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Effects of Recapitalization on Profitability of Quoted Deposit Money Banks in Nigeria

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Effects of Recapitalization on Profitability of Quoted Deposit Money Banks in Nigeria.

Abstract

The main objective of this paper is to empirically assess the effects of bank recapitalization on the profitability of Deposit Money Banks in Nigeria.

The empirical analysis covered the period from 2005 to 2016 and taking a case study of fifteen banks quoted on the Nigerian Stock Exchange.

The data for the study were obtained from secondary sources including the annual reports and financial statements of all the Deposit Money banks quoted on the Nigerian Stock Exchange.

The study adopts a causal research design that uses historical information to study existing knowledge.

The data were analyzed using pooled regression analysis through the STATA window 14 packages.

The finding from the study shows that bank recapitalization has effects on returns on assets (profitability).

The implication of this study is that bank managers have been able to effectively and efficiently utilize their assets to generate more profit for the banks.

It, therefore, recommended that banks should improve on their total assets turnover and diversify their funds so that they can generate more income on their assets.

1.1 Introduction

Banking is inescapable in any society where commerce and trades are in existence, whether in a rudimentary or advanced form because it occupies a strategic position in the financial system of any nation.

It is the life wire of any economy and pivot on which economic growth revolves.

Therefore, it has become inevitable to recapitalize the Nigerian banks for proper intermediation roles.

Bank recapitalization has been a matter of discussion among policymakers, researchers, bank regulators, academics, and the general public because of its importance in the economic development of the country.

It is an aspect of reform in the banking industry that is based on the need for reorientation and repositioning of existing banks in order to attain an effective and more efficient state.

It is used as a strategy to address the insolvency of banks and forestall future possibilities of financial distress.

According to Adegbaju and Olokoyo (2008) recapitalization entails increasing the debt stock of a company or issuing additional shares through existing shareholders or new shareholders or a combination.

References

Adah, A (2012). Impact of recapitalization on the financial performance of Deposit Money Banks in Nigeria. Doctorate of philosophy thesis. Ahmadu Bello University Zaria.
Adegbaju, A.A & Olokoyo, F.O. (2008). Recapitalization and banks’ performance: A case study of Nigerian Bank. African Economics and Business Review 6(1), 1 – 17.
Ajede, S.A. (2011). Bank recapitalization and manpower planning and control. Being a paper presented at the 6th Ilera (IIRA) African regional congress at the University of Lagos, Akoka, Lagos. From 24th to 28th January 2011.
Aransiola, S.Y. (2013). The impact of consolidation on profitability of commercial Banks in Nigeria. Financial and Quantitative Analysis 1(2), 15 – 25.
Athanasoglou, P.P; Sophocles, N.B; & Manthos, D.D (2005). Bank-specific, industry- specific and Macroeconomic determinants of bank profitability. Bank of Greece working phper, No. 25 June 2005.
Bakare, A.S. (2011). The trend and growth implication of bank recapitalization in Nigeria.
African journal of Business management. 5(14), 5938 – 5945.

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