RECAPITALIZATION AND IT EFFECT ON NIGERIAN BANKS PERFORMANCE
ABSTRACT
The study focuses on recapitalization and it effect on Nigerian banks performance. It also seeks to mirror into the future to know what challenges and prospects lie ahead. To achieve the objectives of this study, quantitative data was gotten from secondary sources, and random sampling technique was utilized in selecting a sample size of five banks out the total population. The Ordinary Least Square technique of regression analysis was used to estimate the parameters of the model. In the course of this study, it was observed that a significant relationship exists between profit of banks and recapitalization which is in line with our theoretical expectation. The study also revealed that there is a significant relationship between recapitalization and shareholder funds, which also contradicts our apriori expectation. As a results of the findings, recommendations were made; and some of them are; recapitalization should be sustained until Nigerian banks are among the first 100 banks in the world.  Standard regulations should be enacted in order to control bank services to prevent exploitation tendencies. Various types of competitions should be stimulated thereby pushing Nigerian banks towards global trends.  Apex banks should perform their duties effectively and modern banking practice should be transmitted from advanced countries
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTION
Background of the Study                
Statement of the Research Problem                 
Objectives of the Study                        
Research Hypotheses                         
Significance of the Study                    
Scope of the Study                        
Limitations of the Study                     
Definition of Terms                         
CHAPTER TWO: LITERATURE REVIEW
Introduction                            
Concept of Recapitalization                 
Rationale for the Increase in the Minimum Paid-Up Capital
Requirement for Banks                        
The Reform Agenda                        
The Benefits of Recapitalization                 
Bank Consolidation Through Merger and Acquisition    
Challenges of Bank Consolidation                
Recapitalization as it Affects Profits of Banks        
Recapitalization as it Affects the Nature of Banks Operations
Electronically                             
Recapitalization as it Affects Banks Ability to Grant Loans
The Job Effect of the Recapitalization Exercise         
References                                
CHAPTER THREE: METHODOLOGY
Introduction                            
Research Design                             
The Population                             
Sample Size                             
Sampling Technique                         
Sources of Data Collection                    
Method Specification                        
Method of Data Analysis                     
CHAPTER FOUR:    DATA PRESENTATION, ANALYSIS AND INTERPRETATION
Introduction                             
Data Analysis and Interpretation                     
Policy Implications of Findings                    
CHAPTER FIVE: FINDINGS, CONCLUSION AND RECOMMENDATIONS
Introduction                             
Findings                                 
Recommendations                        
Conclusion                                 
Bibliography                         
Appendix                             
CHAPTER ONE
INTRODUCTION
BACKGROUND OF THE STUDY
The history of the Nigeria banking system is replete with growth and burst cycles in the number of operating banks and their branches.
Between 1994 and 2003 a space of nine years, no fewer than 36 banks in the country closed shop due to insolvency. In 1995 four banks were closed down. But 1998 may go down well in history as the saddest year for the banking industry as 26 banks closed shop that year. Three terminally ill banks also closed shop in 2000. In 2002 and 2003 at least one bank collapsed. The failed banks had two things in common – small size and unethical practices. Of the 89 banks that were in existence as at July 2004, when the banking sector reforms were announced, no fewer than 11 of them were in a state of distress. According to the CBN, between 69 and 79 of the banks were marginal or fringe players (Soludo, 2004).
The decade 1995 and 2005 were particularly traumatic for the Nigerian banking industry; with the magnitude of distress reaching an unprecedented level, thereby making it an issue of concern not only to the regulatory institutions but also to the policy analysts and the general public. Thus the need for a drastic overhaul of the industry was quite apparent. In furtherance of this general overhauling of the financial system, the Central Bank of Nigeria introduced major reform programmes that changed the banking landscape of the country in 2004. The main thrust of the 13-point reform agenda was the prescription of minimum shareholders' funds of 25 billion for Nigerian Deposit money bank not later than December 31, 2005. In view of the low financial base of these banks, they were encouraged to merge. Out of the 89 banks that were in operation before the reform, more than 80 percent (75) of them merged into 25 banks while 14 that could not finalize their consolidation before the expiration of deadline were liquidated (Elumilade,2010; Afolabi, 2004).
In terms of Asset, the total asset of all the 89 banks operating in Nigeria in 2004 prior to the recapitalization was N3,753.28 billion (US$28.250 billion) and rose to N6400.78 billion (US$49.88 billion).
Banking sector reforms and recapitalization have resulted from deliberate policy response to correct the perceived or impending banking sector crisis, and subsequent failures.
With the exercise completed, twenty-three (23) consolidated banks emerged out of eighty-nine (89) existing banks. This was achieved through mergers, acquisition of weaker banks and sales of shares to the public.
STATEMENT OF THE RESEARCH PROBLEM
In the fact of age long systematic distress, the loose-grasp of authorized regulatory bodies i.e. Central Bank of Nigeria (CBN), Nigerian Depositors’ Investment Commission (NDIC) etc on the administration, control and development of banks, the unethical and poor standards practices of the bank themselves gave rise to insecurity of depositor’s demand, rampant liquidation and distress of banks, inability to give loans and fraudulent activities by employees due to a porous style of banking.
A critical examination of these problems after the recapitalization policy has been effected, gives rise to the following research questions;
If recapitalization has led to the increase in the profit margin of banks.
If it affects shareholders funds.
If it affects the lending rates of banks.
 OBJECTIVES OF THE STUDY
To determine if recapitalization has led to increase in the profit margin of bank.
To ascertain if recapitalization has any effect or shareholders funds.
To find out if it affects lending rate of banks.
 RESEARCH HYPOTHESES
Firstly, hypothesis implies a scientific statement expressing the relationship between two or more variables which is meant to be tested (Anyiwe, et al 2006). It is a tentative answer to a problem (Baridam 2002). Hence, it is a tool for correcting the defined problem of the study.
Therefore, in order to solve this research problem, the following hypothesis shall be tested.
1.    Ho:    Recapitalization did not lead to increase in banks profit.
2.    Ho:    Recapitalization did not affect the lending rate of bank.
3.    Ho:    Recapitalization has no effect on shareholders’ funds.   
SIGNIFICANCE OF THE STUDY
This study is of relevance to the following;
Banks: This study will give banks a basis to be able to compare their past performances (before re-capitalization) and their present performances (after re-capitalization). Such comparison will point out how well they have done and what capacity they still have for expansion. It will also highlight those areas, that are still un-harnessed with very high potential.
Bank Customers: This study will enlighten bank customers by knowing the competencies of their bankers brought about by re-capitalization. Though, this reform has received accolades from local and international observers, many bank customers do not know the implications it has directly as an individual, group or organizational customers. Ignorance of such implications excludes customers from taking advantage of such benefits. Thus, this study will enable bank customers understand, recognize and utilize such benefits.
Economists: This study will serve as a basis for comparing, evaluating and analyzing the rate of growth and development in the financial sector as well as its relationship to other major indicators in the economy. Such comparisons may be used to project or predict future state of affairs of the financial sector and the Nigerian economy.
Regulatory Bodies: Regulatory bodies like the CBN, NDIC, CIBN etc will know how appropriate the rules and regulation set for banks are through this study. Through the determination of appropriateness, it will point out previous areas which regulatory frameworks has been created and formulate further to cover up loop holes. As banks have been upgraded through the recapitalization, existing regulations should also be upgraded to bring about consistency and this study gives pointers to those areas.
The government: This study will serve as a guide to the government in the area of policymaking. It is a basis to assess the extent of improvement brought about by the recapitalization policy and how policies in other areas of the economy will lead to benefit derivation and relationship, from and between other areas of the economy and implications of the re-capitalization policy. The arms of government and various level of government all fall within this category because they are in charge of governing individuals and activities, the promulgation of laws, regulations, and policies, i.e. the judiciary, executive, legislature, federal, state and local governments.
SCOPE OF THE STUDY
A sample of sixteen (16) banks that were operating in the banking sector before recapitalization and also met the N25 billion minimum requirement shall be studied.
The period to be studied will be between 2002 to 2009, where need be to state the degree of improvement in performance in preceding years, performances shall be stated only as a point of reference.
Data will be gotten from CBN, NSE and other existing relevant literatures including the internet.
LIMITATIONS OF THE STUDY
Factors that might hinder or contribute to the imperfection of this study are;
Financial Constraints: Due to the limited financial resources, some inputs that should have contributed toward making this project more perfect may not all be sourced for anytime between the start of the project and the end of the undergraduate programme.
Time Constraint: The time frame may not also be enough to carryout an extensive research work.  
Inaccuracy of Measurement Tools: Tools used to measure the data might not be very accurate, thus the result might most likely be subject to variation from the actual result.
DEFINITION OF TERMS
Recapitalization:    Substantial injection of capital into a company (Unugbro, 2009).
CBN:                Central Bank of Nigeria
Reform:    To become better by correcting or making improvement.
Accuracy:    State of being exact without error.
Effect:    A result or an outcome
Merger:    Combination of two or more separate firms into a single firm.
Acquisition:    Where a company takes over the controlling shareholding interest of another company.