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The purpose of this research work was to examine the challenges
faced by recapitalisation of banks in Nigeria. Hypotheses were formulated
in view of the challenges identified and to meet the objective of the study.

Questionnaires were designed and administered on sixty randomly
selecte4d executive of five banks (Union Bank, First Bank, Intercontinental
Bank, Guardian Express Bank and Standard Trust) all located in Anambra
State of Nigeria. Out of sixty questionnaires distributed, fifty–five were
found useful to study.

A thorough analysis using percentages and chi-square test revealed
that bank consolidation will help to broaden the ownership base of Nigeria
banks and as such tend to separate ownership from management as far as
possible. This in turn will enhance management effectiveness. In addition, it
was found that consolidation will enhance control and supervision of the
banking industry by the CBN because the number of banks operating within
the system will be reduced significantly. This will enhance the supervisory
and regulatory role of the CBN in the industry and this will improve the
quality of services offered to customers.

In particular, recapitalisation of banks will facilitate the economic
growth of the nation because more credit will be channeled to the real
sectors of the economy.
From the result of the study, we conclude that the newly consolidated
banks need to employ highly qualified and competent professional in order
to meet the expectation of shareholders in terms of returns on their equity
and in order to compete favourably in a globalised world economy.


Tile page
Certification ii
Dedication iii
Acknowledgement iv
Abstract v – vi
Tables of figures vii

1.1 Background of the study 1
1.2 Statement of Problem 3
1.3 Objective of the study 4
1.4 Formulation of hypothesis 4
1.5 Method of study 5
1.6 Scope of the study 6
1.7 Limitation of the study 6
1.8 Definition of terms used 7


2.1 The concept of recapitalisation or consolidation 10 2.2 Banking sector consolidation 16 2.3 Characteristics of Nigeria Banking Industry Before the Consolidation Programme 18 2.4 Bank system consolidation 20 2.5 Strategies for consolidation adopted by Nigeria Banks 28 2.6 Issues and challenges associated with the programme 29 2.7 Post consolidation challenges 34 2.8 Post consolidation challenges and strategies for Managing Employees resistance to change in the Banking sector 36 2.9 Problems of Nigeria Banking sector and the need For consolidation 38 2.10 Strategies for Managing workers resistance in 66 Post consolidation 2.11 Post consolidation of the Nigeria Banks benefit & challenges 73


3.1 Introduction 78 3.2 Method of the study 78 3.3 Sampling Techniques 78 3.4 Data Collection 79 3.5 Description of Research Instruments 79 3.6 Validation of Research Instruments 80 3.7 Analysis 80

4.1 Introduction 82
4.2 Data Analysis 82
4.3 Presentation of Data 83
4.4 Analysis of the relevant Questions from the Questionnaire 83

5.1 Research Finding 97
5.2 Recommendation 101
5.3 Conclusion 104


Banking institutions require adequate capital to function
effectively. This can be explained from the Fact that
banking is a highly leveraged industry with risky assets
and liabilities and thus can be described as a conditionally
solvent institution.

In Nigeria, the need for adequate capitalization of banking
has being a source of concern to regulatory bodies
especially the CBN. Over the years, the monetary
authorities in the country have stipulated minimum capital
requirements for the banking industry. For instance as a
result of incessant bank failures recorded during the Free
Banking era, the 1952 Banking Ordinance stipulated a
minimum paid-up capital of N25000 and N200,00 for
indigenous and expatriate banks respectively.

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

Shortly afterwards in July, 2004 with the assumption of
office of the governor of CBN Prof. Charles Soludo. He
came up with his 13 point reform agenda of the financial
system. Under the reform, banks were directed to
recapitalise to the whooping tune of N25 billion before the end of December 31st, 2005. The main aim of this recent
order by the CBN for banks to increase their capital base is
to achieve the consolidation of Nigerian banks through
mergers and acquisition.

Although a lot of controversies has surrounded this
directive by the CBN, the point is that with adequate
capital, public confidence on Nigeria banks will be
maintained. With adequate capital, banks will be able to
absorb unexpected or unusual losses not absorbed by
normal earnings. Also, adequate capital will enable bank to
attract additional funds in the market and to assuage the
confidence of the depositors, the regulatory authorities and
the general public on the banks ability to continue in
business to discharge their obligations effectively and
(Nwankwo G.O.).

It therefore follows ensuring adequate capital is of
fundamental importance to bank management. In this
connection, a broad consensus exists that high priority

should be attached to restoring sound capital ratios and to
improve the profit performance of banks in the face of
increased vulnerability of banking that has resulted from
greater economic and financial instability and the growing
interdependence of financial institutions and markets all
over the world.

The issue of capitalization and management of capital
funds of banks have drawn much attention in this era of
globalization and Information Technology explosion. As a
result, failure to give it the attention it deserves can
pronounce doom for a bank.

For instance, one of the antidotes prescribed for the arrest
of the distress syndrome and instabilities being
experienced in our banks today has been the need for
our banks to be adequately capitalized. Without adequate
capital, a bank will not be able to compete favourably well
in international financial market and also will not be able
to cope with the sharp increase in the volume of business
done by banks in this period of economic deregulation. Furthermore, capital inadequacy has been pointed as the
main impediment to quality service delivery and inability of

banks to extend credit to the preferred sectors of the
economy. And this has been the major reason for the
underdevelopment of the economy. The problem of the
study is therefore to find out if increased capital base for
banks will bring about the derived financial capital sector

This research work is aimed at achieving the following
1. To investigate the need for adequate capitalization of
Nigerian banks.
2. To analyse the various ways in which banks attempt to
achieve recapitalization.
3. To highlight on the challenges posed by consolidation to
the management of Nigerian banks.
4. To examine the benefits of recapitalisation to Nigerian
banks and the entire economy.

Ho: The level of capital has no significant effect on the
profitability of a bank.
H1: The level of capital has a significant effect on the
profitability of a bank.

Ho: Capitalization of a bank has no direct relationship with the
volume of credit extended to the real sectors of the
H1: Capitalization of a bank has a direct relationship with the
volume of credit extended to the real sectors of the
Ho: There is no significant relationship between level of
capitalization and efficiently of the banking system.
H1: There is a significant relationship between the level of
capitalization and efficiency of the banking system.
This research work tends to study the challenges posed by
recapitalisation of Nigerian banks by sampling the opinions
of bank executives within Awka and Onitsha territory. The
total number of the bank executive which is estimated to
be two hundred and forty (240) will form the population of
the study.

Simple random sampling will be used to select a sample of
sixty (60) executives of these banks that are going to be
studied. The banks to be studied include Union Bank
Hallmark Bank. These banks are expected to express the
opinions of the banking industry because they represent

both first generation and new generation banks opening in
the country.

Questionnaires will be used to collect data. While the
responses obtained from the questionnaire administered to
respondents will be analysed with the responses
categorized into “Strongly Agreed” to “Strongly Disagree”
and presented in tales.

Finally, the hypothesis formulated will be tested using chi squate test (x2).

This research work is prospective since the consolidation
is still in progress and therefore the study will be limited to
the present impact and problem posed by the
consolidation on the banking industry and not on the
economy as a whole.
The study will focus more in the areas of management
efficiency, credit extension, quality service delivery and
meeting with the expectation of the shareholders etc.

The researcher encountered the following problems while
carrying out this research work;

a. Time constraint – The time set aside for this work is
too short.
b. Financial constraints – Lack of finance made it
difficult for the researcher to cover most of the banks
operating in Nigeria, and to reach out to a large area
of the country.
c. The busy nature of banks executives made it difficult
to return all the questionnaires administered to them.
d. Difficulty in getting information needed due the level
of confidentiality of bank documents, and sometimes
lack of confidence and/or adequate knowledge on the
part of the respondent.

1. Recapitalisation: This is defined as the enhancement and
restructuring of the financial resources of a bank with a
view to enlarging the size of the long term funds available
to the bank.
2. Adequate capital: This is defined as that quantum of funds
which a bank should have or plan to maintain in order to
conduct its business in a prudent manner. Similarly, it can
be viewed functionally, as the amount of capital that can
effectively discharge the primary capital function of
preventing bank failure by absorbing losses.

3. Mergers: This is a legal arrangement whereby assets of
two or more banks become vested in or under the control
of, one company, which has as its shareholders, all or
substantially all, the shareholders of those banks in the
arrangement. It can in other words be seen as a
commercial or economic marriage among banks or roughly
equal size that is evidenced by signing of memorandum of
understanding among the banks.

4. Acquisition: This is a situation where a bank acquires
control of another company, usually a smaller bank than
the acquiring bank. It involves take over of management of
usually a smaller bank by a bigger bank.

5. Bank distress: This is defined as when a bank is unable to
meet its obligations as a result of weakness in their
financial, operational and managerial capabilities which
render the bank illiquid or insolent.

6. Non-performing credit: These are loans and advances in
which repayment of principal and or interest are not up to
date and as such have been classified as either
substandard, doubtful or lost.

7. Real sector of the economy: This is defined as the sector
of the economy that plays a crucial role to the economic
growth and development of the nation. This sector includes
the agricultural sector, manufacturing sector and the

8. Capital of reserve: This implies depleting banks general
reserves so as to achieve recapitalisation. The extent to
which this is done depends on the other activities that may
need to be financed through the reserves such as pension
and gratuity and reserve for SMIEIS.

9. Capital market: This is the market where long-term funds
are mobilized for investment purposes. The funds
mobilized in these markets can be inform of equity stock,
debentures etc. The capital market enhances the
mobilization of financial resources form the general public
and channeling them to accumulation of capital.

10. Initial public offer (IPOs): It is an offer for subscription by a
company for its own shares made for the general public for
the first time.