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The resultant effect of financial liberalization opened up the Nigerian economy to global financial markets, which has generated increasing apprehension in the economy and has exposed the fragility and vulnerability of her financial system. It is therefore imperative for the Central Bank of Nigeria to introduce measures that will reduce the exposure and enhance the stability of the nation’s financial system. A defensive measure that will strengthen the existing banks and put the new ones on a good start up is needed, hence the introduction of a new capital base of N25billion. This study investigated the impact of previous recapitalization in the banking system on the performance of the banks in the country with the aim of finding out if the recapitalization is of any benefit. The study employed secondary data obtained from NDIC annual reports. The data were analyzed using both descriptive e.g. means and standard deviations and analytical techniques such as the t-test and the test of equality of means. It was found that the mean of key profitability ratio such as the Yield on earning asset (YEA), Return on Equity (ROE) and Return on Asset (ROA) were significant meaning that there is statistical difference between the mean of the bank before 2001 recapitalization and after 2001 recapitalization. The study recommends that the banks should improve on their total asset turnover and to diversify their funds in such a way that they can generate more income on their assets, so as to improve their return on equity.



Banking reforms have been an on going phenomenon around the world right from the  1980s, but it is more intensified in recent time because of the impact of globalisation which is precipitated by continuous integration of the world market and economies. Banking reforms involve several elements that are unique to each country based on historical, economic and institutional imperatives. In Nigeria, the reforms in the banking sector preceded against the backdrop of banking crisis due to highly undercapitalization deposit taking banks; weakness in the regulatory and supervisory framework; weak management practices; and the tolerance of deficiencies in the corporate governance behaviour of banks (Uchendu, 2005). Banking sector reforms and recapitalization have resulted from deliberate policy response to correct perceived or impending banking sector crises and subsequent failures. A banking crisis can be triggered by weakness in banking system characterized by persistent illiquidity, insolvency, undercapitalization, high level of non-performing loans and weak corporate governance, among others. Similarly, highly open economies like Nigeria, with weak financial infrastructure, can be vulnerable to banking crises emanating from other countries through infectivity.

Banking crisis usually starts with inability of the bank to meet its financial obligations to its stakeholders. This, in most cases, precipitates runs on banks, the banks and their customers engage in massive credit recalls and withdrawals which sometimes necessitate Central Bank liquidity support to the affected banks. Some terminal intervention mechanisms may occur in the form of consolidation (mergers and acquisitions), recapitalization, use of bridge banks, establishment of asset management companies to assume control and recovery of bank assets, and outright liquidation of non redeemable banks. Bank consolidation, which is at the core of most banking system reform programmes, occurs, some of the time, independent of any banking crisis.

Irrespective of the cause, however, bank consolidation is implemented to strengthen the banking system, embrace globalization, improve healthy competition, exploit economies of scale, adopt advanced technologies, raise efficiency and improve profitability. Ultimately, the goal is to strengthen the intermediation role of banks and to ensure that they are able to perform their developmental role of enhancing economic growth, which subsequently leads to improved overall economic performance and societal welfare. The proponents of Bank consolidation believe that increased size could potentially increase bank returns, through revenue and cost efficiency gains. It may also, reduce industry risks through the elimination of weak banks and create better diversification opportunities (Berger, 2000). On the other hand, the opponents argue that consolidation could increase banks’ propensity toward risk taking through increases in leverage and off balance sheet operations. In addition, scale economies are not unlimited as larger entities are usually more complex and costly to manage (De Nicoló et al., 2003).

Banking sector reforms in Nigeria are driven by the need to deepen the financial sector and reposition the Nigeria economy for growth; to become integrated into the global financial structural design and evolve a banking sector that is consistent with regional integration requirements and international best practices. It also aimed at addressing issues such as governance, risk management and operational inefficiencies, the centre of the reforms is around firming up capitalization. (Ajayi, 2005)

Capitalization is an important component of reforms in the Nigeria banking industry, owing to the fact that a bank with a strong capital base has the ability to absolve losses arising from non performing liabilities. Attaining capitalization requirements may be achieved through consolidation of existing banks or raising additional funds through the capital market. In his maiden address as he resumed office in 2004, the current Governor of Central Bank of Nigeria, Soludo, announced a 13-point reform program for the Nigerian Banks. The primary objective of the reforms is to guarantee an efficient and sound financial system. The reforms are designed to enable the banking system develop the required flexibility to support the economic development of the nation by efficiently performing its functions as the pivot of financial intermediation (Lemo, 2005). Thus, the reforms were to ensure a diversified, strong and reliable banking industry where there is safety of depositors’ money and position banks to play active developmental roles in the Nigerian economy.

The key elements of the 13-point reform programme include:

• Minimum capital base of N25 billion with a deadline of 31st December, 2005;

• Consolidation of banking institutions through mergers and acquisitions;

• Phased withdrawal of public sector funds from banks, beginning from July, 2004;

• Adoption of a risk-focused and rule-based regulatory framework;

• Zero tolerance for weak corporate governance, misconduct and lack of transparency;

• Accelerated completion of the Electronic Financial Analysis Surveillance System (e-FASS);

• The establishment of an Asset Management Company;

• Promotion of the enforcement of dormant laws;

• Revision and updating of relevant laws;

• Closer collaboration with the EFCC and the establishment of the Financial

Intelligence Unit. Of all the reform agenda the issue of increasing shareholders’ fund to N25 billion generated so much controversy especially among the stakeholders and the need to comply before 31st December, 2005.


The banking system in any economy plays the important role of promoting economic growth and development through the process of financial intermediation.  Plays the vital role of financial mobilization and intermediation in an economy. In the work of Schumpeter (1911) he argued that financial services are paramount in promoting economic growth. In this view production requires credit to materialze, and one “can only become an entrepreneur by previously becoming a debtor….what [the entrepreneur] first wants is credit. Before he requires any goods whatever, he requires purchasing power. He is the typical debtor in capitalist society”. In this process, the banker is the key banking sector agent. Keynes (1930), in his A treatise on Money, also argued for the importance of the banking sector in economic growth. He suggested that bank credit “is the pavement along which production travels, and the bankers if they knew their duty, would provide the transport facilities to just the extent that is required in order that the production powers of the community can be employed at their full capacity” 

However, the Central Bank of Nigeria in pursuit of one of its core mandates of promoting the safety and soundness of the Nigeria financial system has continued to formulate and implement policy measures that are aimed at achieving that statutory objective. As part of its responsibility to promote a sound financial structure, efficient payments and settlement system, the Central Bank of Nigeria carries out supervisory duties in respect of deposit money banks and other financial institution.  

The CBN commenced a far reaching and comprehensive reform of the Nigeria banking industry on July 6, 2004 with the announcement of a reform programme for the nation’s banking industry, the main thrust of which required the 89 deposit money banks then in the system to raise their capital base to a minimum of N25 billion each through injection of fresh capital and/or mergers and acquisitions.

Following the policy pronouncement and the subsequent release of the guidelines on bank’s consolidation, the financial system witnessed a frenzy of activities as bank rushed to meet the minimum capital requirement. Many banks went to the capital market to raise additional funds while other entered into merger arrangements.  

Notably, at the close of the first phase of the consolidation programme on 31st December, 2005, 25 banks have emerged which saw the beginning of the growth of intercontinental bank plc, having met the minimum capitalization requirement. It may interest us to note further that before the advent of the exercise in 2004, reputable international financial institutions and rating agencies would not bother to look the way of Nigeria banks for partnership, lending to rating not anymore. By June, 2007, Nigeria banks have become the toast of financial institutions and multilateral agencies across the globe. Even respected international rating agencies are adjusting their ranking in favour of Nigeria banks. (The news, 27 August, 2007. Vol. 29, No 07).

Twenty-five emerged from 75 banks, out of a total of 89 banks that existed as at June 2007. The successful banks account for about 93.5% of the deposit liabilities of the banking system. In the process of complying with the minimum capital requirement, N406.4 billion was raised by banks from the  capital market out which N360 billion was verified and accepted by the CBN; and also the process led to the inflow of FDI of US$652 million and 162,000 pounds sterling, (Central Bank of Nigeria, press conference, 16 January, 2006). Aside from the shrinkage of banks to 25 and the heavy capital mobilization, there are other benefits.

The liquidity engendered by the inflow of funds into the banks indeed interest rate to fall drastically while an unprecedented 40% increase has been recorded in lending to the real sector.

With higher single obligor limits, our, banks now have greater potential of finance big tick transactions. 

Already, more bank now have access to credit line from foreign banks (one recently received $250 million from two foreign banks… this is unprecedented.

Ownership of the banks been diluted. This will in no small way tame the monster of insider and corporate governance abuse.

With virtually all the banks now publicly quoted, there is wider regulatory oversight; with SEC and NSE joining the team. Regulatory resources would now be focused on fewer and more stable banks.

Depositor confidence is bound to be greater and interest rates on deposit lower due to “safety in bigness” perception by depositors

The banks will of course enjoy economies of scale and consequently, pass on the benefit in the form of reduced bank charges to their customers.

The capital market deepened and consciousness about it increased significantly among the population. The market has become more liquid and the total markedly increased. (central Bank of Nigeria, Press Conference, 16 January, 2006)

However, the recapitalization reform measures highlighted above have change the Nigeria banking system fundamentally for the better. Foreign interest in banking system has increased confidence in the system has tremendously improve, banks stocks are one of the most actively traded on the Nigerian stock exchange; Nigerians at home and abroad are investing heavily in the sector. A new banking structure and system has emerged to the pride of all stakeholders. 

As at February29, 2008, the extract audited operating results published by Intercontinental Bank plc on vanguard Monday July 14, 2008, showed an unprecedented growth performance of N82.414 million gross earnings in 2007 with an increase at N154, 927 million in the first quarter 2008, an increase of 88% profit tax of N21, 450 million in 2007 and N42, 82 million in 2008, showing an increase of 60%. Tax estimate of 6,636 which rise to 9, 960 in 2008. (50% rises). Profit after tax of N14, 814  million in 2007 with arise of   N32,861 million in 2008, showing 122% of improvement. Other are N782, 050 million of total assts plus contingents in 2007 with a raise of 112% to close at N1,654 billion in 2008, while deposit liabilities is quoted at N457, 29 million with an increase of 132% to close at  N1, 058, 920 billion in 2008.

However, with the above record one may be tempted to say that banks in Nigeria have recorded a landmark growth performance prior to the recapitalization reform, using intercontinental records as case study.

The financial sector is one of the dominant economic sectors in Nigeria. Banks are key players in any country’s financial sectors; they occupy a delicate position in the economic equation of any country such that their (good or bad) performance invariably affects the economy of the country (Wilson 2006). Studies here shown that the banking sector which actually started in Nigeria in 1892 (Nwankwo 1980) has been largely volatile within spates of banking failure experienced in most parts of the 1990s and in the early and mid 2000s.

The strategy often utilized to strengthen banks in Nigeria and save them from financial distress is capital regulation by the central bank of Nigeria (CBN). A cursory look at the history of banking in Nigeria reveals that the CBN has found reason to share up the capital base of Nigeria bank, a number of times since 1980s from a modest value of N10million naira minimum paid up capital in 1988, Nigerian. Commercial banks were required to maintain capita not below N50million in 1991. Between 1991 and 2005 subsequent increase have also been made ranging from N50million in 1997 N1billion 2001; N2billion in 2002 to N25billion in 2005 (Onaolapo 2006) within 18months and also to consolidate the banking institution through merger and acquisitions before 31 December 2005.

This was an effect to instill discipline into the financial system and to reposition Nigerian banks for global integration the governor of the CBN Charles Soludo (Prof.) on 6th July 2004 presented the 13point reform agenda at a special meeting of the bankers committee in Abuja on this new bank reforms.

The agenda was envisaged to facilitate greater mobilization of resources and improvement in financial intermediation, deepen and widen the capital and money markets and ultimately stimulate development of the private sector.

Prior to the banking sector reforms of 2004 there were 89banks with about 3,300 branches as at July 31st, 2004. The 89banks had a total asset of US and 18.0billion (Bullion CBN vol.30 No, 2). This was in sharp contrast to South Africa for example, where only 8banks had assets worth more than all 89banks in Nigeria put together. The reform of the Nigerian banking industry is therefore aimed at strengthening the banking system and refocusing it to play its intermediation role more effectively.

The researcher’s interest on this subject emanated from the observation that recapitalization policy has both significant effect and no significant effect on bank performance.


The Nigeria financial system is one of the largest and most diversified in Sub-Sharan African. In recent years, the system has undergone significant changes in terms of the policy environment, number of institutions, ownership structure, depth and breadth of markets as well in the regulatory framework.  However, in spite of the far reaching reform of the past ten years, the Nigerian financial system is not yet in a position to fulfill its potential as a propeller of economic growth and development. The financial system is relatively shallow and the apparent diversified nature of the financial system is deceptive. Although, a wide variety if financial institutions and markets exist, commercial banks overwhelming dominate the financial sector and traditional bank deposits represent the major forms of financial savings.

With over 70 million Nigerians now living in poverty, sustained and equitable economic growth is the key to alleviating chronic poverty. For such growth to take place, abundant capital has to be made available for actors in the real sector. There is abundant empirical evidence on the linkage between a strong, efficient and diversified financial system and economic growth. The decaled strategy of private sector is in a position to provide effective support for the real sector. Small and medium scale (SMEs), which have sustainable potential for employment generation, currently lack reliable access to long term/and often short term credit and other financial services due to the underdevelopment of learning. 

In analyzing the Nigeria economy, in the light of growth performance of the banking sector, real sector nexus, there has not been considerable debate in the literature on the relative merits of bank dominated financial systems and capital market dominated financial system in promoting growth (Allen and Gale, 2000). Bank- based or market based financial system tend to promote long term economic growth as banks tend to offer longer loans to the entrepreneurs. In contrast, a market- based financial system is more likely to have short- term affects as firms are primarily concerned with their immediate performance. Given their diverse roles, it is possible for the financial intermediaries and financial markets to have a mutually reinforcing role in the overall development of the financial system. 

Given the above analysis, this work tends to evaluate the impact of recapitalization on the growth performance of Nigeria banks, using Intercontinental Bank Plc as a case study. The role of the banking sector on bridging the gap between the financial deficit and the financial surplus has placed some question: how does the bank in Nigeria in response to the recapitalization reform, effectively accumulating savings or encouraging withdrawal in the economy? Does real sector investment response positively to accumulated savings? Is there causal effect on the growth performance of banking sector and the recapitalization reform in the economy  and finally, what is the relationship between accumulated savings, bank loan the gross domestic in Nigeria? To which extent does the banking recapitalization reform have translated to increase credit purvey to the real sector? And finally does this reform help in controlling the inflationary pressures in the economy? 

The frequent interruptions by the government reversal of policies, weak government appointed staff poor and minimal supervision and monitoring of financial reporting and other short comings worsened the banking sector problems and its performance. The Nigerian banking system has therefore just been re- energized through the recapitalization policy and other measure such as bank consolidation as a means of reducing the effects of any crisis that may arise from future failure. The exercise witnessed mergers and acquisitions by some banks. This is expected to pose some problems to these banks.

The challenges which have come about as a result of the recapitalization policy has to be mitigated to enable us realize the maximum bank performance in Nigeria. The Nigeria banking sector must therefore be evaluated and re-energized to face these challenges.


The objective of this thesis is to assess the relevancy of the recapitalization in the Nigerian Banking industry also this study intends to evaluate recapitalization reform and the growth performance of Nigeria banks. For this purpose, the following objectives are drawn. 

1.To ascertain the response of banking sector to the reform as regards growth performance. 

2.To find out the impact of banking sector reform on the performance of Nigeria commercial banks.

3.To examine the extent to which reform programms have translated to increase credit purvey to the real sector.

4.To find out how the reform era has manage the inflationary pressures. 

5.Assess the challenges facing the banking industry in Nigeria

6.Assess rationale for recapitalization in Nigeria banking industry

7.Assess the benefits of recapitalization


The most crucial challenge faced by Nigerian economy today has been the provision and supervision of capital for actors in the real sector so as to curb the growing number of unemployed youths and the ravaging effects of poverty. The head role the banking sector plays in this regard cannot be overemphasized. Thus, the apex banking body comes up with the necessary policies to focus the banking sector on this important role. This study will be of immense benefit to policy maker in appreciating the role of the financial sector on real sector performance, and the recent consolidation exercise of the banking sector by the Central Bank of Nigeria. It will assist students through the  provision of framework  upon which  further research in the financial discipline can be carried out. Actors in the real sector and operators in the financial system can be assisted through this research work in appreciating the role of the banking sector on capital accumulation, provision and supervision


The study therefore seeks to examine the recapitalization on the performance banks in Nigeria and specifically the study seeks to provide answers to the following questions;

1. What is the mean of recapitalization policy in banking industry?

2. What is the rationale for recapitalization in the Nigerian banking industry?

3. How has recapitalization of the banking industry in Nigerian fared thus far?

4. What are the effects of recapitalization on the Nigeria bank?


However for the purpose of this study to set of hypothesis will be used. These are signified by the symbols H0 for null hypothesis and H1 for alternative hypothesis

H0: b0 = 0 (which states that recapitalization has no significant effects on bank performance in Nigeria)

H1: b1 = 0 (which states that recapitalization has significant effects on bank performance in Nigeria)


This study on the recapitalization on the performance of bank in Nigeria will be guided by the objectives as stated above. It has its primary and major focus on the Nigeria economy. It is projected to cover the period of thirty six years (36 years), from 1970 to 2006, which is subdivided into pre-SAP (1970-1985) and post SAP (1986-1993), Reforms Lethargy (1987-1998) and pre/post Soludo (1999-2006). This is mapped to help trace the growth performance, this trend throughout this period. This study is principally restricted to those banks under pre/post Soludo reform that survived the consolidation exercise.  

According to the Central Bank of Nigeria  statistical bulletin 2005; xi, financial date are normally complied from documents, notably balance sheets and financial statements which are primarily designed to meet a variety of legal and administrative requirements rather than the specific needs of economic analysis. This can constitute a possible limitation to the quality and efficiency of the data used in this study.


During the course of performing/researching this project work, the researcher encountered a lot of challenges as well as opposition which ranges from financial constraints, time factor. This factors in their own ways, slowed down the speedy progress of this work that resulted to the researcher not being able to finish the research work on time as is required

Also,  within the area of study the researcher was faced with some other forms of constrains that contributed to the limitation of this researcher work, like accessibility to data, information and facts concerning the present study due to some reasons or the other, some not willing to give out information that it is to be within the workers.


ASSETS: These are properties of a business and its stock in trade or its stock of goods at any particular time.

ACCEPTANCE HOUSE: These are financial institutions that specializes in the grants of acceptance facilities.

BANK: Sec 2 and 61 of(BOFID) 1991 defines a bank as; “A duly incorporated company in Nigeria holding a valid banking license to receive deposit on current account, savings account or other similar accounts, paying or collecting cheques drawn by or paid in by customers. provision of finance or such other business as the government may order to publish in the gazette designated as banking business.

CAPITAL: This refers to the sum invested in a business. It is also seen or used in business by a person, corporation, government etc. Capital can also be referred to as the net worth of a business; amount by which the assets exceed the liabilities.

CAPITAL BASE: The total sum value of amount invested in a business.

CAPITAL MARKET: The market for sale of Securities. It is also refer to as a market where investment instruments mostly in monetary forms are exchanged either through long, short or medium term agreements.

CAPITALIZE: Convert into capital.

DISTRESSED BANKS: These are banks with problems relating to liquidity, poor marginal or total earnings and non-performing assets. The climax of it is that it could be a condition of insolvency, which implies inability to pay debtors or meet maturity obligations as they fall due.

FIXED INTEREST PAYMENT OR FIXED REDEMPTION: These are investments that already have a fixed duration and interest rate.

HOLDING ACTION: This refers to condition prescribed by Central Bank for the turn-around of distressed banks.

INFLATION: A rise in the average price level of goods and services.

LIABILITY: This is what a business owe to outsiders.

LIQUIDATION: To put a firm out of business or stop its operations due to insolvency.

LIQUIDITY: Money or near money (e.g. Bank drafts).

MERGER: The combination of two or more companies in which one firm survive as a legal entity.

OPEN MARKET OPERATION (OMO): This is the sales and buying of  government bonds in the market. The market consist of commercial banks and the public.

PAID UP CAPITAL: The amount subscribed in a company share capital.

RECAPITALISATION: Review of the require minimum capital and the process of adopting to the new requirement. It is also defined as the enhancement and restructuring of the financial resources of anorganization with a view to enlarging the long term fund available to the organization.


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