The Implication Of Recapitalization Policy On The Performance Of Commercial Banks

Project and Seminar Topics with material for Banking and Finance

The Implication Of Recapitalization Policy On The Performance Of Commercial Banks


This study examines the current banking sector reforms and repositioning through recapitalization for competitive advantage with a particular reference to United Bank for Africa. The study further discovered that the fragile banking system in Nigeria create a number of problems in the country. This includes lost of depositor’s money, loss of jobs, loss of confidence in the banking system, major financial crises resulting in failure and distress banking syndrome, and inability of the banks to contribute in any significant ways to national development. Finally, the study discovers that in order for United Bank for Africa to strategically reposition itself fro competitive advantage in the post recapitalization era. More emphasis are needed in areas of marketing, information technology, customer services quality of personnel and technology.

Chapter One


1.1 Background of the Study

The Nigerian banking industry has witnessed tremendous changes and expansion since the mid 1980s. Unfortunately the growth and expansion in the sector are not the manifestation of a sound or vibrant banking system known anywhere in the world. Most banks in Nigeria are characterized by inadequate capital base, poor services, hug rate of bankruptcy, lack of management expertise, bad debt syndrome and greater exposure to fraud. In addition, many have poor database and lack of reliable information on which sound policy decision can be take by Board of Directors. This is a fragile banking system which is waiting to explode from the contagion effect of the liquidation of over eleven banks which are technically considered distressed. Currently there are 89 banks in operation in Nigeria, with 79 being considered marginal or fringe players and with over 1,036 – fraud case in banks in 2003 while N9.3 billion was lost through fraudulent activities.

A poor banking system of this nature creates unquantifiable problems and crisis in the economy which could result in thousands of people losing their jobs, lost of depositors’ money, lost of confidence in the banking system and above all the banks can have little contribution to the economic development of the country. Essentially, the objectives of the new, banking sector reform though recapitalization of N25 billion for each bank intends among other things to take proactive steps to prevent an imminent systematic crisis and collapse of the banking industry, create a sound banking system that depositors can trust, create banks that investors can rely upon to finance investment in the economy to drive down the cost structure of banks and make them more competitive and development oriented and to ensure Nigeria meets minimum requirements for regional financial system integration, effectively, positioned to be a key. African regional and global player.

Taking this steps is imperative for the survival of the fragile banking system in Nigeria and to be at per with the global trend. Generally speaking, the current average capitalization of banks in Nigeria is less than $10 million or N1.3 billion and with the largest bank in Nigeria having $298 million compared with the smallest Malaysian bank with $526 million. This is an important indices for an understanding of the unique, nature of the Nigeria banking system among developing economies.

In the study an attempt has been made by examining the fragile banking system of Nigeria, the need for recapitalization, the various strategies by Commercial Banks to meet the recapitalization requirements and how recapitalization can enhance repositioning of Commercial Banks in competitive marketing environment of Nigeria. Although the full policy implementation of recapitalization takes effect from December 2005, this study provides an insight into the anticipated challenges of post-recapitalization era. These challenges as evident in the current mergers and acquisitions by smaller banks provide input for academic research and analysis. However, it is also the intention of this study to outline the various repositioning strategies of United Bank for Africa towards meeting the challenges of the Banking Sector reforms in maintaining a leading position among new generation banks in meeting the CBN recapitalization requirement deadline.

It is hope that the finding of this research study would provide a pioneering blue-print for commercial banks in Nigeria to adequately cope with post-recapitalization challenges of the marketing scenario.

1.2 Statement of the Problem

The rising incidence of bankruptcy and distress syndrome in the Nigerian baking system caused by poor capital base, lack of management expertise, bad debt syndrome corrupt practices and fraud among other have created serious concern to depositors, investors and the rational economy. The need to address this issue has brought the need for redefining the capital base of commercial banks in Nigeria to make the banking sector strong. Dependable and viable with minimal distress and meaningful contribution to the growth of the Nigerian economy. The recapitalization of N25 billion makes it imperative for Commercial Banks to seek for investors and to merge into meet the December 31st 2005 deadline.

The banks that meet up the recapitalization targets may be fewer in number, stronger in capital base, well positioned to carry out full the main challenges before the competing banks is to evolve effective marketing strategies to attract customers to patronize their services and to maintain a leading position in the industry.

United Bank for Africa as a successful emerging bank under the new recapitalization policy has a well designed, modern financial marketing network, better positioned for the post-recapitalization competitive marketing of financial services in Nigeria.

This study makes a critical analysis and examination of the marketing activities of United Bank for Africa Plc, Abuja designed to achieve competitive advantage. It is hope that the finding of this study would provide an important blue-print for effective modern marketing of banking services in Nigeria.

1.3 Objective of the Study

The main important objective of this study is to examine positioning strategies for competitive advantage through recapitalization in the banking industry with a special reference to United Bank for Africa, Kaduna. The study is specifically design to achieve the following objectives:

  1. To present the various shortcomings of the current banking system, of Nigeria
  2. To provide the rational behind the CBN recapitalization policy for commercial banking in Nigeria
  3. To identify the challenges facing commercial banks towards the dateline for recapitalization
  4. To find out the vicarious plans of action or strategies for competitive advantage at post-recapitalization epoch
  5. To provide recommendation and solutions identified by the study

1.3 Research Questions

This research study intends to address the following research questions:

  1. Why should the minimum capital base for commercial banks in Nigeria be raised to N25 billion?
  2. Can recapitalization of the banks result in the desired positive change for the Nigerian economy?
  3. What are the implications of the reform on the existing job situation in the country include the job security in the banking industry?
  4. What will happen to customer accounts (loans and deposits) for banks that cannot meet the requirement?
  5. If a bank acquired or goes into mergers in the existing consolidation process, what does this imply for bank’s existing customer that do not fall within its redefined target market?
  6. Beyond the N25 billion are there further increases in the capital requirement for banks in future?

1.4 Significance of the Study

The significance of this study has essentially on the important contributions made by the study to individuals commercial banks, investors, financial analyst and other interested in the genuine development of the Nigerian banking system through recapitalization.

First and foremost, the management of United Bank for Africa would find this study very compressive in presenting the clear picture of the crisis and conflicts in the Nigerian banking system, including strategies to meet the CBN recapitalization through various mergers and consolidation strategies. In addition, the views of seasoned bankers researchers and financial analysts on the future of the Nigerian banking system under the recapitalization policy would by providing to make it easier for the bank to discern area of threats as well as opportunities in the years ahead.

Secondly, recapitalization being a new concept in the baking industry and even in academia, thus research project would provide an important reference material for people from all walks of life, including students, bankers, investors and the general public. Finally, it is also hope that the various suggestions and recommendation presented in this study would serve as effective strategies in meeting the post-recapitalization marketing activities of commercial banks in Nigeria.

1.5 Scope of the Study

This research study focuses on the marketing activities of United Bank for Africa, Kaduna. Though data collection might be centrally to be done through the head office in Kaduna but the analysis and interpretation of findings may cover all the state branches in Kaduna.

1.6 Limitation of the Study

  1. Uncooperative Attitude of Respondents: The bank used as case study initially did not cooperate with the researcher due to the fact that in the current competitive environment, an organization regards any persons who comes for an enquiry as a spy on the activities who used by their competitors to undo them in the market place. This explains the uncooperative attitude of the bank that was visited initially.
  2. Time Factor: this project work was written when academic activities was at the highest peak particularly for us the final year students. Therefore, little time was set aside for this important task.
  3. Financial Constraints: This project work was much tasking as it was not easy to obtain materials, the cost involved in typing, photocopying and binding as a student of this level.
  4. Lecturers are also expected to lecture and at the same time supervise a good number of projects, lecturing, which is the main task of every lecturer tend to limit the frequency of project, supervision. Despite these constraints, the main objectives set for this study has been fully achieved.

1.7 Definition of Terms

The following terms and abbreviations used in this study are explained as follows:


A group concurrent symptoms of a disease.


The art of getting things done through and with people in a formally organized way. It is the aid of creating an environment in which people cooperate towards the attainment of group objectives.


A service is an intangible offering or benefit that cannot be seen, felt, heard, tasted or smelled before being purchased.


An act of deliberate deception with the intention of securing something monetary gained by taking an unfair advantage over another person

Bank Failure:

This is where a bank becomes insolvent or whose total property (assets) and intangible right (securities) are insufficient to pay all its debts obligation


Central Bank of Nigeria


Nigeria Deposit Insurance Corporation


Paid-up capital and reserves unpaired by losses


Surplus resulting from revaluation in the course of consolidation


Ordinary shares plus non-redeemable preference shares

Chapter Five

Summary, Conclusion and Recommendation

5.0 Introduction

This chapter is concerned with the summary of the finding of this study, the conclusion drawn and some useful recommendation towards effective repositioning of United Bank for Africa to cope with post recapitalization challenges in the banking industry.

5.1 Summary of Findings

This study examines the current banking sector reforms and repositioning through recapitalization for competitive advantage with a particular reference to United Bank for Africa Nigeria Plc, Kaduna. This section of the project summarizes the important finding of the research study as follows:

  1. The study found that the Nigerian banking sector has witnessed tremendous expansion and changes since the mid 1980s. These changes include increased in numbers of banks in both urban and rural areas, expansion in branch network through satellite banking, money transfer facilities etc. However, these are not the manifestation of healthy and vibrant banking system as they are mostly characterized by poor capital base, high rate of bankruptcy, corrupt practices and distress syndrome.
  2. The study further discovered that the fragile banking system in Nigeria creates a number of problems in the country. This includes lost of depositors’ money, loss of job, loss of confidence in the banking system, major financial crises resulting in failure and distress banking syndrome and inability of the banks to contribute in any significant ways to national development. In addition the study also discovered the genesis of the problems highlighted above. Adenubi 1994 believes that the general lust for affluence, recognition accorded to the wealthy people regardless of the sources of their wealth, economic down turn, lack of general discipline among management and staff of the bank etc.
  3. The study further discovered the effect of poor and distress banking in Nigeria include loss of business by banks loss of jobs and capital, closure of industries and businesses, decline in trading and business activities etc.
  4. On the current recapitalization policy, the study found that most of the management and staff of the banks, which responded to the questionnaire, view the reform as a great milestone in Nigeria. This can be attested to by the data presented on table 4.7B. A strong capital base enhances the capacity of banks to finance large projects, provide better service delivery and contributes more effectively and significantly to national development as indicated in table 4.8B.
  5. The study also reveals that the current consolidation of banks has some shortcoming which includes loss of jobs for senior managers and other staff in the short run and in the long run creation of more jobs as indicated in table 4.12B. In addition, the reform could pose other challenges in the area of corporate culture and system adaptation. Under these areas, banks are bound to evolve strategies to create awareness in order to allay the fears of customers and the general public. The need for increased awareness is imperative since very significant number of people including bank customers are still unaware of the reform in the banking sector including what the reform is all about. This fact is glaring as tables 4.5c and 4.6c indicates.
  6. Finally, the study discovers that in order United Bank for Africa to strategically reposition itself for competitive, advantages in the post recapitalization era, more emphasis are needed in areas of marketing, information technology, customer service, quality of personnel and technology. These facts are indicated in table 4.18b.

5.2 Conclusion

It is clear from the analysis and finding of this study that the fragile banking system of Nigeria pose serious threat to the growing economy. Recapitalization becomes imperative in an attempt to strengthen the capital base of commercial banks in enhancing their capacity to finance large projects, and to contribute more significantly to the economic development of Nigeria. Process of recapitalization is an arduous task particular in the face of the 18 months CBN date line. Banks have strung up in search of funds though capital market, mergers and acquisitions. The post recapitalization era will see the emergence of few banks, strong in capital base and perhaps a reduction in the competitiveness of the markets. The new banks have the task of developing a renewed strategies in the area of marketing, information, technology, personnel, system adaptation and sound corporate culture to ensure success in both short and long run.

Unfortunately the new reform in the banking sector has no empirical evidence of its effects problems and prospects since the reform is entirely new in Africa, particularly Nigeria. Analysis of the potential implications are mainly theoretical from lessons from more developed economies. At the Nigeria peculiarity makes assumptions based on European standards a bid difficult.

However, as a great milestone in the Nigerian banking sector, great awareness must be created to enlighten the public not only in the area of investment opportunities but on such vital aspects as corporate culture, system adaptation, and how the new banks can handle the challenges of acquired customers in terms of account holding loans and other problems face by the customer in his former banks etc.

5.3 Recommendations

In the light of both the findings and the conclusion above, it is recommended as follows:

  1. The Central Bank of Nigeria has a duty to create public awareness on how to cope with post recapitalization challenges for banks and its customers
  2. There should be a deliberate effort to allay the fears of employees of the banks as the current reform is believed to create job loss for bank staff
  3. In case the new reform makes loss of job inevitable in the short-run, a good compensation packages should be put in place to cushion the effects of the new reform
  4. As banks are not the only vital sector of the economy, effort should be made to provide enabling environment in other supportive sectors of the economy such as industries, power supply, road, networks etc.
  5. There should be an effort on the part of emerging new banks to retrain their personnel on how to meet the challenges of cross-border transactions as the reform makes Nigeria banking sector global in nature
  6. The emphasis of the banks shown now be directed to the real productivity sector of the economy in order to make them viable and responsive towards the development of the Nigeria economy
  7. As the true bank culture merges, the banks should be better positioned for competitive advantage in the post recapitalization era.
  8. In terms of merges and acquisitions, the consolidation bank that merges should adopt the best information technology and software package for its data capture. Similarly in the area of human resources management, the best policy should be adopted for the emerging bank.
  9. There is also the new to review the existing policies in the area of public relations, customer service, and marketing strategies and service delivery to be in line with the new reform in banking sector in order to achieve competitive advantage
  10. Finally the emerging new banks most ensure their commitment to social responsibilities to the immediate environment and other stakeholders

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