A comparison of two decades"

Ezirim, B. C. (1995): "Financial Reforms and Banking Operations in Nigeria"

Research Papers, No. 3 Markowitz Centre for Research and

Development, Port-Harcourt.

McKinnon, R. (1988): "Financial Liberalization and Economic development:

A Reassessment of Internal Policies in Asia and Latin America".

Occassional Papers, No. 6

Nwankwo, G. 0. (1991): "Banking and Finance Update" Paper presented

at the 1991 Business and Accounting Update Conference organized

by ICAN, Owerri District Society.

Nyong, M. (1992): Financial Intermediation and economic Development:

The Case of Sub-Regional Capital Markets in Africa" Financial Journal,

ACMS, Dakar, Senegal.

Oghenekwve, L. (2005): "Sixty Minutes with Mr. Consolidation" Thisday,

Vol. 11, No. 3602, March 2005.

Ojo, M. 0. (1992): "Regulatory Framework of Non-Bank Financial

Institutions in Nigeria" Bullion, Vol. 16, No. 3.

Ologun, S. 0. (1994): "Bank Failure in Nigeria: Genesis, Effects and

Remedies" CBN Economic and Financial Review Vol. 3 No. 3.

September.

Sani, T.A., and Yakpogoro, R. E. (1997): "The Impact of Banking Reforms

on Commercial Banks' Performance in Nigeria". Journal of Industrial

Business and Economic Research (JIBER): Vol. 1, No. 2. December

1997.

Umoh, P. N. (1995): "Assessment of Attempts at Monetary and Financial

System Reviews in Nigeria" NDIC Ouarterlv, Vol. 5. No. 3.

Umoh, P.N. (1994): "Regulatory/Supervisory Framework for Assets/Liability

Management: International Overview". NDIC Quarterlv, Vol. 4. No.

Union Disest (A publication of Union Bank of Nigeria Plc.) Vol. 7. Nos. 1 & 2

December 2002

Union Diqest, Vol. 8. No. 2. June 2004. ---

Utomi, P. (1996): "Institutions and the Evolution of Competition in the

Nigerian Banking Industry" LBS Manaqement Review, Vol. 1. No. 2.

Lagos Business School, Lagos.

APPENDIX I

MARKETING OF BANKING SERVICES UNDER THE REGIM OR

RECAPITALIZATION: 'A CASE STUDY OF THE NIGERIAN BANKING

SYSTEM"

Dear Sir/Madam,

This questionnaire is concerned with the above subject matter. Answers

provided will be used strictly for research purposes only and will be treated

with utmost confidentiality.

Thank you.

Remigius I. Nwachukwu

CMD-UNN/PG/EMBA/200 l/O947

SECTION A

PERSONAL DETAILS

2. De partment/Division: .............................................................................

3. Sex: (a) Male 0 (b) Female 0 4. Age: (a) 20 - 30 years 0 (b) 31 - 40 years

(c) over 40 years 0 .. 5. Educational Qualification attained:

(a) WASC OILevel (b) *'Levels - OND 0 (c) HND/BSc (d) Masters - PhD

(e) Others (Please, specify) ..............................................

6 . Length of service in the banking system:

(a) 1 - 5 years (b) 6 - 10 years 0 (c) 11 - 15 years u

SECTION B

BANK RECAPITALIZATION POLICY

7. Are you aware of the bank recapitalization policy currently introduced

by the Central Bank of Nigeria? (a) Yes 0 (b) No

8. Would you consider any or all of the following as features of the

recapitalization policy?

A minimum capital requirement of N25 billion for banks

with full compliance before end of December, 2005 -

Only the banks that meet the requirement will be

qualified to hold public sector deposits and participate in

Dutch Auction system of foreign exchange bidding by

the end of 2005.

Withdrawal of public sector funds from banks starting in

July 2004.

The adoption of zero tolerance in regulatory framework

in area of datalinformation rendition/reporting.

~mbarkationby the CBN on the automation of the

process of rendering returns by banks and other

financial institutions.

A shift from speculatory ban king practice and short-term

lending to a more focused approach to banking and

provision of long-term funds for financing productive

investments as against merchandise financing - - - - - - - - - . - -. - ----- Panacea for persistent illiquidity, poor assets quality and

unprofitable operations, weak corporate governance and

non-compliance with regulatory guidelines.

Mergers and acquisitions as a strategy for meeting

recapitalization requirements, as well as consolidation

repositioning the banks for the emergence of more veril

and competitive banking environment --

76

9. Would you consider any or all of the following as possible impacts of

the recapitalization policy on the Nigerian banking system and the

economy.

7-- -- - .-

I Tpks ib le Impacts L-.j / a) Many of the ban-i will have

I

1 minimal room to operate except

opting for merger and acquisition

Will reduce the number of banks

to manageable size and

strengthen their capital base and

deepen the financial system - -. . . - -- - - - - - - - - -. Buoying up the confidence of the

banking public as potentials for

minimizing distress in the system

is enhanced

Galvarlize the indigenous banking

institutions to finance meaningful

nfrastructure projects and move

zapital intensive development

projects that are usually the

exclusive preserve of the foreign

Financial institutions

The development will help to

change the perception of these

banks which tends to neglect the

small volume individuals and

firms in their deposit drive

More foreign investors may likely

-- Strongly Disagree

Disagree

0

0

0

Neutral

U

-- Strongly Agree

be attracted to take up equity in

some of the banks to boost its

capital base.

The a ~ t ~ m a t i o n process for

rendition of returns by banks may

signal an end to sharp practices

as insiders' abuse and disclosing

of untrue copy of their balance

sheet to the CBN bank

inspectors. - - -

This policy will engender

constructive downsizing of the

labour force in the banking

system thereby leading to loss of

jobs. - -- -- This policy has the potential of motivating banks to come up

with more innovative and creative

means of deposit mobilization

and to reach the once

untouchable small business and

individual savers.

The policy will engender a

development whereby banks will

embark on deliberate policy to

specialize in areas where they

have some manifest niche,

instead of the present situation in

which every bank depends on

foreign exchange racketeering. I

10. List two advantages that in your opinion may be derived from the

current recapitalization policy in the Nigerian banking system.

...............................................................................................................

...............................................................................................................

11. List two problems that in your opinion may result from the current

recapitalization policy in the Nigerian banking system.

...............................................................................................................

12. Suggest how these problems could be resolved or addressed:

Thank you for your cooperation.