Impact of Recapitalisation on the Financial Performance of Deposits Money : Current School News

Impact of Recapitalisation on the Financial Performance of Deposits Money Banks in Nigeria

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Impact of Recapitalisation on the Financial Performance of Deposits Money Banks in Nigeria.

ABSTRACT

Banks with long term financial setbacks in terms of deposits, liquidity, loans and advances and operational loss must continuously seek solution for improvement. Nigeria has long but identified banking problems that are traced to gross inadequate capital base which has been hindering satisfactory performance in the sector.

To overcome these problems of under capitalisation of deposits money banks (DMBs) in Nigeria, the Central Bank of Nigeria (CBN) directed the DMBs to recapitalise to the minimum amount of N25 billion (as capital base) through merger, acquisition or restructure with 31st December, 2005 as deadline.

It is assumed that the increased capital will go along way to turnaround the banks and provide for satisfactory performance. This study, therefore, evaluates whether or not the recapitalisation has significantly improved the financial performance of DMBs from what it was prior to the exercise.

Relevant literatures were reviewed. Based on the nature of the study, correlational research design was adopted while secondary data were mainly employed. Independent t-test for difference of two means was used for data analysis.

Pearson product correlation coefficient (PPCC) was also used to determine the extent of the relationship between the two variables. For the test of contribution of shareholders’ funds to each of the performance indicators, path analysis model was used.

It was found that there is a significant impact of recapitalisation on the four performance indicators after the exercise. PPCC revealed a strong and positive relationship both before and after the recapitalisation but, the cases of before are higher than those after the exercise.

TABLE OF CONTENTS  

Declaration         ii

Certification               iii

Dedication          iv

Acknowledgement                   v

Table of Contents               viii

List of Tables               xi

List of Appendices           xii

Abstract                           xiii

CHAPTER ONE

  • INTRODUCTION
  • Background to the Study 1
  • Statement of the Problem 5
  • Objectives of the Study 9
  • Research Hypotheses 9
  • Scope of the Study 10
  • Significance of the Study 11
  • Plan of the Study 12

CHAPTER TWO

  • LITERATURE REVIEW
  • Introduction 13
  • The Concept of Capital 13
  • Capital Requirement in Banks 18
  • Reason for Recapitalization in Banks 28
  • Recapitalization in the Nigerian Banking Industry 32
  • The Concept of Financial Performance 40
  • Performance Measurement Models in Banks 45
  • Deposit and Liquidity as a Measure of Banks’ Performance 48
  • Loans and Advances as a Measure of Banks’ Performance 61
  • Profit as a Measure of Banks’ Performance 71
  • Other Determinants of Banks’ Performance 80
  • The Impact of Recapitalization on Banks’ Financial Performance 86
  • Theoretical Framework 90
  • Summary 93

CHAPTER THREE

  • RESEARCH METHODOLOGY
  • Introduction 97
  • Research Design 97
  • Population of the Study 97
  • The Sample Size 98
  • Method of Data Collection 101
  • Techniques of Data Analysis 102
  • Summary 110

CHAPTER FOUR

  • DATA PRESENTATION, ANALYSIS AND INTERPRETATION
  • Introduction 111
  • Data Presentation, Descriptive Statistic and Stationarity Test 112
  • Test of Significant Difference between Recapitalisation and Performance 123
  • Test of the Extent of Impact of Recapitalisation on Financial Performance 131
  • Contribution of Recapitalisation to Performance Indicators Using Path Correlation Model    133
  • Analysis of Diagnostic Tests for Path Correlation Model 137
  • Analysis of Responses from Interview and Discussion 142
  • Summary and Policy Implications of the Findings 148

CHAPTER FIVE

  • SUMMARY, CONCLUSION AND RECOMMENDATIONS
  • Summary 153
  • Conclusion 157
  • Recommendations 158
  • Limitations of the Study 160
  • Suggestions for Further Study 161

Bibliography    162

Appendices          185

INTRODUCTION

Financial problems in a banking system can cause great damages to a country if not timely and properly addressed, given its role as finance provider to other sectors of the economy and its ability to create liquidity.

will have to respond. The setbacks are in terms of profitability, loans, deposits and continuous flow of liquidity to various sectors of the economy for the banks to maintain their role as engine of economic growth and development.

The responses are that the public will tend to lose confidence not only in the affected banks but in the entire banking system. For example, depositors of affected banks may rush to withdraw their money for fear of loss and quest for safety.

Other banks, that is, those that are not affected will equally experience the bank run/rush and the markets will make it very difficult for the banks to raise funds.

The response by the regulatory authorities could take the form of either recapitalisation or giving out temporary loan in the form of bail-out to enable the banks continue their normal operations without interruptions.

When a country’s banks experienced major financial setbacks, usual stakeholders such as the public, depositors, markets and the regulator – Central.

BIBLIOGRAPHY

Abiad, A., & Mody, A. (2005). Financial reform: What shakes it? What shapes it?

American Economic Review , 95, 66-88.

Acharya, V. (2001). A theory of systematic risk and design of prudential bank regulation. Stern School of Buisness, New York. Working Paper, 1 – 49.

Acharya,V. (2002). Is the international convergence of capital adequacy regulation desiable? Journal of Finance, 58(6), 2745-2781.

Acharya, V., & Naqvi, H. (2009). The seeds of a crisis: A theory of banking liquidity and risk-taking over the business cycle. The London Business School , 1-8.

Adah, A. (2008). An appraisal of CAMEL as parameters to predict distress in Nigerians’ banks. Standardizer of the Nigerian Academics. 5(1), 96-101.

CSN Team.

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