ABSTRACT

Banks Recapitalization in Nigeria in terms of the positive fallouts and the unanticipated consequences on small and medium scale enterprise. It was necessary to look at the performance of banks, the recapitalization, while at same time evaluating the human resources and other developmental challenges that grew out of the banks recapitalization effort. This critical evaluation required the formulation of some testable hypotheses to confirm the merit of the banks recapitalization or the absence of same. Tests of the differences of means were also applied to determine if there is any significant relationship between the pre and post banks recapitalization and Nigerians economic growth. The results obtained confirmed that the 2005 banks recapitalization effort actually improved the performance of banks and also positively impacted the economy as a whole. The second hypothesis which tried to prove that there is no significant relationship in the pre and post performance of banks after the banks recapitalization.

Our results tend affirm that the standard of living of the population were negatively affected mostly because of number of banks staff who had to be sacrificed and thrown into unemployment to achieve, what some banks experts in the system call “ paper profits”. The small and medium scale enterprises practiced in the country means that the negative consequences of the banks recapitalization was far reaching than expected, with the result that most SMEs are still licking their “wounds” occasioned by the 2005 banks recapitalization. Banks recapitalization is not adequate to strengthen and enhance the banking system to face the global challenges. The implication of this study is that government should formulate policies that aim at contribute to the growth of economy and improving standard of small and medium scale enterprise in Nigeria.

1.0 Introduction 

Banks recapitalization as agent for financial intermediation that allows mobilisation of surplus funds to the deficit sector of the economy attaches great importance to the activities within the economy. It is therefore globally accepted that a well functioning financial system is crucial to the development of the economy. Thus Imala (2005) opined that the banking system serves to promote stability and provide grounds for sustained economic growth. In view of this, government and regulatory agencies ensure proper policies that enhance optimum performance of banking activities.

The financial system in Nigeria like banks recapitalization, the situation is not different from what is described above, more so that the government views the sector as fragile and needs adequate principles to aid their operations. Soludo (2004), stated that banks recapitalization in Nigerian banking system is fragile and marginal because of the challenges that they face; which if not addressed could result in crisis. He was of the opinion that there is need to synergise so as to benefit from economies of scale and be positioned to attract cheaper funds into the economy. This could be achieved through banks recapitalization of the entire system. Banks recapitalization policy is not a new concept in the Nigeria banking system. Several of such had taken place in previous times since 1952.In July, 2004; the Central bank announced a policy of restructuring that stipulated a minimum capital base of N25 billion for banks within the country, effective from 1st January, 2006. Banks recapitalization  policy generated a lot of controversies because most of the key players in the sector see the time schedule within which to meet the requirement as unrealistic.

Banks that do not have the stated minimum capital are expected to accomplish it through mergers and acquisitions. It is anticipated that bank recapitalization reform strategy will assist to reposition the sector in terms of improved financial efficiency, strong capital base and sound global competitiveness. Mergers and acquisitions is a global business term used in achieving business survival, growth and expansion. Merger can be described as the process of coming together of two or more firms to become one big firm while acquisition entails actual purchase or takeover of a small firm by a bigger firm. According to Soludo (2004) mergers and acquisitions is aimed at achieving cost efficiency through economies of scale, and to diversify or expand on the range of business activities for improved performance of the entire system. 

1.1 Background of the study

Banks recapitalization is the act of beefing up the long-term capital of a bank to the level at least required by the monetary authorities and to ensure the security of shareholders fund (equity plus reserve). Since 1952, the banking sector in Nigeria has witnessed several reforms and the issue of increasing the minimum paid up capital has become an annual ritual. The Central Bank of Nigeria on July 6th 2004, announced the banks recapitalization of banking sector from N2 billion to N25 billion with effect from 31st December, 2005. The initiation of increasing the banks minimum capital base to N25b in 2006 led to a remarkable reduction in number of banks from 89 to 24. Some of the banks merged and some were completely taken over by the stronger banks. The main objective of banks recapitalization as stated by Central Bank of Nigeria (CBN) is to mitigate the crises in the financial sector.

Banks Recapitalization which resulted to consolidation meger/acquisition is mixed of the other factors of initiation, technological innovations, and deregulations of financial services at the national level, opening up to international competitions, changes in corporate behavior such as growing intermediation and increase in shareholders’ funds. This equally reduced the contributions of banks to economy because banks play vital roles in the development of the economy. Banks obtain money from surplus savings and distribute to various deficit units of the economy The 89 banks have not been sufficient to meet the financial demands of the people and economy and now that we have only 24 banks, what is the impact on the financial sector of Nigeria economy?

The 2006 consolidation was expected to improve efficiency and profitability of banks in Nigeria, thereby contributing heavily to the economic development with improved standard of living. The Japanese experience in the banks recapitalization resulted in the improvement of the economies of scale. In USA, as a result of consolidation, the number of banks reduced to from about 12000 in the early 1980s to about 7000 in 1999, and decrease more to 40%. Banking sector is the hub around which all other economic activities revolve. In every country, economic activities should be enhanced where sufficient job opportunities are created and capacity utilization is at its maximum. However, the banks recapitalization of 2006 left a good number of workers out of jobs. Again, Adegbaju and Olokoyo, ( 2008) maintain that banks recapitalization in Nigeria is driven by the need to deepen the financial sector and reposition of 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. The question is whether the banks recapitalization of 2006 saved or marred the economy?

1.2    Statement of the problem

Bouwman (2011) found positive/significant relationship between banks capital and small and medium scale enterprise performance. On the other hand, Akhalumeh, (2011); Olalekan and Adeyinka, (2013) and Ikpefan, (2013) on his study that ended in 2010 found that the overall capital adequacy ratios of the study shows that Shareholders Fund/Total Assets (SHF/TA) which measures capital adequacy of banks (risk of default) have negative impact on small and medium scale enterprise. The results from these studies were uncertain and were ended in 2010, which are the periods before the recent banks recapitalization in Nigeria. However, there is need to investigate these results using the periods after the recent banks recapitalization. Based on this, the study set out to examine the significant relationship between banks recapitalization and small and medium scale enterprise performance in Nigeria.

1.3 OBJECTIVE OF THE STUDY

The major purpose of this study is to examine the banks recapitalization and small and medium scales enterprise in Nigeria. Other general objectives of the study are:

1. to determine the relationship between banks recapitalization and small and medium scales enterprise in Nigeria.
2.  To evaluate the impact of banks recapitalization and small and medium scales enterprise in Nigeria.
3.  To determine the challenges of banks recapitalization and small and medium scales enterprise in Nigeria.

1.4    Research Question

The study sought to provide answers to the following research questions:

1. is there any relationship between banks recapitalization and small and medium scales enterprise in Nigeria?
2. What is the impact of banks recapitalization and small and medium scales enterprise in Nigeria?
3. Are there challenges of banks recapitalization and small and medium scales enterprise in Nigeria?

1.5    Research Hypothesis

The following hypotheses were raised for this research;

1. There is no significant relationship between banks recapitalization and small and medium scales enterprise in Nigeria.
2. There is no significant impact of banks recapitalization and small and medium scales enterprise in Nigeria.
3. There is no significant challenges of banks recapitalization and small and medium scales enterprise in Nigeria.

TABLE OF CONTENTS

Title page

Certification

Dedication

Acknowledgement

Table of Contents

Abstract

CHAPTER ONE: INTRODUCTION

• Background to the study
• Statement of the Problem
• Research questions
• The Objectives of the Study
• Significance of the Study
• Scope of the Study
• Operational Definition of Terms

CHAPTER TWO: LITERATURE REVIEW AND THEORETICAL FRAMEWORK

2.1 Review of Related Literature
2.2 Empirical Studies
2.3 Theoretical Framework

2.4 Review of Relevant concept
2.5 Summary of the literature

CHAPTER THREE: METHODOLOGY

3.1 Research Design

3.2 Population of the Study

3.3 Sample Size and Sampling Techniques

3.4 Research Instrument

3.5 Validation of the Research Instrument

3.6 Reliability of the Research Instrument

3.7 Research Procedure

3.8 Methods of Data Analysis

CHAPTER FOUR: RESULT AND DISCUSSION OF FINDINGS

4.1 Data presentation and analysis

4.2 Testing of hypothesis

4.3 Discussion of finding

CHAPTER FIVE: SUMMARY CONCLUSION AND RECOMMENDATION

5.1 Introduction

5.2 Summary of Study

5.3 Summary of Major Findings

5.4 Recommendations

5.5 Limitation of the Study

5.6 Suggestions for Future Research

            References

            Appendix

List of the Tables       

4.1 Analysis of Research Questionnaire Administered            

4.1 Distribution of Respondents by Sex

4.2 Age Distribution

4.3 Marital Status Distribution

4.4 Educational Qualification Distribution

4.5 Years of Service Distribution

4.6 Research Question One

4.7 Research Question Two

4.8 Research Question three

4.9 Research Hypothesis One

4.10 Research Hypothesis Two

4.11 Research Hypothesis Three